Trusts have been in existence since the 12th century. They were first established to protect the property of knights leaving England to fight in the Crusades. Today they still serve an extremely important role as a fiduciary tool to protect family assets; something wealthy African investors are increasingly making use of.
Although trusts can be set up in almost any country, the Indian Ocean island nation of Mauritius is becoming an increasingly popular option for African investors. Mauritius is fast making a name for itself as Africa’s financial hub. And, when it comes to housing financial vehicles like trusts, not only does Mauritius have an African focus, it also offers lower administration fees than its European counterparts with similar levels of asset protection and regulation.
The value of trusts
Trusts have traditionally been the domain of high-net-worth individuals (HNWI). Chris Hassall, Carrick Wealth Mauritius Area Manager, explains that trusts are now being used more widely with a typical minimum sum required to set up a trust of around US$50 000.
In the past, the appeal of trusts often focused on the tax benefits they offered. However, these have largely fallen away. What trusts still offer, however, is asset protection. Hassall explains: “Trusts are important for anyone who wants to ensure their wealth is going to be safe and secure. There really is no better option to hold any type of asset that you need to protect for the future.” He adds that an offshore trust is especially beneficial for people who have property, cash or investments in foreign jurisdictions.
In addition, trusts serve as ideal fiduciary tools. “Trusts are currently the best insurance policy against estate duty and long delays when winding up an estate,” says Hassall. “Trusts ensure assets are maintained and readily available to their families in the event of the client or settlor’s death.”
Trusts for the African investor
Given Africa’s economic and political risks, trusts have become increasingly important instruments for Africa’s HNWI. Opening a trust, in an accommodative jurisdiction such as Mauritius, offers investors protection against these type of investment risks.
And there is even more to the story. Hassall explains that trusts are a much easier way for African investors with offshore assets to manage their affairs. “If a foreign investor, for example, wishes to buy a home in South Africa, the trust can hold the shares in a South African-registered company that owns the property,” he explains. “This would then allow a sale of the property to be done through a share transfer and also enable loans to be made out of the trust for any improvements.” This arrangement makes it easy for Africa’s wealthy to invest offshore without having to physically be on the ground in a specific country.
Getting the right people to manage your trust
What is a critical consideration when establishing a trust is finding a legitimate financial services firm to manage your affairs. You need a company that will ensure that your trust is run by independent, objective and impartial trustees. Hassall explains the importance of this: “Trusts can only be set up for the preservation and distribution of wealth to beneficiaries and not to act as a conduit for the settlor to receive any benefit without having engaged the trustee who essentially controls the assets for them. The higher the control one has of the trust, the greater the chance that the trust will be deemed an ‘alter ego’ or sham.”
Another consideration when choosing a financial services company to manage your trust, is that they must be well-versed on the administrative and tax requirements around the instrument, as falling foul of the law can be a costly business. Issues like double taxation, trustee resolutions, appropriate documentation, accounting records and bank accounts must be considered, says Hassall.
For many Carrick Wealth clients, Mauritius has offered the ideal home in which to establish a trust. We have approved select professional fiduciary services firm to ensure peace of mind and effective implementation for our clients and their diverse needs.