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Global inheritance taxes:
don't turn a blind eye
The phrase ‘ignorance is bliss’, coined by 18th century poet Thomas Gray, often springs to mind when it comes to international tax and succession matters. With the world now truly a global village, however, this attitude may not only be reckless, but could have grave financial consequences. We highlight some of the complexities facing South African residents holding offshore assets.
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’s 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 antonm@privatewealth.sanlam.co.za 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.
Expert advice is crucial in dealing with cross-border estate and tax planning.
Stanley Broun has spent 13 years in Fiduciary And Tax.
Have a question for Stanley?
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