A New Trust Concept For South Africans
01 March 2006
Posted by: Author: Mark Korten
A New Trust Concept For South Africans
In the pre-amnesty environment, an offshore trust was invariably used primarily as a vehicle for hiding grey money.The use of an offshore trust for nefarious purposes is not advisable because of the introduction and vigilant application of various money laundering laws in South Africa and overseas. Bearing in mind, however, that estate duty is levied in South Africa on a deceased resident’s worldwide assets, the use of an offshore trust for estate planning purposes, as well as assets and political protection requirements, remains as valid as ever before.
The traditional offshore trust arrangement is, however, not necessarily suited to South Africans and in particular those who do not have substantial offshore assets.The drawbacks of the traditional offshore trust include the following –
·The costs of maintaining a traditional offshore trust is very expensive in relation to the perceived benefit, with the added drawback that fees are paid out of the limited offshore resources of the estate planner,
·due to the increased sophistication of South African income tax laws, together with the unfavorable tax dispensation of amnesty applicants, there is no clear income tax benefit associated with the offshore domicile and management of an offshore trust by foreign resident trustees in the absence of more costly and sophisticated structuring,
·placing complete control of the estate planner’s offshore assets in the hands of offshore resident strangers creates a sense of discomfort and insecurity for the beneficiaries in South Africa, and
·communication with offshore resident trustees can be expensive, cumbersome and time-consuming.
With the above difficulties and drawbacks, many amnesty applicants have been seriously considering terminating their historical offshore trust arrangements due to the ongoing costs of maintaining such structures without a corresponding income tax benefit.This would be a great pity since the asset protection, estate duty sheltering and political risk protection benefits of having foreign assets held in a trust, remain an important part of any sound wealth protection and estate plan.
One solution is to change the traditional offshore trust arrangement by moving the board of trustees to South Africa.This then makes the offshore trust a South African tax resident but it would not matter as, in the absence of very sophisticated offshore structures (the cost of which is generally not warranted compared to the tax savings enjoyed), the revenue and capital gains derived by an offshore domiciled trust would invariably be taxable in South Africa in any event. By moving the domicile of an offshore trust to Johannesburg, the trust can remain an offshore estate planning vehicle, customised to the particular needs and requirements of South Africans, which results in the following benefits:
·Establishment and annual costs of maintaining the offshore trust are significantly reduced and can be paid in South African Rands, thus not depleting limited offshore resources,
·the estate planner is made the protector of the offshore trust with the various veto powers relating to any decisions made by the trustees, thus giving the appropriate degree of control (much in the same way as with the traditional South African family trust), but without detracting from its estate planning benefits,
·the South African resident trustees should have the qualifications and backing of attorneys, tax specialists and chartered accountants who are able to advise the estate planner on an ongoing basis as to the latest income tax and estate planning laws in South Africa, as well as the prevailing exchange control restrictions applicable,
·as the trustees are Johannesburg-based,the costs associated with corresponding,meeting or otherwise dealing with the trustees is substantially reduced, and
·the estate planner continues to enjoy a certain and settled trust law jurisdiction of the Channel Island of Jersey, as well as a Swiss banking environment of secrecy, privacy and asset protection.Saxon Trust Company, a subsidiary of Swiss Independent Trust Company in Geneva, Switzerland offers this estate planning solution in South Africa.
Source: By Mark Korten (TaxTALK)