When deciding to invest or keep assets in South Africa, no matter where in the world the investor is domiciled, it is vital that consideration is given to the practical implications associated with the death on the investor. This includes the distribution of the investment to dependents or beneficiaries as part of the deceased estate and the potential costs associated with death in the jurisdiction where the asset/investment is held. Therefore the decision is wider than adding diversification to one’s investment portfolio.
The death of the investor will inevitably result in the investment being subject to some sort of estate administration process or beneficiary nomination, depending on the type of investment. That leads to the question of whether the investor should deal with the worldwide assets in one will, in the country of residence, or should different wills be drafted in the different jurisdictions.
The advantages of having separate wills for local and offshore assets
- The wills may be adapted to provide for the laws of succession applicable in the jurisdictions where the assets are situated; and
- The wills may be drafted to comply with the formalities required for execution of wills in the particular jurisdictions where the assets are situated; and
- The executors in the jurisdictions where the assets are situated may proceed without delay – no need for an executor in one jurisdiction to find and appoint a representative in a foreign jurisdiction before the administration process can be started.
The biggest challenges associated with separate wills are to ensure that they correspond with one another and that, together, they deal with the testator’s worldwide estate. Therefore financial planning discipline will be necessary to ensure the wills remain in line with each other during the lifetime of the investment and the investor. A single will can solve some of the concerns associated with multiple wills; however, where assets are substantial, obtaining proper advice upfront is better to weigh up the benefits and disadvantages of both scenarios, taking the investor’s circumstances into account.
In addition to the practical distribution, one must also consider the costs associated with the death of the investor. Some jurisdictions levy estate duty/death taxes/inheritance taxes on worldwide assets in the country of residence (for example South Africa (SA)) where others uses the place where the asset is situated as the deciding factor – generally referred to as the situs of the asset (like the USA or the UK). In other jurisdictions there are no death duties (Australia and New Zealand). This can result in quite an interesting outcome, for example where an Australian investor dies whilst holding shares in that are listed in the US, no death duties will be levied on the shares in Australia, however, death duties may be payable in the US due to the situs rules. To add to the complexity one must consider possible Double Death Duty Agreements that exist between some countries to determine if a credit is enjoyed if an asset is subject to tax in both countries, etc.
One must also consider other taxes that can be triggered by death – many countries see death as a trigger for capital gains tax or some form of wealth tax. This is often based on the tax residency of the individual, however, in some countries certain assets will still be subject to this type of tax held by non-residents (for example immovable property situated in SA owned by a person that is not a SA tax resident). Double taxation agreements should also be considered to see if there is any relief for double taxation that may occur.
So, to conclude, no investment decision can be made in isolation and with each decision it is imperative to do an estate planning exercise and to consider the impact that decision has on the overall financial plan of the investor and the continuity plan for dependents and beneficiaries, as impulsive decisions can have frustrating and costly consequences.
*Article written by Sharon Hamman, Senior legal adviser, Momentum Limited