how to transfer assets into a trust south africa
Trusts benefit from total asset protection and, as such, ensure that properties cannot be seized by creditors. Trust documents enhance estate planning and the effective transfer of assets to heirs. Trusts are costly but have advantages. A trust might present saving in income and capital gains tax, depending on circumstances. In both cases, Estate Duty and Executor’s Fees will be paid first, before such assets can be moved into a trust. An estate duty of 20% is levied on South African residents’ worldwide assets on death. Banks generally consider extending finance to trusts as a higher risk than to individuals, making 100% loans to trusts unheard of. Once a Trust is created, all assets are placed into it by either the founder donating assets to it or by the entity itself purchasing or otherwise acquiring assets. A trust offers a means for protecting an asset, like property, from maladministration, reckless management and certain taxes. So says Garth Watson, a director in the legal firm Gunstons Attorneys, but adds that those who do this and include a property in the trust’s assets often do not appreciate that the transfer of the property to a trust effectively divests them of ownership of that property. This can be problematic because any donation over R 100 000 per year is subject to Donations Tax at 20%. A discretionary trust is a structure used to hold property on behalf of one or more people (the beneficiaries). If the transaction is not recorded as a sale it will be deemed a donation. A trust or a CC is a legal ‘person’ that can own assets and receive income. South Africa will insist on an unrelated party, usually an accountant or other person qualified to act as a professional trust administrator, being appointed together with the related parties. Donate R100,000 p.a. While a trust offers asset protection against creditors, it is important to note that as long as there are loans or claims against the trust by any person (for example the seller), the trust could be exposed to the creditors of that person. 4. Properties are invaluable, long-term assets that can be passed down through a family for generations to come. The standard trust registration document in South Africa is called a Trust Deed. The trustees in fact become the legal owners of the property but have to manage it in terms of the trust’s provisions (which may only be altered in compliance with provisions of the trust deed). Benefits of transferring property into a trust You will likely need to provide a … What do you need? The rules of South African trust law are a mixture of English, Roman-Dutch and South African law. Mind how you transfer assets. Legislation could in future limit the benefits which trusts currently enjoy. The trustee is the person who administers the trust. You may also need to sign new account agreements. The beneficiary has a right to specific assets and normally the trust deed provides that he/she may not take possession of trust property until the expiry of some period of time. The income from the property is paid to the CC in the form of rent by the tenants and that income is first used to pay expenses, after which the profit is distributed to the owners in proportion to their ownership percentage. Typically done to shift assets to descendants, the goal is to transfer assets without triggering Gift Tax recognition. If in a deceased estate, it may take months to transfer or to get access to assets or funds. concerning the trust. It can be a costly exercise to move assets, acquired by you, into a trust at a later stage. Fees can only be transferred from the trust account to the business account after doing the work and debiting a fee. to your trust. Even though the English principle of equitable ownership as distinct from legal ownership is foreign to South African law, the use of a trust was introduced in South African law through usage without specific legislative intervention. 57 of 1988 (TPCA) forms the framework in which trusts operate. In terms of South African law, a minor child may not inherit. If provision has been made for looking after a minor child, the child’s inheritance is often paid into the Guardian’s Fund, which is a state-owned fund. One of the consequences of SARS’s current treatment of trusts is the exclusion of the primary residence rebate. A trust is created when property is transferred by a trust deed. Blocked rands were introduced as a means of controlling the transfer of assets out of South Africa to limit damage to the balance of payments account. 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: Trusts are not without complications and potential problems with trustees, high tax rates and other factors need to be carefully considered, Dyer cautions. Finally, when you’re ready, you can apply for a home loan. Most importantly it will apply to loans made to trusts even before this date. Once registered, you will be able to transfer your assets into the Trust. Easy enough. You can then use your foreign investment allowances to remit the proceeds overseas without any personal tax consequences. The smaller the loan remaining in your estate upon your death, the less you will pay in Executor’s Fees and Estate Duty. to your trust. The second is to store the items in a safe deposit box that is owned by your … “Should the trust buy the property without paying for it, a loan account would be created between the trust and the relevant trustees