With more and more South Africans seeking to externalise their rands and gain exposure to foreign markets, the need for multi-jurisdictional estate planning has become more widespread. In addition to the rise in offshore investing, many families find themselves spread around the globe as children choose to study and/or live abroad. There’s also been a rise in the number of South Africans purchasing properties offshore, particularly in jurisdictions such as the UK, Australia and Mauritius which can give rise to further estate planning complexities which necessitate the need for careful, holistic planning – the absence of which can give rise to unintended consequences and disarray.
Here’s what to consider when developing an estate plan for your foreign assets.
Understanding the jurisdiction in which your foreign assets are held is the starting point of developing a solid estate plan, followed by the type and value of the asset. Whether your assets are held in a civil law jurisdiction or a common-law jurisdiction will impact significantly on how you structure your plan. Countries that follow a civil law system include France, Dutch, German, Spain and Portugal, as well as most Central and Eastern European and East Asian countries.
A civil law system is a codified system of law that has its origins in Roman law and is generally based on specific codes and laws. Some countries, such as Mauritius, use an amalgamation of civil and common law, with their property law being governed by civil law.
Many civil law jurisdictions have what is commonly referred to as ‘forced heirship’ or ‘mandatory succession rights’ which place limits on a testator’s freedom of testation. This is also the case in Shari’a law jurisdictions where testamentary freedom is limited to one-third of a testator’s estate while the balance of the estate must pass according to forced heirship rules. In terms of Shari’a law, only Muslims qualify as heirs in respect of forced heirship.
Keep in mind that mandatory succession rights vary from country to country, and this can further complicate one’s estate planning, making it essential to get expert advice from someone with in-depth knowledge of that jurisdiction’s laws. For those South Africans who own or plan to purchase property in Mauritius, keep in mind that Mauritius is a forced heirship jurisdiction that reserves a portion of the deceased estate for the children of the deceased, and this is applicable to both Mauritian citizens and foreigners.
Similarly, under French forced heirship rules, children are protected although the spouses have few inheritance rights. These succession laws apply to the worldwide assets of French residents, whereas in the case of non-residents who own property in France, only immovable property is affected by these laws.
Whether or not you require an offshore will – also known as a concurrent will – is dependent on a number of factors, including the type of asset, in which jurisdiction it is held and its value. Generally speaking, if you own immovable property in a foreign jurisdiction, you should have a foreign will prepared to deal with the property in the event of your death. However, there are distinct advantages and disadvantages of having a foreign will, so it is always advisable to consult with a fiduciary expert.
There’s no doubt that having an offshore will can ensure that your foreign assets are administered efficiently and concurrently with your South African assets, and can speed up the process of obtaining a grant of probate. Having your foreign will drafted by an expert in the jurisdiction where your asset is held also means that it will be drafted in the language and within the legal framework of that region. For instance, some foreign jurisdictions do not recognise trusts as an entity and this can cause complications where a testator bequeaths foreign fixed property to a local testamentary trust.
One of the biggest risks of drafting a foreign will is that you inadvertently revoke your South African will or other offshore wills that you might have. For this reason, it is always best to ensure that your foreign will is drafted by an expert and that your planner has full sight of your entire estate. All wills should include what is referred to as a ‘revocation clause’ which essentially revokes all previous wills made by the testator. Thus, unless the revocation clause in your foreign will is precisely worded, it could inadvertently have the effect of revoking your South African will.
Assuming that you have foreign assets in France, the revocation clause in your French will should therefore only revoke all previous wills dealing with your French assets. At the same time, your local will should be updated to specify that it deals with your South African assets, and the revocation clause in your local will should only revoke previous wills dealing with your South African assets. While generally speaking, assets such as offshore unit trusts administered by a South African institution and life policies held overseas may not necessitate a foreign will, owning shares in a foreign country – such as where you invest directly offshore into US-based companies – may require you to have a foreign will drafted.
Also keep in mind that, as a permanent resident in South Africa, you are taxed on your worldwide estate, and this can have CGT and estate duty implications in the event of your death, especially where your foreign assets are also subject to situs tax – which is tax payable in a foreign jurisdiction based on where the asset is located. If you are not aware of the Double Taxation Agreements held between South Africa and the overseas jurisdiction you are invested in, you could end up paying tax twice. The purpose of these Double Taxation Agreements is to eliminate the potential for double taxation between two tax administrations, for instance, South Africa and the UK. However, the terms of the Double Taxation Agreements vary from country to country so don’t fall into the trap of assuming all DTA’s are the same. For the full status on all DTA’s, you can follow this link on the Sars website: Double Taxation Agreements.
Another factor when planning for your foreign assets is to consider the effects of the EU Succession Regulation, also knows as Brussels IV, which came into effect in August 2015. The aims of this legislation were to simplify the legalities and consequences of multi-jurisdictional succession for EU countries, although note that the UK, Ireland and Denmark have opted out of this legislation. In terms of this legislation, both EU citizens and non-EU citizens may choose the law of their country or nationality to apply to their estate for succession purposes. From a practical perspective, this means that a South African resident with property in the EU can stipulate in their will that South African law should apply to those foreign assets. However, this legislation is somewhat limited in that it does not make provision for community of property, pension funds, life insurance policies and trusts, and as such can cause further complications for South Africans hoping to structure their foreign assets.
There is an enormous amount to take into consideration when structuring one’s local and foreign assets including potential tax consequences, forced heirship rules, the existence of Double Taxation Agreements, the legal framework of each country, the law of situs, and the effects of the EU Succession Regulations. If you do have foreign assets, it is vital to ensure that any experts involved in structuring your estate – including both local and foreign assets – have full sight of your worldwide estate to ensure consistency and applicability.