This article explores how a South African trust can be integrated into a global estate plan. Clients often ask whether offshore assets can be bequeathed to a South African trust, whether the trust can make distributions to non-resident beneficiaries, and whether it can make distributions to a non-resident trust.  The discussion below provides an overview of the key considerations for each scenario.

Can a South African trust hold offshore assets?
The first consideration is whether a South African trust can hold offshore assets By law, South African trusts are generally prohibited from directly owning offshore assets due to exchange control regulations. The executor of a deceased estate where offshore assets have been bequeathed to a local trust through a will, may request approval from the South African Reserve Bank to transfer those assets to the trust. In practice, such approvals were only granted in cases where the offshore assets were bequeathed to a testamentary trust and not when bequeathed to an inter vivos trust. We have, however, lately seen cases where such approvals were not granted for the transfer of offshore assets to testamentary trusts, and it may be best to consider an alternative strategy. Offshore assets could rather be bequeathed to an offshore trust. Should the client not have an existing offshore trust, a so-called “freezer trust” may be formed for this purpose. Such a trust is an offshore trust that is set up by the client but remains dormant until it is activated by the bequest in the will. This results in a reduced annual administration cost of the trust for as long as the client is alive, but creates a suitable offshore heir, especially where the ultimate beneficiaries may still be minors. 

Can a South African trust distribute to non-resident beneficiaries?
At first glance, the answer to the second question appears straightforward: South African trusts may make distributions to non-resident beneficiaries.  However, trustees should note that the liability for tax on taxable income or capital gains remains with the trust and cannot be passed on to the beneficiary, as is the case with SA tax resident beneficiaries. The trustees will have to carefully consider the tax impact of a distribution to a beneficiary who is not an SA tax resident, as the trust will be paying tax at a higher rate than a natural person. In addition, such distributions must comply with the rules from an exchange control perspective. In October 2025,  the South African Reserve Bank issued Exchange Control Circular 15/2025, in terms of which authorised dealers (the commercial banks) may allow the transfer of income from trusts created in terms of a last Will and Testament (testamentary trusts) and inter vivos trusts, provided that the beneficiary is a non-resident or private individual who ceased to be a resident for tax purposes in South Africa. Secondly, a Manual Letter of Compliance for International Transfer must be obtained from SARS should the beneficiary not be registered on the SARS registered database. If the beneficiary is registered on the SARS registered database, a TCS – AIT PIN (Tax Compliance Status PIN issued in connection with an Approval for International Transfer) must be obtained from SARS.

Distributions to non-resident trusts
The final question is whether it is advisable for a South African trust to distribute assets to a non-resident trust?

This can be an attractive strategy, as it allows assets to be expatriated without relying on individual offshore allowances while preserving estate planning benefits.  However, the complexity lies in the detail, and several potential pitfalls must be carefully considered.  The key questions below highlight the issues that should be addressed before proceeding with such a transaction:

1. Can all the assets of the local trust be transferred to the non-resident trust?

A notification published by SARS on distributions from South African trusts to non-resident trusts refers to the “release of funds/amounts”. This indicates that such transfers are limited to cash only; immovable property or company shares cannot be transferred to the offshore trust. 

2. Does this apply to all SA trusts?

The requirement is that the non-resident trust must be a beneficiary of the South African trust, and the distribution to the non-resident trust must be made in accordance with the trust instrument of the resident trust that dictates how the trust is to be executed.

3. What procedure must be followed?

The trust’s tax affairs must be in order, and a manual letter of approval must be obtained from SARS. An application for approval by SARB should be submitted, and certain conditions may be attached to such approval if granted. It is, for example, possible that the approval may be subject to the requirement that future distributions by the non-resident trust to a SA resident beneficiary must be repatriated to SA.
  
4. What are the tax implications of making such a distribution?

As mentioned above, only cash can be transferred to the non-resident trust. This implies that assets will have to be liquidated, and the capital gains realised from such disposals will be subject to capital gains tax at an effective rate of 36%.

A question that needs to be addressed is whether the attribution rules will apply to the distribution by the local trust to the non-resident trust. This will result in future income and capital gains realised by the non-resident trust from the assets distributed by the SA trust becoming taxable in the hands of the SA trust. It is not clear what SARS’ position on the application of the attribution rules to this scenario is, but there are tax risks that need to be considered. At the very least, some thought must be given about how the tax risks can be managed going forward.

This presents a great planning and structuring opportunity to diversify assets and should be considered by clients and their trustees. This is, however, not a one-size-fits-all solution and expert fiduciary and tax advice is required to avoid pitfalls. 

As your trusted fiduciary partner, we’re here to help you seamlessly integrate your South African trust into your global estate plan. Contact us to learn more.

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