Domestic tax laws and fiduciary laws differ between countries. For example, some countries recognise trusts and others only recognise foundations. What you have planned for and reality may be vastly different because of the application of such laws.
In a dynamic and increasing complex tax and fiduciary landscape, it is important to consider the following when you have children living abroad.
1. Have your children ceased South African tax residency?
It may be that when your child(ren) initially left South Africa, it was of a temporary nature, e.g. studies abroad or a fixed-term contract with an overseas employer. Over time their intention may have shifted, for example, by accepting an employment offer and settling more permanently overseas.
Should this be the case and they hold assets in their personal capacity, then it is vital to consider their South African tax residency status. The reason is embedded in the Income Tax Act which imposes an exit tax (i.e. deemed capital gains disposal with ancillary tax consequence) when a South African tax resident ceases tax residency. It means that they could be in default by not declaring their updated residency status with potential understated taxes due to SARS.
2. Wills and estate administration
When a person has a worldwide will in South Africa, their entire estate will be administered in terms of South African law. It may be more efficient if they reside abroad to sign a will for their South African assets and a separate will in the country where they reside dealing specifically and only with the assets situated in that country. This may considerably and efficiently ease the burden of the administration of their estate.
3. Future inheritance
Should your children be heirs in terms of a will in South Africa and they live abroad, some legal and practical considerations are helpful to have in place to ensure effective transfer of estate assets to them abroad. This includes, but are not limited to, obtaining certainty regarding their tax residency status, being tax compliant (if applicable) and having a South African bank account for cash payments before externalising funds to their overseas account.
It is good practice to review your and your children’s planning to make the necessary changes where need be. Taking the into account would already help to ensure that what you and / or your children intend to happen is practically possible.
Should you have any questions about any aspect of the above, please contact Suzanne Smit at suzanne@fidelisvox.co.za.
This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)