Gift duty law change to end the prenup

Source : Sunday Star Times – 6 February 2010 (Rob Stock)

Prenuptial contracts, which are already in decline, look set to disappear when the National Party does away with gift duty, a move seen by many as one of the biggest changes in property rights in New Zealand history.

Gift duty looks set to go by October 1, allowing anyone to freely gift any amount of assets to another person or into a family trust. That will create a new wave of trust establishment – especially now opposition parties like Labour and the Greens have stated their desire to hike taxes for some sections of the population – but it will also allow many who are currently gifting their assets, and putting them beyond the reach of future creditors, to transfer all the rest of their assets into trust at a stroke.

Lawyers say the abolition of gift duty, which Labour MP David Cunliffe dubbed a National Party policy for the “plutocrats of Remuera”, will have the effect of undermining other legislation.

Because it will be so easy to gift assets into trusts, lawyers say, the Family Court will increasingly find itself with no assets to share out between separating couples, undermining the Property Relationships Act.

“If gift duty goes, there will be no doubt about what will happen. Certainly in the family protection context, there is not going to be anything to make a claim on,” Auckland lawyer Greg Kelly said.

“The effect is the 50/50 provision of the Property Relationships Act are being undermined by the establishment of trusts.”

Trusts are increasingly rendering prenuptial agreements pointless, say lawyers, and once gift duty is gone, prenups will fall into greater disuse. It is far easier to put assets into a trust than present a future partner with a prenuptial agreement, said Kelly.

Another piece of legislation that will be weakened, critics say, is the Family Protection Act, which gives courts power to enforce claims on an estate of people who feel they have been unfairly left out of a will.

Because of the increasing portion of assets held in trusts, courts will struggle when faced with manifest injustice, but where assets are in trusts. Kelly said gift duty had a “braking effect” on the undermining of legislation by slowing down gifting.

So concerned is the legal fraternity, that the Law Society has sent the government submissions on some of the issues it believes most important to justice and society.

Kelly said it was unclear how the concerns would be received.

The Law Commission wants the government to review trust law completely and it is possible these issues would be canvassed in such a review.

Faced with what it sees as injustice, the Family Courts have been increasingly finding ways to bust trusts open, and some are concerned a rise in the quantity of assets in trusts will increase pressure on judges to bust trusts even further. Some lawyers already say judges are ruling contrary to the will of parliament and the common law of equity.

Removing gift duty is likely to bring about changes in the way New Zealand does business, Kelly said. For example, lenders would seek more information about trusts.

Sunday Star Times