GUIDES: Local and offshore wills
It is important to note that having a separate will for offshore assets does not do away with the requirement to report these assets for estate duty purposes. These offshore assets remain subject to estate duty in South Africa and must be reported and taxed at the prevailing rate in South Africa (20% on the value up to R30million and 25% on the value exceeding R30m), subject to certain exemptions, upon death. In certain cases, if inheritance taxes are levied on these assets in the jurisdictions where they are situated, double taxation agreements may soften the blow.
What factors would influence the need for an offshore will? A good starting point is to consider the estate administration formalities that would need to be observed in dealing with the asset, and in order to understand this, we must look at the jurisdiction where the asset is located, the type of asset and its value.
* Immovable property. If you own immovable property in another country, you would be advised to have in place a will that is governed by the laws of that country, to deal with this property. Immovable property is transferred according to the laws of the land where it is situated and it is therefore important to ensure that all the required formalities are observed. We are seeing an increasing trend in the purchase of foreign property by South Africans, and many of our family office clients are buying homes abroad in order to qualify for various residency schemes.
* Bank and investment accounts. Each country has its own administrative requirements which would dictate the necessity for a separate will, or not. For example, in many civil law jurisdictions, a bank or investment manager would require a court-sealed copy of the letters of executorship and will from the country of domicile - in our case, South Africa. In these cases, a separate will would therefore not be accepted and this could cause complications.
* Location of assets. The need for an offshore will is driven by where your assets are located, regardless of where your heirs live. So, if your child lives in the UK, you don’t need an offshore will, but if you own a flat in London, you do. As discussed above, it is important to check the administrative requirements of the jurisdiction where the assets are located in order to assess whether a separate will would in fact be accepted. This area can be a technical minefield, and you need to seek expert advice.
* Ease of administration and probate. Many South Africans choose to have an offshore will in addition to a local will simply to facilitate a more efficient process of administration since this allows for the administration of offshore and South African assets to take place separately and simultaneously. However, we cannot stress enough the need to ensure that the offshore will would indeed be accepted.
If you decide to have separate wills for offshore and South African assets, the two wills need to dovetail and should not inadvertently revoke one another. It is therefore sensible for the advisers drafting each of the wills to collaborate and for the executors of each will to be in touch with one another.
The need for a separate will can be circumvented by opening a joint bank account with your spouse as co-account holder. In this way, the surviving spouse will become the sole account holder in the event of the other spouse’s death. The cost, hassle and delays of probate are avoided.
Some people add their children as co-account holders. There are exchange control and tax complications to doing this, and you should seek advice to ensure that you don’t inadvertently trigger a donations tax event, or fall foul of Reserve Bank regulations.
Finally, it is important to remember that the number of wills you have in place has no bearing on inheritance tax liabilities.
Anthea Stephens is a senior associate at Maitland Family Office.