Some warnings regarding the proposed changes to gifting rules for trusts

Stephen and Colleen had a family trust and had been completing an annual gifting programme through their lawyers for years. This meant they each gifted $27,000 per year to their trust (the maximum permissible) reducing the original loan balance, to avoid gift duty being paid on the initial amount their house was transferred to the trust for.

Changes to gifting laws, although not yet finalised, are expected to come into force on 1 October 2011. On the face of it, the changes mean that the whole balance owing from the trust to Stephen and Colleen can be gifted by them in one lump sum without incurring gift duty.

However, be warned…there are issues that can affect your decision to gift the whole balance right away, including:

1. Rules regarding eligibility for rest home subsidies could mean that if one lump sum over $27,000 is gifted by any one person (or potentially one couple), you are not eligible for rest home subsidies as you may be seen as “depriving” yourselves of assets;
2. Gifting once before October 2011 and again within the same income tax year could mean that the IRD may choose to aggregate those gifts and charge gift duty.

If you have a trust you should talk to your lawyer about the implications for you of these significant changes to gift duty.