Planning in a global context is not a DIY job
Navigating global financial planning isn’t just about numbers - it's about understanding the rules across borders.
FAnews attended Momentum Investment’s Global Citizen Masterclasses for expert insight into international estate planning, trusts, and tax!
During this session, the focus was on South African tax residents, those remaining in SA, emigrating and those residents living and working abroad, honing in on the risks of taxation upon death and the use of trusts as part of the international estate and financial plan.
A legal and technical update
Giving a technical overview, Amanda Moolman, Legal Adviser at Momentum Distribution Services, and Hugo Bezuidenhout, Head of Retail Investment Distribution Enablement at Momentum Investments, pointed out that navigating international estate and financial planning requires a deep understanding of jurisdictional nuances.
While giving a legal update, Sharon Hamman, Senior Legal Adviser at Momentum Distribution Services, highlighted the evolving regulatory environment that now allows resident trusts to make distributions to non-resident trusts under certain conditions. In August 2023, SARS confirmed that it will consider manual applications for such distributions, provided the offshore trust is a named beneficiary of the local trust, the transaction is supported by proper documentation, and all relevant taxes are paid. This opens up the possibility for South Africans to externalise trust funds without needing a foreign exchange allowance, thereby facilitating global wealth planning through offshore trusts.
Hamman cautioned, however, that these transactions are subject to SARS verification processes and SARB approval. Based on the interpretation of the SARS note on this topic, it seems that only cash may be vested in the offshore trust, not assets, and attribution rules and deeming provisions may apply resulting in negative tax consequences to the SA trust. To mitigate the potential tax threat, strategies such as investing through an international endowment policy or structuring the offshore trust to hold shares in a foreign company were explored. These solutions, if properly implemented, can allow for effective tax outcomes.
Offshore exposure: the example of Eve
Expanding on the implications of holding offshore investments, Moolman presented a practical scenario involving “Eve,” a fictional South African tax resident and widow who had invested $1 million in a US share portfolio.
Eve’s decision to invest directly in US-listed shares might seem smart from a diversification and currency hedge perspective, but from a legal and tax standpoint, the risks were substantial. “South African tax residents are liable for income tax on their worldwide income, as well as capital gains tax (CGT) and estate duty on their worldwide estate upon death,” explained Moolman?.
What Eve didn’t realise is that her investment exposed her estate to US estate tax as well. The US taxes non-resident aliens on their US-situated assets – including US company shares – with a limited exemption of only $60,000. With her portfolio valued at $1 million at the time of death, Eve’s estate would be liable for as much as $376 000 in US estate tax, calculated at the highest estate tax rate of 40%?.
Although South Africa and the United States have a Double Death Duties Agreement (DDDA) that avoids true double taxation, it doesn't erase the tax exposure. South Africa will credit the US estate tax paid – but only up to the amount of local estate duty that would have been payable on the same asset.
In Eve’s case, her South African estate duty on the US investment would have been R2.9 million, which becomes the maximum credit allowed. Because the US estate tax was higher, no additional SA estate duty is payable – but the loss to her estate remains substantial.
To give practical context to Moolman’s example, Bezuidenhout had an insightful discussion with Jeffrey Wiseman, Head of Momentum Trust, focusing on the practicalities of having foreign investments and the impact it may have on the administration of the deceased estate, highlighting the importance of proper planning. Jeffrey discussed a real-life case study, explaining the process of appointing a foreign agent to act on the executor’s behalf in the foreign jurisdiction, the associated costs, the payment of the foreign tax and the impact it had on the time it took to finalise the estate’s administration process.
Capital gains, deemed disposal, and cross-border heirs
The implications don’t end with estate duty. “In South Africa, death is deemed a disposal for CGT purposes,” Moolman reminded attendees. “This means all worldwide assets are considered sold to the estate at market value at the time of death.” In Eve’s case, this includes her US shares, but thanks to the double taxation agreement between South Africa and the US, the capital gains tax (CGT) is payable in South Africa and not in the US.
For South Africans with heirs who live abroad, the complexity deepens. If a South African resident bequeaths foreign assets to an heir, SARS still expects the assets to be reported. The heir is not required to repatriate the asset to South Africa, but “income and capital gains earned must still be declared in SA,” said Moolman.
This makes proper estate planning crucial. “It may be to Eve’s advantage to consider alternative investment vehicles that will not result in her holding the US shares directly in her personal capacity,” Moolman advised. Investment products such as international endowments or the use of trust structures can reduce tax exposure and simplify estate administration.
Why professional help matters
A critical message came through loud and clear during the Masterclass: estate and financial planning in a global context is not a DIY job. Without the help of a professional executor and a tax practitioner experienced in cross-border matters, families risk losing large portions of inherited wealth to preventable taxes and administration fees.
As Eve’s example showed us, up to half of her portfolio – between taxes and administration costs– could be eroded. “The necessary planning and provision must be in place – and not only focused on returns during the client’s lifetime,” Moolman emphasised, “but also on the tax implications upon disposal and the implications upon death”?.
Final word to advisers and planners
As more South Africans invest internationally, either for diversification or because of global family dynamics, the role of financial advisers and estate planners is more important than ever. Clients often make these decisions with little understanding of the tax landscape they’re entering – and it’s up to professionals to guide them.
Whether it’s navigating SARS requirements, applying for relief under DTAs, or deciding when to use trust structures, every cross-border financial plan needs careful, technical attention.
As this session made clear, global wealth isn’t just about opportunities – it’s about obligations, too.
Writer’s thoughts
As global wealth strategies grow more complex, the role of advisers evolves beyond traditional borders, requiring not just sound investment insight but expert navigation of tax and legal intricacies. Staying ahead means not only spotting opportunity but anticipating obligation to preserve and protect client wealth across generations. Do you agree? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts [email protected]
