The limits of freedom of testation in a multi-jurisdiction estate
01 November 2013 | Magazine Archives FAnews & FAnuus | Life | Albert Vorster, Momentum Fiduciary Services
In South Africa, due to our common law heritage, testators have always enjoyed an almost unrestricted right to leave their assets to anyone they choose. There are certain restrictions though, such as being unenforceable because of unclear Will drafting, illegal provisions and conflicts with public policy and statutory limitations.
The same freedom of testation we have in South Africa is not enjoyed in other countries.
People who invest internationally must be aware of these limitations because it can have substantial implications on death.
Why invest internationally?
Since 1994, South Africa has been embraced back into the global community. This, together with a substantially relaxed exchange control regime, has meant that South African citizens are increasingly investing in various assets overseas. Some of the reasons for this are:
• diversification of assets and investment portfolios.
• hedging against a weakening Rand.
• purchasing holiday homes.
• taking advantage of government endorsed property investment for residency programmes as offered by Mauritius, Malta and Portugal.
What happens when you die?
Your international assets will have to be administered as part of your foreign estate. Each country has its own legislation that deals with inheritance and the formalities of preparing a valid will. A South African Will would not necessarily meet the legal requirements of the country where your assets are.
Examples of the differences in legislation
Forced heirship rules are designed to make sure that children have a legal right to inherit
from their deceased parent(s), and that a certain part of your estate is forced or reserved
for inheritance by your immediate descendants. If you have assets in countries with
forced heirship rules and your Will states that your estate must pass to someone other
than your descendants, it could mean that your assets would not be inheritable in terms
of your Will only. There are also different interpretations of forced heirship rules that
require proper investigation and careful planning when buying foreign assets and drafting
a foreign Will.
Examples are:
o In Greece, a foreigner is able to dispose of his property after death without forced
heirship restrictions that apply to Greek citizens, provided that this is acceptable under
his national law. The only case where Greek rules of inheritance will apply automatically
to the estate of a deceased foreigner, is if he also had dual Greek citizenship.
o If you buy property in Mauritius in terms of the residency program, it would be better to hold such property in a domestic Mauritian company. If the company owns the shares, it will be seen as a movable asset and will allow for freedom of testation. Otherwise, if the property is owned by an individual, it will be subject to forced heirship rules. That would mean that one half of the estate would be reserved for a child if the deceased leaves one child, two thirds of the estate would be reserved if the deceased leaves two children, and three quarters of the estate would be reserved if the deceased leaves three or more children. The reserved portion is divided equally among the surviving children and the descendants of any pre-deceased children. The deceased will only be allowed to freely dispose of the unreserved portion.
Countries will also apply different rates of inheritance tax, depending on whether the
beneficiaries of your will are immediate family or unrelated. South Africa has double
taxation treaties with various countries to make sure that a local resident does not pay
tax in South Africa as well as in a foreign country.
For the reasons mentioned, it is often better to have a separate Will for each country where you have assets. It is worth obtaining expert and specialised estate planning and Will drafting advice in relation to all jurisdictions in which the assets are located.
