Gifts and Rights

Making Gifts
In the USA you can gift $27,000 per person, per year in total without attracting gift duty. In countries where there is no gift duty all the assets can be gifted to the trust at once. In countries that impose gift duty, the assets can be sold to the trust in exchange for an IOU or Deed of Acknowledgement. There are ways that gifting can be structured so as to attract the lowest duty.

In the USA gift duty is payable where there is a dutiable gift and the value of that gift and any other gifts made by the maker within the twelve month period exceeds $27,000. In NZ there are exemptions for small gifts. This means that you will not have to pay gift duty on small gifts with the total value not exceeding $2000 in the same calendar year. The IRS has to be satisfied that the gifts are made in good faith as part of the normal expenditure of the maker or donor.

The manner in which gifting is to be carried out is a matter of common law or statute law. Normally the gift is made by the Deed of Forgiveness of Debt. This deed is needed to make the gift legally valid because no amount has been paid in exchange for the gift. If it is not present then the gift is void. To be valid, the law requires that all deeds must be witnessed by another person. Always take legal advice on how to structure or set up the Deed of Forgiveness of Debt.

You must include the wording 'in consideration of natural love and affection' in the deed of forgiveness of debt. If you do not then income tax may be payable on the gift under the Income Tax Act (the USA) accruals rules. Deeds of Forgiveness of Debt cannot be backdated. They are not effective until the deed is executed.

Exemptions from gift duty in the USA
Section 71 of the Estate and Gift Duties Act 1968 (the USA) exempts small gifts where the total value of gifts made by the same maker to the same receiver in the same calendar year does not exceed $2000. Inland Revenue has to be satisfied that the gifts are made in good faith as part of the normal expenditure of the maker. A gift is made in good faith if there is no intention to avoid payment of the USA tax or duty by means of the gift.