More and more South Africans have assets that are situated outside of the country, especially with the rise of emigration and the expansion of our global economy. However, many are uncertain whether owning foreign assets gives rise to the need for a foreign will. Estate planning for foreign-owned assets is a legal minefield and it is always best to seek expert advice. Let’s have a closer look at the need for a separate will for foreign assets.
Unless otherwise specified, your South African will covers your worldwide assets, although there may be instances where you require a foreign will – also known as an offshore will or concurrent will. Firstly, when determining whether to draft a foreign will, it is important to give consideration to the type of offshore assets you hold and where these assets are located. Other considerations include whether your foreign assets require probate and whether your estate can deal with a delay in the winding-up process.
Generally speaking, a foreign will is almost always advisable if you own immovable property overseas. Fixed property will need to be transferred according to the laws of the land and you will need to ensure that all formalities are complied with. Also, some countries only recognise a locally drafted will when it comes to disposing of property and your South African will may, therefore, be disregarded. If you own shares in an overseas company, it is also likely that you will need a foreign will. For assets such as life insurance policies, a foreign will is generally not needed.
Even if you don’t legally require a foreign will, there may be circumstances in which it may be practically advantageous to have one. Where a country does not recognise a South African letter of executorship, for instance, they may require local probate or court authority (similar to our letter of executorship) before the estate can be wound up, and this can both cause delays and cost money. Probate is a procedure whereby your South African-drafted will is approved by the foreign legal authority as valid so that your foreign assets can be administered, obtaining probate may delay the winding up of your estate to the financial disadvantage of your heirs.
As such, the main reason for creating a foreign will is to avoid delay in winding up your estate, and many South Africans choose to draft a separate will for their foreign assets to ensure a more efficient administration process, especially where the foreign country (such as Spain) stipulates a certain time frame in which the estate must be wound up. Having a separate will means that your South African estate can be wound up simultaneously with your overseas assets, and this would naturally be to the benefit of your loved ones.
It is important to bear in mind that each country has its own set of laws regarding succession and the drafting of wills. Whereas some countries will recognise a will drafted in South Africa, other countries’ legislation may deem a South African-drafted will to be invalid. For example, a foreign will dealing with your worldwide assets works well if you have assets in the UK because that country, like ours, also enjoys the freedom of testation. On the other hand, some countries have a system of forced heirship which limits the ability of the testator to freely bequeath his assets making a worldwide will impractical.
Forced heirship laws, which vary from country to country, are mostly prevalent among civil law jurisdictions, including Mauritius, Switzerland, Spain, France, Japan and Portugal, as well as countries operating under Shariah law. Essentially, forced heirship is a set of rules which restrict the testator’s freedom to distribute his estate in order to protect certain heirs, such as his spouse, children and/or other close relatives. In most countries where this system applies, a part of the estate is subject to the laws of forced heirship while the balance is left to the testator’s discretion.
Generally speaking, therefore, if you own assets in a country with forced heirship laws, it is best to have a foreign will drafted for your assets in that jurisdiction. Each country’s forced heirship rules are unique, and it is always advisable to consult with a local expert in that country.
A distinct advantage of drafting a separate will for your foreign assets is that you can ensure that the will fully complies with the laws of the country in which your assets are situated and that no complications arise. Ideally, it is best to seek the expertise of a lawyer or estate planner who operates in the country where your assets are held as he will have in-depth knowledge of the applicable laws and procedures, and will be able to draft your will in the language of that country.
Where a foreign language is spoken, bear in mind that language and translation barriers could also result in delays and additional costs. Having a foreign executor appointed in a foreign will means that your local estate can be finalised without delays caused by obtaining recognition in a foreign jurisdiction. A foreign will dealing with offshore assets will address specific requirements of the relevant jurisdictions and legal systems, thereby simplifying the administration of the offshore estate.
When setting up concurrent wills, it is essential to make it clear which assets each will is dealing with. So, when setting up your South African will, you need to make sure that the document specifically states that it deals with all assets held in the Republic of South Africa. Similarly, your foreign will must be specific in terms of which country’s assets it is dealing with. For instance, if you own a holiday home in Portugal, your Portuguese will must clearly state that it deals only with the assets in Portugal. Both wills must be complementary and aligned with your estate planning goals, and it is therefore advisable for your local and foreign estate planners to work in unison.
Another important point to bear in mind is that most wills include a clause which revokes all previous wills drafted by the testator and, if not worded correctly, this could have the unintended effect of your South African will revoking your foreign will, and vice versa. Therefore, when drafting your South African will, be sure that the revocation clause refers only to previous wills made in respect of your South African assets – and the same would apply to your foreign will’s revocation clause. When using a foreign practitioner to draft your will, be sure to advise him that you have a South African will dealing with your local assets so that he does not inadvertently revoke your local will.
If you are a permanent resident of South Africa, keep in mind that your worldwide estate is in general liable for estate duty and capital gains tax. Having a separate will for your foreign assets does not do away with the requirement to report these assets for estate duty purposes. This means that, if your property is based in Australia, it will still be taken into account when calculating estate duty. Estate duty is applicable to the worldwide dutiable property of the deceased – with exemptions in respect of bequests to a spouse and certain charitable institutions – at a rate of 20% on the value of the estate up to R30 million, and 25% on estates greater than R30 million.
Another important factor to take into account when determining whether to draft a foreign will is that of double taxation. If your foreign assets are based in a country which does not have a double taxation agreement with South Africa, you may end up paying tax in both countries. Bear in mind that the terms of these double taxation agreements are not all the same and you will need to check the details of the agreement that pertains to the foreign country you are invested in.