With the relaxation of South African exchange controls, the focus will increasingly shift to the use of offshore trusts in preserving and protecting investments held outside the country.
Nico Botha of Syfrets Private Banking says South Africans wishing to set up an offshore trust need to take a number of issues into account.
Choice of Offshore Trust:
There are two types of trusts that can be formed during your lifetime, a Settlement Trust or a Declaratory Trust. With a Settlement Trust, the founder of the trust (who gives instructions for the trust to be formed) will be named in the trust deed. A Declaratory Trust is where the trustee declares the trust and the founder's name is not mentioned in the trust deed, providing more confidentiality. A founder can be a beneficiary under either trust.
Appointing Trustees:
It is not advisable for the founder to also be a trustee as it may remove some of the advantages in having an offshore trust. The appointment of a sole professional trustee is sufficient. If the founder is not comfortable with the appointment of a sole trustee, a "protector" may be appointed.
A protector has the responsibility to ensure that the wishes of the founder and beneficiaries are carried out by the professional trustee. The powers and responsibilities of the protector must be incorporated in the trust deed.
When a sole trustee represents a company of repute, there is no need to appoint a protector.
Beneficiaries:
Beneficiaries should be named in the trust deed. Married founders should not only name themselves, their spouse and children, but also make provision for spouses, widows or widowers, and descendants, their spouses, widows or widowers. (This does not mean any listed person would benefit from the trust because of its discretionary nature.)
Letters of Intent:
The founder should provide the trustee with guidelines in a letter of intent detailing income and capital distributions, when the trust may be terminated and the portion which each beneficiary should receive upon termination. Choosing a country:
Botha recommends the Isle of Man as its trust law is well established and is supported by the Isle of Man's Trustee Act 1961 which is based on the British trust law. The founder can be assured of a high degree of confidentiality.
An Isle of Man trust may protect the foreign investments from interference by tax, exchange control and governmental authorities worldwide. The administration of the foreign estate is simplified as no probate formalities will be required - the assets are in the name of the trust and not in the name of the founder.
A Word of Caution:
Prospective founders of offshore trusts must first establish their own tax consequences and exchange control regulations before proceeding with formation instructions.