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An offshore endowment may just be the 'safe choice' local investors seek

This year's National Budget Speech, delivered in February by Finance Minister Tito Mboweni, has been keeping analysts busy as they unpack the details of the country's economic plans.
An offshore endowment may just be the 'safe choice' local investors seek

One area in which there have been a lot of changes are foreign exchange controls. The laws regarding forex are still being finalised and clarity is being sought on when, and under what conditions, money will be allowed to flow offshore. This is resulting in much uncertainty among investors and advisors on how investments will be managed on death.

However, this uncertainty can be managed, according to Head of Legal Services at Discovery, Harry Joffe. "One way to build a degree of predictability into your long-term investment solution is to use a wrapper structure like an offshore endowment," he suggests. "This structure relieves an owner of uncertainty, as on their death the proceeds simply flow to their nominated beneficiaries anywhere in the world, without any forex restriction. This is because the wrapper is already offshore."

Well-structured endowments offer significant estate planning advantages

In general, a big advantage of the endowment structure is how well suited these investments are for estate planning. With an endowment, you can nominate beneficiaries to receive the pay-out right away if you pass away, or you can pass ownership of the investment directly onto them.

In contrast, with unit trust investments, your investment is paid via your estate, and your loved ones will need to wait until its wound up at a time when they may need urgent financial support.

Joffe explains that although no executor's fees will be charged on the amount paid out from the endowment policy, it will form part of the estate for the calculation of estate duty. But forewarned is forearmed, and having some kind of tax certainty and a clear plan when it comes to estate planning can help give South Africans peace of mind.

Discovery's Global Endowments can help lock in favourable rates

Joffe also adds that that by using an offshore endowment, you can benefit from the tax efficiency provided by the insurance company. "The funds in global endowments are taxed at a rate of just 12% on capital gains," he notes. "This is significantly lower than the marginal rate for individuals - the highest of which is 18% on capital gains."

Paying tax at the insurer's rate is a huge plus for investors with a capital gains tax rate greater than 12%, as endowments are taxable at a fixed rate. The logistics are also conveniently taken on and managed by the company, with all the tax paid by the insurer, so investors are spared having to complete complex tax returns and do the calculations themselves.

"In addition, one of the stand out features of Discovery's Global Endowment is that it gives you the ability to invest below the prevailing exchange rate," Joffe says. "This is a unique benefit that lets you 'lock in' a favourable exchange rate in US dollars, euros or pounds. The product also allows for effortless tax administration and easy access to your investment through the 100-policy structure which gives excellent liquidity throughout the investment term."

When facing the unknown - don't speculate, but save

"Speculating on the economy's trajectory may well pass an economist's time, but rarely benefits private investors!" Joffe concludes. "Not knowing how you will be taxed in the future makes it tricky to commit, and not having assurance that your family will be cared for on your death is an unnecessary burden to bear."

"Choosing the right investment vehicle long-term investment strategy can help allay these concerns. When you are tempted to worry or try predict the future, use that energy instead to consider and invest wisely for whatever may come. Speak to a financial advisor and learn what your smartest - and holistically safest - next move should be."

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