While a clear, well-written will is always essential to avoid potential family disputes, South Africans with offshore assets in particular should seek professional assistance to determine if they are exposed to a foreign tax and if it may be necessary to draft a second or offshore will.
To determine whether an offshore will is required, practitioners will usually consider the type of offshore assets the testator owns and where these assets are located. If the testator’s only offshore asset is a bank or investment account, generally, one will that deals with all worldwide assets will suffice. In such cases, the offshore bank or financial institution would normally recognise the South African will, provided it covers all worldwide assets.
“One will promotes simplicity and certainty in a client’s estate planning. One worldwide will can also reduce the risk of accidental revocation, which can occasionally happen when a client has more than one will,” says Oliver Phipps, partner at Lester Aldridge in the UK and member of the Fiduciary Institute of Southern Africa (FISA).
Accidental revocation often occurs when an individual who only has South African assets drafts a will applicable to all worldwide assets and only acquires an offshore bank account at a later stage, for example in the UK. If an UK advisor drafts a will for these assets without knowing that the individual also has South African assets, the advisor could unintentionally revoke the South African will by not explicitly stating that the new will only relates to UK assets. Since the beneficiaries of the wills may not be the same, accidental revocation could have far-reaching consequences.
If an individual is domiciled in South Africa and has a bank account registered in England as his only offshore asset, the person drafting the will should consider what the formalities would be to administer the bank account in England should the testator pass away, Phipps says.
“Each bank in England has their own threshold in which they will release the funds without wishing to see an English court authority and, on average, this is approximately £15 000. If the funds exceed the bank’s threshold, an English court authority will be required. In these circumstances, there is a fast track procedure called ‘resealing’ whereby the English court could formally recognise and give effect to the South African letters of executorship,” Phipps says.
While preparing one worldwide will will likely be appropriate in this instance, there are potential disadvantages.
The South African and English administration cannot be conducted at the same time and before letters of executorship can be resealed, court sealed and certified copies of the letters of executorship will have to be obtained, which may delay the process considerably, he adds.
But where a South African jointly owns an offshore bank or investment account, care should be taken when drafting the will. If a husband jointly owns a bank account in England with his wife, he should not bequeath his share of the account to someone other than his wife, as it could result in a dispute, Phipps cautions.
“Depending [on] where the account is registered, if one joint owner passes away, the deceased’s share may not pass through their estate and may pass automatically to the surviving joint owner,” he adds.
This is referred to as the “principle of survivorship” and is applicable in the UK, Ireland, Jersey, Guernsey and the Isle of Man amongst others.
The location of the offshore asset is also an important consideration when deciding whether an offshore will is necessary because some civil law jurisdictions – mainly European countries – have a forced heirship regime, which essentially limits the testator’s ability to bequeath assets freely. A certain portion of the assets must be allocated to particular family members.
Due to its Golden Visa Programme, which allows South Africans to qualify for a visa, Portugal is a popular choice for buying offshore property, but because of its forced heirship regime, it is essential that South Africans consider an offshore will dealing with these assets.
“Foreign property is a good example of when a second will, also known as an offshore will is almost always recommended,” Phipps says.
He says where a South African owns assets located in the European Union (excluding the UK, Ireland and Denmark) the European Succession Regulation (Brussels IV) may offer a valuable planning opportunity as individuals can choose that the law of their nationality should apply to the succession of their assets.
“This can, potentially, be a convenient way to avoid the forced heirship rules and, for a South African national, ensure that South African law applies to the succession of the European assets.”
He cautions however that this option is not always straightforward and that it is advisable to consult with a professional before making a decision in this regard.