selling the asset. Transferring to the trust as an entity can cause the transfer … If the property is not used for residential purposes, and the loan amount currently exceeds R1 333 333, interest would need to be charged at the current office rate of 7.5%. Our Trusts and Estates team share some answers to frequently asked questions regarding the different types of trusts, and the main benefits and disadvantages to be aware of.. What is a Trust? Some involvement might still be possible by a living donor. Any assets that were transferred before September 20, 1985 are pre-CGT and, therefore, exempt. Even when it comes to the transfer of assets from a deceased person’s estate, Capital Gains Tax (CGT) still applies. This change to the Income Tax Act came into effect on 1 March 2017 and will present a unique problem. If you choose to move assets into a trust to save estate duty, you may donate R100,000 per person per annum to such a trust without attracting any donations tax. A revocable trust provides a means of placing all of your valuable assets into a trust fund to be managed for your benefit. What to pay attention to? You can transfer your home (or any real property) to the trust with a deed, a document that transfers ownership to the trust. Tangible property, other than vehicles, can be placed in your trust in one of two ways. A non-resident is liable to CGT only on immovable property in South Africa or assets of a “permanent establishment” (branch) in South Africa. Gift. Some countries may levy estate duties on certain types of assets within their territories. Subsequent to the amendments, the resulting capital gain in respect of a disposal of an asset vested in a South African beneficiary of a trust is to be taken into account in determining the aggregate capital gain or loss of the resident beneficiary to whom the asset … Failure to do this will result in the South African Revenue Services (Sars) viewing the transaction as a donation and imposing Donations Tax on the “donor”. Section 1 of the Income Tax Act No 58 of 1962 defines a trust as “any trust … Assets can be transferred into the living trust by: Selling it to the trust (through a loan granted to the trust) or Donating cash or other assets to it (any person can donate … Assets can be transferred into a trust by sale (via a loan granted to the trust), donation or on death in terms of will. The founder tasks a trustee or trustees with the management of the trust’s assets for the benefit of one or more beneficiaries. Homeowners can … When assets are acquired in a trust, this is avoided (subject to the proviso that the trust is properly administered and legal). By this procedure, the vehicle will be registered under the new owner. Certain indirect interests in immovable property such as shares in a property company are deemed to be immovable property. The founder tasks a trustee or trustees with the management of the trust’s assets for the benefit of one or more beneficiaries. For example: 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. In many cases this will be the family home, but other things of value like cash, bank deposits, shares, artwork etc can also be included in the trust. Fewer complications will be created if the trust purchases its own assets directly from third parties. Having assets in a trust prevents possible future intestate transfer to generations, with resulting inconveniences such as forced sales of assets. The Trust can then be (2) Registered as a Legal Entity. Grantor Retained Annuity Trust (GRAT): GRAT planning involves the Grantor giving assets to an Irrevocable Trust but getting back an annuity. There are two ways you can transfer a property to a family member: gifting and selling. Trust money shall in no circumstances be deposited in or credited to a business banking account. Having an appropriate Trust is important, but if it isn't properly funded, it won't serve its purpose! Cost savings on executor’s fees and transfer costs. It is therefore important to reduce the value of the loan account to zero as soon as is practically possible. Starting a Trust is a costly exercise, but there are certain advantages to purchasing property through it, which may outweigh the initial set-up costs. Depending on when you set up a trust, the following mechanisms are available to move assets into a trust… Loan repayment from excess cash in the trust. This was done at a time when trusts were slightly more tax efficient than they are today and before SARS started removing any tax advantages that trusts might have had. This can be achieved by the trust founder donating the assets to the trust or the trust has to purchase the assets.If the assets are immovable and sold to the trust, then transfer duty must be paid by the trust. All decisions and actions taken by the trustees must be made with reference to the trust deed and the TPCA. If assets are already in a trust, it allows for a smooth and quick transition thereof, to next generations. Some countries may levy estate duties on certain types of assets … If assets are sold to a trust, there must be loan agreement or a … This would include any offshore assets. It’s a process that needs to be done when a person buys or sells a vehicle. July 18, 2018 . Once a Trust is created, all assets are placed into it by either the founder donating assets to it or by the entity itself purchasing or otherwise acquiring assets. The QDOT allows the US Citizen spouse to leave assets … Another