To Forgive or NOT to Forgive the Trust Debt?

To forgive or NOT to forgive?

Consider the following situations and the impact on whether you should Forgive The Debt or NOT forgive The Debt:- 1.Relationship Property Implications; 2.Debts to a person who is not a trustee; or 3.Creditor avoidance.

Our Auckland Trust lawyers have created numerous posts on our Auckland Law Firm blog relating Trusts and Trust Gifting.  But are there some situations where you could consider NOT forgiving The Trust Debt?

Consider the following situations and the impact on whether you should Forgive The Debt or NOT forgive The Debt:-

  1. Relationship Property Implications
  2. Debts to a person who is not a trustee
  3. Creditor avoidance

By way of example

  • What if the individual is a settlor but not a beneficiary?  The only way to access assets in the trust is through repayments of the debt. Once the debt is forgiven the settlor may lose this control of the trust.
  • What if one partner in a relationship has a sum of money which is separate property (example an inheritance) and wishes to preserve it as such but may wish the couple to have the benefit of the money through their trust purchasing a house?  The moneyed partner should advance the funds to the trust by way of loan and that should not be forgiven.
  • What if parents have loaned a sum of money to their child’s trust, possibly to assist in the purchase of a first home?  Here forgiveness of the debt would not be advised.

There is no “one answer” as to whether the Settlors* should make one final gift after 1 October 2011. Each situation is different and the above trust related examples only serve as that, examples.  It is as in most situations, important to seek appropriate legal support when making the decision as to whether you should forgive your debt or not.

Quay-Law-White-Logo-Auckland-lawyers-and-Auckland-law-firm1Please contact our lawyers at Quay Law if you have any questions in relation to your Trust gifting programme or Trust administration. Our trust lawyers are experienced in dealing with Trusts and want to ensure that our clients get the best legal and relevant advice possible.

Our Auckland lawyers take a personal and practical approach to New Zealand law, enabling our clients to cut through the legal issues and get on with business. For more information please contact us.

*Settlors: This is the person who sets up the trust, and is usually also the person who currently holds the assets that will be transferred to the trust.