WORTHY CAUSE Estate planning for foreign assets
POINTS: DOS, DON’TS AND ‘BOTTOM DRAWER’ TRUSTS
With a freezer or ‘bottom drawer’ trust, assets are truly held offshore.
of offshore assets.
In practice, one finds that some wills only deal with SA assets as the estate planner wasn’t aware of the testator’s offshore assets.
If it is the only will, offshore assets will then devolve in terms of the rules of intestate succession.
It may also delay the administration process again, as the foreign jurisdiction may need a legal opinion and affidavit from a SA lawyer who specialises in succession planning to advise how the assets must devolve.
When it comes to pension funds … ensure you’ve nominated your beneficiaries in terms of the rules and procedures of the fund, as pension death benefits don’t form part of your estate.
Will the 20% estate duty rate apply to offshore assets?
South Africans pay 20% estate duty on their worldwide assets (subject to exclusions), but the location of the assets may result in tax of over 20%.
If investors have assets in jurisdictions that levy estate duty at a higher rate, the estate duty may also have to be paid earlier.
Investors must consider any double death duty agreements SA entered into.
Often South Africans will receive a tax credit in SA where the offshore jurisdiction had the primary taxing right.
Estate planners usually advise parents to create a testamentary trust for minor children.
South Africans often use their R10 million annual investment allowance to move money offshore.
When they die, these funds may need to be repatriated in terms of exchange control rules.
Where these offshore assets are bequeathed to a SA testamentary trust, the trustees may apply to the Reserve Bank (Sarb) to retain the assets abroad.
Depending on the type and value of the assets held abroad, we recommend establishing a freezer or “bottom drawer” trust as part of estate planning.
It’s different from a testamentary trust created in terms of a will as it is an offshore inter vivos (between the living) trust – already established and awaiting the receipt of the assets as an inheritance.
These assets are then truly held offshore by offshore trustees and investors won’t need Sarb approval or be subject to imposed reporting requirements.