A will is an interesting piece of paper.
While it is usually a chunky document written in thick legal speak, the intention behind it speaks volumes to the reader.
It is a looking glass into our true selves, the bare and honest basics detailing how we feel about our lives, our loved ones, and our money. The goal is simple: you want to stipulate exactly who gets what after you die.
Who gets the precious family heirloom, or the offshore investment that you worked so hard to protect and grow? How do you ensure that it ends up where you intended?
Let’s take a deeper dive into this practical element of estate planning, namely having an offshore will.
Why would anyone need an offshore will?
Whether you need an offshore will depends entirely on your circumstances, the type of assets you own, and your succession plans.
In general, the property in your estate will be dealt with as follows:
- Movable property (assets and liquid investments) falls under the jurisdiction laws of where you lived on a permanent basis.
- Foreign physical property falls under the jurisdiction laws of where the property is situated (irrespective of where you were domiciled at the time of your death).
What is an offshore will?
Exactly that.
While you list your South African assets and your wishes on your death in a local will, an offshore will speaks of assets that you have offshore, and which may be practically difficult to administer by a South African executor.
What is probate?
A Grant of Probate is the offshore equivalent of a Letter of Executorship in South Africa.
This means that someone must be appointed to administer your offshore assets. This will either be someone that you specifically name in your offshore will, or your local executor will have to appoint someone to act on their behalf.
Who then, needs an offshore will?
While the rule of thumb is to always have an offshore will if you have offshore assets, certain exceptions apply so that it is not necessarily the case.
It is, however, advisable to have an offshore will in the following cases:
- If you own physical foreign property in a country where there is no forced heirship.
In other words, you need an offshore will if you can decide who should inherit the property. Some countries apply a rule of forced heirship, which means that the laws of that jurisdiction dictate how you must dispose of the property. Here, having a will makes no difference because it won’t override the legislation. It is very important to understand the rules of the jurisdiction where your property is situated!
- If you have an offshore discretionary investment portfolio where you are the only account holder.
Do I need an offshore will if I have an offshore endowment policy?
An endowment policy is an investment policy, but the rules for death can vary, depending on whether you nominate beneficiaries for proceeds, or not.
If you have a global endowment policy where you did not nominate any beneficiaries for proceeds or ownership, it is advisable to have an offshore will, as you do for any other liquid offshore investment.
However, if you made beneficiary nominations, the offshore life company (or “service provider”) pays your beneficiaries their share directly. In this case, it won’t go via your estate, and consequently, you don’t need to make specific provision for it in an offshore will.
How does it work in practice, if I have a local as well as an offshore will?
Your South African executor has the responsibility of winding up your estate here, through the Master of the High Court.
Your offshore executor will deal with offshore assets and is subject to the rules of jurisdiction specific to where the asset is held.
The two processes run concurrently but separately, and benefits are paid to beneficiaries as each process is finalised.
You will not pay Executor’s Fees (currently 3.50%+ VAT) in South Africa on offshore assets that are administrated in terms of an offshore will.
You will, however, pay estate duty in South Africa on your worldwide assets, unless it has specifically been excluded by legislation.
What if I have offshore assets, but only refer to it in my local will?
Your South African executor may start to administer your estate, regardless of whether it holds local or offshore investments or a combination of these.
However, in practice, if there are offshore assets that are subject to Grant of Probate, then an executor in the foreign jurisdiction will be appointed to assist with the administration of the offshore assets.
The implication of this is that a court-sealed Letter of Executorship and your court-sealed South African will (along with a host of other documents) must be sent to the foreign executor. It is a lengthy and cumbersome administrative process.
In this case, there aren’t two estates to administer, but one estate dealing with both local and offshore assets. Therefore, frustratingly, your local executor won’t be able to finalise the winding up of your estate until the offshore assets have been dealt with.
You want to avoid this scenario, because your beneficiaries may have to wait an unreasonable time (sometimes several years) before they receive their inheritance.
Planning for the unknown
We are fortunate that South African law recognises freedom of testation – you may dispose of your assets in any way you like. But it is important you ensure that your will is valid, reasonable, and practical.
When writing a will, most people want to be considerate or protective of their beneficiaries and charitable causes. However, it can easily become contentious if it’s not drafted with consideration to people or issues that were relevant during your lifetime.
In essence, there is no downside to having a separate will that speaks to your offshore assets – the cost of having one drafted is minimal, and it can only make life easier for the local executor. But the wills must be drafted by a professional fiduciary specialist. If they are not, they risk contradicting, or accidentally revoking the other.
At Foundation we strongly believe in planning for the unknown. Planning for death is a cornerstone of sound financial planning.
Over the years, Foundation has written much on wills and how to make sure you have a valid document in place for the day your “one day” arrives. Read more here on having a valid will, or here if you want to see what protection you have if your spouse omits you from his/her will.
Speak to us if you would like to revise your will, or if you are unsure whether an offshore will is appropriate for your circumstances.
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