If I mentioned the term “exchange control” (or Excon, for short), what do you see in your mind’s eye? Offshore investments? Your small import/export business and pages of regulations required keep your business afloat? Or are you perhaps worried about your upcoming trip abroad and switching your hard-earned Rands at a poor exchange rate?
I’m going to take a guess and say that only a few of you jumped to your estate planning as your first line of thought. But as South Africans emigrate and move to all corners of the world, it’s becoming increasingly important to understand our Excon-legislation for estate planning purposes, and whether a bequest will be subject to exchange control.
Non-residents vs emigrants
The South African Reserve Bank (SARB) provides a few definitions regarding exchange control. But, it’s important to note that these terms may differ from the way it is defined and applied in the Income Tax Act.
A South African resident is a person, whether of South African or other nationality, who lives in South Africa permanently (domiciled or registered to live in SA).
A resident temporarily abroad is any resident who left SA and now resides in any country outside the Common Monetary Area (“CMA” – Lesotho, Namibia, South Africa and Swaziland), but who has no intention of taking up permanent residence in another country. This definition excludes residents who are abroad on holiday or business travel.
An emigrant is a person who left SA and followed the formal emigration process of the SARB. Many people have been living outside SA and have never formally emigrated. They are still viewed as non-residents for the purposes of exchange control.
A non-resident means a person whose normal place of residence (domicile or address of registration) is outside the CMA.
Proceeds of deceased estates
Now that we’ve defined the possible status of our testator, let’s look at three specific scenarios on death. These are by no means the only possibilities, but is useful as a starting point for exchange control implications on legacies and distributions.
Legacies and distributions from resident estates
If a testator makes a cash bequest from his resident estate to a non-resident beneficiary, this bequest may be taken offshore as follows:
- If the total estate is worth more than R250 000, the Liquidation and Distribution (L&D) account (bearing a Master’s reference number) will be required; or,
- In the case where the total estate is less than R250 000 an L&D will not be necessary, but a copy of the last will and Letter of Executorship will be required.
If the estate holds authorised foreign assets, and the estate wants to remit these to non-residents, the foreign administrative cost will have to be met from the foreign portion of the estate (i.e. local assets cannot fund this process).
If the testator bequeaths any other assets to non-residents, it may be exported under the regulations of the South African Reserve Bank (SARB), coupled with the provisions of the last will (or where there is a deviation of the provisions of the will, in terms of the L&D account, approved by the Master).
Capital distributions from local testamentary trusts to non-residents is permitted, provided that there is a resolution from the trustees confirming that (a) the distribution is in accordance with the provisions of the will, and (b) that the capital for distribution is available.
Foreign inheritances and legacies from non-resident estates
Residents who received an inheritance from a foreign estate after 17 March 1998 are not required to declare this to an Authorised Dealer in South Africa, and may keep the capital and any income earned on the capital abroad.
Residents are not allowed to pass their foreign asset on a thirty party (South African resident, or not) for disposal, without prior approval of the Financial Surveillance Department (referred to as a “loop structure”.)
Foreign inheritances and legacies from South African estates with foreign assets
Foreign assets inherited by a resident from the estate of a deceased South African resident must be declared to the Financial Surveillance Department. These assets may remain offshore, provided that:
- the deceased South African owner was the original owner, and
- it was an asset obtained via the regulations of exchange control (e.g. with his foreign capital allowance), and
- no loop structure exists.
If any of these conditions are not met, the new beneficiary of the asset will have to make an application to the Financial Surveillance Department to regularise the asset.
Section 4 of the Exchange Control manual provides guidelines for the transfer of capital and income from trusts. This section falls outside the scope of our current discussion, but is a useful source of information for anybody related to a trust. The full manual can be found here.
Estate planning for individuals with foreign assets require the expert advice of a fiduciary specialist, who is familiar with exchange control regulations. Get in touch with us if you feel uncertain about the way your foreign assets are handled in your current will, and ensure that your assets fall into the hands you intended.
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