use for family trusts is in helping those who sell substantial homes to … In an attempt to prevent freezing the value of an estate by moving growth assets into a trust, the South African Revenue Service (Sars) introduced an anti-avoidance provision (section 7C of … There are a number of good reasons why a property investor might choose to set up a trust for his beneficiaries. If you have left South Africa without financial emigration, or if you have a blocked Rand bank account in South Africa as a result of successful emigration, an inheritance can be paid to you locally into a South African bank account. Where double taxation agreements are in place, a tax credit for foreign estate duties paid will be provided. In terms of your will, the loan account against a trust can be bequeathed to another party (however be mindful of the anti-avoidance provisions that may follow such party), or you can also bequeath an amount outstanding on the loan account to the trust, which will extinguish the loan. The trust then manages the property for the benefit of others or for the achievement of a particular goal. Declaring the gift should not subject the assets to estate or income tax, but you may incur heavy fines if you do not declare the assets. Read more: Things to consider before buying property in a trust. Qualified Domestic Trust (QDOT): Used when one spouse is not a US citizen. Many South Africans fall into this category. A loan agreement should be concluded between the buyer and the seller and should stipulate the loan terms, and in particular the interest rate charged. If you are unsure, deposit funds into the trust account. However, be mindful of the adverse tax consequences on income generated from donations to a discretionary trust. In South Africa, there are three primary types of trusts: An ownership trust: The founder of the trust transfers ownership of assets or property to a trustee(s) to be held for the benefit of defined beneficiaries of the trust Therefore people believe that they have to build up wealth before it warrants setting up a trust. 6 pros of holding property in a trust A trust does not die (called “perpetual succession”) so it is not liable for estate duty, transfer duty, executor’s or conveyancer’s fees, or capital gains tax (CGT) that might otherwise happen on the death of an owner. The potential tax saving is significant and is dependent on who the trust beneficiaries are. 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. Then we will need to decide what things we own should be put into the family trust, and what their value is. Asset transfer. South African resident temporarily abroad. Be mindful of the new anti avoidance provision, which attacks interest-free or soft loans. Once the family trust is formed assets can be sold into the trust, at market value. The effect is that the South African Revenue Service (Sars) assumes that trust assets grow by at least the official interest rate annually. A living trust allows someone to transfer legal ownership of assets to a trustee. Homeowners can continue to enjoy the benefits of the home, such as. The utilisation of donations by the trust for investment in an endowment is a tax effective manner to transfer assets into a trust. Terms and Conditions Privacy Policy Promotion of Access to Information, The ooba group subsidiaries Property Protector Financial Services and ooba Administration Services are Authorised Financial Services Providers (FSP No’s: 216 & 46293). 4 Benefits of transferring your property into a trust “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. Property, fund investments and shares are the most common assets transferred. High net worth individuals with Estate Duty concerns may use their annual R 100 000 Donations Tax exemption (or R 200 000 per couple) to move assets into an inter-vivos trust, of which family members are the beneficiaries. There are two main types of trusts: trust between living persons (inter vivos trusts) – created by and … Growth of assets takes place in the trust: Once assets are in the trust, the growth of those assets … Transfer Ownership of a Car in South Africa. The trustees may not have an interest in the trust property or use the trust property for their own benefit; There must be a clear separation from the control and enjoyment of the trust assets. The Family Court can now include trust assets as part of the wider matrimonial pool, McCallum says. I told him that once his trust is signed, he can contact his agent and request that ownership of the policies be transferred from his name to his trust. The trustees must hold the trust assets for the benefit of the beneficiaries. This has been the situation since the landmark case of Land and Agricultural Bank of South Africa … To transfer assets such as investments, bank accounts, or stock to your real living trust, you will need to contact the institution and complete a form. 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. If you have your eye on such an asset, ooba home loans provides a range of tools that make the home-buying process easier. It is, however, not advisable for the trust to purchase assets on credit from a third party, if it may expose other assets in the trust to such creditors. A CRT or CLT will allow you to convert a real estate asset into marketable securities that generate an annuity and provide a philanthropic benefit, he added. 