Expand estate planning with <br>cost-efficient offshore trusts
Fiduciary and Tax / 2017.12.01

Expand estate planning with
cost-efficient offshore trusts

Shane Tremeer MD of Sanlam Private Wealth Africa

Relaxation of exchange control regulations has made it possible for wealthy South Africans to build substantial foreign holdings. Offshore trusts, when established for the correct reasons, remain a popular choice, especially for estate planning. Sanlam Private Wealth has for the past seven years offered offshore trust services and to make this option accessible to more of our clients, we’re now offering a new, cost-efficient offshore trust solution.

Offshore trusts hold significant benefits for South African investors with foreign assets:

  • Exchange control regulations restrict local trusts from investing directly in foreign assets, except by way of asset swap. Offshore trusts are therefore often the most suitable mechanism to align offshore asset holdings with an estate plan
  • They facilitate global diversification of assets in a way that allows for succession upon death, so complex issues relating to offshore inheritance tax and probate requirements can be largely avoided
  • If correctly structured, and located and effectively managed in a well-regulated financial services centre, they can protect assets from sovereign risk and political or economic turmoil at home. Assets held in such trusts won’t be considered part of an estate in South Africa on death for purposes of the administration process, executors’ fees or estate duty and capital gains tax (CGT)*
  • For potential emigrants, the act of leaving South Africa will likely trigger a deemed CGT charge on the market value of assets. However, if the assets are held in trust, funded by a correctly structured loan, there will be no CGT on the value of the outstanding loan account.

Until now Sanlam Private Wealth (SPW) has offered our clients offshore trusts, along with a range of other services, via Summit Trust Mauritius, recently rebranded as Sanlam Trustees International. Our fiduciary and tax team in South Africa provides advisory services.

Increased regulatory and reporting requirements have increased the costs of setting up and administering an offshore trust over the past few years, making it largely unfeasible to consider this option for foreign investment holdings of less than US$1 million. In response to client requests, we’ve now developed a cost-efficient offshore trust solution for individuals or families with investable foreign assets of between US$500 000 and US$2 million – an option with slightly less functionality, but priced at a reduced annual fee.

Our new offshore trust solution – offered via Sanlam Trustees International in Mauritius – is subject to an agreed scope of services and suite of investments. It may, for example, hold a maximum of five unit trust investments selected from the SPW approved offshore fund list, and won’t hold direct (segregated) equity or bond portfolios. The cost-efficient trust will not have a separate bank account and cash will be held in a money market fund.

This offshore trust option will ensure that more of our clients will be able to enjoy the benefits of expanding their estate-planning process to include their foreign assets. It’s important to remember that offshore trusts are subject to stringent regulatory requirements that ensure peace of mind for clients.

At SPW, we can facilitate the seamless integration of your local and offshore estate planning. For further information, please contact your wealth or portfolio manager or our fiduciary and tax team at fiduciary@privatewealth.sanlam.co.za. For more information on Sanlam Trustees International, email Rod Phillips in Mauritius at rodp@trustees.sanlam.com.

* Please note: The scope of this article is limited to the broader benefits offered by offshore trust structures. Various other issues such as the funding mechanism and related income tax, donations tax and estate duty consequences should be given careful consideration. You are also strongly advised to obtain professional tax advice on these and related matters before establishing trust structures and transferring assets to an offshore trust.

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