Dealing with offshore estates can be complicated

With more South Africans moving assets offshore, many investors are unaware of the unforeseen tax and fiduciary hurdles associated with ownership of foreign assets, according to Mandy Dix-Peek, Head of Old Mutual Wealth Fiduciary Services.

Mandy Dix-Peek, Head of Old Mutual Wealth Fiduciary Services

She says that the global COVID-19 pandemic has highlighted this potential hurdle for families at the worst time possible. “This is more than simply an annoyance in the case of deceased estates. Complications can easily hold up processes when multiple jurisdictions are involved, effectively jeopardising the financial well-being of dependants and affected family members,” she explains.

According to Dix-Peek, currently, by law South Africans don’t need more than one Will if they have assets locally and elsewhere in the world. However, a South African executor is only permitted to manage matters and assets that are held domestically.

An offshore Will would, therefore, have to be handled by an executor in that jurisdiction or permission would have to be sought for the South African executor to administer the estate. This process can take time and can draw out the process further.

Other potential pitfalls lie in regulatory differences between countries. For instance, in South Africa we have the right to choose in a Will who receives proceeds from the estate, whereas in many European countries this is dictated by law. “So, you might want to choose carefully where you hold certain assets if you have a favourite niece you want to bequeath certain heirlooms,” Dix-Peek says.

Inheritance tax is another case in point, with South Africans liable for this duty on assets in those countries. For example, in the US inheritance tax of 40% is levied on inheritance assets of more than USD 60 000, while in England inheritance tax of 40% is levied on assets worth more than GBP 325 000. 

However, Dix-Peek cautions that estate duty for South Africans with assets in these countries above these thresholds can expect that estate duty will increase by 20% to 25% more. 

“If properly advised, clients will be aware that they can claim a credit from SARS if they’ve paid inheritance tax abroad by virtue of global Double Tax Agreements South Africa has signed.”

“Of the many traumas that families have to endure when a loved one passes on is to ensure the estate is properly settled. And preferably in as short a time as possible,” she says.

“Complications and delays often add unnecessary stress, including financial strain, if an estate cannot be settled quickly, with proceeds being used for estate taxes and fees.

“When an estate has to account for assets across borders, matters become even more complicated unless the right processes have been followed.”

Dix-Peek says while the temptation may be to move assets offshore at all costs, investors are placing the financial well-being of their families at stake if they don’t structure their Wills correctly. This highlights the importance of preparing for the various scenarios and processes that may be faced and determining ahead of the time how to properly manage them, she concludes.

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