Amnesty trusts still paying 'hush money'
Amnesty trusts the offshore structures legitimised by the 2003 SARS amnesty on exchange control violations by the rich could still be paying a form of 'hush-money' in the shape of bloated fees agreed when clandestine arrangements were first formed.
So says BJM Private Client Services, a financial service provider to some of the country's wealthiest families and an advocate of regular structural reviews to assure costing efficiency.
"The unjustified confidentiality premium should have been revisited four years ago when the amnesty procedures were completed," says Tony Barrett, head of wealth management at BJM PCS.
"In the vast majority of cases it didnt happen. In the reviews we carry out, we often find the South African trust settlor is paying five times the fees that might be considered reasonable for the services that are provided.
"When these structures were set up in some cases25 years ago the numbers were not challenged as the prime requirement was confidentiality. Continued payment at these levels is often unwarranted. One advantage of legitimacy is that hush-money in whatever form is no longer required yet these habits persist."
Barrett, who has spent time in the Channel Islands, estimates that many thousands of South Africans with offshore assets authorised by our tax authorities continue to pay a high "confidentiality premium" for trust services.
During the amnesty process, SARS' Amnesty Unit considered 42 672 applications disclosing R68,6 billion in foreign assets at the prevailing 2003 exchange rate. About R47,6 billion had not been previously authorised for exchange control purposes.
Those granted amnesty paid a 10% penalty on the value of their 'grey assets'.
Barrett adds: "As a rule of thumb the annual cost of the trust should not be more than 0.5% of assets under management. The trust settlor should be clear about what he or she is paying for and what extra costs may be levied for additional services and transactions.
"Often we find that the provider of trust services, perhaps domiciled in Jersey or Guernsey, has received substantial fees simply for setting up the trust and housing the assets. There are no onerous requirements and no value-add, but top-of-the-range fees are still levied."
A key issue is the mismatch between structure complexity and the simplicity of the task required.
"We see Rolls-Royce structures for family car performance," says Barrett. "In one case, the trust simply sat on 700 000 in cash and unit trusts nothing more was required for an annual fee of 10 000.
"The structure and provisions of the trust were so elaborate they could have accommodated property and equities across several jurisdictions, a yacht at Monte Carlo and various additional interests. There was no correlation between the services that were needed and the structure that had been put in place.
"We don't advocate a cheap-skate approach. But we do advise clients to make sure the trust structure is appropriate for their needs, make sure you know what you are paying for and get value for money. The best was to achieve this is to ask an independent expert to review the structure and advise as to what is most appropriate to current needs and circumstances."
