Putting your home into a trust
Is your home valuable enough to become a tax headache for your beneficiaries and, if so, can you afford to put it into a trust?
Transferring residential property into a trust could be advantageous for both you and your beneficiaries - but only in certain circumstances.
Trevor Beeton, MD of Standard Trust, warns that not everyone can afford to do so, as putting a home into a trust requires an often substantial initial outlay of capital, suitably invested, to cover expenses associated with the property.
What is a trust?
Mr Beeton explains: "A trust is a legal device, in terms of which assets are transferred from the owner to trustees who care for them for the benefit of designated persons.
"A home owner, for instance, could decide to transfer the house into a trust to secure the property for his child, who may later become the owner."
Advantages of putting a home into a trust
Limiting estate duty liability
Considering that estate duty is levied on the value of a deceased estate over 1 million, limiting the amount payable is probably the most obvious reason for a trust. "The current rate is 25 per cent, which means substantial tax may be payable when a person dies. This has obvious implications for the financial well-being of those left behind," says Mr. Beeton. The estate duty saving incentive arises where the value of the asset has the potential to grow considerably over time. "A house valued at R750 000 and in a suburb where values are likely to rise, could be worth a few million rands in 20 years. "The beauty of a trust is that the house would be transferred to the trust at its current value and the growth in value would occur in the trust, rather than in the original owner's hands." If a property is donated to a trust, donations tax (presently 25 per cent) is payable at the time of the donation but there are no further tax implications. If the property is sold to the trust, however, no donations tax is payable. Says Mr. Beeton: "Upon the seller's death, the sale price (or the outstanding loan, should credit have been granted to the trust) will inflate the deceased estate by no more than the original value of R750 000, as distinct from its current value of, say, R2000 000. "the advantage for those with growth assets likely to attract estate duty is obvious. By establishing a trust you can rest assured that the assets you've worked so hard for will be secured for your love ones, instead of being eaten up by taxes."
Securing your house for your dependents
Consider including a provision in your will for your house (and other assets) to be put into a trust in case you die while your children are under 21. This will allow people you trust to look after the property suitably so your children, or other dependent such as a disabled relative, will be guaranteed a home after your death.
Protection from insolvency
If you are involved in business, there is always the risk of going under. To avoid losing your personal property to creditors you could, in certain circumstances, put it into a trust. "Because your home is so crucial an item in your family's future, it is definitely the sort of asset you'd want to keep safe," Mr. Beeton says.
Disadvantages
While a trust meets a variety of needs, it is not suitable for everyone, for two reasons:
The value of the house is a significant factor. The cost of transferring a home into a trust and of the formation and administration of the trust may not warrant using this device, particularly if the property value is unlikely to grow to the extent where estate duty becomes a worry.
If you have a valuable home but insufficient cash to put into the trust to meet future costs such as maintenance, rates, taxes and insurance it would not be advisable to establish a trust.
(From: At Home with Standard Bank magazine)
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Lee Wareham - REALTOR®, TRC, e-PRO
The Tucker Group
Kinlin Grover GMAC Real Estate
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Orleans, MA 02653
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