How South African And Offshore Trusts Differ – Corporate/Commercial Law

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How South African And Offshore Trusts Differ

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As more South Africans establish trusts outside the
country, Grant Barbour, Managing Director – Private
Client, examines the key differences that advisers and individuals
need to be aware of.

The relaxation of South African exchange controls means wealthy
South Africans now have more freedom to place their assets anywhere
in the world. For those seeking to manage their wealth, or to
solidify their succession planning, many will be drawn to offshore

On the plus side, they’ll find a wealth of reputable, stable
and well-regulated jurisdictions to choose from – whether
that’s Jersey, Guernsey, Mauritius, Hong Kong, Isle of Man or
elsewhere. But it’s important to pause here.

There’s a common misconception in South Africa that local
and offshore trust structures are essentially the same thing. In
fact, they’re similar in name only. There are many differences,
and they run very deep.

As such, anyone considering offshore trusts can’t afford to
be complacent, and neither can their advisers. In order to ensure
the effective management and safety of assets placed offshore, its
essential to understand the differences between these

The root of the trust issue

There’s a reason for the marked differences between South
African and offshore trusts – the majority of offshore finance
centres have based their trust law on English legal principles.
When the English first came to South Africa, the country’s
legal system absorbed the trust concept as smoothly as the society
took to rugby. But it didn’t accept one of its key principles -
that of dual ownership.

As such, a uniquely South African trust concept has since
developed, and its relation to the original definition of a trust
is loose at best. The key practical difference lies in the concept
of ownership – as South African trusts are based on the law of
contract, and the country’s Roman Dutch law base recognises
only one type of ownership: dominion.

Most offshore trusts, meanwhile, are based on English law’s
concept of equity, which recognises two types of ownership – legal
and beneficial. The trust is not a legal entity – it’s simply
the relationship created between the trustee and the

Here, following the declaration of trust, the trustee receives
the assets, and simply declares that they’re not holding those
assets in their own capacity but in a trustee capacity for the
beneficiaries of that trust. The beneficiaries are then entitled to
expect the trustees to manage the trust property for their

Other critical differences

While the key difference lies in ownership, there are a slew of
other differentiating features of offshore trusts that it’s
vital to understand before taking the leap. These include:

  1. Formalities. As South African trusts are based
    on contract law, they have to be created in writing. By contrast,
    an offshore trust can be an oral agreement. But it is more commonly
    set up through a settlement deed, which the trustee and the settlor
    sign; or a declaration of trust, which only the trustee signs.

  2. Protectors. It’s common for an offshore
    trust to appoint a trusted individual or organisation as a
    protector, to provide extra security. They tend to have a power of
    veto over certain powers of the trustee. You don’t typically
    see protectors appointed to South African trusts.

  3. Perpetuity. While a South African trust can
    exist forever, some equity-based jurisdictions have perpetuity
    periods, and limit the time that assets can be held in trust.

  4. Amendments. As South African trusts are based
    on the law of contract, any changes must follow contractual
    principles. This makes it difficult to amend once one of the
    parties dies. An offshore trust can be amended whether the settlor
    is alive or dead, subject to the terms of the trust. It can even be
    completely restated.

  5. Addition and removal of beneficiaries. Free of
    the contractual principles of South African trusts, offshore trust
    deeds often contain a specific power of appointment, which may
    allow trustees to add beneficiaries to a trust, or to remove a
    beneficiary or declare them an Excluded Person.

  6. Remuneration. In South Africa, the Trust
    Property Control Act has provisions which allow trustees to charge.
    In equity-based jurisdictions, the role of trustee was
    traditionally unpaid. This has evolved over time, but it remains
    critical to ensure the trust deed contains a clause that allows the
    trustee to take a fee.

  7. Registers. South African trusts need to be
    registered with the Masters Office. Many offshore jurisdictions
    don’t require trusts to be registered with any official body,
    or may only require registration if the trust becomes liable for
    certain tax obligations.

  8. Revocability. Because of their contractual
    nature, South African trusts are generally revocable by mere
    agreement between the settlor and the trustees, provided the
    beneficiaries have not accepted benefit. Most equity trusts are

  9. The settlor’s role. Known in South African
    trusts as the ‘founder’, the settlor has a more prominent
    role in South African trust law than under English-based trust law.
    In most offshore trusts, the role of the settlor largely falls away
    once the trust is constituted. While their wishes remain important,
    this is non-binding.

  10. Beneficiaries’ rights. In most
    equity-based trusts, the trustees are answerable to the
    beneficiaries and not to the settlor. The beneficiaries have
    certain rights – to force the trustee to do their duty, and to
    approach the courts if they feel the trustee is failing in that

  11. Tracing. The beneficiary of an English Law
    trust has the right to trace any trust property that has been
    wrongfully appropriated out of the trust, even if it has been
    substituted by other property. The beneficiary of a South African
    trust wouldn’t have that right and it would be up to the
    trustee to claim the return of that property.

  12. Personal liability of the trustee. As most
    equity-based trusts lack legal standing, it’s the trustee that
    acts and enters into contracts in relation to the trust structure.
    So, the trustee is in most cases personally liable for any debt
    that they take on during their administration of the trust. English
    law trusts will often have comprehensive contractual indemnities
    and limitation of liability clauses built in to contracts,
    liabilities and deeds. Under South African law, the trustee
    doesn’t have this concern, because their liability is limited
    to the value of the trust assets according to statute.

Navigating the differences

It’s clear, thanks to historical contrasts in their legal
bases, that the differences between offshore and South African
trusts are marked. Anyone seeking to take their assets offshore -
or to support a client to do so – must understand exactly what
offshore trusts are, and what they can do, before deciding to do

At Ocorian, we have offices in major international financial
centres, so we understand the intricacies of both sides of the

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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