An offshore trust is a powerful financial and estate planning tool for South Africans wanting to protect and grow their wealth in a globally compliant and secure manner.

Here are seven compelling reasons why this strategic decision may be worth considering:

1. Asset protection

An offshore trust offers a legal shield against personal creditors and insulates your assets from South Africa’s economic instability, political uncertainty, and currency volatility. Transferring assets to a well-structured offshore trust removes them from your personal estate, enhancing long-term financial security.

2. Estate planning and succession

When you die, all assets held in your name fall into your deceased estate. This triggers a complex winding-up process through the Master of the High Court — a system that is currently markedly slow and inefficient.

Winding up can take months or even years, delaying your heirs’ access to assets. Moreover, estate duty and capital gains tax may apply.

By contrast, assets held in an offshore trust do not form part of your deceased estate, giving your beneficiaries immediate access and reducing estate tax exposure. The trust continues seamlessly after your death — preserving continuity and control.

3. Escape from exchange controls

While you must obtain exchange control approval to fund the offshore trust, once the funds are lawfully transferred, they are outside the ambit of exchange controls. This gives your trust the freedom to operate globally, independent of domestic restrictions.

4. Tax planning opportunities

Careful structuring of offshore trusts can create meaningful tax efficiencies:

• Assets in the trust may fall outside the scope of estate duty and capital gains tax in South Africa.
• The trust is not taxed in South Africa on income or gains until distributions are made to local residents.
• If you hold U.S. stocks in your personal name, your estate could be exposed to U.S. “situs” death tax. Holding these assets via an offshore trust can legally avoid that risk.

5. Confidentiality

Offshore trusts can offer a layer of privacy, as the legal owner of the assets is the trust – not you. While full transparency with regulators is essential, offshore structures can shield personal ownership details from public scrutiny.

6. Access to global investment opportunities

Although South Africans can invest abroad, exchange control regulations and tax complexities often make international investments burdensome.

Offshore trusts can invest freely and efficiently in any asset class across jurisdictions – equities, real estate, private equity, hedge funds – often with better access to premium investment platforms.

7. Future-proofing for emigration

South Africans who emigrate are subject to exit tax (a capital gains tax on worldwide assets). However, assets held in an offshore trust are not subject to exit tax, as they are no longer personally owned.

If your children eventually leave South Africa –  as many do for security, lifestyle, or economic reasons – they will be able to receive distributions from the trust anywhere in the world without regulatory delays.

Things to keep in mind

Before establishing an offshore trust, consider the following:

• Discretionary nature: Most offshore trusts are discretionary. Once assets are transferred, the trustees legally control them and will only distribute in the beneficiaries’ best interests.
• Costs: Establishing and maintaining an offshore trust is not cheap. But for those with significant assets, the long-term benefits far outweigh the costs.
• Choose the right trustee: Work with a reputable, responsive trust company that understands South African tax, exchange control, and succession rules. Ideally, choose one with a local presence or South African representation.
• Tax and regulatory complexity: Offshore trusts must be carefully structured to comply with SARS and global tax authorities. Always get advice from an experienced cross-border tax advisor.
• Transparency is key: Offshore trusts are not secrecy vehicles. Trust companies have stringent reporting obligations. This is not a way to hide assets, but rather a strategic wealth planning structure.

In summary

Offshore trusts offer South Africans a range of benefits: asset protection, estate planning efficiency, tax optimisation, global investment access, and emigration flexibility.

But tread carefully. These structures are powerful, but complex. With proper advice and responsible planning, an offshore trust can be a very valuable tool in your long-term financial strategy.

Ben Strauss & Margot Basson

Please note that this article is published for information purposes only and does not constitute legal advice.