The first step for your executor is to validate your Will through a process called Probate.
What is a Probate?
Probate is the procedure where a Will is approved by a legal authority as the valid and last Will of a deceased testator. Once a Will has been probated by a court, everyone can rely on its authenticity.
In the case of an estate with offshore investments, an executor will need to have clarity on which authority can proclaim a Will valid: a local authority, a court in a foreign jurisdiction or both.
When a court or legal authority in the relevant foreign jurisdiction has probated a Will, a grant of probate (or equivalent document) is issued which authorises an executor to administer the deceased estate. The South African equivalent of a grant of probate is letters of executorship, which are issued by the Master of the High Court. However, if the value of the estate is below the prescribed legislated amount (currently R250 000), the Master of the High Court may issue letters of authority instead of letters of executorship.
Securing letters of executorship (or the foreign equivalent) allows the executor of your estate to take control, dispose and disperse or distribute the property. Anyone in possession of property (movable, immovable, corporeal or incorporeal) belonging to a deceased person must retain the property, and may not dispose of it, until they are provided with valid letters of executorship by the appointed executor.
Estate Duty and Executor’s Fees
There are two cost items that your estate will have to deal with after your death: Estate Duties and Executor’s Fees.
Estate Duty is levied on the estate of a deceased person and it applies to the worldwide property of South African residents, and South African property of non-residents (less allowable deductions). It is due within a year of your passing and is only levied on estates above the threshold set by legislation.
For foreign assets you may have to pay additional estate and inheritance taxes in the foreign country. If South Africa has a Double Taxation Agreement with the foreign country you may not have to pay estate tax twice.
Executor’s Fees are paid to the executor of your estate for the winding up the deceased estate and distributing its assets. Executors Fees are payable to a South African executor if that executor administered the foreign property as well. If the foreign property is administered by a
foreign executor, no Executors Fees will be payable in South Africa. An executor can currently charge up to 4.025% (including VAT) on the gross asset value of the deceased estate as their fees.
Endowment offering rand-denominated offshore funds
If you own a local endowment, an offshore estate is not created therefore a grant of probate is not required. An endowment is subject to estate duty, deductions may be allowed in certain circumstances.
Documents required for investments made in an endowment at death:
If you have not nominated a beneficiary, or your beneficiary has predeceased you and the beneficiary nomination has not been updated, the death benefit will accrue to the deceased estate, and letters of executorship will have to be provided by your executor. If you have a foreign
executor, their grant of probate will have to be signed and sealed by the Master of the High Court.
Although endowments are included in the Estate Duty calculation, if there is a nominated beneficiary for proceeds, there will be no Executor’s Fees.
How to prepare for death
Here are some tips for ensuring that your offshore investment are not a headache:
- Ensure that you have a valid and updated Will, and consider whether you need a foreign Will for investments made directly offshore.
- Ensure that the nominated executor is willing to accept the nomination, and all fees have been considered.
- Ensure all beneficiary nominations on endowment policies are up to date.