Should I move my properties to a trust?

A Fin24 user who has built a substantial property portfolio wants to know if it is wise to move all the properties to a trust. He writes:

I started buying property when I was single. The stand, beach house and three properties are paid off. I still have the following bonds on five other properties:

  1. R79 000 in my personal name;
  2. R180 000 in my personal name;
  3. R180 000 in my personal name;
  4. R220 000 registered on the CC; and
  5. R90 000 registered on the CC.

In total, there are three properties on the CC and seven registered on my name.

With my current job I get a house as part of my package. I got married outside community of property without the accrual system. We have one child and we will have more children.

I'm thinking of moving all the property to a trust after I've paid them off by the end of next year. Is it worthwhile to pay the transfer fees?

I'm going to pay huge amounts of extra tax on the rental incomes.

Gerrie Vosser of IPMG Trust & Fiduciary Services, a member of the Fiduciary Institute of SA, responds:

Using a trust only for its perceived (potential) tax benefits is inadvisable.

Firstly, because tax benefits on trusts (through the so-called conduit principle) may change for the worse.

Secondly, because the minister of finance in his 2013 Budget Speech announced proposals which may adversely affect the very conduit principle which gives trusts their attractive income and capital gains tax benefits.

Thirdly, as the trust may not be in a position to purchase - and pay in full - for properties transferred to it, taxation on the balance of loan accounts owed to you will still be done in your hands.

Fourthly, the so-called attribution rules contained in the Income Tax Act may mean you could well be taxed on income and capital gains allocated to your minor child and future minor children.

The transfer of unburdened properties to the trust will not only be exposed to transfer duty, but also to transfer costs and potentially capital gains tax. You should factor all of this in and set it off against potential income and capital gains tax savings.

Overall, it may be a better idea to purchase new properties in trust instead of transferring existing properties to the trust. This would prevent double transfer duty and costs, and eliminate capital gains tax on such transactions.

It may also, once mortgage bonds on such properties have been (largely) paid, enjoy income and capital gains tax benefits not subject to the attribution rules.

You should also consider other benefits of trusts besides tax, such as protection of assets against multiple risks, the prevention of exposure to costs associated with the administration of deceased estates, (such as executor's fees, capital gains tax and estate duty), the protection of minors, and multi-generational succession and continuity planning benefits.

It is strongly advised that you see a professional trust practitioner, who will be able to help you make informed decisions on the best options for you and your growing family.

A trust practitioner who is also a member of Fisa - and therefore bound to Fisa's code of ethics and professional standards - will add to your peace of mind.

 - Fin24

Do you have a pressing financial question? Post it on our Money Clinic section and we will get an expert to answer your query.

Disclaimer: Fin24 cannot be held liable for any investment decisions made based on the advice given by independent financial service providers.

Under the ECT Act and to the fullest extent possible under the applicable law, Fin24 disclaims all responsibility or liability for any damages whatsoever resulting from the use of this site in any manner. 

We live in a world where facts and fiction get blurred
In times of uncertainty you need journalism you can trust. For 14 free days, you can have access to a world of in-depth analyses, investigative journalism, top opinions and a range of features. Journalism strengthens democracy. Invest in the future today. Thereafter you will be billed R75 per month. You can cancel anytime and if you cancel within 14 days you won't be billed. 
Subscribe to News24
Rand - Dollar
Rand - Pound
Rand - Euro
Rand - Aus dollar
Rand - Yen
Brent Crude
Top 40
All Share
Resource 10
Industrial 25
Financial 15
All JSE data delayed by at least 15 minutes Iress logo
Company Snapshot