Offshore trusts are only for the rich – says who?

The term ‘offshore’ has been much in the news recently and, generally, in a negative light. But offshore structures are simply trusts, companies, partnerships or funds that are resident in – and controlled and managed from – a location that is outside the place of residence of their owner or owners.

Setting up or using a non-resident entity is perfectly legitimate and can offer many private or commercial advantages. There may be tax advantages but, in many cases, tax may not even be a consideration.

Non-resident structures can provide a more secure and stable legal platform if they are governed by a robust and reputable law system. They may be used to operate a business in another country or to separate a domestic business from an overseas subsidiary. They may facilitate the diversification of investments or, where investments are spread across many countries, they may be used to simplify administration.

Ultimately, the intimidation factor surrounding these types of investments comes from a simple lack of understanding. Given the current economic and political uncertainties in South Africa, offshore trusts in particular should not be seen as the preserve of high net worth individuals but should be on the menu for all South Africans as the most secure and economically viable option for investment and retirement planning purposes.

At its simplest, a trust is an arrangement whereby property or assets are transferred from one individual to a trustee to hold the property for the benefit of a specified list or class of persons – the ‘beneficiaries’. The practical advantages of a trust are gained from the distinction that is drawn between the formal or legal owner of property, the trustee, and those people that have the use or benefit of the property, the beneficiaries.

Unlike corporate vehicles, the lack of rigid formal requirements for the creation and operation of trusts, and the tremendous flexibility of trust instruments, make them uniquely useful for estate and succession planning. The trust deed will evidence the creation of the trust and will set out the terms and conditions upon which the trustee holds the trust assets and outlines the rights of the beneficiaries.

There are a number of different countries worldwide that have enacted trust legislation but the quality and suitability of that legislation can vary. When selecting the best jurisdiction for establishing a trust it is important that it offers an English common law system, a strong tradition of enforcing trusts, modern trust legislation that has incorporated contemporary trust concepts, as well as low or no taxation for trusts.

A properly drafted and managed trust can confer advantages in a number of ways. A trust is probably the most satisfactory and flexible way of making arrangements for estate planning. They provide a means to avoid the delays and expense of probate or eliminate forced heirship rules in the country where an asset is based, whilst also providing independent support for those – infant children, the aged, the sick or disabled – who are unable to manage their own affairs.

Trusts further offers a mechanism for preserving family assets or continuing a family business while having the flexibility to allow payments to beneficiaries as the need arises. They may also may offer substantial tax efficiencies and provide enhanced levels of confidentiality.

It is often assumed that the costs of running an offshore trust are prohibitive and certainly the fees charged for setting up and managing a trust may not be affordable or appropriate in all cases, but that does not mean that all types of offshore trusts should be ignored. The benefits that traditional offshore trusts offer is also possible with retirement trust structures which cost a fraction of the price of traditional offshore trusts. Retirement trusts as structured as multi-member schemes in terms of a master trust deed which allows unconnected individuals to be admitted into the scheme as members. Each member’s contributions and investments are segregated from those of other members’ within the scheme and kept in separate notional ‘pots’.

Sovereign has set up the Conservo International Retirement Plan (“the Conservo Plan”) as a low-cost, highly efficient offshore trust structure to enable South Africans to plan for their long-term future. The Conservo Plan is an ideal plan for South African tax residents wishing to consolidate offshore assets and utilise their annual R10 million foreign investment allowance to plan for their retirement needs.

The Conservo Plan is a Guernsey-based multi-member retirement annuity trust, which qualifies for an exemption from Guernsey income tax, and the trustee is a Guernsey-regulated and licensed trust company, Sovereign Trust (Guernsey) Limited. There are three investment entry and pricing levels. At the entry level, the minimum investment level is just £25,000 and the establishment fee and annual fee are both just £500.

In other words, the Conservo Plan offers the security of an individual ‘offshore’ trust in a politically stable jurisdiction but you don’t have to be a high net worth individual to become a member. The Conservo is highly affordable and provides a great starting point for South African tax residents wishing to save for their retirement through an offshore vehicle.
For more information on establishing an offshore trusts, including retirement trusts, please contact Coreen van der Merwe.

Coreen van der Merwe
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