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Thread: Usufruct in trust

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    Usufruct in trust

    I am in the process of sorting out my affairs. Am just wondering if putting a holiday house into our family trust by way of usufruct is a good idea. Sounds good but are there any pitfalls I should look out for.

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    Platinum Member sterne.law@gmail.com's Avatar
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    Not quite sure why you want to put into trust, or the intention and goals.
    A usufruct is a very useful tool, where ownership of an asset is left to a person or persons subject to another being allowed to make use of it during their lifetime or subject to a time clause. Often used for a property, where the child/children inherit but the remaining spouse get sto live in it.

    I would think that if you are using a usufruct within a trust you are already looking at slightly more complicated ground and should get an attorney to draw up the will. Alternatively a sper first lines, a outline of why you wish to do it within a trust may make room for better guidance. Working on a premise that you wish to leave a property to youngish children and wanting to use a trust to prevent them squandering - then a usufruct without a trust will work. The child can do nothing with the property as they only get ownership when the spouse passes.
    Another option with property is a fidiciucomm, where you dictate ownership. That is a property is left to a person who in turn must leave it to another. This may be enforced for 2 generations.
    Anthony Sterne

    www.acumenholdings.co.za
    DISCLAIMER The above is merely a comment in discussion form and an open public arena. It does not constitute a legal opinion or professional advice in any manner or form.

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    daveob (07-Aug-10), dustycody (09-Aug-10)

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    Hi. Thanks for your reply. We currently have 2 homes in a trust and 2 in our personal names which are paid up. Our current trust is very outdated and when i went to see a trust specialist to have it amended it was suggested we transfer the paid up homes into the trust (asset protection, estate duty, exec fees etc) as well as protection for our children from their future spouses. I asked if it was possible to leave our share of the properties in our will to the inter vivos trust in the event of our death but the suggestion was to rather transfer it now and,to avoid the 8% duty, transfer it using a usufruct. It makes sense but i am then just worried about the huge capital gains tax implications should the properties get sold from the trust in the future. I am meeting with the specialist again next week to work out finer details so I was just hoping someone could warn me of any pitfalls that I have not thought about.

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    Site Caretaker Dave A's Avatar
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    Quote Originally Posted by dustycody View Post
    It makes sense but i am then just worried about the huge capital gains tax implications should the properties get sold from the trust in the future. I am meeting with the specialist again next week...
    Be sure to ask about the conduit principle when it comes to taxation - it's an option in that sort of situation.
    The trouble with opportunity is it normally comes dressed up as work.

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    Platinum Member sterne.law@gmail.com's Avatar
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    I think the deciding issues would revolve around the tax implications. That of course means now, plus the costs on death such as estate etc and the various administration costs. Who would be trustees is also an issue.

    In terms of your will you can exercise just as much control as a trust. Both usufruct and fidisicomm can be protected against insolvency and spouses. The freedom of testation, which is an integral part of our succession law, allows you a large scope to set conditions that can cover almost any event. You can determine that the property may only evolve to your childs children who are alive or conceived at your time of death or have time clauses and suspense conditions. Our succession laws allow for a testator to leave an asset, or something, but if my wife remarries it must be given to the SPCA or if my wife marries outside of the jewish faith(as an example). This indicates pretty much what can be done. (this freedom of testation though is bound to fall foul of a constitutional challenge in due course)

    I would suggest that work out the cost implications and then use the mechanism that has the best financial implications balanced against practicalities and achieving what you want without potential backfiring or snags.
    Anthony Sterne

    www.acumenholdings.co.za
    DISCLAIMER The above is merely a comment in discussion form and an open public arena. It does not constitute a legal opinion or professional advice in any manner or form.

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    Diamond Member wynn's Avatar
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    The Idea of donating a property to a trust with a usufruct, is a means of avoiding transfer costs in the short term.
    When the property owner passes the property is registered to the trust as part of the deceased's estate thereby avoiding unesessary transfer duties and taxes.
    It also keeps the property out of the net if the owner should be sequestrated, provided there is a reasonable time period and no reckless trading happened between the usufruct and the sequestration.
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