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The importance of a well-drafted will for global citizens

By Amanda Visser

South Africans are increasingly becoming global citizens with assets and family members spread over several jurisdictions. This requires the drafting of a proper will to ensure that the testator’s wishes can be carried out properly without impacting the estate and those left behind negatively.

Suzean Haumann, Head of Brenthurst Tygervalley, says it is advisable to have a will in each country where you have assets. It will not be easy for a South African executor to deal with foreign properties. Therefore, it is better to have an executor in the jurisdiction where the assets are.

She also stresses the importance of understanding the tax and regulatory regimes of the countries where beneficiaries reside. Children residing in the United States can only inherit investments based and domiciled in the United States. Haumann explains that if the parent bequeaths an investment domiciled in Bermuda or Guernsey, the children will not be able to inherit the investment in their name. They will have to repatriate, dispose of the investment, and convert the cash to rand in South Africa before converting it to dollars.

Additional taxes

If you live in another jurisdiction but are still a South African tax resident, make sure you are aware of the taxes in the other jurisdiction. “You may be required to pay additional tax on your inheritance in the country where you reside unless a double taxation agreement is in place between South Africa and the country in question.”

Haumann and Malissa Conlin, Brenthurst General Manager, write in an article that many South Africans assume they are non-residents when they have been living abroad for many years. However, from a regulatory standpoint, this is not the case.

“It is important to note that the concept of financial emigration has fallen away completely with the implementation of tax emigration, which was recently introduced. Therefore, you are only formally a non-resident taxpayer if you have followed the tax emigration process.”

Irma Dick, Head of Trusts and Estates in Stonehage Fleming’s South African office, notes that every person must consider their own circumstances and then decide whether they wish to tax emigrate or not. “It is a complex, lengthy and expensive exercise,” she adds.

Exemptions

Dick explains that South African tax residents are subject to income tax and estate duty on their worldwide assets. However, there are exemptions in respect of bequests to a spouse and charitable institutions.

Any assets bequeathed to a qualifying public benefit organisation qualify as a deduction and are therefore excluded from the net value of the estate and not subject to estate duty.

There is a rebate of R3,5 million against the net value of the estate. Estate duty is then levied at a rate of 20% on the first R30 million after that and at 25% on the dutiable value of the estate above R30 million.

Depending on where the foreign assets are, you may also find yourself liable for what is known as situs tax on the overseas assets, which is effectively tax based on the location of the foreign asset, says Dick.

“The testator must consider whether the estate has sufficient liquid funds to pay the estate duty and situs tax and the period within which the situs tax must be paid. Some people take out insurance policies to ensure that the estate’s liability for these expenses will be covered.”

She adds that if the foreign assets are based in a country that does not have a double taxation agreement with South Africa, you may end up paying taxes in both countries. “The terms of the various 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.”

Dick warns that one of the biggest misconceptions is that the tax obligation in South Africa falls away if a double tax agreement is in place and one is paying tax in the foreign jurisdiction.

Foreign beneficiaries

South African citizens may leave assets to foreign beneficiaries. If the beneficiaries have ceased to be South African residents and have tax emigrated, they simply have to provide confirmation of their emigration. This is normally of a letter from the South African Revenue Service with an ECA reference number. Alternatively, the executor can enquire with the South African Reserve Bank for confirmation of the heir’s emigration and upon receipt of confirmation, the executor can proceed with a transfer of funds to the overseas beneficiary.

Photo: romain-dancre-unsplash

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