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Finding Security in Offshore Discretionary Trusts & International Retirement Plans

In the uncertain and volatile world we live in, protecting one’s wealth, growing it and finding security and peace of mind often seem to pose significant challenges, especially when it comes to retirement and inheritance planning.
However, for high-net-worth individuals offshore trusts are excellent option. This is an area in which Carrick provides expert services and advice.
Again, sound knowledge and expertise about the different structures that are available are indispensable. Even for some of those who already have an offshore trust, the one they are invested in may be entirely unsuited to their needs. There are many legal and tax implications that have to be taken into consideration.
With offshore trusts there are certain similarities to South African trusts, but also some very substantial differences. The basic structures of the trusts, however, are the same.
Typically, offshore trusts will have independent corporate trustees who are not people close to the settler or beneficiaries and hence have no vested interests in it. Therefore, conflicts are avoided. Corporate trustees are independent specialists simply providing a service. Also, most offshore trusts are regulated just the way banks and other financial services entities are. This means they are far better controlled and administered than a trust in which a family is trying to control its own affairs.
Corporate trustees generally resist having protectors appointed – popular with South African trusts – as they offer a professional service subject to regulation and all it entails. They do not want to be overseen by someone (the protector) who does not necessarily have a thorough understanding of all the financial, tax and legal issues involved, or who acts as a conduit for the settlor’s continued control over the assets, which could render the trust void.
Whether a trust is regulated or not, or the way in which it is structured, will depend on the laws of the host country. For instance, in countries like the UK and South Africa, trusts are not regulated, but in countries or territories such as Guernsey, Isle of Man, Hong Kong, Singapore and Switzerland they are. In regulated countries you cannot simply set up a trust yourself – you have to be a licensed financial institution which has to comply with many requirements.
Most of the tax implications for the settlor and beneficiaries are similar to those for South African-based trusts. Again, the more tax-efficient way is for the settlor to make a loan to the trust. However, because the offshore trust and its assets are not resident in South Africa, it has no South African tax liability in itself. Because of this, the income and gains for successive generations of beneficiaries of the trust will grow without a tax liability.
Investments in offshore trusts are also made in G3 currencies (dollars, sterling or euros) – not in rands – and in international stock, which safeguards the trust and its investments against domestic political and economic shocks.
An added benefit of the international mobility offered by offshore trusts is that they can legally own most asset types, therefore allowing for the easy consolidation, administration and reporting of a person or family’s worldwide assets.
When someone returns to his/her home country, or moves to a new country, setting up a trust in advance can provide estate-planning opportunities and asset protection. In most cases, foreign governments cannot seize assets held in a trust in a country where they have no jurisdiction, unless, for instance, criminal activity can be proved. Anonymity is also provided by offshore trusts in jurisdictions such as Guernsey, Jersey and the Isle of Man where trust deeds are not publicly registered.

International Retirement Plans

International retirement plans or private pension schemes that are set up with a trust deed are another option when planning for your retirement. Depending on your requirements and goals, an international retirement plan may be a better option than a trust, or vice versa. Therefore, once again, expert financial advice is crucial.
With most international retirement plans – just as with ordinary retirement schemes – you are not entitled to your assets or benefits in the plan until you reach retirement age – usually not before age 50.
For South African tax residents, international retirement plans offer excellent wealth consolidation in a secure environment protected against currency erosion and political or economic shocks. Furthermore, an international retirement plan is tax efficient and a very flexible structure for estate and succession planning. It allows you to determine when and how you wish to retire, no matter where you are resident. International retirement plans are suited to many different jurisdictions and your plan will not be affected should you relocate to another country of tax residence. They also usually allow for transfers into the plan from other existing pension or life schemes.
You do not ‘own’ the plan directly, but are a member of it with your own ‘sub-fund’. Your assets are held in trust in the plan which may offer substantial protection from creditors. Such a plan is ideal for South African residents seeking a plan denominated in pounds, dollars or euros and which offers excellent protection of your retirement investment against adverse domestic social, political or economic events.
Although similar to trusts in many ways, there is no donation or gifting involved, which simplifies and lessens the tax implications. You are simply contributing your own money into a scheme of which you will be the only beneficiary while alive, while you may also name beneficiaries to whom the remaining benefits will pass upon your death.
There is no restriction on the amounts you may contribute and these can be both regular and ad hoc. Both regular and lump sum provision is also possible. You will be able to structure your income using such options as an annuity, lump sums or drawdown.
South African retirement schemes are very tax efficient in that your asset in the scheme is not part of your estate and you receive tax relief on your contributions. International retirement plans are very similar, but without the tax relief on contributions. However, with your money in the plan you get the benefit of being invested in a safe offshore plan, in foreign currency, with international investment diversification and in a non-resident structure unaffected by domestic law changes.
In some jurisdictions international retirement plans may be tax exempt. And as your asset in the plan is in a trust that is not owned by you and is separate from your estate, the benefits will pass to your named beneficiaries upon your death without being part of the deceased estate. This, too, could provide a tax benefit. Your capital contribution to the plan is not taxed upon your receiving it back, but any growth will probably be subjected to capital gains and possibly income tax.
While international retirement plans offer much flexibility – allowing for very tax-efficient structuring – tax issues are complicated and may depend on your country of tax residence and/or domicile on death: hence, expert advice should be sought.
However, by consolidating your money in an international retirement plan you will have flexible benefit options, tax neutrality, tax flexibility, currency protection, a secure investment environment and international mobility. And your asset is exempt from all the costs and red-tape involved in winding up a deceased estate. Most of all, money becomes available to your beneficiaries immediately upon death as there is no probate applicable.

  • For more information and advice on trusts and international retirement plans, call Carrick Wealth on +27 21 201 1000 or visit .

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