The Benefits of trust - why transfer a property?
PUBLISHED 5 JUL 2020
Is it wise to own your residential property in your own name - or should you place it in a trust?
You may have a friend or relative who has gone the trust route - or you may have heard horror stories about trusts gone wrong. To clear things up and give you a balanced perspective on this useful legal structure, let’s take a look at how trusts work and what benefits you could enjoy by using one.
What is a trust?
Like many countries, South Africa allows assets to be held by individuals, companies and trusts. By placing your home in a trust you’ll be forming a non-profit entity that invests your assets for the benefit of specific people that you’ll nominate.
These beneficiaries are typically family members, but they could be anyone you’d like to grant the use of your property. They will also receive rental income if the home is rented out in future.
What are the benefits?
Placing your home in a trust offers two main advantages: taxation and protection from creditors. Let’s take a look at these in more detail.
- You’ll save on inheritance taxes. Since your property already belongs to the trust there’s no inheritance procedure required in the event of your death. That means no inheritance taxes.
- Your home can’t be seized by creditors. Owning a property in your own name means that the bank or other creditors could attach and sell it to recover bad debts you may owe them - even in the event of your death. A trust protects your assets from creditors’ claims.
Are there any drawbacks?
While trusts offer excellent asset protection and save you money on some types of taxes, you’ll need to consider the fact that they are liable for high capital gains tax.
- Should your home be sold, the trust will be taxed on any capital gains realised in the process (the difference between the buying and selling price). The current tax rate is 36% - and this amount is deducted automatically by the buyer and paid directly to SARS.
If you’re thinking of buying a Cape Town home as a future investment for your family, now could be perfect time. Contact the Cape Realty team today.
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