As more South Africans look to externalise their Rands and diversify through foreign investments, the need for multi-jurisdictional estate planning is growing. Offshore investing is on the rise, and many families now have members living abroad due to international education or relocation. Additionally, an increasing number of South Africans are purchasing properties in countries like the UK, Australia, and Mauritius, adding complexity to estate planning. These factors make it essential to adopt a comprehensive, well-structured approach, as failure to do so can result in unintended consequences and confusion. Here are key considerations to keep in mind when structuring an estate plan for foreign assets.
The first step in developing a robust estate plan for foreign assets is understanding the jurisdiction in which those assets are held, followed by considering the type and value of each asset. Whether the assets are in a civil law or common law jurisdiction significantly affects how you structure your estate plan. Civil law countries include France, the Netherlands, Germany, Spain, and Portugal, along with most of Central and Eastern Europe and East Asia. Civil law systems are codified and rooted in Roman law, relying on specific legal codes. Some countries, like Mauritius, blend civil and common law, with property law being governed by civil law.
Many civil law jurisdictions impose “forced heirship” or “mandatory succession rights,” which restrict a testator’s freedom to distribute their estate. Similarly, in Shari’a law jurisdictions, testamentary freedom is limited to one-third of the estate, with the remainder passing according to forced heirship rules. Under Shari’a law, only Muslims are eligible to inherit through these rules, further limiting a testator’s discretion in estate planning within such jurisdictions.
Keep in mind that mandatory succession rights vary from country to country, and this can further complicate one’s estate planning, making it essential to get expert advice from someone with in-depth knowledge of that jurisdiction’s laws. For those South Africans who own or plan to purchase property in Mauritius, keep in mind that Mauritius is a forced heirship jurisdiction which reserves a portion of the deceased estate for the children of the deceased, and this is applicable to both Mauritian citizens and foreigners. Similarly, under French forced heirship rules, children are protected although the spouses have few inheritance rights. These succession laws apply to the worldwide assets of French residents, whereas in the case of non-residents who own property in France, only immoveable property is affected by these laws.
The necessity of having an offshore Will depends on several factors, including the type of asset, the jurisdiction in which it is located, and its overall value. Generally, if you own immovable property in a foreign jurisdiction, it is advisable to prepare a foreign Will to manage that property upon your death. However, there are specific advantages and disadvantages associated with having a foreign Will, making it essential to seek guidance from a fiduciary expert. An offshore Will can facilitate the efficient administration of your foreign assets alongside your South African assets and expedite the process of obtaining a grant of probate. Furthermore, having your foreign Will drafted by an expert familiar with the jurisdiction’s laws ensures that it complies with local legal frameworks and is written in the appropriate language. For instance, some jurisdictions do not recognise trusts, which can lead to complications if a testator bequeaths foreign fixed property to a local testamentary trust.
One of the significant risks associated with drafting a foreign Will is the potential to inadvertently revoke your South African Will or any other offshore Wills you may possess. Therefore, it is crucial to have your foreign Will drafted by an expert who understands the intricacies of international estate planning and to ensure that your planner has comprehensive knowledge of your entire estate. Every Will should contain a “revocation clause,” which effectively nullifies all previous Wills created by the testator. If this clause in your foreign Will is not precisely articulated, it could unintentionally revoke your South African Will. For example, if you own foreign assets in France, the revocation clause in your French Will should only revoke earlier Wills concerning those French assets. Simultaneously, your South African Will should be updated to clarify that it pertains specifically to your local assets, with its revocation clause limited to prior Wills related to South African assets. While offshore unit trusts managed by a South African institution and life policies held abroad generally do not require a foreign Will, owning shares in foreign companies, such as investments in US-based firms, may necessitate drafting a foreign Will.
As a permanent resident in South Africa, you are subject to taxation on your worldwide estate, which can have capital gains tax (CGT) and estate duty implications upon your death. This is particularly relevant if your foreign assets are also subject to situs tax, which is levied in the jurisdiction where the asset is located. If you are unaware of the Double Taxation Agreements (DTAs) between South Africa and the foreign jurisdiction in which you invest, you may face the risk of being taxed twice. These DTAs are designed to prevent double taxation between two tax administrations, such as South Africa and the UK. However, the terms of DTAs differ from one country to another, so it is crucial not to assume that all agreements operate under the same framework.
Another factor when planning for your foreign assets is to consider the effects of the EU Succession Regulation, also knows as Brussels IV, which came into effect in August 2015. The aim of this legislation was to simplify the legalities and consequences of multi-jurisdictional succession for EU countries. In terms of this legislation, both EU citizens and non-EU citizens may choose the law of their country or nationality to apply to their estate for succession purposes. From a practical perspective, this means that a South African resident with property in the EU can stipulate in their Will that South African law should apply to those foreign assets. However, this legislation is somewhat limited in that it does not make provision for community of property, pension funds, life insurance policies and trusts, and as such can cause further complications for South Africans hoping to structure their foreign assets.
When structuring local and foreign assets, numerous factors must be considered, such as potential tax implications, forced heirship rules, Double Taxation Agreements, and the legal frameworks of each country, including situs law and the effects of EU Succession Regulations. If you possess foreign assets, it is essential that all experts involved in estate planning have a comprehensive understanding of your worldwide estate to ensure consistency and relevance in the structuring process.
Have a fantastic day.
Sue
