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Case study: managing an entrepreneur’s future wealth

A high earning, young entrepreneur sought to ensure that his management buy in could maximise returns for him over his lifetime.
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Geoff is a South African client who had the opportunity of taking part in a Management Buy In (MBI), acquiring a portion of shares in an Isle of Man company, and which is the holding entity of the global company he was employed by. 

One of the shareholders of the company, a corporate entity, had agreed to fund the MBI, via a commercial loan to Geoff directly, so he would be able to purchase the shares. The loan would be secured directly against the value of the shares of the company, and repaid through the income stream from future dividends, with the repayment period expected to take between five and 10 years.

As Geoff was only in his 30s and in the process of accumulating his wealth, we need to balance his current financial situation with that of his future. Given the level of dividend flows via the shares from the MBI as well as the potential for any future proceeds when Geoff decided to sell his stake, we recognised that there was opportunity here for a large amount of capital to accumulate, and that these would be outside of South Africa.

The wealth structuring process

We sat down with Geoff to establish his main financial goals and objectives, which were:

  • Investment planning – by ensuring international assets remained outside of South Africa, they could be reinvested in a range of suitable investments
  • Succession planning – assets would be built up within the trust, be reinvested and could be used to plan for Geoff, and pass down through any future generations
  • Asset protection – due to the political and economic instability in South Africa
  • Estate planning – allow for assets to be held within the trust and not in Geoff’s name for part of his estate for inheritance tax purposes.

The results

Based on the options available, Nedgroup Trust and Geoff decided that the best vehicle to house this investment would be an offshore discretionary trust. 

As the trust has minimal activity, apart from the regular receipt of dividends, the costs of running trust was low and could be comfortably borne by the client, with Nedgroup Trust able to provide comfort around the level of fees over the long term.

The trust will be reviewed once the loan is fully paid off and the trust receives the full dividends due. At that time, Nedgroup Trust and Geoff will also discuss the opportunities for further investments and the structuring needed to support his financial goals and objectives.

Should you require any further information, please do not hesitate to contact your usual Nedgroup Trust relationship manager who will be happy to discuss the topic with you.

 

Or if you wanted to find out more about how Nedgroup Trust, or Nedbank Private Wealth, can help you plan and structure your wealth for your family and for future generations, please get in touch using the links to the forms towards the end of this page.

The structures and wrappers used are provided for illustrative purposes only, and are not to be read as an invitation or inducement to buy a service. This content does not constitute advice or a personal recommendation. Individuals should seek professional advice, based on their jurisdiction and personal circumstances, before making any financial decision.

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