When it comes to trusts, wills, estate administration – what is generally termed ‘fiduciary services’ – Anthea Stephens, senior associate at Maitland Family Office, has seen it all, from the smooth and simple to the grotesquely complicated. She previously worked in the financial services industry in the US, UK, France and SA, in areas ranging from product development for institutional investors to private client management and now fiduciary services.
Moneyweb sat down with her to unravel some of the complexities in drafting an offshore will, and why it is essential for those with assets abroad to consider doing so.
In what circumstances is it necessary to have a separate will for foreign assets?
This is a highly complex field and few experts out there appreciate all the sensitivities. Some people prefer to have all assets under a South African will, in an effort to simplify the process of wrapping up an estate that has both local and foreign assets. While having a single will may have its advantages, it can cost you dearly when it comes to the handling of foreign assets, says Stephens.
“You have to make sure the assets are actually resident where you think they are. For example, you may have opened an investment portfolio account in London only to find out the assets are actually resident in Jersey or Guernsey.
“So if your will specifies that it only deals with UK assets, you may have to apply to the Jersey or Guernsey courts to have those assets dealt with under UK law, otherwise those assets will be treated intestate [as if there is no will] under SA law. This adds time to the process of wrapping up the estate. On the flip side, civil law countries like Switzerland, Luxembourg and the US don’t always recognise wills drawn up in these countries by non residents of those countries. It is so important to check the formalities of the institution where your investment account is held.”
So when investing through a UK advisor, make sure you know where your asset is actually resident for estate purposes. You will also want to make sure you have not inadvertently bequeathed your worldwide estate to an SA trust, unless it is your intention that the assets should come back to SA, because they will most likely have to since SA trusts cannot hold offshore assets, except in special circumstances with Reserve Bank approval.
What are some of the other complexities related to offshore wills?
Stephens says in some countries like Spain, the estate must be wound up within a certain amount of time from date of death. If you don’t have a Spanish will, you could overstep the six-month deadline and be forced to pay penalties. In Switzerland, the law does recognise wills from other countries, but these may not be recognised by institutions such as banks in Switzerland.
When is it preferable to have a single will in one jurisdiction?
Where you don’t have a huge number of assets and they are all housed under one roof, it may be easier to have a single will. Where assets are more complex and scattered across several jurisdictions, it may be more practical to have several wills.
If immovable property forms part of the assets, such as an apartment in Europe, you should definitely have a will for that jurisdiction, adds Stephens.
What about joint accounts – how do these pass?
If you have a joint account in Jersey with your wife and she dies, it becomes your account. It shouldn’t fall into the administration process, so you could have immediate access to funds.
Having a separate will or a joint account does not remove those assets from the clutches of estate duty, however. This is the inevitability of death and taxes. Assets are taxed in accordance with tax laws applicable in the country where the assets are located. If you have fixed property or equities in the UK, they will be taxed at 40%, although the first £325 000 is tax-free. Under SA law, bequeathing assets to a spouse means the spouse will enjoy double the tax-free threshold for estate duty on the UK assets. In other words, the tax-free threshold moves to £650 000 on any UK assets. In the US, the rate is also up to 40%, with not spousal exemption and a threshold of $60 000.
What are the consequences where the estate beneficiaries are living abroad?
If the beneficiaries are abroad, there could be different tax consequences depending on where they live. They might have to pay estate duty in SA, and if the beneficiaries are in Spain or France, the heirs will have to pay an additional tax on the receipts from the estate. Some countries impose income tax on beneficiaries as opposed to inheritance tax on estates.
The solution, says Stephens, is to keep your will current and consider drafting a second will for assets located abroad.
When drafting a second will, can it end up negating any previous wills?
If you draft a will for offshore assets and that will revokes any previous will, you would then be left with a will dealing with your offshore assets only, leaving your SA assets exposed to intestate succession, says Stephens. That means the courts would have to decide how to allocate the estate, and this can take years.
She adds that one should take care to revoke previous wills only insofar as they impact the assets being bequeathed. So if the second will deals only with UK-based assets, make sure it does not override any previous will dealing with your SA assets.
I tell Stephens that someone mentioned wanting to chat about a South African estate that was bequeathed to French people, involving three minors, an SA trust, SA estate duty, French tax, and other complications.
“Stop right there,” she says. “This is going to be a jigsaw puzzle. They had better contact a highly specialised fiduciary services expert.”
Brought to you by Maitland.