Can you Trust a Trust?
Category Hendra Knows
Compiled by Wayne Hendra - September 2018
Trusts are the topic of many a dinner table conversation these days, and you’ve probably heard pros and cons of buying property under a trust. Is it right for you?
A trust is a legal entity formed for one or many reasons, but most often to protect assets for a defined person or persons. There are perceived tax advantages for doing so, for example, the ‘worth’ of immovable property held in trust will not increase the owner’s individual net worth for tax purposes at the time of death,” says conveyancing attorney Samantha Craddock of Kaplan Blumberg.
When a property bought under a trust is sold, "no exemption is permitted for a legal entity such as a Trust selling an immovable property, even if the Trustee is personally residing in the property and regards it as their primary residence. Capital Gains Tax will always apply,” says Craddock. 80% of any profit must be included as opposed to 40% in the case of an individual person. “There are also annual running disbursements to ensure that the tax affairs of the legal entity are kept up to date,” Craddock adds.
Trusts are also utilised for maximum control over assets. A property registered in a trust no longer forms part of the personal estate and is protected from creditors even in the case of insolvency.
In South Africa, there are three types of trusts :
- Living trusts (called inter vivos trusts)
- Testamentary trusts
- Bewind trusts
There are two types of Living trusts in South Africa, namely Vested trusts and Discretionary trusts. In Vested trusts, the benefits of the beneficiaries are set out in the trust deed, whereas in Discretionary trusts the trustees have full discretion at all times about how much each beneficiary is to benefit
Testamentary trusts are created at the winding up of a deceased estate following a specific stipulation in the deceased person’s Will that a trust must be set up. Testamentary trusts are usually created to hold assets on behalf of minor children, since minor children cannot in terms of South African law, inherit anything (in the absence of a trust, assets from the deceased estate left to minor children are sold, and the money is paid to them when they reach adulthood).
Bewind trusts are created as trading vehicles providing trustees with limited liability and certain tax advantages.
Just Property CEO Paul Stevens, states: “If you think buying property under a trust is the right option for your situation, start the process long before you start looking for property,” although it can take up to six months, “If you are the sole Trustee, you run the risk of SARS deciding that the Trust’s assets are your own and taxing you or your estate accordingly. So you will also have to first choose and appoint trustees.” The Trust Deed with its associated documentation need to be lodged with the Master of the High Court, appointed trustees are then given the authority to act as Trustees in terms of the Trust in accordance with a Letter of Authority issued by the Master of the High Court. When purchasing or selling a property, the Trust is required to produce these Letters of Authority together with a resolution nominating a particular trustee/s with the necessary authority to act and sign all documents in respect of the property transaction.
“The agent for the seller or purchaser will need to see a copy of the Trust Deed, Letter of Authority, copies of the trustees’ ID documents, the authorising resolution for the signatory, and a utility bill for each trustee,” says Stevens. An experienced agent will be able to advise you, but it is highly advisable to appoint an attorney or an accountant to help you with the formation and registration of a Trust.
If you’d like more information or advice on whether a trust is the right option for you, please contact Wayne Hendra.
[031 562 8899 / 083 955 4708]
Author: Wayne Hendra