We may be “sisters doing it for ourselves”, but that’s not the whole story. We’re also doing it for our families. That’s why it’s so important to have a clear plan when it comes to passing our wealth down to those who we’ll one day leave behind.
It’s about far more than having a will in place. When it comes to the transfer of wealth to the next generation, it’s about having vital conversations sooner rather than later. As reported by The Mail & Guardian, research shows that 70% of wealthy families lose their wealth by the second generation and 90% by the third. A sobering thought in light of how hard you’ve worked to ensure your loved ones will never be left wanting. That’s why open communication and strategic succession planning are so important when it comes to the transfer of intergenerational wealth.
Talk now or forever risk your wealth
Protecting your family’s financial future, starts with having early conversations around wealth, your legacy and how your children and grandchildren envision their lives. For example, if your free-spirited daughter sees the corporate world as a prison, leaving her the family business may be ill-advised.
Formulating a realistic estate plan that takes everyone’s needs into account can cut out devastating family feuds. To formalise such a plan, a family constitution that lays out everything from your will to who will run the family business to philanthropic considerations is priceless. It’s also important to consider your offshore investment and succession plan.
An offshore and succession plan? What is that you ask? Well an offshore plan is closely related to estate planning. It looks to minimise the risk of Rand depreciation, whilst actively mitigating your taxes. It certainly is within your power and control to structure your estate well and minimise the effect of estate taxes. And this is where offshore investments and then subsequently estate planning comes in. By having funds offshore, you not only take care of the Rand’s decline but you also allow yourself access to the worlds investments. Structured correctly, this could really assist you with decreasing inheritance tax and endless taxation
Why take it offshore?
Well it so happens that we live at a country at the bottom of the world where the lights keep going off. As a result of this our currency, the Rand, loses value and our ability to purchase imports. Think about it. Everything you own, everything around you this very second, is imported. Again we live at the bottom of the world – we import everything. If we cannot afford to keep up with Hard currency like GBP/ EUR/ USD then we won’t be able to afford the things we are used to. The Rand is supposed to only lose 5% of its value per year. Last year it lost an horrific 24% in value.- That’s a full quarter of its value. By having investments offshore you first and foremost make sure that you maintain the value of your investment for future generations- this really is no longer an optional consideration for South Africans.
Your daughter’s in Greece, your son’s in London, and you’re all over the place. Today having families split across the world is becoming the norm. So, while any well-diversified financial portfolio includes offshore investments – in such a global climate, such investments are more pertinent than ever. But its not only the underling investments. It’s the way these investments are held, so what type of structure/vehicle they are sitting in. Creating a structure in a safe haven tax jurisdiction to protect the family wealth is not an element left now for the super wealthy. No this imperative for estate planning in the world we live in and more importantly, the world your children live in.
Not only that, but Local (South African) discretionary Trust laws altered significantly in 2023. Stating that if the beneficiaries of your Trust now live outside of South Africa, then any distribution made to them will initially be taxed in the hands of the Trust begore being distributed. This takes the tax rate to astounding flat rate of 45% income tax a jaw dropping 36% on Capital Gains Tax. Begs the question why one has a Trust any more. In fact I would boldly go so far as to say, if you have a Trust, then you most certainly need to talk to us as there is a very, very good chance this needs to be looked at.98% of the Trusts that we look at have a problem. Don’t just assume you fall into the 2% sector.
Offshore investments are the perfect vehicle for creating growth, hedging against the Rand depreciation and creating greater tax efficiency in terms of an intergenerational wealth transfer. There are now significantly better vehicles that offshore Trusts that deliver protect international investments from costs including estate duty and capital gains tax. They also enhance succession planning, protecting and preserving assets for future generations and allowing for efficient distribution of wealth to beneficiaries often across borders. It’s all about understanding your options.
