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HAVING an offshore trust is a far more complicated matter than in the past where everyone simply opened a blind offshore trust in a tax haven as a way of keeping illegal offshore money out of sight of the South African authorities.

Tony Barrett, regional manager at BJM Private Client Services who has lived and worked in the Channel Islands says that since the tightening on money laundering internationally no reputable trust company will accept blind trusts where the beneficiaries remain unidentified.

However there is still place for an offshore trust, depending on an investor’s specific requirement. “It is unfortunate that because the issue has become more complicated many financial advisors are steering away from offshore trusts yet they can offer huge benefits in certain circumstances” says Barrett.

For example an offshore inheritance paid into an offshore trust is the ideal way to preserve the inheritance, draw an income and avoid estate duty. “By foreign executors paying the money directly into an offshore trust, the funds do not accrue to you or your estate and any amount of the initial capital from the inheritance that you draw down from the trust is tax free” says Barrett.

Although you will pay tax in South Africa on any income or capital gains that is distributed to you as a beneficiary, if you are drawing down the initial capital to supplement your income locally, this will be seen as a capital distribution from the trust which is not taxable.

Barrett says for this reason it becomes extremely important to have an expert trustee who keeps reliable records. The trustee must be able to prove to the receiver of revenue what portion of your distribution from the trust is made up of capital, interest or capital gains.

Barrett says trustees also need to be abreast of South African tax reporting requirements. “One of the problems is that most trust companies use December or June as their year end so they need to update the trust financials to meet the South African February tax year end which normally costs an additional fee”. In many cases a trust company will charge a set price for a set range of services and any additional services will be charged for over and above.

Barrett says when selecting a trust company you need to make sure you are getting value for money. “Be careful of simply going for the cheapest because it could end up costing you far more if the trustees are not keeping proper records in order to cut costs; this could land you up in an investigation by the Receiver. By the same token a trust company that is charging higher fees must prove what value added services they are offering”.

Barrett says when choosing a trust company you need to find out who is making the investment decisions. “A trustee is not necessarily an investment expert; you need to make sure your investment decisions are being made by the person with the right qualifications”.

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