Few South Africans are aware that they are liable for South African estate duty on their worldwide assets.
These assets include investment allowances that you have been able to send offshore since the relaxation of exchange controls. The government currently allows individuals of 18 years or older - subject to obtaining tax clearance - to invest up to a maximum of R750 000 offshore.
Tracy Muller, the manager of international services at BoE Private Bank, says estate duty rates in South Africa are 25 percent (20 percent from October 1) on all amounts over the first R1 million. With the prospect of the rand depreciating further, the rand value of offshore funds is likely to increase over the years, thereby increasing your liability for estate duty.
The rand has depreciated by an average of 13 percent a year against the British pound and 11 percent a year against the United States dollar since 1992.
Assuming you took your R750 000 offshore when the exchange rate was R10 to P1, you would have the equivalent of P75 000 to invest.
If your investments did not grow in value at all, but the exchange rate was R20 to P1 at the time of your death, your original amount would be worth R1.5 million purely as a result of a depreciation of the rand. If you died when the pound was at this rate, your estate would be liable for R300 000 (20 percent x R1.5 million).
Now, assuming over the next few years your investment grows in value from the original P75 000 to P125 000 and the rand depreciates to R20 to P1, your investment would be worth a whopping R2.5 million. In this case, the estate duty liability would be R500 000 (20 percent x R2.5 million).
Muller says it makes sense to "peg" the value of the assets exported from South Africa by means of a trust structure.
It is generally considered that offshore trusts are not financially viable for asset values less than P500 000 (R5.7 million).
But, Muller says, the costs of establishing and maintaining a suitably structured trust can be justified many times over if one looks at the potential increase in the value of the hard currency assets between the date that the trust was established and the date of death.
"In periods of stability of the South African rand, potential clients utilising their investment allowances are sceptical about the benefits of trusts, but those who did peg at a rate of R9.50 - not that long ago - are already seeing the benefits of the pegging mechanism," she says.