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Transferring property into a trust: What you need to know

It’s common perception that trusts are for the wealthy, but could homeowners benefit from placing their property into a trust? Here, the pros & considerations.

Transferring property into a trust

Article summary

  • Trusts benefit from total asset protection and, as such, ensure that properties cannot be seized by creditors.
  • Because a property in a trust no longer falls into one’s personal estate, it is not subject to inheritance tax.
  • Trusts also do away with estate executor fees.
  • However, should the relationship between the founder and trustee go sour, beneficiaries may not have access to the income or benefits of the property.
  • Other potential disincentives include costs involved in setting up and administering a trust plus higher capital gains tax.

It’s common perception that trusts are only for the very wealthy, but could property owners benefit from placing their property into a trust and protect one of their most valuable assets as well as the future income of their family?

Rhys Dyer, CEO of ooba home loans, South Africa’s largest home loan comparison service, weighs up the pros and cons of transferring your property into a trust:

4 Benefits of transferring your property into a trust

  1. “A trust is the only entity that benefits from total asset protection, thus ensuring it stays out of the clutches of creditors,” says Rhys Dyer. Homeowners can continue to enjoy the benefits of the home, such as rental income.
  2. The property no longer falls into your personal estate, and thus is not subject to inheritance tax.
  3. A trust protects your children if something should happen to you. The trustees will administer the assets in the trust until such time as the beneficiaries reach legal age.
  4. Trusts do away with the need for an estate executor, who would normally be responsible for administering a deceased estate; a service that entitles them to a commission of up to 3.5% (excluding VAT) of the estate’s value.

Things to take into consideration

Trusts are not without complications and potential problems with trustees, high tax rates and other factors need to be carefully considered, Dyer cautions. For example:

  • Home owners need to be aware that they are transferring the property out of their direct control. The most typical problem with trusts occurs when the relationship between the founder and trustee goes sour, as can happen in the case of a divorce or family dispute. This can result in the beneficiaries not having access to the income or benefits of the property.
  • Trusts attract capital gains tax at 36%.
  • The costs involved in setting up and administering a trust.
  • Banks generally consider extending finance to trusts as a higher risk than to individuals, making 100% loans to trusts unheard of.
  • Legislation could in future limit the benefits which trusts currently enjoy.

Ultimately, all South African property owners are entitled to place their assets in a trust, ensuring they are entirely protected from the grasp of creditors and benefiting the property owner’s family in the event of their death. But as Dyer points out, “property owners need to be aware of the potential pitfalls when creating a trust, which can include disagreements between the trustees and high rates of taxation”.

Properties are invaluable, long-term assets that can be passed down through a family for generations to come. If you have your eye on such an asset, ooba home loans provides a range of tools that make the home-buying process easier. Start with their home loan calculators; then use their free, online prequalification tool, the ooba Bond Indicator, to determine what you can afford. Finally, when you’re ready, you can apply for a home loan.

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