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Probate Risk

Offshore Investing Considerations for SA Tax Residents

By Ruvan J Grobler • October 29, 2024
We remain positive on the South African equity market and the renewed positive sentiment driven by resilient earnings and political reform. The JSE (Johannesburg Stock Exchange) however, constitutes less than 1% of global stock markets. If your portfolio only consists of South African assets, your overall portfolio risk may be concentrated in region specific factors. You may also run the risk of losing out on opportunities not offered by local markets. As we head towards the final quarter of the year, this may also serve as a reminder that your annual R1m discretionary allowance and the foreign capital allowance of up to R10m expires on 31 December 2024. It may also be a good time to capitalise on US Dollar weakness for long-term currency hedging. What should you be careful of when investing directly offshore? One of the risks in offshore investing is probate. Offshore probate refers to the process of applying for the right to deal with a deceased investor’s foreign assets and proving their will as a valid legal document in the foreign jurisdiction. The second risk is situs tax that will be encountered in both the US and UK. Situs tax refers to the taxation of assets based on their location or situs. In other words, it is the jurisdiction where the property is located, or deemed to be located, that determines the taxation of that property. What structures provide solutions? Structures where the foreign assets are held by a local nominee company. “Wrapped” structures like sinking funds or endowment policies. Estate planning benefits? It’s important to consider the estate planning benefits of using the correct structure. Normally structures that allow beneficiary nomination provides regulatory- and tax benefits. It can be useful in lowering estate related costs but also provide cash flow to beneficiaries before the estate is wound up. The above considerations may also not be applicable to certain investors. There are structures for those investors who have ceased or are ceasing to be South African tax residents. It may also be suitable for the investor’s adult children living abroad (non-SA tax resident). Estate duty or the equivalent may be payable in their country of residence. Ruvan J Grobler RFP™ (PGDip Financial Planning)

Offshore Investing and the Probate Risk

By Ruvan J Grobler • July 1, 2024
Many South African investors choose to invest directly offshore by physically moving capital offshore through their annual allowances (R10 million foreign capital allowance and a R1 million single discretionary allowance). This is done for diversification or financial planning needs and can be full of pitfalls. One of these risks in offshore investing is probate. Offshore probate refers to the process of applying for the right to deal with a deceased investor’s foreign assets and proving their will as a valid legal document in the foreign jurisdiction. There are legislative differences in all jurisdictions and will most certainly provide complications on the investor’s death. Effectively there would be a deceased estate in the foreign jurisdiction and in South Africa. This could also imply that executor’s fees would apply in South Africa and the equivalent thereof in the offshore jurisdiction where it may not be as regulated and capped as in South Africa. If probate applies in the jurisdiction, the investor will need a will that will be legally considered in that jurisdiction and specifically mentions and gives instruction on the proceeds of the assets. This can typically make the already longwinded process even longer and leave dependents without access to assets. How can you avoid probate? Here are two options: Use an open-ended structure where the foreign assets are held by a local nominee company. Use a “wrapped” structure like a sinking fund or endowment policy where beneficiaries can be nominated. There are major differences between these two structures regarding tax and liquidity, making it very important to do effective financial planning around these variables. These structures are carefully designed with the specific jurisdictions in mind. If the requirements are met as set out by the product rules, the risk of probate may not apply. Importantly these structures provide a clear course of action on death and may give dependents access to capital if needed. This does not serve as financial advice* Ruvan J Grobler RFP™
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