Seek advice about trust

2018-02-14 06:00

Buyers are warned to be extremely careful when buying property from a trust.

Buying property in a trust is not a solution for everyone, as it can be a fairly costly exercise.

It is advisable to discuss one’s needs with a financial advisor or conveyancing attorney.

Samantha Craddock of conveyancing attorneys Kaplan Blumberg explains that trusts are formed for many reasons, most often to protect assets for beneficiaries.

According to Craddock, another reason many purchasers look into buying property under a trust is because of the perceived tax advantages in 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,” she explains.

“This reduces the estate duty that will be payable. As long as the property remains within the trust, executor fees with respect to that property are eliminated, as are the capital gains tax and fees for transferring the property into an heir’s name.”

A statement from Just Property highlights the automatic implications that will be felt as soon as property bought under 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,” Craddock says.

Term of Trusts reportedly includes that 80% of any profit must be inclu­ded as opposed to 40% in the case of an individual person.

“There are annual running disbursements to ensure that the tax affairs of the legal entity are kept up to date.”

Another possible negative is that a trust with no assets other than a property will struggle to secure a loan and may require surety of some kind.

In the event that the surety signatory dies, the bank may make a claim against the estate or even force the sale of the property to settle the loan.

“All income received by a trust is taxed at 41% and a trust cannot ratify acts concluded before the trust was formed or registered.”

Paul Stevens, CEO of Just Property, urges those who think that buying property under a trust is the right option for their situation to start the process long before starting to look for property.

Stevens says it can take up to six months and that a sole trustee runs the risk of Sars deciding that the trust’s assets are their own, thereby taxing the sole owner accordingly.

A fixed procedure needs to be followed to get all in place, which can be complicated.

“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,” Stevens says.

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