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Rosie 0:05
Hello and welcome to the Guernsey Finance podcast where we bring you developments from Guernsey's financial services industry. If you haven't listened to some of our previous podcasts already, you can do so on your preferred podcast platform or via the on demand page at our website at weareguernsey.com My name is Rosie Allsop. I am communications director here at Guernsey Finance, we're the agency that promotes the island of Guernsey's specialist financial services in its respective chosen markets under the brand We Are Guernsey for those of you who aren't familiar with Guernsey, the island is a leading global finance center of substance stability and security committed to the cause of sustainable finance as a member of several United Nations environmental initiatives and having been proactive in developing sustainable products and services. Today we're talking about South Africa and why Guernsey is the jurisdiction of choice for many South Africans in the private wealth space. Guernsey's relationship with South Africa is one that's developed over a number of years, and Guernsey is regarded as a trusted jurisdiction for the externalisation of assets by many South Africans. I am delighted to welcome my guests today, Chris van Vliet and Adaliz Lavarello who are Executive Directors at Cannon Asset Management. They're based in Guernsey and the company has offices in Guernsey welcome Chris and Adaliz.
Chris 1:41
Hi Rosie.
Rosie 1:43
Well, let's start by introducing you and Cannon Asset Management. Can you tell me a bit about yourself, the company and the services that you provide?
Chris 1:53
Thanks, Rosie. Cannon Asset Management forms part of the standard cannon group. The group is made up of cannon and Stenham trustees, which is our sister company. Stenham is a trust company located in Alderney and concentrates primarily on trust and company administration. Cannon, which is based in Guernsey, provides all types of asset management services, including trust and company formation and administration, investment management, and fund administration and formation. A more recent addition to our external services is our boutique fund administration, which focuses on the setup and incubation of tailored funds. We provide a trustee style relationship to the fund managers that can we focus on building a personal relationship with all our clients. A large part of our client base is in South Africa so we know and understand the landscape really well. Next year, we'll be celebrating our 25th year in business. The group employs around 80 People in the Channel Islands and have further representatives in South Africa to ensure that our clients have on the ground support. Back to your original question. I am a chartered accountant and trust and estate practitioner. I've been working with Cannon for over 10 years. My main focus is dealing with Southern African fiduciary clients, and also the worldwide hand administration, as well with Adaliz, she joined Cannon more recently as an Executive Director, and has a tremendous amount of experience in the industry.
Adaliz 3:25
Thank you Chris. I have worked for private and international corporate fiduciary businesses for over 28 years at both multinational and small private trust companies working with ultra high net worth individuals, their families and advisors across the globe providing succession planning solutions.
Rosie 3:49
Okay, so thanks for that. Can you tell me what are the typical characteristics of a Guernsey trust and what the advantages and benefits of those are? Chris?
Chris 4:00
The typical characteristics of a trust is the separation of the ownership from the right to benefit of the artists. A person known as the settler donates their assets to the trust to be held for the benefit of one or more persons known as the beneficiaries or for a particular purpose. Many people don't know this, but trust law started in the 12th century, when the Crusaders went off to fight the holy wars, and left their families and states behind. They would entrust their close friends and looking after and protecting their assets for the benefit of their families until they returned. Obviously, this has transformed legislatively over the years, the objectives and its core remains the same. I think a way of looking at this is that you were relying on somebody else to look after your assets in your family when you're no longer there. A professional firm will make sure your hard earned wealth is not squandered and will be used in the way you want to be used. A classic example of this is following the death of his father, the 19 year old beneficiary tried to buy himself a Ferrari to drive to university every day. Unfortunately, the trustees deemed us as unnecessary, but didn't show he had suitable transportation. Coupled with this, there are tax efficiencies that can be worked out, Adaliz is there anything I've missed out here?