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”. Costs can escalate if you don’t set up the right Trust There are costs involved in establishing a Trust. You’ll need to consider the payment of any fees for preparing of the Trust’s financial statements and the filing of any SARS tax returns. ... You will now … ESTATE DUTY 2177. The date this transfer occurs is considered as the date of the death. The property can be transferred by written agreement, testamentary writing, or court order. Second, the parent should consider setting up a trust to prevent assets from being liquidated and paid into the Guardian’s Fund. If you purchase such assets in a trust set up during your lifetime you can avoid having to transfer the assets on death. You may be asked to sign a new signature card (s) as trustee (s). HOW DOES A TRUST ACQUIRE ASSETS? A Trust is a legal entity which is created by a founder and which can (amongst other things) purchase and own property. You can give ownership of your property to a family member as a gift. When the details are received, you will then able to transfer your funds abroad. A well-planned trust can be a useful estate planning tool that protects your assets and wealth. “A trust is considered a legal entity, not a legal persona or juristic person per se and best described as a legal relationship created by a founder by placing assets under control of trustees,” he explains. You will be liable for Donations Tax on the difference between the market value and the sale price of the assets. Use Form 3520 to declare the transfer of gifts or property from a foreign person. A trust is created by a person(s) known as the founder. For these reasons, it is not recommended to wait until your death to move assets into a trust. In contrast, if the trust was taxed in its own hands, the rates would have been 45% on income and an effective 36% in respect of capital gains. The property is deeded in the name of the trust, and the trustee is tasked with the responsibility of administering the trust in the way that the grantor specified. A quitclaim deed is the most common and simplest method (and one you can do yourself). You need to complete forms to request the transfer of ownership and to support who is the present owner and who will be the future one. In case of an estate, relevant documents are open to the public while in trust … Such a trust is normally created in terms of the provisions of the trust founder’s will.In either event, the assets need to be placed into the trust. Technically to fund your trust, you transfer assets into the name of the trustee of the trust rather than to the trust as an entity. The Trust … This process of transferring assets is often referred to as trust funding or as funding your trust. Any income apportioned to this difference will be taxed in your hands until the day you die, in terms of the anti-avoidance provisions. It can be a costly exercise to move assets, acquired by you, into a trust at a later stage. A resident is liable for CGT on assets located both in and outside South Africa. The ways to transfer assets to a trust could be through the following: Donation: You can donate R100 000 per year; anything more than R100 000 is taxed at 20% in the hands of the donor. The general perception is that trusts are just for the wealthy. 6 pros of holding property in a trust A trust does not die (called “perpetual succession”) so it is not liable for estate duty, transfer … Costs can escalate if you don’t set up the right Trust There are costs involved in establishing a Trust. Therefore, on the sale or transfer of the assets, the initial assets valued at R100 000 will be donated and thereafter a loan account will be created in favour of the seller to the value of the assets … Trusts also do away with estate executor fees. You have the option of selling your assets to a trust. You can also subscribe without commenting. The standard trust registration document in South Africa is called a Trust Deed. 3. Your assets can be bequeathed in terms of a testamentary trust or to an inter-vivos trust. … It is no longer required to physically pay the cash to the trust to avoid Capital Gains Tax. Transferring a business to a Trust MARCH 2013 – ISSUE 162 The decision of the Supreme Court of Appeal in Raath v Nel [2012] (5) SA 273 (SCA) illustrates a hard truth that transactions that are entered into have consequences that need to be understood before committing to agreements.. If you are your own trustee, sign the signature card (s) with your usual signature. A trust protects your children if something should happen to you. If there is not enough liquidity in the estate, the Executor may have to sell assets to pay the Estate Duty and Executor’s Fees before anything can be transferred into the trust. Place your tangible property into the trust. This loan account is seen as an asset in the transferor’s personal estate for Estate Duty purposes. Because a property in a trust no longer falls into one’s personal estate, it is not subject to inheritance tax. The perfect time to establish a trust, as part of your estate plan, is when you start building wealth, in order to avoid unnecessary costs. It is therefore important to draw up a sale agreement. This would include any offshore assets. You’ll need to consider the payment of any fees for preparing of the Trust’s financial statements and the filing of any SARS tax returns. Who does the trust vehicle make the most sense for? To determine whether a trust qualifies as a charitable trust under South African