By Andrew Brotchie, Managing Director: Glacier International
Investors wanting offshore exposure have various routes they can take – including rand-denominated funds and asset swap investments – but having decided to use discretionary savings to obtain direct foreign exposure, there are a number of considerations from a financial planning point of view that need to be taken into account.
Using an offshore life wrapper – or endowment structure – offers a number of benefits, some of which are discussed below.
Estate planning advantages
When investing via an offshore endowment issued by a South African Life company, investors don’t create an offshore asset, which means they don’t need an offshore will nor do they need to appoint international representatives to help wind up their offshore estate (which in most instances is both costly and time consuming). The wrapper also ensures that an investor’s estate is not subject to foreign inheritance tax which can be as high as 40%.
Investors in an endowment can simply appoint a nominee for ownership or nominate a beneficiary for proceeds. The Plan will then simply continue in the name of the nominee for ownership or funds will be paid out to the beneficiary on the death of the last life insured and not form part of the estate. The proceeds will therefore not attract any executor’s fees.
Tax efficiency and simplicity
Investing via an offshore endowment offered by a South African life company means the life company is responsible for the calculation, collection and administration of any tax due, and that the investor therefore has no personal tax administration to take care of. The tax paid by the life company can be less than an investor would pay in their personal capacity depending on their personal tax rate.
Tax liabilities are also calculated in US dollars which means that any rand depreciation is not taken into account. This benefit can extend to local trust companies that invest via an endowment using asset swap facilities, which provides an interesting financial planning aspect to consider.
Protection from creditors
After a period of three years from inception date, the endowment will not form part of an investor’s insolvent estate and cannot be attached by a creditor.
In the event of the death of the investor, the proceeds of the endowment may not be used to pay any of the estate’s debts. This protection continues for a period of five years from the date that the benefits are provided.
If you have clients who are considering investing offshore, discuss the benefits of an endowment with them. It could just make their estate planning a lot easier and save their beneficiaries time and unnecessary expense.
Summary of the Glacier Global Life Plan benefits
- No offshore asset is created and therefore a saving of time and money
- No offshore will is needed
- International inheritance tax payable on directly held investments can be higher than South African estate duty
- No executor’s fees if a beneficiary is nominated
- Tax efficiency
- Insolvency protection – after three years the in the wrapper are fully protected.
For more information visit www.glacierinternational.com or view the brochure and download the Global Life Plan benefits infographic.
