Picture: 123RF/RAWPIXEL
Picture: 123RF/RAWPIXEL

Increasingly, South African families are dispersed all over the world. When a family member dies in SA and the heirs are all offshore, there are some complexities you may need to navigate.

Consider this scenario. Mr A dies. He has a life insurance policy in SA. He has three children, all living abroad, who are the beneficiaries of the policy. What happens to the proceeds of the life policy?

In the Reserve Bank forex manual, the following is written with regard to death benefits and heirs living offshore:

"Death benefits - proceeds from registered South African pension and provident schemes as well as insurance policies (annuity, endowment and life) due to non-residents, including emigrants, who are nominated beneficiaries upon the demise of the policy holder - may be transferred abroad on presentation of a death certificate as well as documentary evidence from the institution concerned reflecting the full names of the beneficiary and the amount due to the beneficiary.

"Where the beneficiary is an emigrant, it is incumbent upon authorised dealers to ensure that the emigrant has been formally designated as a non-resident before effecting transfers in terms of the aforegoing.

"Where no such record can be established, the matter must be referred to the Financial Surveillance Department."

If the beneficiaries of your policy have not emigrated officially through the Reserve Bank, which is the case for the great majority of South Africans living overseas, it will not be possible to pay the proceeds of the policy into an offshore account.

Instead, it will have to be paid into a local South African bank account. Your beneficiaries will then only be able to draw the money out of the country in terms of the annual R1m single discretionary allowance as long as they qualify for this - that is, they have a South African tax number, a bar-coded South African ID or new ID card, and a local bank account.

The same will apply to the South African estate in general - your heirs will not be allowed to take the proceeds offshore unless they have formally emigrated. If they have not formally emigrated, they will be restricted to the R1m single discretionary allowance assuming they have the correct documents.

They might also qualify for the R10m tax clearance if they have a tax number and all the documents, but it is not clear how that would work in practice, especially if they are no longer a tax resident or no longer have a tax number. You should seek specialist advice as the position is not clear.

Part solution

If your beneficiaries are living offshore, and you want them to benefit from the proceeds of a life policy, you need to check whether they have formally emigrated. If not, you should consider a foreign life policy, issued outside SA but through a South African insurer.

That would then not be restricted by forex laws from paying them directly. You should also consider an offshore endowment policy, also issued through a South African insurer, as that can be paid directly to a nominated beneficiary anywhere in the world on your death.

You should also seek specialist estate planning advice about the distribution of your local estate. Note that before your heirs decide to emigrate formally, they should also seek specialist advice, as emigration has tax consequences.

It is important to realise that if your heirs are living offshore, but have not formally emigrated, there will be restrictions on the payout of your local life policy and local estate offshore.

You should then consider foreign life and endowment policies, issued through a South African insurer. You should also seek specialist estate planning advice in respect of the planning of the winding up of your local estate.

• Joffe is head of legal services at Discovery Life