The new gifting regime was ushered in on 1 October 2011. Does this mean no more annual gifting programme, no more acknowledgements of debt or deeds of forgiveness or gifting statements? Maybe, and then maybe not.
Before gifting assets there are some things to consider. Take time to think about whether the gift remains a good idea and if so, how it should be done. There might be good reasons not to gift everything at once.
It is the case that there is no longer a requirement to prepare a gift statement for the IRD but the documentation explaining the gift remains important. It is evidence of what is being gifted and when the gift is being made. Besides that, there are legislative responsibilities on trustees to keep records of gifts.
Timing the gift
The issues the Supreme Court considered in Regal Castings remain relevant. We wrote about this in an earlier item.
Insolvency legislation gives the Official Assignee power to set aside gifts made up to five years before bankruptcy. Any gift made between two years and five years before bankruptcy can be set aside if the bankrupt was not able to pay their debts without the aid of the property comprising the gift.
The Property Law Act 2007 imposes additional obligations on certain gifts made. The legislation will be relevant if:
- a gift is made even though a debtor has incurred debts that are beyond their ability to pay. (That might catch a great many people who make gifts but are also guarantors for bank loans).
- the giver of the gift becomes insolvent as a result of the gift, or
- their remaining assets are unreasonably small for their business.
A debtor who meets any of these criteria but still makes a gift, runs the risk of having that disposition set aside on the application of someone who has been prejudiced by the gift having been made. Now that gifting can be more readily completed, creditors are likely to look at this part of the legislation with increasing frequency.
You can expect your lawyer to require a solvency statement to be prepared prior to the giving of a gift. This is likely to become standard practice.
The solvency statement will be prepared by a third party, the client’s accountant generally. It will identify debts and contingent liabilities and draw an objective view of whether the giver can meet their liabilities as they fall due and whether they will have sufficient resources to engage in their business following the gift.
So in summary:
- Do document all gifts
- There is no need to send a statement to the IRD as in the past
- Only make a gift if you can pay your debts without the asset that is being gifted
- Before completing a gift have a solvency statement prepared to secure against gifts being clawed back.