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It's My Money with Magnus Heystek · Strictly Business

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  You're listening to Strictly Business Podcast with Lindsay Williams.
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  This edition of It's My Money is brought to you by Brenthurst Wealth, your partner
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  for global wealth creation.
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  Welcome to It's My Money.
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  It's My Money is brought to you by Brenthurst Wealth, South Africa's
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  multi-award winning boutique wealth manager.
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  With me is director and founder of Brenthurst Wealth, and that's Magnus
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  Haystack.
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  Magnus, a very interesting, very forthright, as usual, article penned by
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  yourself.
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  in the Daily Investor with the title, A Mauritian Trust, the Ultimate Estate
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  Planning Tool.
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  Would you go back in this article to 2015, 10 years ago,
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  10 and a half years ago, when things changed?
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  Maybe we could start at the beginning and the motivation for the trust angle of your
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  article.
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  Yes, thank you, Lindsay.
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  As you well know, for decades, South Africans...
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  has been smuggling money out of South Africa for various reasons, out of SA, go
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  and hide it.
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  And, you know,
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  the foreign exchange rules were partially relaxed in 1998 and gradually
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  until about 2015.
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  And in 2015 was the big bang and individuals, tax compliant individuals,
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  could take up to
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  11 million rand per person per year.
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  Now that announcement 2015 came as a surprise.
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  There were all kinds of rumors that it was allowing the ANC guys to smuggle their
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  money out.
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  But be that as it may, it opened the gates and it has changed the investment world in
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  South Africa in a substantial way.
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  First of all,
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  the uptake of offshore investments was far greater than was expected by the local
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  investment
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  community.
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  They were still...
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  trying to pretend that everything is fine, South Africans don't need to take their
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  money offshore,
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  but obviously investors didn't listen to that because the money has been flowing
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  out tremendously.
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  And some estimates put it at one and a half trillion rand that has left the
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  country legally via the normal channels,
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  with the end result that the offshore asset base of South Africa and South
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  Africans has
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  increased substantially.
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  Now, that's only half of the story.
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  Now, people took money offshore for a variety of reasons.
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  One is to de-risk, wanted to spread their risk.
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  They wanted to diversify.
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  But finally,
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  and the last point is people just simply wanted some of their money to be somewhere
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  else
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  but in South Africa.
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  So you wanted to get your money offshore, and a lot of people have done that
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  successfully.
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  Which is a good thing, of course, isn't it?
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  Because apart from anything else, it's the diversification of a portfolio, in this
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  case,
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  geographically.
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  It ticks all the boxes.
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  It ticks all the boxes for why you should take money out,
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  because you can get into the magnificent seven companies which are not available in
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  South Africa.
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  You can buy technology.
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  You can buy Japanese companies or whatever.
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  There simply is no argument against it.
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  But at the bottom line...
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  And unspoken in many cases, people simply wanted their money out of their hands, out
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  of the control of the ANC.
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  Now, having said that, yes, you've moved your 10 million offshore 10 years ago.
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  That's not worth a 50 or a 60 or even 100 million, depending on your returns.
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  But the gist of the article is your money is still effectively in South Africa
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  because it falls
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  under the South African tax exchange.
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  and your estate, more importantly,
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  will be taxed according to the estate duty taxes that kick in.
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  So that's a big mistake a lot of people didn't rectify.
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  They should, some certainly have, but a lot of people took money offshore.
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  Yes, made money, yes, but the money is still in their estate.
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  My recommendation...
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  is get that out of your hands as soon as possible and into a trust, in this case a
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  Mauritian trust,
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  and your children and grandchildren will one day thank you immensely for that.
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  Okay, let me go back a bit and digest what you've just said.
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  A lot of people who are tax compliant and ticked all the treasury boxes,
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  got their money out legally to the tune of one and a half trillion rand, according to
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  some estimates.
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  That's fantastic.
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  but they rushed out without thinking of the actual planning of their estate.
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  And what you're saying is that a trust can help, again,
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  in a tax-compliant way.
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  And is it too late for those people that already got their money out, Magnus?
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  No, it's not.
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  I mean, yes, there will be a price to pay now because your assets have increased in
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  rent terms.
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  So any.
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  Capital gains tax will still remain,
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  but the longer that money lies in a trust, the better for your estate,
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  because any future capital growth happens in the trust and not in your
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  name.
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  So this advice will save your estate, depending on various assumptions.
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  It can be tens of millions of rands.
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  It could be hundreds of millions of rands, depending on the period of time.
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  time and the amount invested.
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  But by doing this, moving it out of your hands, you're saving a lot of estate duty,
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  capital gains taxes, and also executors' fees.
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  And it's also one way to ensure that the wealth that you have created will remain
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  in the hands
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  or the control of the family, as opposed to SARS every now and then taking...
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  20, 25% as money changes from one person to the other.
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  So it's a very good piece of advice.
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  And it finally cuts the link to the ANC or whatever the ANC
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  has in mind with your money in the future.
