There is much more to creating a legacy for your family than simply leaving a list of homes, yachts and other assets for them to inherit – and, if that’s all you do, there’s a good chance that your primary beneficiary will be the taxman. But many South Africans have significant misconceptions around the term ‘offshore’ and this prevents them from fully exploring their retirement and financial planning options.
A so-called ‘offshore structure’ is simply a non-resident or overseas entity. Setting up or using a non-resident entity is perfectly legitimate and has many commercial and private purposes. There may be tax advantages but, in many cases, tax may not even be a consideration.
Non-resident structures may offer a more secure and stable legal platform because they are governed by a reputable law system. They may facilitate the diversification of investments or, where investments are spread across many countries, they may be used to simplify administration. They may provide a means to eliminate forced heirship rules or probate in the country where an asset is based.
“Offshore trusts are open, within reach, and should be a standard consideration for many South Africans, not just the super-rich,” says Coreen van der Merwe, Managing Director of Sovereign Trust (SA) Limited. “Investing in retirement trusts is no longer a luxury. It is a real option for those who don’t have an ultra-high net-worth but who want to ensure they’ll have sufficient retirement income that can grow in a strong currency within a politically stable jurisdiction.”
Properly structured trusts allow families to preserve and protect their assets from creditors. Trusts also provide controlled distributions for beneficiaries who are not in a position to manage assets themselves, ensuring that anyone in the family that is vulnerable is protected.
“Guernsey Retirement Annuity Trusts, like Sovereign’s Conservo, are a great starting point,” says van der Merwe. “They are affordable and enable clients to protect their assets long after they pass on.”
What are the entry points?
South Africans can set up a Guernsey retirement plan for contributions of GBP25 000 and above. The investment doesn’t attract any tax in Guernsey, there is no need to make regular contributions to the plan and there are no limitations on the number of contributions the investor can make over time.
The benefits of an offshore trust include flexibility, effective tax and succession planning, while also saving on executor’s fees and offering enhanced levels of asset protection. While assets in your personal estate are frozen during the finalisation of a deceased estate, trust assets are accessible at all times.
Ideally, retirement planning should be considered and funded while the investor is still working and not already in retirement. An investor can start to receive payments from a retirement plan such as the Conservo from the age of 50 and can also postpone receiving payments until the age of 75, but no later.
Trust companies are well aware of the challenges facing South Africans. “The important thing is to work with a professional – a licensed trustee that will set up a valid trust or retirement plan and then provide the necessary administrative work to hold assets and investments for secure, efficient wealth and succession planning. If a trust is not set up and administered properly, you run the risk of losing the benefits available,” adds van der Merwe.
Sovereign Trust (SA) Limited is part of the Sovereign Group, which is now one of the largest independent corporate and trust service providers in the world. We currently manage over 20,000 structures for a wide variety of clients – companies, entrepreneurs, private investors or high net worth individuals (HNWIs) and their families – and have assets under administration in excess of US$10 billion.
Sovereign has over 20 offices worldwide and is a leading provider of international pension and retirement plans. It offers retirement schemes from a number of jurisdictions allowing a ‘best fit’ approach with optimal tax planning. In addition, Sovereign Trust’s personal wealth services help its clients to preserve, enjoy and pass on the rewards of their success.
