NZ Acknowledgement of Debt - Individual Loan To Trust

Deed of Acknowledgement of Debt - Individual Loan to Trust

Use this document where a Family Trust owes a debt to an individual.

Debts can be created when individuals, such as the Settlor(s), transfer property to their Trusts. In return for the transfer of the property, the Settlor(s) can choose to receive a “debt” from their Trust.

Up until October 2011 in New Zealand, people who were owed a debt by their Family Trust would usually have a “gifting program”, where they forgave $27,000 per year of the debt owed by their Trust. Gift duty imposed by the IRD effectively capped annual gifts at $27,000, as gifting over that amount incurred a hefty tax. As of 1 October 2011, gift duty was abolished, meaning that people can now make gifts of any size to those for whom they have “natural love and affection” without incurring gift duty.

Even though gift duty has gone, there remain a range of factors for people to consider when making gifts. It is important to get specialist advice in this area if the person making or receiving the gift is unclear about its potential ramifications.

This document sets out:

- how much is owed to the Lender;
- what interest rate (if any) will be charged on the loan;
- how the Lender can demand repayment;
- the default interest rate that will apply if the Trustees don’t repay the loan or the interest when it is due.

Checklist is not available for this document.

Sample is not available for this document.

Interest Rate?
• Can the loan be interest free?

---

Interest Rate?

• Can the loan be interest free?

  Yes, and it is common for people who have transferred assets to a Trust to have a debt owed to them by the Trust that is interest free.
  
  The Lender decides whether or not to charge interest at the end of each year. The Deed give the Lender the option to choose not to charge interest.

  This hint is provided by Cavell Leitch.

  ---

  #

This document has been prepared by Cavell Leitch