Investing Offshore as a Retirement Plan? Here’s What You Need to Know
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While some investors want to bequeath assets to a younger generation, others want to pay for children to study overseas, which may lead them to want to set up an offshore trust. [Related topic: New York Will Contests]
But when saving for retirement, investors are faced with two broad considerations. On one hand, they need to accumulate and grow their assets in order to generate a sustainable income for retirement while also constructing a properly diversified portfolio.
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Adding an offshore allocation to a retirement portfolio offers exposure to sectors that are not represented in the domestic market as well as diverse economies. Furthermore, the performance of emerging markets and developed economies are not necessarily correlated.
Offshore investing has been an easy story to sell thanks to comparing the idea of offshore investment against the background of significant political uncertainty and the poor performance of the domestic market. Since global diversification is an important consideration for local investors, it’s definitely appealing. However, it is also important to keep a level head.
Although fear and panic, and recent volatility spread and things get worse, adding an offshore portfolio asset provides a fine balancing act, but still wealth advisors need to keep a strategic asset allocation in mind and aligned with the personal circumstances of an investor and stick to an offshore allocation that will put an investor in the best position to achieve their long-term investment objectives.
As for estate and inheritance planning, every client’s particular circumstances will determine the benefits of investing offshore. Some people will want to bequeath assets to a younger generation or pay for children to study offshore and may want to set up an offshore trust or permanent offshore residence while others may have South African liabilities that they want to settle at some stage.
There are not significant differences between investing locally and investing offshore in terms of taxes, except for the situs tax, which is levied where investors own UK or US domiciled assets directly. But this would only apply to a small segment of the market. In general, investors will need to pay capital gains tax (CGT) on any capital gain and will pay income tax on any interest or foreign dividends declared.
The best way to get it right for sure is to speak directly to a probate attorney who can guide you through the steps of an offshore investment-based retirement plan and estate planning.
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