Foreign property, offshore assets and your will: What you need to know

As South Africans increasingly invest, work and acquire property abroad, it is common for an estate to extend across more than one legal system.

The correct approach depends on what you own, how you own it, where it is situated and the succession laws that apply in that jurisdiction. Let’s explore.

Read: Navigating multi-jurisdictional planning: Structuring your global wealth

Before deciding whether you require a foreign will, it’s important to establish whether you actually own a foreign asset directly. For instance, an offshore unit trust or exchange-traded fund accessed through a South African investment platform may provide you with international investment exposure without creating an asset that must be administered in another country.

On the other hand, a foreign bank account, property registered in your name, or shares held directly through an offshore brokerage may require action in that jurisdiction.

It’s also important to understand the ownership structures of the assets in relation to your estate plan. An asset held through a company or trust may not pass under your will in the same way as an asset held in your personal estate.

Beneficiary nominations, rights of survivorship, shareholder agreements and trust deeds can all determine what happens on death.

As such, the first step should be to prepare an asset schedule recording the legal owner, country, institution, account or registration details, approximate value and any nomination or contractual succession provision.

Read: Estate planning for your foreign assets

When one worldwide will may be sufficient

A single South African will can be attractive because it provides one co-ordinated set of instructions, one residue clause, and a consistent plan for beneficiaries.

South Africa’s Wills Act also recognises certain wills executed in accordance with specified foreign laws, and many countries have their own rules for recognising foreign wills. That said, formal recognition of a document does not necessarily translate into simple administration.

It’s also important to keep in mind that a South African executor’s letters of executorship do not automatically give that executor authority to deal with assets in every other country.

Depending on the jurisdiction, the will may need to be authenticated, translated, admitted to probate, or supported by a local court appointment.

These requirements can add time and costs, particularly if the original will is held in South Africa and several institutions require certified apostilled documents.

With the above in mind, a single worldwide will may be appropriate if the foreign holding is modest, the country recognises the South African will and local advice confirms that no foreign will is required.

A separate will is often considered where you own immovable property abroad, hold substantial assets in one jurisdiction, or want a local executor to administer those assets.

When it comes to immoveable property, keep in mind that the law of the country in which the property is located will generally play a central role in how it can be transferred.

Also keep in mind that some countries impose mandatory succession rights or forced heirship rules that protect particular family members regardless of what a South African will says.

Read: Multi-jurisdictional estate planning

Key benefits of a local will are that it can be drafted in the correct form, language and terminology for that country and may allow the foreign estate process to proceed without waiting for the South African estate to reach the same stage.

While two properly coordinated wills can work well, keep in mind that two wills drafted in isolation can be disastrous. For example, a standard revocation clause stating that all previous wills are revoked may unintentionally cancel the foreign will.

Overlapping asset descriptions can lead to competing claims, while gaps between the documents can leave part of the estate without an effective testamentary instruction.

As such, it is important to ensure that each will is limited clearly to the assets or jurisdiction it is intended to cover, while making sure that the revocation clauses preserve the other will.

Further, definitions of beneficiaries, substitute heirs and simultaneous death provisions should all align, while documents should deal consistently with debts, taxes, costs and the residue of each estate.

Ideally, the advisors in both countries should be aware of the existence of the other will and should review the documents side by side.

Read: Common mistakes made by do-it-yourself investors – Part 3

Tax and liquidity should also be considered

It’s important to bear in mind that the choice of will does not determine the full tax outcome. Where a deceased was ordinarily resident in South Africa, South African estate duty generally extends to worldwide assets, subject to the deductions and exclusions that may apply.

A foreign country may also impose estate, inheritance, succession or capital gains tax based on the asset, the deceased or the beneficiary, and these factors should be taken into account during the estate planning process.

Note also that double-tax relief is not automatic and should be tested before the estate plan is finalised.

Estate liquidity in each jurisdiction should also be considered, keeping in mind that a foreign estate may have property and investments but no accessible cash to settle local tax, legal fees, property costs or debt.

This is why estate planning should always be viewed as an integrated exercise that takes into account your marital property regime, domicile, tax residence, beneficiary nominations, the nature of the assets and the needs of your heirs.

Read: A new era of tax residency: Why the old approach no longer works

In practice, we find that foreign assets change more quickly than the estate plan around them. Bank accounts are closed, properties are sold, investment platforms change, and family members emigrate.

A document that was appropriate when the first asset was acquired may no longer reflect the estate that exists several years later.

As with any outdated will, the problem is usually only discovered when the person who could have corrected it is no longer around.

In our view, anyone who owns an asset outside of South Africa should obtain advice in every relevant jurisdiction before deciding whether to use one worldwide will or co-ordinated local wills.

The idea is not to accumulate legal documents for the sake of it, but to create a structure that is valid, practical and capable of being administered without conflict or delay. While your assets may sit across borders, your estate plan should still operate as one coherent strategy.

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