An offshore estate requires careful planning
With the relaxation of South Africa's foreign exchange controls and more investors seeking to diversify risk, many are creating offshore estates. People often don’t think about what the offshore probate formalities might be, what the death duties position might be, and what other effects the death of the investor will bring about.
This is according to David Knott, a fiduciary expert at Private Client Trust, a division of Private Client Holdings, who says that, in many instances, a South African will would be acceptable and recognised in a foreign jurisdiction, provided that it complies with the South African formalities.
“The local executor, once appointed, would need to appoint an agent in the foreign jurisdiction to deal with the foreign estate and effect a distribution to the heirs. A single worldwide will is workable in many instances where there are no forced heirship rules in place,” says Knott. “There are no such rules in the common offshore havens such as Jersey, Guernsey or Isle of Man.”
Due advice and caution must be taken where forced heirship rules apply, for example in Scotland or in many European countries. In France, the freedom to dispose of assets is restricted if the deceased is survived by either descendants or ascendants. Descendants are preferred over ascendants and, interestingly, a spouse is not regarded as a forced heir. If the deceased is survived by one child, that child must receive at least one-half of the estate. Where two children survive, they must share equally two-thirds of the estate, and if three or more children survive, they must share equally three-quarters of the estate."
However, according to Knott, whether or not there are forced heirs, obtaining the necessary local documents in a manner acceptable to the foreign probate office could take up some time - for example, translations may be required - and, for this reason, many would rather execute a separate will in the foreign jurisdiction.
“One would need to identify an acceptable foreign executor to draft the offshore will to ensure that all necessary requirements are met. Care must also be taken that the local will and the foreign will do not revoke each other and it is clear which estates must be dealt with in terms of that particular will.”
Generally, your offshore estate would be liable for estate duty in South Africa and may also attract some death duties abroad, depending on the amount. South Africa has tax treaties with many countries to ensure that assets are not taxed twice, and the local tax authority would allow a credit here against any foreign tax paid in terms of the treaty.
“If you might have been born or lived in the foreign country where investments are held, the foreign tax authority might be keen to deem you still domiciled in that country and so claim death duties on your worldwide estate. Should this apply, it would be prudent for you to execute a declaration of domicile confirming when you gave up your domicile of birth and acquired a domicile of choice in South Africa, to avoid this argument later.”
Knott says that although fiduciary experts cannot be expected to know what the probate requirements are in every jurisdiction, it is extremely prudent to contract the services of such a specialist, who at least knows when to anticipate problems and also who one needs to consult with.