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27 Jun 2024

Probate and your estate

Tax and Fiduciary team | Investec Wealth & Investment

Understanding the probate process is essential when dealing with an estate with assets in different jurisdictions.

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Dealing with the passing of a loved one can be overwhelming, especially if they held assets in multiple jurisdictions and their estate needs to be settled. That’s why planning when it comes to your estate is important, making the process easier for your loved ones and giving you peace of mind. In this article, we will explore what is called the probate process and how it applies to offshore assets.

OK, so let’s kick off – what is probate?

Probate is the legal process followed to settle a deceased person's estate. Probate is essentially the equivalent of the deceased estate administration process in South Africa. For a South African resident holding offshore assets, the probate process includes several actions: validating the deceased person's will (either an offshore original will or by resealing a local will), identifying local and offshore assets, obtaining what is called a 'grant of probate' from the jurisdiction where the assets are located, settling debts, considering tax implications, and distributing assets to beneficiaries.

When is probate applicable?

In recent years, the Reserve Bank relaxed some of the externalisation regulations, leading to an increase in South African residents directly holding offshore assets. While investing offshore can be a great way to diversify, it can complicate the probate process and may require a ‘grant of probate’ for your estate. If you hold offshore assets, a grant of probate may be required depending on the nature of your offshore assets and the jurisdiction where they are located.

Different jurisdictions have varying laws and procedures for probate, so it is crucial to understand the requirements of each jurisdiction where your assets are held. Some jurisdictions require a grant of probate to be obtained in that specific jurisdiction before certain types of assets can be transferred. Other jurisdictions, like Switzerland for example, will look to the country of last domicile of the deceased when determining the probate process to be followed. In some instances, particularly in the financial services industry, the location of the assets has no bearing on probate but rather on the terms and conditions of the financial institution.

Do I need a separate will for probate?

When it comes to obtaining a grant of probate, there are different options to consider. One approach would be to have a separate will for each jurisdiction, specifically addressing assets located in that jurisdiction. Alternatively, you could have a worldwide will dealing with one’s worldwide assets. Should you have a worldwide will, the will would need to go through the process of resealing and then be sent to the relevant jurisdiction to obtain a grant of probate. It’s crucial to ensure the will is legally recognised and executed correctly in the different jurisdictions requiring probate. The nature of the assets held, the country in which the assets are held (in some instances the financial institution where the asset is held), and the country of last domicile of the deceased will determine which option is the best to follow.

Is probate the same as situs tax?

No. Probate and situs tax are two different things. Probate refers to the deceased administration process and is linked to a will, while situs tax refers to tax levied on a deceased person’s assets.

However, during the probate process, you should consider the situs tax implications for each asset. You may be wondering, what are situs taxes? Situs simply refers to the legal jurisdiction where an asset is deemed to be situated for tax purposes and is often used to refer to estate or inheritance taxes. In South Africa, situs tax refers to estate duty levied on South African tax residents (on a worldwide basis) or on non-residents (on their South African-situated assets) at a rate of 20% / 25% on the net asset value exceeding R3.5 million.

In the UK, situs tax is generally known as inheritance tax, which is levied at a rate of 40% on situs assets exceeding £325,000 in value. This threshold is known as the ‘nil rate band’, and any situs assets falling below this amount are exempt from inheritance tax. In the US, situs tax is known as estate tax and gift tax. In contrast to South Africa and the UK, from an estate tax perspective, the US has a significantly lower tax-free threshold for estate tax applicable to non-residents: the first $60,000 of US situs assets are exempt. Additionally, the top bracket for estate tax in the US is 40%. Unlike in South Africa and the UK, the US does not provide spousal exemptions or rollovers, unless the spouse is a US citizen. This key distinction means that non-US citizens, including non-resident spouses, are subject to estate tax on all US situs assets exceeding the $60,000 threshold.

For these reasons, when dealing with assets in the probate process, it’s essential to consider any potential situs tax obligations imposed by the jurisdiction where the assets are located, as well as the deceased individual's country of tax residency. This ensures compliance with the applicable tax laws and facilitates an efficient administration of the estate.

Be prepared, plan ahead

To make the probate process smoother and more efficient, the key is to be prepared while you are still alive. Seeking professional estate planning advice from qualified estate planners who specialise in cross-border probate matters can help navigate the legal complexities and ensure compliance with local and offshore regulations. They will guide you through the necessary steps to transfer assets and fulfil legal requirements.

So, don’t leave your loved ones with a complicated situation. Start planning for the probate process now and ensure a smoother journey for your estate.

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