Question

I retired three years ago, with half my income coming from my company pension fund and the other half from interest from investments. I am paying tax at a rate of 41%. Is there anything that I can do to reduce this amount?

Answer

Estates currently take a long time to be wound up when they consist of South African assets only. When you add in the complication of offshore assets, you need to brace yourself for a long process. You must make sure that you have contingency plans in place to ensure that the surviving spouse has access to cash while the estate is being wound up, as this could take a couple of years.

A standard part of my financial advice includes looking for ways in which assets can be transferred to the surviving spouse or family members without having to go through an executor. By planning for this, you can certainly speed up the transfer of the assets and enable everyone to get on with their lives. 

You do not want to be in a situation where you cannot access any of your investments for an extended period. 

Time to dispose of offshore assets

You should have about half of your assets offshore in order to reduce the risk of having too large an exposure to South Africa. The challenge comes when a person passes away and these assets need to be transferred to a beneficiary. Your estate can only be finalised once both the South African and the offshore elements of your investments have been dealt with.   

In order to have your executor recognised in the country where your assets are held, your estate needs to apply for a grant of probate in that country. 

This will involve using offshore lawyers and can be both time-consuming and expensive. One of the offshore investment companies recently had a special offer where they would do your grant of probate for R50,000. 

With a bit of planning, you can restructure your assets in order to make the inheritance process a lot quicker, cheaper and easier. 

Your bank investment

The easiest investment to sort out will be your bank investment. 

As things currently stand, the costs of probate will make a big reduction to the value of your investment. When you add in the additional time and effort needed to finalise your or your husband’s estate, it makes a lot of sense to move this investment into an offshore endowment. This is a quick process.   

The offshore endowment is deemed to be part of your South African estate, so no probate is needed. You will also only pay South African estate duty and will not be liable for any possible offshore death duties.  

You can attach a beneficiary of ownership to the investment. This means that should you pass away, your spouse or children automatically take over the investment without it having to go through the will and executor.   

The money need never be brought back to South Africa and the returns should be better than you have been getting at the bank. 

You can also access this money whenever you want (up to 100 times in the first five years). 

Offshore property

When it comes to owning assets in offshore countries, you need to understand the inheritance laws in those countries. 

This is a potential minefield and I would strongly recommend that you speak to someone who is familiar with property law in Portugal, as they practise forced heirship. 

Many countries practise forced heirship. This means that certain percentages of your assets must be bequeathed to certain family members regardless of what your will might say. It is important, therefore, that you understand what the laws of inheritance are in the country in which your asset is kept. 

Many people buy offshore properties in order to get a foreign passport. 

They are not always aware, however, of the implications that forced heirship may have on the wrapping up of their estates when they pass away. 

As a rule of thumb, if a British flag has flown over that country at any stage, there is a good chance that the laws of inheritance are going to be similar to ours, where we have freedom of testation. 

This means that we can bequeath whatever we want to whoever we want. We can disinherit adult family members and donate everything to a charitable cause if we wish to. This is not the case in all countries. 

If you do not have any sentimental attachment to your property, it may be an idea to sell it and move the proceeds into an offshore endowment plan. This will enable you to pass the inheritance on to whoever you want, with the least amount of fuss and delay.