20 April 2026
Glacier’s recent Endowments and Sinking Funds webinar focused on the role of endowments and sinking funds in modern wealth management, highlighting their advantages, legislative framework, offshore opportunities, and the types of clients who benefit most from these structures.
Market context
Investment trends show that discretionary products remain more popular than wrappers, both locally and offshore. Yet wrappers such as endowments and sinking funds offer unique benefits that can make them highly effective in South Africa’s high-tax environment.
Two tax challenges were emphasised:
- Tax during life: South Africa has one of the most aggressive tax structures in Africa, with marginal rates up to 45%.
- Estate duty after death: Estates can take two to five years to wind up, with executor fees and delays eroding wealth.
Endowments and sinking funds address these challenges by offering capped tax rates (30% on interest, 12% on capital gains), simplified tax administration, and estate planning benefits such as liquidity at death and potential saving on executor fee, provided that a beneficiary has been nominated.
Endowments: who should invest?
Endowments are best suited for:
- High-income earners ( above 30%).
- Clients with clear succession plans.
- Families needing liquidity in the event of delays while estates are being wound up.
- Individuals requiring creditor protection (applies after three years).
- Clients needing discipline through restricted access.
Key benefits include:
- Quick payouts to beneficiaries.
- Creditor protection.
- Simplified tax administration within the product.
- Income planning, as payouts are not taxed as regular income.
- Flexibility in nominating beneficiaries for ownership, proceeds, or both.
Structuring is critical: endowments must have a life insured, but ownership rights depend on proper beneficiary nominations. Proceeds are net of tax (not tax-free), and any disposal of units, through switching between collective investment funds or withdrawing, will trigger CGT (capital gains tax).
Multiple endowments or trusts may be advisable in complex family situations to ensure responsible distribution of funds.
Are sinking funds suited to a different type of investor?
Sinking funds share the tax advantages of endowments but differ structurally:
- No creditor protection.
- No lives insured.
- Only allow nomination of a successor owner.
These features make sinking funds particularly effective for trusts, which cannot “pass away.” Normally, trust income is taxed at 45% with capital gains at 36%. Through Glacier, where all trust beneficiaries must be natural persons, sinking fund investments are placed in the individual policyholder fund, reducing tax rates to 30% on interest and 12% on capital gains.
Ideal sinking fund clients include:
- High-income earners ( above 30%).
- Families with estates at risk of liquidity shortages.
- Spouses who may face delays or lack of income during estate wind-up.
- Trusts seeking tax efficiency and succession planning.
Legislative framework
Endowments are governed by the Long-Term Insurance Act of 1998, specifically Section 54, which sets rules for contributions, withdrawals, and loans during the initial five-year restriction period. Clients are allowed one surrender and one loan, with withdrawals limited to premiums paid plus 5% compound growth. Ad hoc contributions cannot exceed 120% of the highest annual premium in the previous two years.
Comparison:
- Both endowments and sinking funds have a five-year restriction period and become open-ended thereafter.
- Endowments require at least one life insured, allow beneficiaries for ownership and beneficiaries for proceeds, and also provide creditor protection.
- Sinking funds have no lives insured, no beneficiaries for proceeds and no creditor protection, but ownership can be transferred to a nominee.
- Tax treatment is the same across both products.
Offshore endowments & sinking funds
Offshore wrappers provide diversification, access to global asset managers, and protection against currency risk. They simplify tax administration and estate planning by avoiding foreign inheritance taxes (situs tax), probate, and executor fees when beneficiaries are nominated.
Most offshore funds on the Glacier International platform are accumulating or roll-up funds, meaning that distributions are reinvested into the net asset value and taxed as capital gains rather than income, resulting in savings from a tax perspective. Offshore wrappers also allow multiple withdrawals within the first five years (the restricted period), and unlimited withdrawals thereafter.
Compared to direct offshore investments, wrappers reduce capital gains tax exposure, streamline succession, and eliminate the need for multiple offshore wills.
Conclusion
Endowments and sinking funds are more than tax-efficient investment vehicles; they are critical estate planning tools. Endowments provide liquidity, creditor protection, and flexible succession planning, while sinking funds are particularly effective for trusts. Offshore wrappers extend these benefits globally, combining diversification, tax efficiency, and estate planning advantages.
Together, these structures help clients manage wealth, reduce tax burdens, and ensure smooth succession planning, making them indispensable for high-income earners, families, and trusts in South Africa’s complex financial landscape.
