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Is an offshore trust the right vehicle to protect your international assets for future generations?

24 May 2022 FNB
Willem van der Merwe, Global Solutions Specialist at FNB Wealth and Investments

Willem van der Merwe, Global Solutions Specialist at FNB Wealth and Investments

Trusts have long been invaluable investment and estate management vehicles, most often used by individuals as a way of storing up and protecting value for their beneficiaries.

Offshore trusts offer the same benefits, but as their name implies, they are typically domiciled outside of the borders of South Africa and are mainly used to house international assets. These offshore personal asset management vehicles have grown more popular as restrictions on international investment and movement have eased, but many people still mistakenly believe them to be complex instruments only suited to the very wealthy.

To debunk this myth, Willem van der Merwe, Global Solutions Specialist at FNB Wealth and Investments offers simple answers to some of the most commonly asked questions about how offshore trusts work and how to get the most out of them:

What is an offshore trust and what benefits does it offer?
A trust is essentially a contractual agreement in which the person establishing that trust (the settlor, donor or founder) commits to transferring assets to the trust. In turn, the trustee agrees to look after those assets on behalf of nominated beneficiaries. The structure of a trust means that it offers valuable protection to the assets transferred into it, making it a popular estate planning vehicle.

An offshore trust is essentially the same type of agreement. One of the key differences is that it is used to house offshore assets. Like its domestic namesake, the international trust also serves as a succession vehicle because the assets placed in it can remain there after the individual passes away, allowing future generations to benefit from them.

Why is an offshore trust necessary? Can’t I just put my international assets in my domestic trust?
South African exchange controls don’t generally allow domestic trusts and companies to hold international passive assets like investment portfolios. This means that if you want to give your international assets the same protection as your local assets get from a domestic trust, you need to establish an offshore trust.

Where should I set up my offshore trust?
When choosing where to establish your offshore trust, it’s important to look for a jurisdiction with a good reputation and a legal system that can be relied on . It’s also useful if your chosen jurisdiction is in a similar time zone to yours and offers services in your home language. For all these reasons, FNB International Trustees, which offers a full range of offshore trust services, often recommends that its clients consider establishing their offshore trust in a location like Guernsey in the Channel Islands. Not only does Guernsey tick all of the boxes mentioned above, it also has a long history of providing reliable trust services and a reputation for being well regulated.

Can I move my existing offshore investments into an offshore trust with FNB?
Yes you can. Any individual can transfer their offshore assets to an offshore trust to take care of those assets for their beneficiaries. Importantly, you would need to show that these assets have been legitimately acquired offshore and the intended trustee will usually perform a due diligence on all parties involved. The process of transferring your assets to an offshore trust administered by FNB International Trustees would typically involve an initial loan agreement, as the trust may not have the money to purchase the assets when it has just been established. Alternatively, the assets could be donated to the trust. Each of these options has its own tax implications, so it’s important to discuss them with a tax adviser, whilst supported by a FNB Fiduciary Specialist.

Will I be able to receive an income from an offshore trust that I create?
The primary intention of any trust is to protect and preserve the assets for the benefit of the beneficiaries. That said, such benefits can take various forms, which can be specified in the trust deed. This means that beneficiaries of the trust can motivate for income requirements to the trustees and, if approved, your income needs can be funded from the trust. If you made a loan to the trust, you can also request the trustee to make a partial or total repayment of the loan.

Can I change the trustees of an existing offshore trust?
Yes you can. The settlor and/or beneficiaries of a trust are able to ask a trustee to resign so that a new trustee can be appointed. Alternatively, if someone has been appointed to the role of ‘protector’ in an offshore trust, he or she might have the authority to appoint a new trustee when deemed necessary. In either instance, a formal process needs to be followed.

Can I receive my offshore inheritance in an offshore trust?
Yes, assuming the inheritance or asset was bequeathed to the trust. This means that the trust will typically need to be mentioned as an heir in the Will. If the asset is left to the individual, it will then need to be transferred to the trust by the nominated heir.

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