Financial planning considerations when investing offshore

By Janice Roberts
Editor

By Andrew Brotchie, MD of 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 a wrapper issued by a South African life company, investors don’t create an offshore estate, 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 a life wrapper can simply nominate a beneficiary or beneficiaries – either for the plan to continue being invested in the beneficiary’s name or for the investment to be paid out, in which case the proceeds will be paid directly to the beneficiary and not be dependent on the estate being finalised. The proceeds will also not attract any executor’s fees.

Tax efficiency and simplicity

Investing via a local wrapper means the South African 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 a wrapper 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 life wrapper 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 life wrapper 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 a life wrapper with them. It could just make their estate planning a lot easier and save their beneficiaries time and unnecessary expense.

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