Transferring Property into a Trust:

A Comprehensive Guide

Establishing a trust offers significant benefits, including asset protection and tax advantages. Understanding how to transfer both moveable and immovable property into a trust is essential for maximizing these benefits. Contrary to popular belief, trusts are not exclusively for the wealthy. Setting up a trust early can save significant costs and complications later.

 

What is a Trust?

A trust is a legal arrangement where one party, known as the trustee, holds and manages assets for the benefit of another party, known as the beneficiary. The person who creates the trust is called the founder or grantor.

Trusts are commonly used to manage and protect assets, ensure that assets are distributed according to the founder’s wishes, and provide for the long-term financial support of beneficiaries. Trusts can also offer tax benefits and help avoid probate.

 

Trust Benefits

Common benefits of a trust include, but not limited to:

1. Protection from Creditors

Assets in a trust are safeguarded from creditors as they are no longer part of your personal estate.

2. Continuity

 Trusts provide continuity in the management of assets, ensuring they are protected and managed according to the founder’s wishes even after their death.

3. Family Wealth Preservation

Trusts can help preserve family wealth by managing and distributing assets in a controlled manner, ensuring that future generations benefit.

4. Reduced Estate Administrative Burden

Trusts can simplify the administration of your estate, reducing the burden on your heirs and ensuring a smoother transition of assets.

 

Requirements for Establishing a Trust

Requirements for establishing a trust include drafting a trust deed that outlines roles and responsibilities, appointing a trustee to manage assets and uphold fiduciary duties, identifying beneficiaries who will benefit from the trust, transferring assets to activate the trust, and registering the trust with the Master of the High Court. Registration involves submitting the trust deed and necessary documents to legally recognize the trust and ensure compliance with legal requirements.

 

Mechanisms for Transferring Property into a Trust

1. Donations to the Trust

You can donate up to R100 000.00 per year (or R200 000 for a couple) to a trust without incurring donations tax. This method reduces your personal estate’s value, which is beneficial for estate duty purposes.

 

2. Selling Assets to the Trust

Assets can also be sold to a trust. It is crucial to document these transactions clearly to avoid them being classified as donations, which would trigger donations tax. When selling property to a trust, capital gains tax (CGT) applies if the sale price exceeds the original purchase price.

 

Capital Gains Tax Exemptions:

Gains on a primary residence are exempt from Capital Gains Tax when the property is sold, provided certain conditions are met. This exemption applies to the property that you own and occupy as your main residence.

 

3. Bequeathing Assets to the Trust

Assets can be bequeathed to a trust upon death, either through a testamentary trust or an inter vivos trust. However, estate duty and executor’s fees must be paid first, potentially requiring the sale of assets if liquidity is insufficient. Thus, it is often more advantageous to transfer assets to a trust during your lifetime.

 

4. Trust Purchases Its Own Assets

The trust can also purchase assets directly from third parties. This approach avoids anti-avoidance provisions, as SARS cannot apply them to transactions where the trust buys assets independently. However, purchasing on credit can expose other trust assets to creditors, so this should be done cautiously.

 

Practical Steps for Transferring Property

 

 

1. Immovable Property (e.g., a House):

When transferring immovable property into a trust, a conveyancer must oversee the legal process of transferring ownership. This involves registering the property in the trust’s name at the Deeds Office to ensure the transfer is legally recognized. Additionally, Transfer Duty, which is the tax levied on the value of property acquired through such transactions, is payable by the person acquiring the property. This ensures compliance with legal requirements and the payment of necessary taxes associated with property transfers into trusts.

 

 

2. Moveable Property (e.g., a motor vehicle):

Moveable property such as a motor vehicle can be transferred into a trust through a change of ownership process at the traffic department. It is crucial to ensure all documentation is accurately completed to reflect the trust as the new owner. This process involves updating the vehicle registration and other relevant documents to legally transfer ownership to the trust, thereby aligning with regulatory requirements and confirming the trust’s ownership of the asset.

 

 

3. Other Moveable Assets:

Household Goods and Personal Items: These can be transferred by drafting a bill of sale or a donation agreement, documenting the transfer of ownership to the trust.

Investments and Bank Accounts: These transfers typically require liaising with financial institutions to update the ownership details to reflect the trust.

 

By following these mechanisms and ensuring proper documentation, you can effectively transfer both moveable and immovable property into a trust, reaping the associated benefits while complying with legal requirements.

For more detailed guidance or assistance with trust-related matters, please contact our legal experts at TG Khosa Attorneys on 068 533 6144