Written for Property Poser
A reader looking to invest in a property as student accommodation for his three children has asked the Property Poser panel for some expert advice.
The reader is looking for a workable solution for his particular situation, which will see his children enter university at staggered intervals from next year onwards.
He assumes that all three children will remain in the same city during their studies and would like to secure accommodation for them through the years of their studies and beyond, if required.
The reader is in the fortunate financial position of being able to purchase a dwelling for them but is concerned about splitting the ownership three ways.
He is worried about the potential for arguments over the rights to the dwelling and possibly even rental disputes. Co-ownership is thus not ideal as far as he is concerned.
As their father he does not wish to retain ownership of the dwelling but, for reasons related to his estate planning and other personal circumstances, rather wishes to pass the property to his children before his death.
Because he would like the use of the dwelling to be fair and structured, the reader has asked whether the use of a trust should be considered.
Schalk van der Merwe from Rawson Properties in Somerset West, Cape Town, says a trust is a legal entity that results in and permits the separation of ownership and use.
“It is given a certain structure and ‘personality’ through a set of documentary rules and provisions.”
Van der Merwe says it is represented by trustees who apply the rules of the trust to its assets and income.
“In the present set of circumstances, it would seem that a trust may be a very appropriate entity to help our reader achieve his goals.”
The trust could be structured in such a way that the three children are permitted to use it as a dwelling, whether during their studies or as a place to stay afterwards should they need it, says Van der Merwe.
“As we don’t know what the future holds or whether all his children will go on to tertiary education, the provisions of the trust could also permit the accommodation of a child without necessarily studying at the time.”
Once it has served its purpose, the dwelling could be sold with the proceeds being invested for the benefit of the three children, or even their children, says Grant Hill of Miller Bosman Le Roux Attorneys in Somerset West.
“Or the proceeds could merely be divided up equally and given to the three children as part of their inheritance.”
With some thought and sufficient flexibility to the trustees, the reader is sure to strike a balance he is satisfied with, says Hill.
“Very important to consider is the identity and appointment of the trustees.”
Hill says the trustees should exercise their authority with skill and care and always in accordance with the appropriate legislation, including the Trust Property Control Act and the provisions of the trust deed itself.
“Our reader should take comprehensive advice on formulating and registering a trust and also on the tax and other potential implications of its use.
It does, however, seem as though the practical benefits of the use of a trust will outweigh any disadvantages in this instance, says Hill.
To ask a property related question, visit www.propertyposer.co.za.
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On behalf of:
Rawson Properties Helderberg & Miller Bosman Le Roux Attorneys