trust a trust?
26 August 2008

Question:
My mom just passed away and left her assets, which include a house, to us four kids. A family member suggested that we rent the house out and put the rental money in a trust.
I would like to know if this would be a good move and what the pros and cons would be.

Answer:
It depends on what your long-term objective is. I am not a big fan of long-term joint investments with family members as individuals' personal situations change all the time. If one family member needs to access their part of the inheritance down the road then you may be forced to sell the house or buy them out. Trusts are good vehicles for asset protection, but they can be expensive to maintain and things get complicated when you have four people with an interest in one asset. I can't see any good reason to do this.

The rental income should be placed in some kind of investment. It will not do anyone any good if it is simply going into the trust's current account. The only merit I see in not selling the property and dividing the asset is the current market conditions house sales are slow.  You could put a tenant into the house while the estate is being wound up. The rental income could be split between you.

If you do not sell the house it will have to be transferred into someone's name. It would be a good idea to chat to an attorney to weigh up the pros and cons. Judging from past experience, if the asset is worth less than R2-million, it's probably better to sell it and distribute the proceeds. The good news is that one family member does not have to take transfer of the property. You can sell the property to a third party without the heirs having to take transfer which will save on transfer costs.

Iona Minton, http://personalfinance.iafrica.com