In our current global society it is now common for South African residents to acquire assets in other counties, which could include investment properties, shares or other investment products.
Dealing with these offshore assets by an executor of a deceased estate could be a complex, frustrating and expensive process if the deceased individual did not deal with these assets correctly in his/her will, of if they did not have a valid will. It is therefore essential that each individual that owns offshore assets correctly deal with those assets in their wills.
GENERAL PRINCIPLES FOR DEALING WITH FOREIGN ASSETS IN SOUTH AFRICA
A South African Letter of Executorship generally authorises the executor to administer the estate of the deceased. Although “estate” is not defined in the Administration of Estates Act, the term “estate” generally encompasses all a deceased’s assets wherever situated. An executor may however be unable to deal with assets outside of South Africa without first obtaining the authority to do so from the proper officials in the country where the assets are situated. The process of obtaining such authority is rather time consuming and expensive. Thankfully, some countries do recognise the appointment of a South African executor without further formalities that need to be complied with and usually in such an instance, and especially where there is one will that deals with all the assets of the deceased worldwide, the South African executor will be able to deal with worldwide assets. If the deceased is ordinarily resident outside South Africa and the main administration of the estate is taking place elsewhere, the South African executor need only deal with the assets located within South Africa.
WHY SHOULD YOU HAVE A FOREIGN WILL FOR FOREIGN ASSETS?
To determine if an offshore will is required, practitioners will usually consider the type of offshore assets the testator owns and where the assets are located. If the only offshore asset is a bank or investment account, generally one will that deals with all the assets will suffice, as the offshore banks or financial institutions usually recognise South African wills, provided the will covers worldwide assets.
Fixed assets pose more of an issue as they, as well as the executor, will be subject to the laws of the country where the fixed assets are located. Different countries also have different laws relating to the inheritance of assets upon death as well as the formalities required for a valid will. Some countries in civil law jurisdictions have a forced heirship regime, which limits the testator’s ability to bequeath assets as he or she wishes because a certain portion of assets must be allocated to a particular family member. It may therefore be necessary to have your foreign will drawn up by an expert on the law in the country where the assets are situated, to ensure that it complies with that country’s rules, regulations, and formalities.
Although one will promotes simplicity and certainty in one’s estate planning and can reduce the risk of accidental revocation, the main reason one should create a foreign will is to avoid delays in the winding up of the deceased estate. Delays could be caused by a number of factors, such as the executor having to apply for foreign court orders to recognise his or her right to deal with the foreign property. There can also be foreign language problems as well as additional administration costs.
When a foreign executor is appointed by a foreign will, the local estate can be finalised without delays in obtaining recognition in a foreign jurisdiction, not to mention the fact that the foreign estate will be administered by a person who is familiar with the systems and procedures to be followed in the foreign jurisdiction and can assist the South African executor to ensure that there are no unnecessary delays. It is important that where a foreign will is used it specifies that it deals specifically and only with the foreign assets, and the South African will should specify that it deals specifically with the South African assets.
It should also be noted that if the assets consist of foreign investments administered by a South African institution, there is no need to prepare a separate foreign will as the South African executor will be entitled to deal therewith.
ESTATE DUTY IN SOUTH AFRICA AND FOREIGN ASSETS
Section 3(1) and (2) of the Estate Duty Act 45 of 1955 (“the Act”) stipulate that a person’s estate consists of all property of a person at the date of his or her death as well as property which is deemed to be his in accordance with the provisions of the Act, and “property” refers to any right in or to property whether movable or immovable, corporeal or incorporeal and wherever situated. Therefore, all assets of the deceased, whether local or foreign, are included for the purposes of calculating estate duty, provided the asset does not fall within the exceptions as set out in Section 3(2) of the Act. Section 3(2) excludes immovable property and any right thereto as well as movable property which is situated outside the Republic of South Africa where the deceased is not ordinarily resident in South Africa at the time of his or her death.
Section 4(e) of the Act provides further relief and provides that the value of foreign property may be deducted from the gross value of an estate of a deceased person for estate duty purposes if the property –
- was acquired before the deceased became ordinarily resident in South Africa; or
- was acquired by the deceased after he or she became ordinarily resident in South Africa by way of donation from a person who is not ordinarily resident in South Africa; or
- was acquired by the deceased after he or she became ordinarily resident in South Africa by way of inheritance from a person who at the time of his or her death was not ordinarily resident in South Africa; or
- if the property in question was acquired out of the profits or proceeds of any of the property mentioned directly above.
The fact that any particular foreign asset of the deceased is property for the purposes of the Act and therefore subject to estate duty in South Africa, does not prevent any other country from charging a duty thereon in terms of their own legislation. It can therefore transpire that an asset is subject to double estate duty. There is relief granted in this regard in terms of the Act which makes provision for the deduction of foreign death duties imposed on property situated outside of South Africa and included for estate duty purposes in the South African estate of a person ordinarily resident in South Africa. South Africa has also entered into a number of double taxation agreements with other countries which may provide some relief.
As a starting point in ensuring that your beneficiaries will inherit from you as intended, we invite you to make use of our Smart Questionnaire as part of our firm’s Tech Enabled Law by –
- Click on the link – https://sstlaw.n-abler.biz/Home/Selection; or
- Visit the Tech Enabled Law page on our website at sstlaw.co.za
Should you be uncertain about your current will and whether it sufficiently deals with your offshore assets, please feel free to contact our office to consult with one of our experienced fiduciary specialists.
LLB; LLM (Estate Planning)
Fiduciary and Commercial Department
Phone: 012 361 9823