One of the most important choices you can make to secure your legacy is who you appoint as the executor of your estate. This has always been a complex and sensitive decision, but the nuances have become even more intricate for families where many of the beneficiaries of the will reside (or intend residing) in different countries.
The executor is the firm/person who is in charge of winding up your estate after you have passed away. This is a complex administrative role that involves protecting the assets of the estate, settling its debts, paying income tax, capital gains tax and estate duty, and distributing the assets to the beneficiaries according to your final will and testament.
Among other things, the executor bears ultimate responsibility for interacting with the Master’s Office, drawing up the liquidation and distribution account, and filing all relevant submissions to SARS. The technical and legalistic nature of these tasks means that few “laypeople” can or would want to fulfil the role of executor without the support of tax and legal specialists.
This is why many people choose to appoint their banks, accountants, law firms and other companies, who may even offer to draft their wills at no charge. However, the downside of appointing one of these service providers as your executor is that they will typically charge 3.5% plus VAT of the value of your estate to render the service, as this is the legislated maximum fee. For their troubles, they will thus earn R1m on an estate of R25 million and R4 million on a R100 million estate!
Protecting your offshore assets
This is not the only downside for a family with internationalised assets and heirs that are scattered around the world. We find that it is common practice among many of these service providers to request the liquidation of funds invested offshore and to instruct the proceeds to be paid into the estate’s South African bank account. This, is of course, counterproductive in many ways and completely against the wishes of the deceased.
The funds could languish in a bank account for years while the estate is wound up, vulnerable to any deterioration in the value of the rand whilst also losing out on growth opportunities. The heirs will need to apply for permission to remit the funds offshore again, incurring an additional administration burden as well as unnecessary forex conversion charges.
Wrappers are often seen as solving this problem, but can be problematic if the beneficiaries are tax resident offshore, since each country wants its share of the future tax pie, implying that the proceeds will incur an extra layer of tax in addition to it being taxed at source. This may well lead to a decision to liquidate the wrapper.
Trusted family member as executor and selecting an independent administrator
We believe that many families will find it more productive to appoint at least one trusted family member as an executor. It is important to bear in mind that although your executors have the ultimate responsibility for carrying out the administration of your estate, they don’t need to undertake all the associated tasks by themselves.
The executor will have the freedom to appoint an administrator as well as other tax, legal and financial, professionals to execute the work. Your trusted family member, who has a strong interest in ensuring that your will is carried out in a timely and cost-efficient manner, will have the ultimate control over how the administrative tasks are performed to best serve the heirs’ interests.
At Dynasty, we have served as joint executors together with a trusted family member for several of our clients’ estates, this being a service for which we do not levy any fee. We would generally assist in appointing an independent administrator to handle matters such as interactions with SARS and the Master’s Office. Typically, these firms would charge a flat fee of between R100,000 and R150,000 for an estate of R25 million, and around R300,000 for an estate of R100 million, thereby representing a saving of up to 90% of the prescribed tariff!
We also have an extensive network of local and international specialists we can consult with on more complex estates that span several tax and legal jurisdictions. This multidisciplinary approach gives clients the flexibility of, for example, ensuring that assets held offshore are retained offshore and distributed to foreign or local heirs in specie, and that local assets are used as a first port of call to cover SA taxes and expenses, with any residual assets then distributed to those beneficiaries living in South Africa. It is a far less onerous exercise for these local beneficiaries to then externalise their inheritances, should they so wish.
In summary, when planning your legacy, there are many factors to consider. We are available to offer our guidance in drafting your will, optimally structuring your portfolio, navigating the complexities of planning your estate, and connecting you with our preferred service partners, so that you can be assured that your family’s interests will be protected, no matter what future complexity brings.
