Using endowments when investing offshore

By Martiens Barnard, Marketing Actuary at Momentum Investments

Martiens Barnard, Marketing Actuary at Momentum Investments

When investing directly offshore in hard currency, i.e. after converting rands to foreign currency, there are generally two options to consider on an offshore investment platform: a pure offshore investment or an offshore endowment. For local investments, clients could benefit from using endowments as part of their financial plans, especially high-income earners. These clients can save significantly on tax when using an endowment. Here, the potential tax benefit is often weighed against the restrictions on an endowment.

With offshore investments, there is more to consider than merely the tax efficiency of an endowment and its withdrawal restrictions. Certain international endowments consist of multiple underlying policies, which means that clients have increased access to their money.

Offshore endowments have many benefits that are not as well known, although some of these benefits also apply to local endowments. Generally, an endowment has the following role players: the investment owner (policyholder), the insured life (or lives), and the beneficiaries (beneficiary for proceeds and/or a beneficiary for ownership).

Depending on how the endowment is structured, the endowment and its proceeds are treated differently in the event of death of the investment owner or the last insured life (if applicable). The endowment can be structured in such a way that it follows the intent of the client. An endowment can also hold estate planning benefits.

The most compelling reason for using an offshore endowment is probably related to situs tax and probate, which can come into play on the death of the investment owner or the last insured life.

In short, situs tax is a type of tax equivalent to South African estate duty. Probate is a procedure where a legal authority approves a will as the valid and last will of a deceased testator. The probate process can be expensive, complex and time-consuming, which means that the winding up of a South African deceased estate could be delayed. Situs tax and probate can be avoided by using an optimally structured offshore endowment. The most effective way to invest in an offshore endowment is to use the services of a reputable and established offshore investment platform.

Our offshore investment platform, Momentum Wealth International, was established in Guernsey in 1999 as it offers an efficient regulatory and fiscal framework together with investor protection policies. The Momentum International Endowment Option (offshore endowment) is available as the Life insurance bond or the Capital redemption bond, a sinking fund without insured lives. This offers various structuring options for financial advisers to make sure that on death, the transfer of ownership or payment of the proceeds can be handled according to the client’s wishes.

Our comprehensive range of products, investment funds and other investment components places us at the forefront of international investment solutions to cater for every client’s offshore investing needs. Your client’s offshore investment isn’t just another investment. It’s personal to them. We can help you with the offshore investment solutions your clients need to help them achieve their goals.

Momentum Wealth International Limited is an authorised financial services provider in terms of the Financial Advisory and Intermediary Services Act No 37 of 2002 in South Africa. Any information in this editorial is not intended, nor does it constitute financial, tax, legal, investment, or other advice. Nothing contained in this editorial constitutes a solicitation, recommendation, endorsement or offer by Momentum Wealth International Limited.

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