Adaliz 5:22
I think I would like to add that another reason for choosing trusts over other wealth management tools is that the trustees may not be released from the duty to act in the best interest of the beneficiaries, the trust relationship is held to some of the highest standards of professional care. This differs from for example, the directors of companies who must act in the best interests of the company itself, rather than the individual shareholders, trustees looks only to the best interest those nameless beneficiaries. In addition, the trust relationship can offer a personal best box service and like any other considering the individual's needs of the beneficiaries.
Rosie 6:07
Okay that's interesting. So why is Guernsey regarded as a good place for South Africans to do business?
Chris 6:15
Besides being a beautiful little island, it has a very robust modern tax law support structures and is very well regulated. Guernsey works hard to maintain a good relationship with the OECD and the EU. Many were not on any blacklists, which can restrict banking and transaction. Guernsey also has a very stable political landscape, which means that things are unlikely to change. On the island, we have very good expertise. People are very well qualified with most obtaining internationally recognised qualifications. Guernsey for many years has had a strong relationship with South Africa. There are a number of South African companies including South African banks, which have offices here. According to the latest GFSC presentation, South Africa accounts for over 8% of the financial service industry in Guernsey. That's the third highest after Guernsey and the UK. If we consider some of the softer factors, Guernsey is within the perfect timezone for working with clients based in South Africa being only one to two hours behind. So we are all in the office at the same time. Also not very well known, but Guernsey is a very international place. While our business languages English, there are over 13 different languages spoken in our office alone. Given how many South Africans and getting live and work in Guernsey, we definitely understand the South African psyche.
Rosie 7:43
That's good to know. What type of Guernsey trusts are applicable to the South Africa environment Chris?
Chris 7:52
There are a lot of different types of Guernsey trusts such as discretionary fixed interest trusts, settler reserved power and purpose trusts. But the one that I find the most common for South African individuals is the discretionary trust is the one that closest represents a South African trust. There are key differences in the way the assets are owned and how the trusts are controlled. In South Africa, a trust is a legal entity. Based on contract law. We're in Guernsey the trust's are not really recognized as legal entities. It is a relationship between the trustee and the beneficiary which is recognised by law. Therefore, following South African law, the trustees must be completely separate from the beneficiaries.
Adaliz 8:36
Also a discretionary trust gives the trustees wide powers to administer the assets of the trust and to distribute them at their discretion. This provides the trustees with flexibility to adapt to the changing needs of the beneficiaries over time, and may be tailor made to suit specific needs and goals of the settler. At Cannon, we use different types of trusts, including Sharia-observant, we also administer private trust companies and foundations. Sometimes, the settler set up a discretionary trust the later develops into a family office.
Rosie 9:12
Now what concerns do South African clients have when they're looking to externalise their assets credits?
Chris 9:21
In South Africa right now there are a number of concerns. People are worried about the government, their future policies and corruption. They're also worried about how this will affect their wealth on an international basis. How will the round perform against other international currencies? How will the JSE perform against other international markets? On a personal level, I would like to ensure that their family is protected when they're no longer there, providing them with stability and options to allow them to continue to reach their goals, for example, while their kids have to be educated overseas, so when you consider these questions along with good expanding, you're going to be looking for a way to arrange your finances which protects them from these concerns and provides your families with options for future in a strong currency environment and opportunities for global need diversified investment portfolio. For me, a Guernsey structure ticks all the boxes.
Rosie 10:21
Yeah, so you mean what should clients be aware of when they are considering externalising their assets?
Chris 10:30
The first consideration is the exchange control restrictions. While these controls have been relaxing over the years, there are still restrictions in place. On a simple basis, a South African can take out 1 million rand per year at their discretion and then can take a further 10 million rand out a year, with approval from the South African Reserve Bank. The next big consideration are the tax consequences. We are not tax advisors, but we work closely with a number of distinguished tax professionals in South Africa, the UK and Guernsey. The first consideration here is what structure do you use? If you use a trust, you must consider how you fund the trust. If the trust if you make a donation to the trust, you must be aware of the 20% donations tax. And then the attribution rules, meaning that all the income and gains arising in the trust will be tested in the donors personal capacity. There are other ways of funding trusts such as loans, but you have to be aware of the rules and your personal circumstances. As each method has its own quirks, we strongly recommend tax advice is taken.
