Advice and Opinion

Trusts have a place but must be set up properly

Although it was very popular in the past to put properties into a trust to ring-fence them against high transaction costs, with the impact of Capital Gains Tax now imposed, it has become a less sought after vehicle in which to own property, says Lanice Steward, managing director of Knight Frank Anne Porter. 

“Everyone must remember that the word “trust” has a deep legal meaning – the trustee holds and manages money or property belonging to somebody else. In the broader picture of your estate planning, you would need to obtain the necessary information from your financial advisor, but if you then decide to own property in a trust, it is essential that you complete all the necessary steps to form a trust (if you don’t already have one).”

This has been borne out by a spate of judgements listed in a Smith Tabata Buchanan Boyes law update newsletter, where they mentioned cases over the last ten years where agreements of trusts which have been entered into have been declared null and void, she said.

Before a trust can either purchase or sell a property, one of two things must happen, she said. Either one of the trustees is nominated to act on behalf of the trust and has the necessary authority given in writing by every trustee member in the form of a resolution, or every trustee has to be a signatory on the agreement.

It sometimes happens that the trust puts a property on the market and when the agent asks for the resolution, he is told by the trustees that they will give it to him at the time of sale. This should actually be done before when the mandate is given to the marketing company otherwise the agent does not have the necessary mandate to market the property. This also applies to the signing of an Agreement of Sale. If a sale takes place before this resolution is produced, all actions relating to the property are actually illegal, she said.

If the sale of the property is ever challenged in court, it will be deemed null and void if the correct procedures are not taken.

Unlike a company where you can purchase immovable property on behalf of that entity still to be formed because a pre-incorporation contract can be ratified, this cannot be done in a trust.

“So,” said Steward, “trusts do still have a place in the ownership of property under certain conditions, but you do need to speak to a financial advisor or specialist in the field to set it up and be sure it is the right option in your particular case.”

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