TRANSFERRING IMMOVABLE PROPERTY TO A MINOR CHILD
Category Property News
Transferring immovable property to a minor child
Many people transfer property into their kid’s names while they are still minors, and there are numerous advantages. The problem is that while the process of transferring the property to a minor is simple, if for some reason, you decide, after the fact that you need/want to sell the property, it’s not so easy. Here’s what you to need to know.
Advantages
- Give the kid start
Your kid might be a minor now, but they will grow up sooner than you think, and no young adult ever has complained about been given a property as a gift.
- Separate from third party claims
Any property owned by minors is separate from any claims by creditors or other third parties. This is a goods way to protect your children’s future, against possible financial complications by the parents or their business.
The alternative is to place the property in a trust but you will be faced with excessive capital gains when transferring the property into such an entity.
- Save on estate tax
Transferring a property to a minor means that when you die, the property will not form part of your estate, this means there is less estate tax to be paid.
Legality of a minor
A minor under the age of seven has no contractual capacity (parents or guardians can sign on their behalf), while a minor between the ages of seven and eighteen can sign a contract with their parents or guardians’ assistance, or the parents/guardians can sign on their behalf.
What happens when you change your mind?
So your 17 year old son is not quite the angel he was when you transferred that Plettenberg Bay holiday house into his name. You decide that he won’t be taking ownership of the property and now you want to sell it. How difficult can it be?
See you in court
That’s right, once the property has been registered in a minor’s name, should you decide to sell or even mortgage the property, you are going to need the permission of the Master of the High Court. And you’d better have a good reason.
In fact, if the value of the property exceeds R100 000 you will need the permission of the High Court itself. Courts will only authorise a sale if the sale will benefit the minor. In addition you will have to provide the court with details of how the proceeds of the sale will be distributed.
This basic principal applies to anything you want to do with the property, the court is there to protect the rights of the minor.
Making applications to the High Court is not cheap, and any decisions the court takes will always be in the interest of the minor. All this is gazetted and contained in the Administration of Estates Act 66 of 1965 (see below).
You will have to motivate the application to the court with good reasons as to
- Why the property is now being sold?
- Is the sale to the benefit of the minor?
The court is not interested in the fact that you may have purchased a lemon! Your application may be fraught with difficulty trying to prove that the sale will be of benefit to the minor.
In addition you will have to provide the court with details of how the proceeds from the sale are to be invested, motivate the investment and prove to the court that it is in the interest of the minor. If the proceeds are not to be reinvested in property BEWARE they have to be paid to the Guardian’s fund and be kept and administrated on behalf of the minor. Only in exceptional circumstances has the court ruled that the funds do not have to be held in the guardians fund however the onus will be on you to prove that the investment is to the benefit of the minor.
The idea of transferring or buying a property for a minor is a nice one, a noble one and can make plenty financial and common sense. But think long and hard before you do, and better still consult a property attorney or specialist and make an informed decision.
ADMINISTRATION OF ESTATES ACT 66 OF 1965
80. Restriction on alienation or mortgage of immovable property by natural guardian, tutor or curator
(1) No natural guardian shall alienate or mortgage any immovable property belonging to his minor child, and no tutor or curator shall alienate or mortgage any immovable property which he has been appointed to administer, unless he is authorized thereto by the Court or by the Master under this section or, in the case of a tutor or curator, by any will or written instrument by which he has been nominated. ADMINISTRATION OF ESTATES ACT 66 OF 1965 Page 33 of 52 http://juta/nxt/print.asp?NXTScript=nxt/gateway.dll&NXTHost=juta&function=f... 2015/03/24
(2) The Master may at any time authorize- (a) any alienation of immovable property belonging to a minor or to a person for the administration of whose property a tutor or curator has been appointed, if the value of the particular property to be alienated does not exceed the amount determined by the Minister from time to time by notice in the Gazette and the alienation would be in the interest of the minor or of such person, as the case may be; and (b) any mortgage or any such immovable property to an amount not exceeding in the case of any one such minor or person, the amount determined by the Minister from time to time by notice in the Gazette, if the mortgage is necessary for the preservation or improvement of the property or for the maintenance, education or other benefit of such minor or person, as the case may be.
[Sub-s. (2) substituted by s. 6 of Act 15 of 1978 and amended by s. 3 of Act 157 of 1993.] 3 Fixed at R250 000 by GN R920 in GG 38238 of 24 November 2014 4 Fixed at R250 000 by GN R920 in GG 38238 of 24 November 2014
Author: Helen Ward