Cross-border estate planning:
it’s complicated
South Africans with assets in multiple jurisdictions or family members living in more than one country often find themselves knee-deep in a quagmire of complexities relating to cross-border estate and tax planning. Expert advice is crucial in dealing with potentially onerous and conflicting requirements and laws applicable in different jurisdictions.
As more and more South Africans choose to invest at least part of their wealth offshore, and family members move across borders to either live, study or work, multi-jurisdictional estate planning has become increasingly challenging.
Each country generally has its own distinct succession and applicable inheritance tax laws. In addition, there may be a mismatch of factors used to determine tax liabilities in different jurisdictions – such as domicile (permanent home), deemed domicile, applicable law, tax residence, habitual residence, and nationality.
This often means some assets – or none of them – may be taxed in a particular country, while some may be taxed twice or even more often in other instances.
To try and resolve such issues, some countries have entered into double tax treaties and are members of the Hague Convention, which seeks to address conflicts that may arise as a result of the differences between domestic laws. This is, however, a highly complex area of expertise – even when there is a double tax treaty in force, there is often limited tax relief.
Succession laws also play an important role in cross-border estate planning. For example, under common law, immovable property forming part of the worldwide estate of a person domiciled in South Africa may be bequeathed under our country’s laws to any person without restriction. In terms of the succession laws of certain other jurisdictions, however, immovable property will vest in the children of the deceased even though the latter’s will states that the asset has been left to a third party.
Spousal exemption also doesn’t always apply in all jurisdictions, the US being a prime example. Under South African law (Section 4(q) of the Estate Duty Act of 1955) the value of all property accruing to a surviving spouse, either in terms of a will or by intestate succession, is deductible from the estate of the deceased for the purposes of estate duty. But where a South African holds US assets, even if these assets are left to his or her spouse, only the first US$60 000 will be exempt from US estate tax unless the surviving spouse is a US citizen.
It’s clear that drafting wills from an international perspective can be highly complex – expert advice should be sought in determining whether one or multiple wills are required. The European Succession Regulation (known as Brussels IV) has gone some way towards alleviating potential issues in the European Union – the assumption is that a single will can govern a family’s worldwide estate.
For some jurisdictions a separate will may be a sensible solution, but doesn’t always solve all the issues, especially if it hasn’t been drafted correctly. The drafter needs to ensure, for example, that a will dealing with assets in one jurisdiction doesn’t inadvertently revoke another will dealing with assets in another jurisdiction, either in part or in its entirety.
Another challenge is that a will drafted in one jurisdiction may not be recognised as valid in another. The doctrines of automatic revocation in certain jurisdictions by marriage or civil partnership, or even by the birth of a first child, should also be considered.
These complex matters can be addressed only when all the facts are known and can be thoroughly examined. A comprehensive estate plan can then be compiled along with carefully drafted wills, taking into account all relevant jurisdictions and the various elements applicable to each.
For further information or advice on cross-border estate and tax planning, please contact Ken Newport at kenn@privatewealth.sanlam.co.za or on 011 778 6659.
The formation and registration of trusts, and the provision of independent trusteeships – both local and offshore.
The creation of BEE, charitable, special and Shariah trusts compliant with regulatory and legislative requirements.
The administration of deceased estates in South Africa and abroad.
Advice on complex structures, asset restructuring and bequests in foreign jurisdictions.
Advice on emigration and immigration, foreign earnings and the application of any double taxation agreements.
Updating trust deeds to ensure they’re in line with the latest changes in the trust environment.
Updating and/or drafting of wills dealing with South African and/or foreign assets.
Advice on the establishment and management of charitable organisations, their tax status and tax deductible donations.
Advice on the potential tax consequences and reporting obligations if you hold a US passport or green card, or if you have children living in the US.
Guidance on the financial implications of life-changing events, such as getting married, divorce or the birth of a child.
