/ 20 July 2011

Should you have your home in a trust?

Simon asks: We purchased our primary residence in a family trust five years ago. We recently had it valued and we seem to have made a profit of about R500 000. My financial adviser says I should get rid of the trust and transfer the property to our names whilst the amnesty for transfer duty is in place.

But could the trust be left if I die and my wife is also a trustee and beneficiary? Otherwise we would have to pay capital gains tax especially as the property value grows.

Maya replies: There are a few problems with a trust. Firstly, any capital gain is taxed at 20% in a trust compared to a maximum of 10% for individuals and secondly, you will not qualify for the R1.5-million primary resident capital gain exclusion.

Trusts have also become less relevant since the change to legislation which allows spouses to roll over their R3.5-million estate duty abatement. This now means that if you die and all your assets are left to your wife, her estate would qualify for a R7-million estate duty abatement. In other words, the first R7-million of the value of the estate would not attract estate duty tax.

The Only way the trust will be tax effective is if you never sell the property and intend to leave it to your children. Is this realistic? You may want to down-size when you are older, for example.

There are also administration costs in having a trust and the receiver of revenue is also looking carefully at trust structures to ensure that they are not being set up to avoid tax. One of the requirements is to have an independent trustee (not a family member) — but that can add additional costs and inconvenience.

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