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Global inheritance taxes and probate:
don’t turn a blind eye
Fiduciary and Tax Specialist
Mar 22, 2017
The requirements around inheritance taxes and probate as they affect investors residing in South Africa have been widely communicated. An investor’s deceased estate will:
The function and responsibilities of the executor of a deceased estate, who in many instances is appointed locally in terms of a letter of executorship issued by the Master of the High Court, are often overlooked. Despite the fact that the Master’s jurisdiction is limited to South Africa, the executor’s responsibilities extend to the worldwide estate of the deceased.
As in South Africa, paying the relevant taxes, such as inheritance taxes in the UK and estate taxes in the US, is the responsibility of the executor of the estate. Failure to do so will result in him or her being held personally liable.
What solutions can be offered to address these complexities? It is crucial to distinguish between the different asset classes an investor may hold. If there’s fixed property involved, in both common and civil law countries it’s advisable to obtain expert advice when drafting a will so as to confirm which country’s succession laws will apply. Fixed property is, as a general rule, regarded as a situs asset in the country in which it’s situated and will typically be subject to that country’s succession laws and inheritance tax regime.
Moveable property, such as investment portfolios in equities, will usually be governed by the succession laws of the country in which the deceased was domiciled or ordinarily resident at the time of death. However, the underlying assets may qualify as situs assets in multiple jurisdictions and could therefore still be subject to the relevant estate or inheritance taxes and probate of the different jurisdictions.
However, should an investor who holds such an investment portfolio be invested via a life wrapper, for example, the Glacier Global Life Plan, the assets – such as equities, funds and cash held within the wrapper – will no longer qualify as personal assets. When the plan holder or life assured dies, no death event will arise in the countries in which the underlying assets are situated. The life wrapper will be liable for estate duty in South Africa and if structured correctly, the necessity of dealing with this asset in a will and related probate matters can be eliminated completely.
Similarly, if a South African investor acquires units in a suitable foreign collective investment scheme such as a unit trust fund and the fund is domiciled outside the UK or the US, no UK or US inheritance or estate taxes will arise on the death of the unit holder – even though the underlying assets in the fund may have a high exposure to UK or US stocks. This is because the unit holder’s rights are to the units held in the fund and not in the underlying fund assets. The units must, however, typically be dealt with in accordance with the deceased’s will, and probate will likely have to be obtained in the jurisdiction where the fund is domiciled.
Foreign trusts and companies can also be used effectively to prevent foreign inheritance taxes and probate from being applicable. However, recent legislative changes in the UK have resulted in many of the associated benefits, especially with regard to UK residential property, no longer being available. It’s therefore crucial to obtain expert advice before considering offshore trusts or companies as potential solutions. For assistance in this regard, contact Anton Maskowitz at firstname.lastname@example.org or 011 778 6641.
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.
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All reasonable steps have been taken to ensure that the information on this website is accurate. The information does not constitute financial advice as contemplated in terms of FAIS. Professional financial advice should always be sought before making an investment decision.
Participation in Sanlam Private Wealth Portfolios is a medium to long-term investment. The value of portfolios is subject to fluctuation and past performance is not a guide to future performance. Calculations are based on a lump sum investment with gross income reinvested on the ex-dividend date. The net of fee calculation assumes a 1.15% annual management charge and total trading costs of 1% (both inclusive of VAT) on the actual portfolio turnover. Actual investment performance will differ based on the fees applicable, the actual investment date and the date of reinvestment of income. A schedule of fees and maximum commissions is available upon request.
COLLECTIVE INVESTMENT SCHEMES
The Sanlam Group is a full member of the Association for Savings and Investment SA. Collective investment schemes are generally medium to long-term investments. Past performance is not a guide to future performance, and the value of investments / units / unit trusts may go down as well as up. A schedule of fees and charges and maximum commissions is available on request from the manager, Sanlam Collective Investments (RF) Pty Ltd, a registered and approved manager in collective investment schemes in securities (‘Manager’).
Collective investments are traded at ruling prices and can engage in borrowing and scrip lending. The manager does not provide any guarantee either with respect to the capital or the return of a portfolio. Collective investments are calculated on a net asset value basis, which is the total market value of all assets in a portfolio including any income accruals and less any deductible expenses such as audit fees, brokerage and service fees. Actual investment performance of a portfolio and an investor will differ depending on the initial fees applicable, the actual investment date, date of reinvestment of income and dividend withholding tax. Forward pricing is used.
The performance of portfolios depend on the underlying assets and variable market factors. Performance is based on NAV to NAV calculations with income reinvestments done on the ex-dividend date. Portfolios may invest in other unit trusts which levy their own fees and may result is a higher fee structure for Sanlam Private Wealth’s portfolios.
All portfolio options presented are approved collective investment schemes in terms of Collective Investment Schemes Control Act, No. 45 of 2002. Funds may from time to time invest in foreign countries and may have risks regarding liquidity, the repatriation of funds, political and macroeconomic situations, foreign exchange, tax, settlement, and the availability of information. The manager may close any portfolio to new investors in order to ensure efficient management according to applicable mandates.
The management of portfolios may be outsourced to financial services providers authorised in terms of FAIS.
TREATING CUSTOMERS FAIRLY (TCF)
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