CROSS BORDER SUCCESSION PLANNING. WHY DO I NEED A … · An Apostille Certificate is a certificate issued by the Department of International Relations (Foreign Affairs) or the High

Accuro | 19 April 2018 | Page 1

CROSS BORDER SUCCESSION PLANNING. WHY DO I NEED A UK/US/EUROPEAN WILL?


THERE ARE OTHER OPTIONS AVAILABLE TO PROVIDE FOR SUCCESSION PLANNING BUT I AM ONLY GOING TO FOCUS ON WILLS IN THIS PRESENTATION

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WARNING!

• Multi-jurisdictional estate planning is a complicated exercise due to the different laws applicable in each country. Specialist advice for each country should always be sourced.

• If there is more than one will in effect then care must be exercised that these wills do not override each other. This doesn’t apply just to local vs offshore wills, it can also apply to multiple international wills.

• The United Kingdom comprises England, Wales, Scotland and Northern Ireland

only. The Republic of Ireland, Isle of Man, Jersey and Guernsey are separate jurisdictions. A Will limited to the United Kingdom will exclude the Channel Islands, such as Jersey or Guernsey.


EUROPE


EUROPE

• A number of European countries practise ‘forced succession / heirship’.

• The consequences of forced succession are that assets could pass to individuals that the deceased did not intend benefitting.

• A further impact of forced succession are untimely death duties in the form of South African Capital Gains Tax and Estate Duty Tax should assets pass to anyone other than the surviving spouse.


EUROPE

• European Succession Regulation (Brussels IV). For South Africans owning assets in the European Union (excluding the United Kingdom, Ireland and Denmark) this legislation presents a useful planning opportunity to avoid forced heirship rules.

• With Brussels IV, the individual can elect the law of their nationality to apply to the succession of their assets i.e. South African succession law with its freedom of testation.

• It is always advisable that professional assistance is obtained when making this election.

• In conclusion: for assets held in a ‘forced succession’ jurisdiction then two wills may be considered, depending on the type and value of the assets.


SWITZERLAND


SWITZERLAND

• Under Swiss private international law, non-Swiss citizens resident in Switzerland

may elect their national law to govern the devolution of their estate. The choice must be made in the will itself. For a South African living in Switzerland this means that the freedom of testation applies.

• No inheritance tax exists at federal level.

• Almost all Cantons impose death duties.

• Bankable assets are not affected by Swiss duties if the account holders are not

domiciled in Switzerland.

• Only Swiss citizens and residents may purchase residential real estate, although holiday homes may be purchased by non-residents in designated areas. Death duties on immovable property will be imposed by the Canton where the property is situated.


SWITZERLAND

• There is a common misconception that a portfolio of investments in a Swiss nominee account is not exposed to UK IHT or US estate tax as the portfolio is registered in Switzerland and is considered a Swiss asset.

• As the portfolio is held in a nominee capacity only, the beneficial ownership of the UK and US investments remain in the individual’s personal estate and would still be subject to assessment for tax in the UK and the US.


SWITZERLAND

• It is usual for the bank to ask for “a court sealed copy of the court authority and Will from the country of domicile together with the Apostille of the Hague Convention”.

• If an offshore Will has been prepared, this can then lead to difficult conversations

with the bank’s compliance team when you advise that you can provide the above mentioned documents, but there is also an offshore Will. Occasionally, the bank’s compliance team will then have to refer the case to their legal team.

• Conclusion: for a South African domiciled client with bank accounts in Switzerland, it is generally recommended that there is one Will (unless there are compelling reasons for a second Will to be prepared).

An Apostille Certificate is a certificate issued by the Department of International Relations (Foreign Affairs) or the High Court confirming that the person who signed / verified the document (the notary public or government official) is authorised to do so and that their signature is authentic.


UNITED KINGDOM


UNITED KINGDOM (UK)

• Those who are non-UK domiciled are only liable to inheritance tax on the property which is

situated in the UK.

