Potential purchasers often ask whether it is a good idea to register the property they want to buy in the names of their minor children.
In South Africa, the age of majority is 18 so this would mean any child under 18. A first point to bear in mind is that minors don’t have full contractual capacity and have to be assisted by a – or both-parents when signing an agreement of sale.
But generally, the answer to these clients is no. And for the following good reasons:
Minor children inescapably grow older and will turn 18 at some point. One assumes and hopes for every family that there is always harmony and love between parent and child but sometimes sons and daughters can be rebellious to say the least. After 18 they have full control in law over the property in their name and can easily sell or bond the property, entirely without their parents’ permission and the nett proceeds will be theirs.
It gets better. Sometimes our children marry unwisely, and if such a marriage is in community of property, the new spouse will own one half of the property by virtue of the marriage. What if they get divorced? The ex-spouse walks away with half the property.
Remember also that if your 17-year-old daughter gets married, she automatically becomes a major.
What if the parent who happily invested his funds in a property registered in his minor child’s name now suddenly needs the money back. Not so easy. Property in a minor’s name with a value of over R 250 000 requires a High Court Order to sell and transfer, and in such an Order, the Judge is going to specify how the net proceeds must be invested for the benefit of the minor. Dad does not get his money back! Either he must wait patiently until the minor turns 18 (assuming he/she will be co-operative and sign the sale agreement) or spend upwards of R 30 000 on attorneys and advocates to get such an Order which will probably place the funds beyond his reach, at least until the minor turns 18.
What about taxes? The kind act of giving money to your child is a donation and thus attracts donations tax at 20% payable by either the Donor or the Donee, when you disclose this to SARS, and it will be difficult to call it a loan because a minor cannot sign a binding loan agreement.
So, the above will be food for thought for such a prospective purchaser.
Writer: AJ Murray