The perks of using an endowment to invest globally

Global investing

Directly – the ‘DIY’ route

Through a global endowment

Estate planning

• You must have an international will in place and employ an executor in another country to handle the succession of your investment in the event that you pass away. Both these processes can be costly.
• Next you have to make sure you get international probates on this will (to validate its authenticity). This can be a long and administratively tedious process, and is also very costly.
• On death, the executor fees must be paid on the proceeds of your investment.
• If you don’t have an international will with the proper probates in place, you can end up paying estate duty in another country, which can be as high as 45% to 60% of the investment value.
• Your investment may be subject to inheritance tax.
• Your assets may need to be sold or relocated upon death. 

• In an endowment, these issues are all avoided by simply electing beneficiaries on your investment. Drafting an international will or employing an executor isn’t necessary – saving time and costs.
• There’s also no need to worry about probates, extra fees or foreign estate duty. On the death of the last life assured, the value or ownership of the policy will simply pass to the elected beneficiaries.
• This gives your beneficiaries 100% accessibility, ensuring smooth succession on death and potentially relieving stress at a difficult time.   
• You may be exempted from some inheritance tax. Only SA estate duty applies of up to 20% or 25%, if the estate is more than R30m.

Tax

• Tax is based on your individual circumstance. Calculating it can be  complex, burdensome and potentially costly, as you need to declare any gains and losses in rands, often without help from the offshore investment provider (if they have no SA-based operations).
• If you have substantial money offshore and you switch funds or decide to sell an investment and buy something else, you may be surprised with a nasty local tax bill to settle. You may then need to repatriate funds or find money locally to pay this.
• In terms of tax rates, you’ll pay on your personal income tax bill. This means interest income is taxed at up to 45% and capital gains up to 18%. Because this calculation is done on your local tax bill, you’ll have to pay for US dollar gains in rand, meaning you’ll also pay capital gains tax on any rand depreciation.

• Your endowment is taxed at a flat rate of 30% on interest income and 12% on capital gains – meaning you can potentially save up to 33% on taxes on investment growth.
• The calculation and settlement of any relevant taxes are done completely on your behalf – saving you time, effort and any unwelcome surprises. If your endowment is offshore, capital gains tax (CGT) is often calculated and settled in foreign currency, usually US dollars. This means you can avoid paying this tax on rand depreciation.
• Endowments trigger CGT on death, provided ownership is passed to beneficiaries.

Management

• You will need to manage the administration of each asset in your investment, individually.
• Making changes to your investments can become complex (making them less flexible) when you’re investing individually into multiple assets.
• How liquid (easily convertible to cash) your assets are depends on your investment. A property is less liquid, but offshore unit trusts are easily accessible.

• An endowment consolidates admin, making your assets quick and easy to track and manage.  
• You can invest it in multiple investments and manage them actively, greatly simplifying things.
• Withdrawals from an endowment depend on its structure. Generally, legislation limits withdrawals from endowments in the first five years to one withdrawal of up to the initial investment plus 5% compounded annual growth. With Discovery’s Global Endowment, however, each investment consists of 100 contracts, so you can technically withdraw up to 100 times in the first five years – making it very accessible. After five years, access is unlimited.

Fees

• There are fees involved in acquiring assets and in the case of unit trusts. Any investment funds invested in will also charge asset management fees in addition to any costs incurred in trading and administering the investment fund.
• There may also be other fees paid to advisers, consultants and investment providers for assisting in the setting up and ongoing administration of your investment.
• You may also incur costs relating to setting up the estate planning on your investments.

• Endowments generally charge tiered admin fees for administration.
• Other charges will include asset management fees and costs in the investment funds you choose and any fees paid to your financial adviser for assisting you in setting up your investment. There are no further costs in relation to tax consultants or estate planning.
• Some endowments, like the Discovery Global Endowment, come with added features that can drastically enhance the product offering.