Much has been written of the pros and cons of registering property in trust. It is important to go back to the fundamentals of why you set up a trust in the first place.
Property owned by trust is removed from your personal estate and as such will not form part of your personal assets for purposes of personal risk and deceased estate.
The article “In property, we trust” explains property ownership in trust in more detail
Why put a property in a trust?
“A trust can be used to cap or lock in the value of the property purchased in the trust. In a trust a property no longer forms part of a personal estate, which means significant savings on estate duty and other costs and taxes upon death,” Brink explains.
Furthermore Swain add: “A property that is in a trust offers protection against creditors in the event of an individual being declared insolvent. A trust also offers continuity in the event of one of the trustees passing.”
A trust offers a means for protecting an asset, like a property, from maladministration, reckless management and certain taxes.
Who does the trust vehicle make the most sense for?
There are various reasons and benefits to putting a property into a trust, but the three most obvious reasons are the following, according to Brink:
“Business owners who want to protect their liability against creditors. This means that creditors cannot go after the property in the event of debt and/or insolvency.
Secondly, wealthy individuals who want to save on costs and taxes like estate duty and executor’s fees upon death. We say ‘wealthy’ individuals because the tax benefit (a R2 million capital gains exemption on the profit of a primary residence sold) only comes into effect if one owns more than one residential property.
Lastly, but perhaps most importantly for ‘ordinary’ property owners, families where there is a known history of critical illness (e.g. Alzheimer’s) or an individual with a mental disability should consider putting a property into a trust to ensure suitable management of the asset.”
Can anybody elect to put a property into a trust?
Yes, provided certain conditions are met. For example, the person creating the trust (the “trustor”) is solvent, doesn’t have a criminal record and has never been blacklisted.
Who should rather avoid going this route?
Persons with only one property should avoid going the trust route, Swain explains: “You will forfeit the R2 million capital gains rebate in the trust should the property be sold at a profit (as Brink explained above).”
Brink concurs: “Setting up a trust would cost between R4000 and R7000, so that’s a cost factor that needs to be taken into account. Bear in mind that the trust also needs to be administered monthly and annually, preferably by a professional person who has experience in trust administration. At least one of the trustees needs to be independent, as in not related as a family member or a connected person in any other way.”
The founder of the trust also relinquishes control of the asset and the intended beneficiaries might not receive income for an extensive period, which could have implications.
Read the full article here: In property, we trust
