INCIDENTAL SUBJECTS AFFECTING PROPERTY TRANSFERS: FAMILY TRUSTS AND COMPANIES

Many people these days, on buying a property, want to register it in the name of a Trust or Company to obtain certain benefits they believe they can gain which are not afforded to private individuals. Most of these have been eliminated in recent years and there are only a few advantages these days in owning a property in the name of a Trust or Company.

A Family Trust is the common recourse against excessive estate duty. Section 4A of the Estate Duty Act only allows each individual a limited abatement before estate duty becomes payable. This means your sale has to exceed the amount of the abatement before your estate becomes taxable. Rising inflation, however, may ensure that most average people will exceed this abatement in the not-too-distant future - and be somewhat the worse off for it. At present, a Trust will assist to avoid the payment of estate duty on the value of the property as it does not become part of the property of the deceased unless the Trust is still indebted to him. Transfer fees are also avoided as no transfer out of the deceased's estate is required.

How long this benefit will apply, however, remains to be seen. The time may not be far off when Trusts become dutiable as well. For the time being, however, they are an advantage.

Transfer duty is presently the same as that payable by Companies and individuals, but Capital Gains Tax on trusts is prohibitive and is way in excess of that paid by Companies and individuals. The major benefit in owning a property in the name of a Trust is protection from creditors of a private individual in the event that he runs into financial difficulties.

Companies offer no protection against estate duty as a member's share in the company, valued on his decease, will be taxed in the same way as if he were a part owner of the property. New Close Corporations can no longer be registered and the benefit of these simple mini-companies has also been lost. Even if you form a Company purely to own a specific property (and for no other purpose) you will still have to comply with all the annual and other obligations of the Company. Transfer duty is also the same for any Company buying a property as it is for individuals and Trusts.

CREDIT:

Property Law Publications

John Gilchrist

082 904 1300