Dump That Trust Through The Window

Family Trust Tax Window

Winston E. Miller / 18 December 2009

The use of a living trust [inter vivos] to which substantial assets where donated became a popular mechanism or tool in estate planning, particularly for wealthy individual where there were assets were likely to have substantial growth over the years. The property was removed from attack by creditors of the donor and there are or were several tax consequences, which could be favourably employed.

Not all legal or financial advisors were enamored with the use of a trust in estate planning. They were now wary of intervention by tax legislation which was the main objection to the use of such a trust. Substantial loss of transfer duty collection soon became apparent directly to the Receiver attributable to transfer of shares in property owning companies or the beneficiaries in property earning trusts. No doubt as a result the Receiver introduced legislation which made the sale of interests in property owning companies or trusts subject to transfer duty.

This attack was followed by the imposition of capital gains tax (CGT) which again made the use off companies and trusts less favorable. CGT is imposed on the disposal of an asset with an effective rate of tax of 10% for individuals; companies 14% and trusts at 20%. to put the icing on the cake a specific exclusion of R 1.5 million gain/loss on the disposal of a primary residence or the disposal of a primary residence for an amount of R 2 million or lessis available to an individual who disposes of a property which was a primary residence. This exclusion is not available to property owning company and a trust. The use of a family trust to acquire the residential property has thus lost its attraction except in so far as the creator of the trust may be motivated by the benefits referred to above which remain and may be of advantage.

The taxpayer whose residence has been "locked" in to a trust has now been given another opportunity to take advantage of these CGT exemptions. The Taxation Law Amendment Act was promulgated on 30 September 2009 and takes effect on 1 January 2010 allowing a window period of 2 (two) years from 1 January 2010 to 31 December 2011 for the opportunity of a natural person to take transfer of the residence with advantage of no transfer duty being payable or CGT consequences. Whilst taxpayers can take advantage of this opening of a window of opportunity is not likely that it will ever become available thereafter.

We have dealt with the basic provisions relating to the winding up of the trust and the transfer of the property to the individual. We would be happy to arrange a online consultation or to discuss the further provisions of the opening of the window and the qualifying conditions as may be relevant to your case in point on a first consultation no charge basis. At such time we've will provide you with a fixed figure quotation incorporating advice, preparation of documentation and registration in the deeds office.

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