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HPASA newsletter. |
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June 2012
DID YOU
KNOW? DEATH AND TAXES PITFALLS
By Jan
Eberhard Schliemann, Schliemann
Incorporated |
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Estate duty/death taxes and estate planning
is a wide and very intricate field of law.
Thus we will try and focus on certain aspects
and issues that may be of interest especially
to readers who may have assets both within
South Africa and outside South Africa.
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Did You Know?
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| a) |
There is no “double
tax” agreement (to prevent the
taxation of the same income/asset
in more than one jurisdiction) between
South Africa and other countries of
relevance? |
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| i. |
This means that
excepting for certain exclusions
the same asset would be taxed
under South African revenue
laws (estate duty) as well as
the taxes of another country
of which the deceased may be
a citizen of. |
| ii. |
For instance, under German
Law it does not depend on the
tax domicile of the deceased,
estate duty is attracted on
each German citizen, regardless
where the assets are situate
and irrespective of the deceased’s
tax residence. |
| iii. |
The only benefit is that credit
is given in Germany on estate
duty paid in South Africa on
immovable property. In other
words, cash, investments, shares/members’
interests and loan accounts
will be taxed in both South
Africa and Germany! |
| iv. |
This aspect must certainly
be taken into account for estate
planning purposes of those who
already have a company or close
corporation in which they have
shares or loan accounts. |
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| b) |
Formalities of wills
differ from jurisdiction to jurisdiction/country
to country, with common law countries
having similarity, however countries
with codified laws (i.e. most continental
European countries) have vastly different
formalities? |
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| i. |
For instance,
under South African Law a will
would have to be in writing,
signed on each page and witnessed
by two independent witnesses
on each page. Under German Law,
the will has to be both notarially
drawn and deposited with a Court
in Germany, or it must be drawn
up in handwriting by the testator
(completely holographic) and
signed at the end. There is
no requirement for witnesses
or initialling each page. |
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| c) |
In other countries
(unlike most common law countries)
it is the heir or beneficiary that
is taxed and not the estate? |
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| i. |
For instance,
under German Law there are three
different classes of beneficiaries,
with each class having a limited
exemption. These classes depend
on degrees of sanguinity, the
class with the least favourable
exemption being class 3 (relating
to unrelated parties). |
| ii. |
The reason why we point this
out is that those who may have
trusts, as are commonly used
and known under common law countries,
need to bear in mind that continental
European countries do not necessarily
recognise trusts as a juristic
person (a separately and distinctly
held entity) and the corporate
veil is then pierced (the applicable
Revenue Services will then tax
the end beneficiary personally
in such a trust, and the bad
news is that the class 3 (least
favourable exemption category)
would be applied by the German
Revenue Services. |
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| d) |
South African Estate
Duty is not calculated on overseas
assets that originated from funds
(either inherited or otherwise) from
outside of South Africa? |
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| i. |
In other words
the South African domiciled/tax
resident estate would not pay
South African estate duty on
such assets. |
| ii. |
Typically in such a scenario
the assets held by an immigrant
to South Africa who did not
bring any assets to South Africa,
even though such immigrant may
have become a South African
tax resident for income tax
purposes, are exempt from South
African estate duty. |
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| e) |
Unlike under common
law, where Powers of Attorney cease
on the death of the person giving
the Power of Attorney, under most
continental European laws the Power
of Attorney survives death unless
it conflicts with the provisions of
the will? |
Conclusion
There are obviously many other points
and issues that stand out, however,
we trust that the example discussed
will alert you to take serious notice
of the importance of a well considered
will and the implications for those
that have assets in different parts
of the world. |
This is certainly not an all-inclusive summary,
we simply intend to highlight aspects in
order that readers take note of certain
potential pitfalls and have their estate
planning professionally attended to.
Legal notice: This
notice covers a technical field of law that
requires specific expertise. This article
is for informative journalism purposes only
and does not constitute legal advice. |
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Contact
Jan Schliemann | Schliemann
Incorporated
E-mail: jan@schliemann.co.za
| Office: +27 (0) 21 852 7511 |
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