• Like South Africa, the UK has freedom of testation and there is no forced succession.

• Unlike South Africa, assets can be owned jointly. Beneficial joint tenancy: Two or more people have a joint interest in an asset as a whole.

Assets held in this way pass automatically to the surviving joint owner. Tenancy in common: Two or more people have a defined and separable interest in the

asset as a whole. Assets held in this way will not pass automatically to the survivor and are dealt with in terms of the deceased’s will.


UK INHERITANCE TAX

• South Africa and the UK have concluded a Double Taxation Agreement (“DTA”)

specifically dealing with estate taxes. In essence, South Africa must give a credit for any UK estate taxes paid on assets situated in the UK. The DTA restricts the credit to the amount of the South African estate duty that would have been payable in South Africa i.e. 20%.

• A share is generally regarded as a UK situs asset if the share register relating to that share is held in the UK. For practical purposes most UK listed shares therefore qualify as situs assets. The end result is that South Africa will not subject the UK listed shares to estate duty but the UK will at a rate of 40%, i.e. 20% more than what would have been paid in South Africa.

• The UK inheritance tax account has to be submitted and inheritance tax paid (if applicable) before the court will issue a grant of representation.

• IHT is currently charged at two rates: £0 - £325,000 is charged at 0% (“the nil-rate

band”). The amount above £325,000 is charged at 40%. • There is unlimited spouse exemption if both spouses are domiciled outside of the UK.


UNITED KINGDOM

• IHT exclusions:

UK bank account – is excluded property if it is denominated in a foreign currency and

the account holder is an individual who is not resident or domiciled in the UK. GBP funds held in a bank registered outside of the UK. UK government securities; subject to a number of conditions. AIM (a sub-market of the London Stock Exchange) listed shares may qualify for

business property relief provided they have been held for over two years and meet a number of qualifying criteria.

Authorised funds – a holding in an authorised unit trust (as defined) or a share in an open-ended investment company as defined) is excluded if the owner is not domiciled in the UK.

• UK residential property owned through the use of structures that include offshore

companies, partnerships or trusts are NOT excluded from IHT.

.


JERSEY


JERSEY

• Most investment portfolios are registered in joint names (beneficial joint tenancy). Assets

held in this way pass automatically to the surviving joint owner so there is no requirement for a will on the first dying.

• But, no one lives forever, so there must be planning for when the surviving spouse passes away. Although one worldwide Will is certainly an option, the advantage in having a separate Will to cover the Jersey estate would be that the two estates could be wound up simultaneously.

• If a person who is domiciled outside of Jersey dies owning assets in Jersey, in their sole

name, then a Jersey grant must be obtained. A Jersey grant is not required if the value of the Jersey asset is less than £10,000.

• Jersey grant of probate would be required by the investment manager before any instructions such as sales or transfers could be made.

• Access to the share portfolio would be quicker for an executor, who would not have to wait or rely on the local South African estate to produce the required documents.


SHOW ME YOUR F… (Fire and Fury) MONEY!!!


UNITED STATES OF AMERICA (US)

• US tax law will consider a South African domiciled individual, who is also a non-US citizen, as

a “non-resident alien” (“NRA”).

• For Non-Resident Aliens the US Federal Estate Tax is at a rate of 40% (if the value of the estate exceeds USD60,000).

• The US and South Africa have a DTA in force governing estate taxes. This generally does not provide much relief as the provisions dictate that South Africa will not have a taxing right on US situs shares, thereby providing the US with exclusive taxing rights. This will generally result, where the owner of US shares is ordinarily resident in South Africa, in the shares being subject to US Federal Estate Taxes.

• All other assets located in the US will largely also be subject to US federal taxes on the same basis except that, where South Africa may also retain a taxing right, a credit against South African estate duties is generally provided, but only up to a maximum of 20%.

• Unlike the unlimited spouse exemption offered in the UK, the US does not offer the equivalent exemption. So even if the US assets pass to a lawful spouse, there is no spousal exemption (unless the surviving spouse is a US citizen).