Adaliz 11:41
To reiterate important factors that must be considered at what are your family needs? Will you frequently need to access the funds for example? Or do you want the trustees to work with the next generation?
Rosie 11:55
Okay, so what's an acceptable level of funds to set up a Guernsey trust? And how much do they cost?
Adaliz 12:06
That's a difficult question. There isn't a fixed minimum requirement, the level of funds to set up an offshore will depend on what the seller goals and needs are, and how those goals can be achieved. For example, those the seller wish to add the family business into the trust may be protected from future generations, or maybe hold an investment portfolio to provide income to vulnerable beneficiaries. Like any financial services, there are costs associated associated with the setup of the administration of the trust structures. The level of fees will depend on whether the structure is complex, and the time needed to ensure the trustees exercise is functions under the trust in accordance with the trust flow and the terms of the trust instrument. Professional trustees may charge in different ways. Some may charge on a time basis on an activity face basis, or fixed fees, or combine all of them. Ultimately, the charges must be transparent and the parties must be comfortable with the level of fees and the services provided.
Chris 13:21
From our experience. It's not about the cost. It's about building and maintaining a trusted relationship which spans many generations. This is something we strive to provide a tunnel.
Rosie 13:31
Are there any other Guernsey structures that are currently being used in the South Africa market? And if so, can you describe them in a bit more detail and who might want to use which type of structure?
Adaliz 13:46
In my opinion, because of the history of trust law in South Africa and in Guernsey, the trust provides the most robust asset protection. Although both countries travelers are different. Guernsey has very strong company and trust laws that operate within a strong regulatory environment. For example, the trust law contains provisions that addresses all issues, including the interpretation of the trust. Its administration and variation would be questions of currency trust law along these offers significant protection from hostile claims from creditors and beneficiaries made outside of Guernsey it also protects the trust from foreign ownership rules. In addition to trackers he also provides modern company law and is a leader in company formation. I will stand against the companies are often use however, we also see South African clients prefer using protected cell companies to separate different family assets to different classes. For example, family enterprises from a traditional portfolio of investment.
Chris 15:00
Similar to the sell companies, we can set up a family fund, which gives the family the ability to invest in a multitude of different assets under a single banner, which with the protection of fund law, this also creates a separation of any transactions to the investors is often used by high net worth families who are based in multiple jurisdictions. In principle, there are no taxes in the funding, Guernsey provided that the income generated arises outside of guns and the beneficiaries are not Guernsey residents. For our existing loyal clients. We also offer a facility to have a service in which we manage bank accounts and broker accounts for them with the view to utilize their discretionary allowance, building it up until the assets are to be used for a family structure.
Rosie 15:51
See, and what other types of structures are popular do you say?
Adaliz 15:55
The most common structures are a pension discretionary trust, and Guernsey companies. However, for sophisticated high net worth families, we can offer family office services that combine a range of offshore products including their own private trust companies. And as previously mentioned, the family fund which is an open ended architecture protocol can be owned by an individual or an offshore structure.
Rosie 16:23
Okay, thank you. So there you have it. Guernsey is the jurisdiction of choice for many South Africans who are looking to externalise their assets or who were looking to capitalise on the many benefits of doing business in Guernsey. Guernsey is key strengths of security, stability and substance have resonated really strongly in South Africa on the visits that we've made in the past few years. And it's clear that Guernsey is now a key jurisdiction for wealth managers in South Africa for trusts, pensions and other corporate structures. I'd like to thank my guests today Chris Van Vilet and Adaliz Laverello of Cannon Asset Management for their insights today. And thanks also to you for tuning in. You can find out more about Guernsey and its specialist financial services sector by heading over to our website weareguernsey.com and you can listen to more podcasts like this. Check out the We Are Guernsey podcast wherever you get your podcasts. Until then it's goodbye from Guernsey.
Transcribed by https://otter.ai