If you have assets in a foreign country, you may need to draw up an offshore will to cover those assets on your death. Theoretically the will you have in South Africa covers all your assets, local and foreign, but in practice this may mean that your heirs are faced with time-consuming administrative and legal hurdles and unexpected taxes and costs on the offshore portion of your estate.
Sarah Simson, a consultant attorney at Thomson Wilks Attorneys, says there are differences between South Africa and other countries when it comes to estate and inheritance legislation, taxes, and the administrative processes required in the execution of a deceased estate.
“Offshore assets include international properties and investments, foreign bank accounts, and shares in multinational companies. Each of these assets may have a different capital gains and estate tax effect, depending on the asset type and the jurisdiction that the asset is in. An asset may also be subject to a different administrative process, such as probate (the verification of a will as a legal document) outside of South Africa. There may be overlapping taxes chargeable in South Africa and the offshore jurisdiction or mismatches in the administration process of winding up an estate as well as misaligned legislation in your country of residence and the jurisdiction of the offshore asset,” Simson says.
The more complex your estate and the broader your offshore holdings, the more necessary it is for estate planning structures to be in place with the appropriate fiduciary professionals locally and overseas. But even a simple offshore holding, such as money in a UK bank account, may benefit from an offshore will held in that jurisdiction.
In an article for Sanlam Private Wealth, fiduciary and tax specialist Ken Newport says that if your local executor has to deal with offshore assets, there are various hurdles he or she has to clear. He says your executor will need to apply for a foreign court order to recognise his or her authority to deal with your foreign estate and will have to obtain sealed copies of your will and letters of executorship from the Master of the High Court in South Africa, which may cause unnecessary delays.
A big factor to consider is estate tax in the UK and US (known as inheritance tax and federal estate tax respectively), which can be up to 40% over certain thresholds. In both jurisdictions, this takes the form of a situs tax, which means the asset is taxed according to its location, not according to the tax-residence status of the owner. Some types of assets incur inheritance tax, while others are exempt. For example, according to a Nedbank guide on UK and US situs taxes, an investment in a UK mutual trust fund will not incur inheritance tax, but British pounds in a UK bank account will.
Double taxation agreements between South Africa and countries such as the UK and US generally mean that your estate would not pay double tax on assets in these countries, but on top of local estate duty it would have to pay in the difference. It adds a further complication to the winding up of the estate.
In conclusion, Simson says it is worth the expense and effort now to ensure your estate is wound up as painlessly as possible when the time comes.
“For individuals with global assets, the stakes are high. Without careful estate planning, you risk encountering unplanned taxes and facing complex administrative challenges that could undermine the wealth you’ve built over your lifetime. Proactive and comprehensive estate planning is essential to protect your legacy, ensuring that your beneficiaries receive the full benefit of your hard-earned assets without unexpected setbacks,” she says.
