Whether to have a local or a foreign Will depends on your individual circumstances and it is a personal decision for many clients. In the event that you only have an offshore investment portfolio and no other immovable assets, like property, a local Will would be sufficient for the winding up of your estate. It is also easier for the beneficiaries to only deal with local executors, instead of an unknown one in a foreign country. When there are immovable assets one would need to look at drawing up a Worldwide Will in order to include these assets outside of South Africa.
There is merit in having separate Wills for different jurisdictions, which includes using experts in the jurisdiction where property is situated. This is to apply their expertise to ensure that the Will is drawn up according to the laws of that jurisdiction and allowing the administration processes in the different jurisdictions to run independently of one another, as well as to ensure when the time comes for the estate to be would up, there are not any unnecessary delays.
When dealing only with investments in common law jurisdictions, such as Guernsey, it is possible to execute a single worldwide will in South Africa, and for a Guernsey executor to act on resealed letters of executorship, issued by our Master of the High Court, which works quite well in practice. The executor in south Africa would then instruct an agent in the other jurisdiction to attend to the administration of the assets, in the jurisdiction where they are situated, as is the case with our preferred professional third party executors, Capital Legacy, who work closely with Lester Aldridge to assist with assets outside of South African borders.
In the event that you have a joint account, for example you and your spouse are account holders, the account ownership would pass 100% to the surviving owner on receipt of the death certificate. Please note however that these joint accounts could still land up being frozen during this process, therefore it is always important to ensure each spouse has liquid assets in their own name available to them should this happen.
INTERNATIONAL ESTATE TAXES
Both the US and the UK have situs (position or site) taxes. The authorities in the jurisdiction where the asset is located have the legal authority to tax the assets, in this case, in terms of inheritance taxes (UK) and estate taxes (US). We can use the term ‘estate taxes’ when referring to either.
Even though the owner of these assets is a non-resident, these taxes will apply to all share portfolios and property owned in these countries. Please note, unit trust investments are excluded. Estate taxes can be as high as 40% of the market value, of those assets.
In the US, these taxes will be levied on estates of non-residents, where the combined value of the assets in the country exceeds $60 000, on an increasing sliding scale. In the UK the estate taxes will be levied on estates with assets of a combined value more than £325 000.
In South Africa, estate duty is levied on your worldwide assets. The amount payable will be calculated after application of the Section 4A abatement of R3.5 million per person, as well as any other deductions or exemptions, such as Section 4(q), afforded to surviving spouses. The net total after deductions is taxed at the current rate of 20% on the first R30 million, and 25% for any value above R30 million. The second dying spouse’s estate will benefit from a spousal rollover of the Section 4A abatement, bringing the total abatement in their estate up to R7 million, dependent on how much abatement was used within the 1st dying spouse’s estate. The UK has a similar ruling, subject to certain requirements and limitations, but the US does not, and will not, grant any exemption – except if your surviving spouse is a US citizen.
Both the US and the UK have entered into double taxation agreements with south Africa preventing the situation where the same asset will be taxed twice, but in such circumstances the estate tax payable will be charged in the country with the highest rate, and the country where the asset is based. In your South African estate, you will be granted a tax credit against the estate tax paid, but it is capped at 20% or 25% of the amount paid, dependent on the value of the estate as mentioned above.
When investing in direct share portfolios, one should look at doing it through a ‘wrapper’ type product, such as an endowment or unit trust structure, which is Resolute Wealth Managements preferred method. Usually there is a five-year restriction period, where you are limited to a certain number of withdrawals, thereafter the investment does become open ended. Keep in mind that direct offshore investments should always have a long-term investment horizon so that the restriction period does not cause any unnecessary complications, and volatility in currency and markets is reduced the longer a person remains invested. In these endowments, higher-income clients, who fall into the higher tax bracket, will enjoy a lower capital gains tax rate, and no situs tax will be applicable upon the death of the investor. Should you have a standalone share portfolio in place and wish to transfer such portfolio into a unit trust or endowment product, the transfer might have capital gains tax implications.
Speak to your Resolute Wealth Management Private Wealth Manager for the best advice to assist you with your offshore assets, and to draft or update your Will for you if necessary.
Gareth van der Merwe, CFP®
Director, Private Wealth Manager & Fiduciary Specialist
Resolute Wealth Management