Legal Articles

There are certain advantages and disadvantages that come with buying a house in a trust that already exists.

In this article, we discuss the various benefits and implications of purchasing immovable property in the name of an existing trust.

What is a Trust?

A trust is a legal entity that has been created by a trust founder that can be used to purchase and own immovable property.

After the trust has been created, all assets are placed into the trust in the following two ways:

• The trust founder donating assets to the trust; or
• The trust purchases the assets

Buying a House in a Trust Already in Existence

When a trust which is already in existence wants to purchase immovable property, the real estate agent should always start by checking if the trustees have the necessary authority to purchase property.

In such cases, the estate agent should obtain the following:

• Copies of the letters of authority in favour of the trustees;
• A copy of the deed of trust; and
• A resolution of trustees in cases where not all the trustees are signing the agreement

Similarly, when a trust is bonding or selling immovable property, the real estate agent is required to ensure that the trust itself has authority to sell or bond the property.

When a trust acquires immovable property, such property will be temporarily registered in the trustees’ names as they are acting in their capacities as trustees of the trust.

Estate agents seldom have in-depth knowledge of the financial stability of the trust. Therefore, it’s advised to include a clause in the sale agreement which legally binds the signatory to be personally liable to carry out the obligations of the trust should the trust itself fail to do so.

Advantages of Buying Property in the Name of a Trust

• Limited Liability

A trust has a legal personality which is separate from its beneficiaries and trustees, just like a Company or Close Corporation

• Continuity

Beneficiaries and trustees enjoy the benefit of continuity as the trust’s continued existence is not affected by changes in membership

• Estate Planning

In terms of Estate Duty Tax, a trust is not a person and therefore, the trust fund has no estate duty implications when trustees are deceased

Disadvantages of Buying Property in the Name of a Trust

• Transfer Duty

Before 1996, a trust was required to pay transfer duty at a rate that was determined by the identity of its beneficiaries.

However, today trusts are deemed to be legal entities (not natural persons) and are only liable to pay transfer duty at a flat rate of 10% of the immovable property’s value.

• Capital Gains Tax

When the trust is selling immovable property, capital gains tax is applicable

Van Deventer & Van Deventer Incorporated – Property Attorneys South Africa

Buying a house in a trust comes with some advantages and disadvantages. If you would like more information, please feel free to contact our attorneys in Cape Town and Johannesburg.