Eleanor asks whether she should put a property in a special trust for her brother with Downs Syndrome.
My sister and I bought a flat together to secure the residential fee income of our 50-year-old brother with Downs Syndrome. Now I have come across “special trusts”, and I wonder if we should have bought it in a trust and whether we should transfer it to a trust now? In the event that our brother dies, can the trust continue, as an ordinary trust, with our children becoming beneficiaries?
Maya replies: According to Ronel Williams, a fiduciary specialist at BOE Trust, the income of a special trust is taxed at the rate applicable to individuals. If the income is paid to, or utilised, for the benefit of your brother, there will be no tax benefit in transferring the property to a trust.
Williams says the real issue is what happens to the property when you and your sister pass away.
Because the property is registered in your names, it means it will fall into your estates when you die and will therefore devolve in terms of your wills, which will not necessarily provide protection for your brother.
Setting up a trust
Because of the need to provide for your brother, Williams says you should consider setting up a trust where your brother is the sole beneficiary during his lifetime and the trust will qualify as a special trust.
Benefits
There will be no savings on tax but the benefit is that the property will be housed in the trust and should you or your sister die there would be no impact on his estate.
Downside
The downside of this however is the costs involved in getting the property into the trust:
- Transfer costs (attorney’s fees)
- Transfer duty — 8% of the value of the property
- Capital gains tax — if the property has grown in value since purchase
- The costs of setting up the trust (between R5 000 and R15 000)
Recommendation by Ronel Williams
It seems like the better option would be to change both your wills in order to bequeath your respective share of the property on a trust with your brother as the sole beneficiary during his lifetime. The trust will only come into existence on your respective deaths.
You could nominate your children as beneficiaries after his death, with the trust to terminate once the youngest of the children reaches the age of majority. In that way, you get the added benefit of providing a secure income for the children.
The information provided is for information purposes only. Trusts can be fairly complicated so it is best to seek advice to ensure that the right structure is put in place to meet your needs.
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