Trusts are formed for many reasons, most often to protect assets for beneficiaries. Another reason many purchasers look into buying property under a trust is 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,” says conveyancing attorney Samantha Craddock of Kaplan Blumberg.
This reduces the estate duty that will be payable. And as long as the property remains within the trust, executors’ 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.
However, as soon as property bought under trust is sold, there are automatic implications that will be felt. “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, and in terms of trusts, 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.
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. If 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. Also, remember that all income received by a trust is taxed at 41%.
“Remember,” says Craddock, “a trust cannot ratify acts concluded before the trust was formed or registered.”
Paul Stevens, CEO of Just Property, explains the implications of this: “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.”
Stevens advises that 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.”
Then the trust deed and other supporting documents need to be lodged with the Master of the Court, trustees need to be formally appointed by the Master and a resolution by all trustees must be signed authorising one trustee to be the signatory. The signatory must be in possession of a letter of authority from the Master in order to purchase immovable property.
“The agent for the seller will need to see a copy of the trust deed, letter of authority, copies of the trustees’ ID documents, the authorising document 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 at trust."