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  When I came to South Africa in 1988, it was very fashionable to have a trust,
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  anyone had a trust,
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  whether they were just relatively well off or super wealthy.
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  You had to set up a trust.
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  And then gradually over the years, loopholes were closed.
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  And trusts in South Africa, as far as I knew,
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  were becoming terribly unfashionable and didn't give you the advantages that they
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  did
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  previously.
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  What's the difference now?
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  What is the difference between a trust from those days and a Mauritian trust that
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  you're advocating?
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  Well, you have to differentiate between a South African trust.
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  and a Mauritian trust.
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  SARS can change the tax laws as far as Mauritian trusts,
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  South African trusts are concerned overnight, and which they have been doing.
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  They've gone for South African trusts.
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  It's far more difficult to change the tax structure of an offshore trust simply
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  because they
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  have no jurisdiction in those countries.
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  There are still ways that they're trying to make it more difficult for people to
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  put money into the trust, but
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  There is no question that the advantages far outweigh the
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  disadvantages.
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  I'll give you one example.
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  Until a couple of years ago,
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  any donation that you made to your offshore trust was tax-free.
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  So there would be a loan account.
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  The loan account is recorded in your estate, but the loan didn't accumulate any
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  interest.
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  They then introduced...
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  What they call Section 7C, there now has to be an interest factor,
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  but it can be reduced significantly by choosing a currency where the interest
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  rates are very low.
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  For instance, a yen loan or a Japanese euro loan.
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  But what happens in the trust thereafter is out of the hands of the ANC.
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  They cannot change the tax rates.
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  They cannot.
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  get hold of those assets because it's controlled by a different jurisdiction.
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  Now, I'd like to say one thing.
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  Most of the big wealth in South Africa,
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  I'm talking about the Rupeds and the Oppenheimers and the Gores,
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  their money has been in trusts from virtually day one.
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  And these people have effectively shielded themselves from massive,
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  massive potential taxes in the future.
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  in fact The trust is the only way to prevent the fortune that your grandfather
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  created in his lifetime from being broken up, not once,
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  but several times during two or three lives,
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  with the result that there's very little left of the fortune that was initially
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  created.
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  So therefore, if we're talking about intergenerational wealth, the only medium,
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  in my opinion, is an offshore trust.
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  And in this case, the Mauritian Trust, which we do now at Brenthurst, we own the
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  company.
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  I speak to people that they know and there's a level of trust.
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  But all big fortunes, most big fortunes in the world, Lindsay, I can tell you,
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  are housed somewhere in a trust offshore somewhere.
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  So whenever the SA Media talks about, you know,
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  your 100 per day is this worth much or that much or the Oppenheimer's,
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  not exactly true.
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  The wealth is owned and controlled via the trust, which they then effectively
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  control,
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  but they don't have that amount of money.
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  in their balance sheet or in their bank account or in their names because that
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  would be extremely stupid to do it would lead to the
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  breakup of very very big companies every time someone dies so that's why the trust
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  is such a perfect
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  vehicle and and more and more we are just getting our clients get it into a trust
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  once they see
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  the benefits.
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  At what wealth point do you need a trust that you've just described?
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  I mean, can it be 10 million rand?
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  Can it be more?
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  Can it be less?
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  Please tell us.
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  It can be less.
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  Remember, there's a certain base cost to register a trust.
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  That's about $2,000 to $3,000.
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  And then you've got annual fees, $2,000 to $3,000, depending on complexity.
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  But you need to look at the longer term picture.
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  How much money is going to go into that trust?
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  What will that money be worth one day?
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  10, 20 or 30 years from now.
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  And then you do the sums.
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  And in most cases, it makes sense to bite the bullet,
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  pay the fees and get that money out of your name into the name of the trust that
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  you can still control
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  via your letter of wishes while you're still alive.
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  And just to reiterate, you didn't only advise people to set up a trust,
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  you actually bought a trust company.
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  And I'll read you this.
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  Several years ago, it became clear that Brentos needs to set up or acquire its own
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  trust company in Mauritius,
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  where we already had an asset management license, which is called Brent Wealth.
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  Now, you set up Brent Consultor.
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  So what do you do?
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  Do you go via your local Brentos Wealth investment professional and they will put
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  you in touch with Brent Consultor?
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  How does it work?
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  Well, we have people inside of Brentos already who are qualified to assist with
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  the setting up of the trust.
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  but ultimately lands up in Mauritius where Brent Consulta will then take over the
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  management of the trust and
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  there we have South African people on the board,
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  South African people managing the company together with the Mauritian people.
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  So there's an element of safety and familiarity that sometimes is a problem
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  for people.
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  So they're very comfortable now knowing that Brent Trust is on both sides of the
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  deal.
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  Magnus, thank you very much for that excellent advice.
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  Magnus Haystack is a director and founder of Brenthurst Wealth, and that was It's My
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  Money.
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  It's My Money was brought to you by Brenthurst Wealth, an award-winning
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  boutique wealth management company.