An increasing number of South Africans are choosing to diversify their assets across foreign jurisdictions. With assets ranging from global equities to immoveable property, there has been a notable increase in the need for estate plans to accommodate the offshore assets of clients. Estate planning for a South African resident who owns both local and foreign assets can be complex, and it is essential that each estate plan is tailormade to the needs of the client taking into account multiple factors. In this article, we explore a range of factors that can impact the estate plans of those who own foreign assets.
South Africans enjoy what is referred to as freedom of testation which means that subject to a few statutory and common law limitations, a local testator is free to bequeath his assets as he pleases. Countries that observe common law, such as England, Australia, Wales, and most states in the US, have similar inheritance laws to ours which can make the estate planning process somewhat less complicated if assets are held in these jurisdictions. However, many countries that observe civil law, such as Germany, France, Greece, Portugal, and Mauritius, restrict freedom of testation by what is known as mandatory succession rights or ‘forced heirship’ rules. Forced heirship is a system designed to protect heirs (most notably the children and spouse of the testator) by ensuring that a portion of the testator’s estate devolves on the protected heirs. This means that if you deal with foreign assets housed in a civil law jurisdiction in your South African will, the succession laws of that jurisdiction may override your wishes.
If you own foreign assets, it is difficult to know whether you can deal with those assets in your South African will, whether you require a worldwide will, or whether to have multiple wills prepared for each jurisdiction in which you hold assets. When determining your estate planning needs, understanding the laws of succession pertaining to the foreign jurisdiction is important. For instance, if you own immoveable property in a foreign country that observes common law, you may feel it is not necessary to have a foreign will drafted as the inheritance laws of both countries are similar. However, keep in mind that many offshore jurisdictions do not recognise our locally issued letters of executorship and, in order to have your foreign assets administered in that jurisdiction you may need to appoint a lawyer in that country to apply for probate – which is effectively a validation process authorising your estate to be wound up in that jurisdiction. Applying for probate can be a lengthy, cumbersome, and costly process, especially if there are language barriers involved, so it is important to ensure that you fully understand the rules and limitations applicable to the jurisdiction in which your asset is located.
Tax is another factor that should be considered when planning for your foreign assets. Remember, South Africa has a residence-based system of taxation which means that South African residents are subject to income tax and estate duty on their worldwide assets. As it currently stands, estate duty is applicable to the worldwide dutiable property of the deceased – with exemptions in respect of bequests to a spouse and certain charitable institutions – at a rate of 20% on the value of the estate up to R30 million, and 25% on estates greater than R30 million. However, depending on the location of your foreign assets, you may also find yourself liable for what is known as situs tax, which is effectively tax based on the location of the asset.
If your foreign assets are based in a country that does not have a double taxation agreement with South Africa, you may end up paying tax in both countries. South Africa has double taxation agreements with many countries around the world, the purpose of these agreements being to provide relief to taxpayers who own assets in foreign jurisdictions. Generally speaking, the country in which the asset is located has the right to tax the owner although this can vary depending on the terms of the agreement entered into between South Africa and that jurisdiction. The terms of the various double taxation agreements are not all the same and you will need to check the details of the agreement that pertains to the foreign country you are invested in.
If it is necessary to draft a foreign will to deal with your offshore assets, it is important to ensure that your will fully complies with the law of the country in which your assets are located. Ideally, it is best to seek the expertise of a lawyer or estate planner who operates in the country where your assets are held as she will have in-depth knowledge of the applicable laws and procedures and will be able to draft your will in the language of that country. Where a foreign language is spoken, bear in mind that language and translation barriers could also result in delays and additional costs. Having a foreign executor appointed in a foreign will means that your local estate can be finalised without delays caused by obtaining recognition in a foreign jurisdiction. Further, a foreign will dealing with offshore assets will address specific requirements of the relevant jurisdictions and legal systems, thereby simplifying the administration of the offshore estate.
That said, when setting up concurrent wills, it is essential to clearly specify which assets each will deals with. So, when setting up your South African will, be sure that the document specifically states that it deals with all assets held in the Republic of South Africa. Similarly, your foreign will must be specific in terms of which country’s assets it is dealing with. For instance, if you own a holiday home in Portugal, your Portuguese will must clearly state that it deals only with the assets in Portugal. Both wills must be complementary and aligned with your estate planning goals, and it is therefore advisable for your local and foreign estate planners to work in unison.
When putting a foreign will in place, be careful that you don’t inadvertently revoke your South African will. Remember, most wills include a clause that specifically revokes all previous wills drafted by the testator and, if not correctly worded, the revocation clause in your foreign will may inadvertently revoke your local will. As such, when drafting your foreign will, be sure that the revocation clause refers only to any previous wills made in respect of your foreign assets, and vice versa. Ideally, if you employ the services of a foreign practitioner to draft your offshore will, be sure to advise her that you have a South Africa will in place that deals with the assets owned in this country. Having a separate Will means that your South African estate can be wound up simultaneously with your overseas assets, something that would naturally be to the benefit of your loved ones.
As is evident from the above, the location, type, and value of your offshore asset are all factors that should be considered when developing your offshore estate plan – together with other important factors such as your matrimonial property regime, the inheritance laws of that country, and whom you intend to inherit the asset. Estate planning for offshore assets can be complex, and our advice is to navigate this area with a fiduciary expert.
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