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Newsletter 24

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Newsletter 24
Dear Colleague
 
Acquiring property in Mauritius seems to be quite an attractive proposition for South Africans.  According to Riana de Lange, news editor of News24, Mauritius attracts more and more South African property buyers.  Nico van Gijsen (Managing Director of Finlac, a certified financial planner and tax practitioner) had an in-depth look at the financial implications and inheritance consequences of investments and property overseas, especially in Mauritius.
 
There is a misconception in the marketplace that the yield on overseas investments is tax-free.  South African citizens are taxed on income and assets worldwide.  In South Africa, estate duty is 20% (25% for estates with taxable assets above R30mil), in Britain it is 40%.
 
Then there is the issue of a Will, specifically in respect of that prestigious property in Mauritius.  It is not only good practice to have a separate Will to cover overseas assets, but it is also important from a financial point of view.  In October 2017, Newsletter 17, we discussed the laws and regulations regarding property in Mauritius.  There are specific succession laws that govern the way in which assets can be bequeathed.  A percentage of estate assets is reserved for the children of the deceased; therefore, estate assets cannot be bequeathed to whoever one wants. 
 
In Mauritius, the following is reserved for the children:
 
            50% if there is one child only
            66% if there are two children
            75% if there are three children
 
Only the residue of the estate can be bequeathed to someone else. 
 
According to the Estate Duty Act 45 of 1955, in South Africa, inheritance to a spouse is deductible for estate duty purposes and capital gains tax can also be avoided if the base cost moves over to the surviving spouse. If it is compulsory for children to inherit, however, that concession falls away.  The consequence?  Assets may have to be sold or cash beneficiaries may lose their cash inheritances.
 
It can also result in a Will not being feasible and a huge part of the estate can devolve intestate, as if there was no Will at all.  Persons who were not supposed to inherit, may very well inherit part of the estate.
 
Anyone who is serious about their assets and the well-being of their next of kin should get professional help with estate planning as it is a highly specialized field.  There is a lot of financial potholes for someone who thinks he knows all but doesn’t.
 
It is wise to have a separate Will for each country where one holds assets.  For a Will to be accepted in Mauritius, it must be registered where the property is located.  Remember when changing a South African Will to be careful of the clause that revokes all previous Wills as it will also revoke and nullify the overseas Will.
 
Therefore, advise you clients with overseas assets to determine what the regulations regarding estate assets in that specific country are.  Also keep in mind that the Executor should be a permanent resident of the country where he/she is to be appointed.
 
Some of our important choices have a time limit.
If we delay a decision, the opportunity is gone forever.
Sometimes our doubts keep us from
making a choice that involves change.
Thus, an opportunity may be missed
.

James E. Faust
 
“Most people miss great opportunities
because of their misperception of time.
Don’t wait!
The time will never be Just Right

Stephen C. Hogan


Please LIKE, FOLLOW AND SHARE EFBOE on Social Media
 
 
THE USE OF TRUSTS IN AN ESTATE
 
Read more in the upcoming edition! 
_________________________________________________________________________________________________ 

HOW DOES INHERITANCE WORK?
 
Everyone knows that a valid Will in which beneficiaries are nominated to receive an inheritance is needed.  The Executor administers the estate of the deceased.  South Africa’s inheritance laws apply to every person who owns property in South Africa.  There is specific legislation that affects inheritances and the three main statutes governing inheritances in South Africa are:
  1. The Administration of Estates Act, which regulates the disposal of the deceased’s estates in South Africa.
  2. The Wills Act, which affect all testators with property in South Africa.
  3. The Intestate Succession Act (discussed in Newsletter 23), which governs the devolution of estates for all deceased persons who have property in the Republic and who die without a Will.
All property located in South Africa is subject to these laws, and there are no separate laws for foreigners. 
 
Immovable property is not treated any differently to other types of moveable assets for inheritance purposes. Inheritance issues of foreigners and South African citizens are primarily dealt with by the Master of the High Court.  However, if a dispute arises, then the case can be heard in any High Court of South Africa.
 
Foreigners who acquire immovable property in South Africa, through purchase or inheritance, must register their transfer of ownership by registering a deed of transfer with the Registrar of Deeds in whose area the property is situated.  The process of registering a deed of transfer is carried out by a conveyancer, or specialised lawyer, who acts upon power of attorney granted by the owner of the property.
 
Tax and inheritance
In South Africa, most taxes are payable by the estate and not the heirs.  Capital Gains Tax (CGT) on estate assets is not payable by the recipients of the inheritance but by the estate.  Estate duty is usually payable by the estate.  In the case of certain policy payments outside the estate i.e. deemed property, estate duty may be payable by the heir if the total nett value of the estate exceeds R3,5 mil.  If it is a foreign estate, it will be subject to the taxes of its country of origin.
 
Donations or gifts
Donations and gifts are treated differently to inheritance.  For individuals, donations are subject to a Donations Tax of 20% with an annual exemption of up to R100,000 of the value of all donations made during that tax year.
  • Non-residents are not subject to Donations Tax.  However, in cases where the resident donor transfers his property to a non-resident (donee), and the resident donor fails to pay the Donations Tax, the non-resident (donee) and the resident (donor) will be jointly and severally liable for the tax. 
Donations between spouses are still exempt from Donations Tax, as are donations made to certain public benefit organisations.
 
References
The South African Revenue Services (SARS)
madeleyn.co.za/Blog
__________________________________________________________________________________________________
 
THE GENEROUS JANITOR
 
The name Ronald Read might not mean much to anyone, but it certainly means a lot to Vermont’s Brook Memorial Library and Brattleboro Memorial Hospital. These institutions received gifts from his estate in 2014 totalling $6 million.  He was not a titan of industry or big-name philanthropist, but a janitor and a gas station attendant. 
 
He died in June 2014 at the age of 92, with an estate valued near $8 million.
 
How did he do it?  Ronald graduated from high school (the first in his family to do so) but never from college.  He was a good stock picker and had the control to buy and hold stocks over a long period of time - a strategy billionaire Warren Buffet recommends.  He waited patiently, lived frugally, drove a second-hand Toyota Yaris, chopped his own firewood, parked far away to avoid parking meters.
 
He treated himself to coffee shop breakfasts, however.  He was disciplined about reaching his goals but still enjoyed life along the way.  Having the fitting surname of Read, he regularly read The Wall Street Journal, where he could learn of companies far and wide.  His attorney noted, “He only invested in what he knew and what paid dividends.”
 
Just goes to show that one doesn’t need fancy degrees to invest well.
 
Until next time!
The “Let’s Talk EFBOE Team
 


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