law, a grantmaker must look to the trust deed. Ways to transfer the property. © 2021 ooba (Pty) Ltd. All rights reserved. Different classes of assets … First, you can create a written inventory of the goods and make it an addendum to the trust document. The question as to whether or not you should transfer the farm into a trust in the near future rather than after your death by way of a testamentary trust depends on a few factors. The property no longer falls into your personal estate, and thus is not subject to inheritance tax. Your browser's JavaScript is disabled / does not support JavaScript! Sars would then be unable to apply any of the anti-avoidance provisions dicussed above. In South Africa, there are three types of trusts : Living trusts (in South Africa called inter vivos trusts) Testamentary trusts; Bewind trusts; Testamentary trusts are created at the winding up of a deceased estate following a specific stipulation in the deceased person’s Will that a trust must be set up. Start with their home loan calculators; then use their free, online prequalification tool, the ooba Bond Indicator, to determine what you can afford. Use a trust Any natural person can be a beneficiary of a trust. When assets are sold to the trust, the trust does not usually pay for the assets due to a lack of liquidity in the trust; instead, the trust creates a loan account and owes the seller the money. If you have already purchased such assets in your own name and moving them is too costly, #2 above is the best way to leave enough cash to pay the transfer costs if you want your heirs to be able to afford to keep the assets. However, should the relationship between the founder and trustee go sour, beneficiaries may not have access to the income or benefits of the property. The anti avoidance provisions tax income/capital gains not distributed by the trust, attributable to such donation, in the hands of the donor, and also tax distributions to beneficiaries in the hands of the donor, for example when the donor can veto distributions. The costs involved in setting up and administering a trust. “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. One of the largest assets most people own is their home and this is likely an asset you want to transfer into your trust. In this case, the brothers own the CC and the CC in turn owns the property. A vesting trust is a trust where trust property vest in the beneficiaries in terms of the relevant trust deed. Once drafted, the trust deed will need to be signed, settled, and may be subject to stamp duty.. Other potential disincentives include costs involved in setting up and administering a trust plus higher capital gains tax. Home owners need to be aware that they are transferring the property out of their direct control. An estate duty of 20% is levied on South African residents’ worldwide assets on death. The founder holds assets (without owning them) for the benefit of the trust beneficiaries. Donate R100,000 p.a. This mechanism bypasses all the punitive tax rates for trusts, as well as the anti-avoidance provisions. The trustees will administer the assets in the trust until such time as the beneficiaries reach legal age. 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? Enormous tax savings can be achieved through the proper use of trusts. The trust at the date of inception does not possess any money to reimburse the seller, who is a trustee of the trust. You … By imposing limits on the amount South African emigrants could transfer abroad, it prevented a certain amount of assets leaving South Africa. This distribution is called a dividend. Many people with family trusts received advice years ago to transfer their family homes into their trust. If there is liquidity in the trust, you can withdraw funds from the trust and in the process reduce your loan account. Trusts offer flexibility. There are various reasons and benefits to putting a property into a trust… The context is that many people have sold some of their assets to a trust, on loan account. To set up a trust, a trust deed is prepared which sets out the parties and rules of the trust. Depending on when you set up a trust, the following mechanisms are available to move assets into a trust. This may consist of a donation of money, or goods, to the trust. Firstly it is (1) Drafted according to the Trust Property Control Act 57 of 1988 to regulate the governing of a Trust. One can merely do a book entry. Copyright © 2021 Trusteeze / All Rights Reserved. Notify me of followup comments via e-mail. The perfect time to establish a trust, as part of your estate plan, is when you start building wealth, in order to avoid unnecessary costs. Where the trust’s beneficiaries are natural persons, the growth in the endowment policy will be taxed at 30% on interest and net rental income and 12% in respect of capital gains. What is it? 4. The Trust Property Control Act No. Your Trust is taxed at 40% Any assets placed in a Trust … This can result in the beneficiaries not having access to the income or benefits of the property. Selling assets to a trust at less than market value in an attempt to minimise the loan amount will have the following unintended consequences: There are three main ways of reducing a loan account: Both husband and wife may donate R 100 000 each year to the trust in order to reduce a loan. Firstly it is (1) Drafted according to the Trust Property Control Act 57 of 1988 to regulate the governing of a Trust.