Offshore estate planning and trusts for South Africans

Since the relaxation of exchange control measures, South Africans have been investing offshore in larger and larger numbers, with important implications for their estate planning.  Therefore it has become an absolute necessity to spend time on proper estate planning, especially when your assets are located both in South Africa and abroad.
The purpose of proper estate planning is to arrange the planner's estate in a way that will enable the planner to reach his/her objectives in dealing with his/her assets and liabilities.  These objectives should make provision for the management of the planner's estate during his/her lifetime as well as thereafter.  When drafting a proper estate plan both short- and long-term planning goals should be set and implemented.
As a result of the increased international investment exposure, South Africans are automatically also exposed to offshore fiduciary services, including offshore trusts.
The funding mechanism used to set up an offshore trust is, and should be, different from its local counterpart and requires absolute expertise.  The source of funds and/or assets dictates which funding mechanism should be used.  In addition, quite a number of tax, legal and exchange control factors complicate the architecture of an offshore structure.  However, this should not detract from the simple principles employed when deciding whether to structure or not, which is essentially identical to the local succession planning process.
The functionality of trusts, both local and offshore, in the ultimate succession planning process cannot be overemphasised, so it should be clearly understood by the person who creates the trust, referred to as the settlor.  The settlor should also fully understand the legal implications of setting up a trust – i.e. when a trust comes into effect the legal ownership of the trust property is transferred from the settlor to the trustees.  Many a trust has failed because the settlor failed to accept the implications of his/her decision to create a trust.
The choice of trustee is vital as one is compelled to use a professional licensed offshore service provider.
Offshore trusts require expert planning and careful execution, but once complete, the client's picture of what will happen to his/her assets in his/her broader estate planning should be as clear as his/her picture of the assets bequeathed in his/her will.
The offshore trust has a vital role to play in post-amnesty planning.  For example, where a planner has offshore funds in an existing offshore trust and the planner has contravened exchange control or income tax provisions and applied for amnesty on the assets, and opted for section 4 of the Exchange Control Amnesty and Amendment of Taxation Laws Act and obtained amnesty, then he/she can restructure in a number of ways, the most aggressive of which would be to set up a new trust and distribute the assets to the new trust.
When taking the time to formulate a proper estate plan, whether for South African or offshore assets, the following universal principles remain true: keep it simple; keep clear and accurate details of your assets and beneficiaries; do not attempt to formulate your own estate plan without the help of experts; and remember to revise your planning and will(s) regularly to ensure that it keeps up with changing circumstances.

Offshore wills for South Africans

In the changing South African economic environment, South African residents are more and more exposed to different investment and asset vehicles.  As a result, South Africans are automatically exposed to offshore fiduciary services, including wills for their offshore assets.
The legal requirements for the execution of a will in another country may be different from thos applicable in South Africa.  If you choose to invest directly offshore in shares listed overseas or fixed property situated in another country, you will probably need a separate will for the assets in every jurisdiction where you have invested.
A will is an absolute necessity for anyone with assets, but if you own property in and/or investments in another country or more than one country, the chances are that you need an offshore will as well.  Whether drafting a separate offshore will is necessary, as opposed to drafting a single worldwide will, depends mainly on the law of the country where the offshore assets are located, where the entity is based which is administering the offshore investments, and in which type of assets your offshore funds are invested.
The legal requirements for the execution of a will in another country may be different from those applicable in South Africa.  So it may well happen that your South African will would not be recognised as a valid will in a foreign country, with the unfortunate implication that your offshore assets then have to devolve intestate.  If your South African will, for instance, has been drafted in Afrikaans, it would have to be translated and sealed by the translators before sending it to the overseas executor – a time-consuming and costly exercise.
Having a separate offshore will holds several other benefits too:  administration of the estate is carried out parallel with the administration of the South African assets;  an executor who is familiar with the procedures required in those countries can save time and expenses;  and employing a professional will drafter in the jurisdiction pertaining to the will, and its implementation provides an opportunity to obtain timeous advice of any potential taxation and succession dangers related to assets outside South Africa.
If you invest all of your R2 000 000 (since 1 March 2006) offshore allowance in an investment administered by a South African institution it would not be necessary to draft a separate will.  However, if you choose to invest directly offshore in shares listed overseas or fixed property situated in another country, you will probably need a separate will for the assets in every jurisdiction where you have invested.
Where more than one will exists, it is vital that the one document should dovetail with the other and should not have the effect of revoking the other will.  The same thought process that goes into drafting a South African will should go into drafting an offshore will.  It is part and parcel of a customised and holistic estate planning exercise that factors in all the relevant circumstances and explores all the options available to the individual.
When making a will, whether for South African or offshore assets, the following universal principles remain true:  keep it simple and allow your executors some flexibility;  keep clear and accurate details of your assets and beneficiaries;  don't attempt to draft a will without the help of experts;  don't appoint executors and/or guardians without consulting them first, and update your will regularly – at least once every two years.