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Offshore Estate Planning

In recent years, many South Africans have availed themselves of the opportunity to diversify a portion of their investment portfolio offshore. With political uncertainty and tough local economic headwinds, this offshore investment exposure has become rather significant for those South Africans with any sort of significant wealth.

With offshore asset diversification comes a whole new world of estate planning issues around these foreign domiciled investments. Unfortunately, many of the South Africans with offshore asset exposure have not taken advice and have very little idea of the local and foreign estate, inheritance and death tax duties that may or may not be applied to these foreign assets.

With certain exemptions, on death South African estate duty applies to all the assets of South African tax residents. However, foreign estate, death and inheritance duties may also be applicable. Historically, due more often than not to ignorance and lack of information, many of these foreign obligations were not adhered to. But, with the implementation of “common reporting standards” and the worldwide exchange of information between the world’s revenue authorities, going forward this ignorance will be short lived.

There are many estate planning related questions that investors should be asking themselves:

  • Should the foreign investment be held in single or joint names?
  • Will an offshore trust offer estate planning advantages?
  • Does an offshore company have merit and which foreign jurisdiction is preferable?
  • Should one make use of an “offshore wrapper” as offered by one of the South African life companies?
  • Is there a need for an offshore will, and which jurisdiction will apply this offshore will?
  • Will a South African Executor be able to execute on this offshore will, or does a foreign Executor need to be appointed?
  • Will probate apply?
  • Do different rules apply depending on the nature of the foreign asset held, for example bank account, fixed property, shares and/or funds?
  • Are the offshore assets covered by terms of a Double Taxation Agreement (DTA), or will double taxes apply?
  • Do foreign withholding taxes apply?
  • What are the implications for heirs that inherit the offshore assets?
  • Which set of death/estate taxes take precedence, South Africa or the foreign jurisdiction?
  • Do the funds have to be repatriated to South Africa by the Executor?

Unfortunately, there are no easy or simple answers to any of these questions. With the passing of time, depreciation of the ZAR and base currency capital growth, the value of these offshore investments is more than likely a rather significant and material number. Not taking proper advice and not applying appropriate estate planning strategies may have extremely detrimental consequences to heirs, and destroy much of the capital growth of these offshore assets.

If you have offshore investments, do yourself a favour and run through the questions posed in the bullet points above. How exposed are your offshore investments, have you taken appropriate advice, and implemented an effective strategy?

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