You may need to consider life cover that pays out offshore in USD
Leslie Greyling and Rozanne Heystek-Potgieter
As the offshore investing trend gains momentum amongst South African investors, it creates new needs to manage their financial affairs efficiently. One issue that should be considered is life cover that pays out offshore in US dollar.
Beyond offshore investing, family dynamics are changing due to emigration, work and study opportunities outside of SA there is an increase in the need for offshore life assurance to cater for a wider range of financial needs and circumstances.
Many local investors have children or other family members who have relocated offshore for various reasons, and they might be named the beneficiaries of life policies. Multiple scenarios can play out for beneficiaries who are no longer based in SA.
For instance, if the beneficiary of a SA life cover policy does not have a SA bank account, the benefit cannot be paid to them, and it could lead to the benefit having to be paid to your estate late, which could have a further cost effect such as executor’s fees, which would have been avoided if paid directly to the beneficiary.
Forming part of estate assets in this manner means the beneficiary would only receive it once the executor has permission from the Master to distribute, this could add several months, or even longer, to the timeline of receiving the benefit.
Investors with offshore assets might have offshore liabilities such as inheritance taxes on immovable property, educational costs or a bond that needs to be covered on their passing.
Should you have offshore liabilities, or your children and/or other beneficiaries live overseas, a life cover product that pays out in USD directly to an offshore bank account would be advantageous.
There is a SA Insurer that provides such an offshore dollar policy, which offers risk protection in dollars which is paid internationally.
The premium, ranging from the minimum of $50 per month and maximum of $4,000 per month, can be either paid annually directly from an offshore dollar denominated account or monthly from a SA bank account at the prevailing exchange rate.
Premiums taken from a SA bank account will form part of your R 1mil annual offshore allowance, so take this into account if you have, or are planning to take money offshore for other reasons such as investments or planning to travel overseas.
Depending on your age and other rating factors the premium is calculated for a certain amount of USD life cover. You can also select to include additional benefits such as Disability and Severe Illness cover.
Requirements:
- Completed and signed original Application form and FICA documents.
- Full medical and health underwriting is applicable. Blood tests and medical tests including relevant reports will be required.
- Because of SA’s grey listing status, an enhanced due diligence process will be applicable, such as all original and certified application forms and other documents.
In view of estate duty for a SA tax resident, this type of policy is classified as a non-domestic policy, as long as the payouts occur out of SA – exempting it from estate duty in SA.
Some jurisdictions might tax the proceeds in the hands of the beneficiary – this can be avoided by including an offshore trust in your overall estate plan.
A bottom drawer offshore trust, as one managed by Brent Consulta (part of the Brenthurst Wealth group of companies), based in Mauritius, would remove the concern of where the policy beneficiary is based, and avoid estate duties completely.
The product can provide valuable cover for liabilities outside of SA in USD currency.
Contact Leslie Greyling, financial advisor at Brenthurst Wealth Fourways for more information or a quote, and Rozanne Heystek-Potgieter, CFP®, financial advisor at Brenthurst Wealth Val de Vie for estate planning queries.
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