Financial planning considerations when investing offshore

Investors wanting offshore exposure have various routes they can take, including rand-denominated funds and asset swap investments, but if they decide 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.

Sanlam adviser Sticks Stiglingh says that Glacier International offers an offshore life wrapper – or endowment structure – that provides a number of benefits, some of which are discussed below.

Estate planning advantages

According to Glacier International, when investing via an endowment 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 an investor’s estate is not subject to foreign inheritance tax, which can be higher than the client would pay locally.

Investors in an endowment policy 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. In some instances, exchange control approval may be required to transfer the investment to the nominee. 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 the investor therefore has no personal tax administration of which he has to take care.

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 rand depreciation is not taken into account.

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, if survived by a spouse, parent, child or stepchild, 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 on which the benefits are provided.

Stiglingh concludes that using an offshore life wrapper could make estate planning a lot easier and save beneficiaries time and unnecessary costs.

Contact Sticks Stiglingh at Strata Financial Solutions BlueStar on 046-624-4948/ 071-612-7339 or sticks@stratabluestar.co.za for professional advice.

Glacier International is part of Sanlam Life Insurance Limited, a licensed financial services provider in SA. The Global Life Plan is an offshore endowment policy issued by Sanlam Life’s Bermuda branch.

The tax paid by the life company can be less than an investor would pay in their personal capacity