A deferred gifting programme used by Public Trust clients has survived attack by Inland Revenue in the Court of Appeal. The programme was designed to strip assets from older clients, circumventing asset testing for state social welfare benefits.
In a test case, the court was asked to rule on liability for gift duty on the deferred gifts. Whether asset stripping could secure better social welfare benefits was not in issue.
Earlier this decade, the Public Trust offered a standard-form asset stripping trust for elderly clients having substantial equity in their family home. The trust document recited that an annual gift of $27,000 was made to their children. The figure chosen ensured each gift was under the threshold for payment of gift duty in any one 12 month period. But no money was paid out. Payment of the promised gift was deferred until the parents’ death.
This liability had the effect of reducing client assets by the amount of the promised gifts.
Inland Revenue claimed the supposed gifts were not a completed “disposition” at the time of the gift. This would mean the accumulated total “gifts” were not treated legally as a gift until the parents’ died and the total sum promised was paid – with the result that the accumulated sum would exceed the 12 month gifting limit and gift duty would be payable.
The court ruled that the gift duty definition of a “disposition” was wide enough to include deferred gifts. Words of gift in a trust amount to a “disposition”. If not paid on the parents’ death, children had the right to sue their parent’s estates to recover payment.
Begg v. Inland Revenue – Court of Appeal (30.04.09)
08.09.007