CAN A TRUST BE SOLD?

(Johan Muller Director Snyman de Jager Attorneys)

Dear Reader

People often ask me about the legal implications of selling property that is registered in a trust. Here is how Johan Muller, Director of Snyman de Jager Attorneys, answer one such a question:

Question

I own a property, registered in a family trust.  Is it possible to sell the trust as an entity and by doing that saving on transfer duties?

Answer

Immovable property is registered in trusts quite frequently due to the fact that this vehicle is a handy estate planning instrument especially in combating capital growth for purposes of estate duty.

What is of great concern is that trusts are quite frequently used without obtaining expert advice relating to the use, nature and consequences of using this vehicles.

The perception is created that in the event where a trust purchases a property and the property is subsequently registered in the name of the trust, a later buyer can save on transfer duties by simply just purchasing the trust in stead of purchasing the property.  The problem is not selling the property but whether the trust, with the property registered in it can be sold as an entity.

Without discussing the historical detail of trusts in detail it is necessary to mention a couple of important aspects :

1.     Due to the personal nature of a trust it was never the legislator’s intention that a trust should be “sold”.  It is possible, depending on the trust deed, that trustees can be replaced from time to time but as soon as changes are made to beneficiaries, who have vested rights in such a trust, it is doubtful whether the trust together with its initial intention still exist.

2.     A trust is created for the benefit of determined or determinable beneficiaries and when a trust is “sold” these beneficiaries have to be replaced with beneficiaries who were never initially determinable.

3.     Most of the discretionary trusts only provide vested rights to the beneficiaries in the discretion of the trustees and until such time as the rights of the beneficiaries vest with them it remains merely an expectation.  What is therefore “sold” is merely an expectation and nothing more.

4.     Any attempt to “sell” a trust is seen by the Receiver of Revenue as a simulated transaction with the main goal of evading the payment of transfer duties.  And will bare a heavy penalty.

In the light of the aforementioned prospective purchasers are  encouraged not to try and save transfer duties by purchasing trusts, for it is physically possible but not the correct method.  The correct method would be to transfer the immovable property from the trust into the purchaser’s name. 

Property Investments