Overseas trusts gaining popularity with risk-averse South Africans

Rone Silke, Business Development Consultant at Sovereign Trust

Overseas trusts aren’t just for the super-rich. In fact, they’re becoming increasingly popular with a range of South Africans looking to access a broader set of investment options and protect their assets from political and economic volatility.

Other benefits of overseas trusts include greater flexibility, tax neutrality, succession planning and investment protection, says Rone Silke, a business development consultant at Sovereign Trust.

“Investing in overseas trusts is no longer something reserved for the high-net-worth market: it’s a necessary consideration for many South Africans,” said Silke. “We’re seeing growing numbers of middle-class families choosing to invest their assets in overseas trusts, as they are concerned about the political and economic uncertainties of a country, and want to protect their assets and ensure good succession planning.”

Often, individuals who inherit wealth from a spouse or family member will decide to establish an overseas trust to provide financial security for themselves, their children and grandchildren. In this case, the trust will become the foundation on which they build their offshore estate to take care of the family, including funding of travel and studies.

Overseas trusts are also increasingly being used by African entrepreneurs, who have generated wealth from their businesses, but may live in a country where there are currency controls, the banking system may be unreliable, and investments can be influenced by the government. Here, overseas trusts offer increased security and help to mitigate risk.

There’s also a growing trend of families moving overseas after getting work abroad, and they are uncertain of how long they will be out of the country, says Silke. “In this case, their capital assets can be settled into an overseas trust, which should be established before they leave the country. The wealth generated overseas will then potentially not form part of their estate in South Africa, should they decide to return. The overseas trust will offer wealth protection, investment certainty and diversity and will provide for their future savings for retirement,” she said.

But while the decision to establish an overseas trust, either from a personal or a business perspective, is a sound one, pitfalls await the unwary investor. These include exchange control rules, cost considerations, and the practicalities of working with an overseas trustee.

“Anyone considering an overseas trust should use a reputable trust company to assist and get the appropriate investment, tax and legal advice before any action is taken,” says Silke. “If a trust is not set up and administered properly, you run the risk of losing the benefits available.”