Making sure a will is valid and legal when offshore assets are involved

Question

My father has several investments in South Africa and offshore. He wants to be able to transfer wealth as easily as possible to his children and grandchildren.

I have been helping him here but am coming across terms like “probate” that I am not familiar with.

Please would you give me some guidance and help me ask the right questions?

Answer

South African residents are liable for capital gains tax and estate duty on their worldwide movable assets. This is regardless of whether they acquired these assets while they were working overseas.

If you die, a capital gain is triggered, and capital gains tax and estate duty will have to be paid. These amounts can be quite large.

If some of your assets are in a foreign country, those assets will be affected by that country’s laws.

Probate

Step one is to get your South African-drafted will approved by the foreign country. This procedure is known as probate. There are often a number of hoops that one needs to jump through, and these can be quite expensive, depending on the country and their specific requirements.

It often makes sense to bring these foreign assets into a South African structure so that you can avoid the hassles of probate. A reputable financial adviser should be able to show you how to do this while keeping these assets fully offshore.

Freedom of testation

You don’t specify what country your father’s assets are in. This is important because not all countries offer freedom of testation. In South Africa, there are very few restrictions on what you can and cannot bequeath. In other countries, there are often strict laws regarding what can be bequeathed.

Countries such as Mauritius, France and Portugal have mandatory succession rights, where assets are bequeathed to members of the family in predetermined proportions. You would need to check this out with a tax lawyer who specialises in foreign assets.

Dummy account

Something that I do for my clients is to draw up an asset distribution and liquidation account as if they had died today.

This is a good way of highlighting any inefficiencies in their financial arrangements. We are then able to restructure their finances to ensure that we can transfer wealth efficiently. This might be something for you to consider for your father’s offshore assets. You may incur some initial costs by getting an offshore consultant to do the necessary evaluations, but it will ensure a smoother and more efficient transfer of wealth.

If you have assets in another country, there are certain laws and procedures that may be applied to these when winding up the estate. This exercise would highlight these.

In South Africa, we typically pay 20% in estate duties. Other countries may levy a higher tax.

While there are double taxation agreements between South Africa and other jurisdictions, you could find yourself liable for the balance between the 20% estate duty in South Africa and the higher death duties charged in the foreign country.

Will

As executors only work off original wills, your offshore assets would only be able to be dealt with once your South African assets have been wound up. Only once all the assets in all the countries have been dealt with can the estate be finalised. This could take a while.

Be careful about having a will in a language such as Afrikaans if you have worldwide assets.

If it is in Afrikaans it would have to be translated by a sworn translator in the country where you have those assets. This will incur unnecessary costs and delays.

A way of getting around this issue is to have a will for your South African assets and separate wills for the assets that you have in each country. This would enable your estate to be wound up concurrently.

Be careful when drawing up these wills that you do not inadvertently revoke a local or foreign will.

Many wills have a revocation clause by which you revoke all previous wills. Ensure that your will is drafted properly and only revokes previous wills pertaining to that particular country.

Possible solution

A number of South African financial services companies have offshore subsidiaries. Many of these offer products that allow you to consolidate your offshore investments and shares into a structure. They will provide you with consolidated reports and manage the income tax.

They will also facilitate the transfer of wealth when there is a death without having to deal with probate. You also avoid many of the issues around death duties, as these are deemed to be South African assets and you will pay South African estate duty of 20% to 25%.

Most importantly, the assets will remain offshore.

Kenny Meiring MBA CFP ® is an independent financial adviser.

You can contact him on 082 856 0348 or at Financialwellnesscoach.co.za. Please send your questions to kenny@ financialwellnesscoach.co.za