South Africans are increasingly spreading their international wealth footprint. They are seeking exciting investment opportunities, they want to buffer their exposure to political risks in SA, and their families are finding new opportunities abroad.
However, when it comes to estate planning people seldom appreciate the complexities this global footprint brings with it, says Dr Eben Nel, national chair of the Fiduciary Institute of Southern Africa (Fisa).
“Estate planning starts by understanding the rules of the jurisdiction in which you are acquiring assets, before you actually acquire them. It is exciting that we can have assets all over the world and take millions out of SA to invest, but we must understand what the long term consequences are.”
It is always better to spread your assets from a risk point of view, but having said that the cost and consequences must be carefully weighed because every jurisdiction has a different legal system.
There are major differences between the succession laws in each country, and the manner in which assets are administered after death and the tax rules affecting the estate will differ.
Nel says understanding the differences not only creates order, but also ensures that the heirs will benefit optimally from the inheritance.
“It prevents a blessing from becoming a curse.”
South Africa has a mixed law system – with civil and common law characteristics – while other countries have either common law or civil law systems. This is the base from which a jurisdiction considers succession.
“In South Africa we have total freedom of testation. We are used to the concept that a testator can do with their assets whatever they please. In many countries around the world there is a form of control over heirship.”
Nel says in these jurisdictions there are certain formulas that must be complied with, for example, a certain percentage of the estate must go to the children. If these heirship rules are not adhered to, the testator’s wishes will be overruled. It may happen that only a portion of the will can be administered according to the testator’s wishes, and the rest will have to follow the rules of the system.
Nel explains that if a South African buys a property abroad and bequeaths it to their spouse in their South African will, they must be sure that forced heirship rules do not apply to the asset.
They must also consider the effect of their chosen matrimonial property regime and be cognisant of the fact that the particular foreign jurisdiction may not recognise an accrual dispensation.
“There may be a conflict between the matrimonial property regime in SA, the will in SA and the rules of succession in the jurisdiction where the asset is acquired,” says Nel.
The question is whether it is necessary to have a will for every jurisdiction to ensure that the SA will addresses the SA assets and the other wills deal with assets in other jurisdictions.
“I do not think it is possible to say that as a general rule one should have a will in each of the jurisdictions where you have assets. In some instances, it will make good sense, but one will have to carefully consider how one will may impact on the other.”
Nel has experienced instances where wills unintentionally renounced other wills because of the wrong wording. If a will is drafted in a foreign jurisdiction it will often be done in the language of the country.
In the case of the United Arab Emirates, the will has to be drafted in Arabic, and it has to be registered in the country. The registration fee alone can be around R25 000.
“When globalising your wealth footprint, you need proper estate planning with people who have knowledge on both sides of the ocean to advise you; you must regularly revisit your planning as your estate changes or as your family changes and moves around.”
Nel advises people not only to consider the financial return on the investment or acquisition. “You must also ask what happens with the asset when you die and how it will affect the heirs. You should also consider the costs if it is necessary to consult with a solicitor in the foreign jurisdiction.”
If an asset is locked up in the estate in a foreign jurisdiction it may mean your spouse will have to consult with estate administrators in that country. This has cost implications.
Language can be an issue, and the remaining spouse will be dealing with a totally foreign legal system. It may even lead to court applications to get access to the assets. This too, has cost implications.
Couples of different nationalities have their own unique set of considerations. They will have to decide where their domicile will be, and perhaps elect in their wills where their habitual residence is. This will be a connecting factor when considering which legal system will be applicable to their succession.
“It is important to ask the right questions, to get the right advice and not to think it is business as usual, and that a standard will is sufficient. It is likely not to be,” Nel warns.
Brought to you by Fisa.