Using a Dry Trust to safeguard your children’s future outside South Africa

Using a Dry Trust to safeguard your children’s future outside South Africa

At your death, your children are likely to inherit the global funds bequeathed to them and it will become part of their SA estates Photo: Pexels.com

South Africa’s financial uncertainty has prompted many people to look for ways to secure their assets for their children’s future. Recent changes to Sars’ Tax Compliance Status requirements, specifically with reference to exchange control, emigration and Foreign Investment Allowance types, have further fuelled these uncertainties. In simple terms, reporting requirements of worldwide assets are now becoming increasingly stringent and apply even to those with a non-resident tax status in South Africa.

Theoniel McDonald

How then, can one externalise and safeguard assets for the benefit of one’s children?

Not everyone can accumulate enough wealth to externalise their assets feasibly and move them offshore outside of South Africa. One of the challenges are that at your death, your children are likely to inherit the global funds bequeathed to them, and it will once again become part of their South African estates. This is where the idea of what is known as a Dry Trust comes in.

Here’s how it works. A Dry Trust is an estate planning tool that becomes active only after the death of the grantor. It is used in many countries as an alternative to a traditional Testamentary Trust. Once the Dry Trust is registered, the trust is completely independent, and any global life insurance or endowment policies can be bequeathed to this trust. At the death of the policy holder, the trust becomes active and receives the benefit as per the beneficiary nomination of the policy.

Normal offshore trusts are usually expensive to set up and even more expensive to maintain. This is largely due to the trustee fees, along with the accounting and other administration fees. The Dry Trust provides an alternative that is cheaper to maintain as it remains dormant until the proceeds are received. At this point the trust will likely have enough capital to fund the expenses of the then active trust.

Source Credit: https://www.iol.co.za/personal-finance/financial-planning/using-a-dry-trust-to-safeguard-your-childrens-future-outside-south-africa-47ea6958-cc72-4211-900c-277a523f7e70


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