A residential trust is a trust that owns or holds rights over a home or other residential property for the benefit of one or more people. In South Africa, this is usually a discretionary family trust that either acquires a primary residence, holds an investment flat, or ring-fences a holiday home for the family. The trustees own and administer the property in a fiduciary capacity, while beneficiaries enjoy the occupation, income or long-term value according to the trust deed and trustee decisions.
Below, we unpack how a residential trust works, why families use it, the benefits and trade-offs, and the practical issues that often arise.
How a residential trust is structured
A founder creates the trust and appoints trustees. The trust deed sets the purpose, identifies beneficiaries, and grants powers to acquire and manage property. In modern practice there should be at least one independent trustee. The trust registers with the Master of the High Court and opens a bank account. Property can then be purchased by the trust or transferred to it, subject to transfer duty, bond approvals and compliance checks.
Funding is a key step. Some families donate cash to the trust to buy the house. Others sell the property to the trust on a loan account. Section 7C of the Income Tax Act must be considered if the loan is interest-free or below the official rate. Where a bank bond is needed, lenders usually require trustee resolutions, financial statements, and personal sureties.
The purpose of a residential trust
The central purpose is to separate ownership from enjoyment. The trust can hold the house while one or more beneficiaries live in it, or the trust can hold residential property as a long-term asset for the family. The trust survives changes in personal circumstances, which supports continuity across generations and reduces the risk that a family home must be sold during a difficult time.
For blended families, a residential trust can balance competing needs. For example, a spouse can have a right of occupation for life, after which the property remains in the family for children from an earlier relationship. The deed can also require the trustees to keep insurance, rates and essential maintenance current so the home does not deteriorate.
Who benefits and how
Beneficiaries benefit in one of three ways. They may occupy the property under trustee consent or a written right of occupation. They may receive rental income if the home is let. They may benefit in the long term when the property is sold and the proceeds are applied for their benefit. The trustees must minute decisions, treat beneficiaries even-handedly, and manage conflicts of interest between residents and non-resident beneficiaries.
Key benefits of a residential trust
Asset protection and continuity
Properly governed trusts can shield a home from personal creditor claims and reduce disruption on death. When an individual dies, a personal house forms part of the deceased estate and may be tied up during administration. A house in a trust continues to be managed by the trustees without waiting for letters of executorship.
Estate planning clarity
A residential trust fixes the rules about who may live in the home, who pays which costs, and what happens on death or disability. Growth in the value of the property accrues to the trust rather than to an individual estate. That can reduce estate duty exposure on future growth if the structure is planned and funded correctly.
Governance around occupation
Families often rely on informal arrangements for who lives where and who pays what. A trust deed and trustee resolutions can set clear terms for occupation, contributions, maintenance standards and insurance, which reduces disputes and protects value.
Succession for minors and vulnerable beneficiaries
If a child or vulnerable adult needs stable housing, the trust framework allows trustees to manage the property, collect rentals if applicable, and pay for upkeep without waiting for court orders each time a decision is needed.
Tax and cost considerations
A trust is taxed at a flat rate on income and at a higher effective rate on capital gains compared with many individuals. The primary residence exclusion for capital gains tax generally applies to natural persons and special trusts type A. Ordinary discretionary trusts do not automatically qualify for the full exclusion. Trustees can consider vesting gains in beneficiaries where appropriate, but this must be planned with care.
Transferring a home into a trust can trigger transfer duty unless a specific exemption applies. If a loan is used, Section 7C can deem an annual donation when interest is not charged at least at the official rate. Rates, levies, insurance and compliance certificates remain ongoing costs. Annual financial statements, tax returns and beneficial ownership filings add an administrative layer. These costs should be budgeted before the trust buys the home.
Common issues with residential trusts
Alter-ego risk
If the founder treats the house as if it were still personally owned, pays personal expenses from the trust account, or bypasses the independent trustee, the trust can be attacked as an alter ego. Courts may then ignore the trust for certain claims. The remedy is simple discipline. Keep proper minutes, separate finances, and ensure real participation by all trustees.
Bank finance and sureties
Banks often require personal sureties from trustees, higher deposits, or stronger affordability tests for a residential trust bond. This is not a barrier, but families should expect more documentation and longer timelines.
Unclear occupation terms
Disputes arise when one beneficiary lives in the house and others expect cash distributions. A written occupation agreement with contributions for utilities, levies and maintenance helps. Trustees should review this annually and minute any changes.
Liquidity on big repairs
A roof replacement or special levy can strain a trust with little cash. A sinking fund or access to short-term facilities avoids forced sales. If the trust is funded by a loan, agree rules up front for additional advances and repayments.
Taxes on exit
Selling the house can trigger capital gains tax at trust rates if gains are retained in the trust. If proceeds will be distributed, consider vesting strategies and timing. Always model the numbers before a sale is approved.
Practical tips to make a residential trust work
Start with a clear purpose in the deed. Name a balanced board with at least one independent trustee who understands property and governance. Adopt a simple investment and maintenance policy. Pass an annual budget for rates, levies, insurance and planned maintenance. Keep a compliance pack with the deed, letters of authority, trustee IDs, a current beneficiary list, minutes, the beneficial ownership register and insurance schedules. Where someone lives in the home, sign an occupation agreement and review it each year. Finally, schedule an annual meeting to review cash flow, Section 7C consequences if a loan exists, and any tax planning around capital gains and distributions.
When a residential trust is a good fit
It is a strong option for families who value continuity, who want to protect a home across generations, or who need structured guardianship for vulnerable beneficiaries. It suits owners who are comfortable with governance and who accept that professional administration is a recurring cost. It is not ideal for people who want the absolute cheapest ownership model or who need to maximise the primary residence capital gains exclusion in their personal name.
How Crest Trust can help
Crest Trust helps families design residential trust structures that are practical, compliant and sustainable. We serve as independent trustees, draft occupation and maintenance policies, maintain the required registers, and coordinate tax and legal input so that your residential trust supports your real-world goals.
If you want to protect a family home, manage fair occupation and maintenance, and secure clear succession across generations, a residential trust can be a powerful tool. Speak to Crest Trust for a practical blueprint that aligns legal, tax and family needs in one coherent plan.
FAQs
What is a residence trust?
A residence trust is a trust that owns or holds rights over a home for the benefit of named or discretionary beneficiaries. In South Africa it is typically a family trust that acquires or holds a primary residence or other residential property and sets rules for occupation, costs and succession.
What are the disadvantages of putting your house in a trust?
There are added costs and administration. Trusts file tax returns, keep minutes and registers, and may face higher capital gains tax if gains are retained. Banks can require stricter lending terms and personal sureties. If governance is weak the trust risks being treated as an alter ego. There can also be transfer duty on the move into the trust and Section 7C issues if the transfer is funded by a low interest loan.
What is a resident trust?
A resident trust refers to the tax residency status of a trust. A South African resident trust is one that is tax resident in South Africa under local rules and double tax agreements. A residential trust describes what the trust owns. A resident trust describes where the trust is taxed.
What are the three types of trust?
Common categories are inter vivos trusts created during the founder’s lifetime, testamentary trusts created in a Will that take effect on death, and special trusts which are recognised for specific tax treatment in defined circumstances. Residential trusts are usually inter vivos discretionary family trusts that hold residential property.