Forgiveness of Debt

As discussed above, while the Trust owes you money for the purchase of your family home (or other property), the outstanding amounts are not completely protected. In order to protect those amounts, you need to forgive those debts over time. On an annual basis you may gift up to $27,000 without attracting Gift Duty. The gifting is actually achieved through a Forgiveness of Debt which records that you indefinitely and irrevocably relieve the Trustees from ever having to pay you back $27,000 of the amount currently outstanding from the trust to you. This is the mechanism by which the trust generates equity, because the amount it owes parties external to the Trust reduces by $27,000 each time a gift is provided.

It is advisable that each year you forgive $27,000 of the debt your Trust owes you, so that the outstanding amount diminishes to nil. You are entitled to gift more in any 12 month period, but this will incur gift duty which generally is a voluntary tax.

Prudentia Law will instigate a Gifting Programme for you which ensures that you gift the full availability of $27,000 per year so that your assets are protected as quickly as possible. Our gifting programmes are hassle-free – we will send the appropriate documents out to you at the right time each year. All you have to do is sign them and return them to us, we will take care of the rest.