MAURITIUS


MAURITIUS

• The principles applying to the inheritance of property in Mauritius are: The law where the property is located applies to immovable property, and The law of the domicile of the deceased applies to movable property.

• This applies equally to Mauritian citizens and foreigners.

• Mauritius is a forced heirship jurisdiction and a portion of the estate is reserved

for the children of the deceased.

• No testamentary provision may encroach upon the "reserved portion”, which consists of: One half (50%) of the estate if the deceased leaves one child. Two thirds (66%) of the estate if the deceased leaves two children. Three quarters (75%) of the estate if the deceased leaves three or more

children.


MAURITIUS

• The reserved portion is divided equally amongst the surviving children and the descendants of any pre-deceased children (i.e. children who die before their parent). The descendants of a pre-deceased child are jointly entitled to the pre-deceased child’s share of the reserved portion.

• The unreserved or "available portion" of the estate may be freely willed to any other person, including an heir under forced heirship provisions, or any entity, charitable or religious body, whether Mauritian or foreign.

• Although the surviving spouse forms part of the first class of legal heirs, he/she is not a protected heir, and his/her share may be bequeathed to another legatee by gift or testament. Notwithstanding the above, the surviving spouse is entitled to a lifetime right of usufruct over the matrimonial home and furniture.

• A loan to a Mauritian structure such as a trust or a company and shares in a company are deemed to be movable assets in a Mauritian estate and are therefore governed by South African law i.e. the South African will.


MAURITIUS

• Preparing a Mauritian will is more complicated than drafting a South African will. To start with, Mauritian law does not recognise oral, joint or mutual wills. Furthermore, unlike in South Africa where the surviving spouse or child can be nominated as the executor, no heir can be appointed as an executor in the will.

• It is advisable for a foreigner to draw up a will in Mauritius for the "available portion" to avoid cumbersome legalization, registration and cross-border enforcement formalities associated with a foreign will.


SOUTH AFRICAN EXCHANGE CONTROL REGULATIONS


SARB EXCHANGE CONTROLS

• If any Will bequeaths assets to a South African trust (testamentary or inter vivos),

then the offshore assets will need to be repatriated.

• SA trusts are not permitted to invest abroad so, unlike individuals and companies, trusts are not afforded a foreign capital allowance by the Reserve Bank.

• If a SA trust does inherit foreign assets, then an application can be made to the South African Reserve Bank to retain the assets offshore, but this is not guaranteed.

• Far safer to ensure that the Will is correctly drafted to take the above into account.


MAURITIUS

Gordon Stuart is Managing Director of the Accuro Mauritius office with overall responsibility for the Mauritian operations. Gordon has 18 years’ experience in the private client and trust industry in South Africa with extensive knowledge and experience in South African exchange controls, tax, trusts and wills. Prior to joining Accuro, he was the Chief Operating Officer for Sentinel International Advisory Services, a South African fiduciary services company. Gordon is a regular guest on various Business Day television shows and also regularly delivers public talks on all aspects pertaining to trusts, tax and other estate planning topics. Gordon holds a Bachelor of Commerce Degree in Law, a Certificate in Advanced Trust Law, an Higher Diploma in Tax Law, an Advanced Post Graduate Diploma in Finance and Estate Planning and a Master’s Degree in Tax Law (LLM). He is a full member of the International Society of Trust and Estate Practitioners (TEP) and a member of the Fiduciary Institute of South Africa (FPSA) with the following recognised specialities; Senior Estate and Financial Practitioner, Senior Trust Administrator and Senior Wills Drafter.

Gordon Stuart Managing Director Mauritius | Holding Company Board Member T: + 230 403 0434 E: [email protected]

mailto:[email protected]

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CROSS BORDER SUCCESSION PLANNING. WHY DO I NEED A … · An Apostille Certificate is a certificate issued by the Department of International Relations (Foreign Affairs) or the High