Losing a loved one is difficult enough, but when that loss results in an inheritance from another country, it can also bring unexpected legal, financial and administrative hurdles.
For South Africans inheriting money from abroad, understanding the three key steps involved – settling the foreign estate, transferring the funds home and possibly using the money to invest in property – can avoid costly delays and unnecessary complications.
Step one: settle the foreign estate
Before any inheritance can be paid out, the estate must be wound up according to the laws of the country where the assets are held. An executor appointed in SA has no automatic authority across borders. Separate legal processes must be followed in the relevant jurisdiction. In the UK, this is known as a grant of probate; in the US, it varies by state; in Portugal and other civil law countries, the process follows a different framework again.
The timeline for this process also varies. A straightforward case in the UK could conclude in three to six months, while in more complex situations where there are contested wills or significant property holdings, it could take a year or longer.
During this period, the beneficiary has no access to funds and, often, limited visibility into progress. The practical implication is that a South African beneficiary may know they are due to receive an inheritance for the better part of a year before anything arrives.
Step two: Bring the funds into SA
Once the foreign estate has been finalised and funds released to the beneficiary, the second process begins: bringing that money into South Africa in a manner that satisfies both the South African Revenue Service and the South African Reserve Bank’s exchange control requirements.
Fortunately, inherited money brought into South Africa is not subject to income tax or donations tax as it is not viewed as conventional income. An inheritance is not income in the conventional sense, and SARS does not treat it as such. However, a beneficiary must be able to produce a copy of the final liquidation and distribution account from the foreign estate, a translated copy of the will (if it is not in English), and they are required to disclose the inheritance on their next annual tax return. These documents also serve as proof of the source of the funds for future financial transactions.
Many beneficiaries also underestimate the currency conversion implications.
The part that catches most beneficiaries off guard is that inheriting foreign money and receiving it in rands are two separate events, says Harry Sherzer, CEO of Future Forex. “The estate process determines when the funds become available, but the exchange rate on the day you convert determines what you actually walk away with.” Exchange rate movements can have a financial impact.
“The best thing you can do is have your compliance documentation ready – the death certificate, the will, the executor’s letter, the final distribution account – and a forex specialist engaged before the estate finalises, so that when the funds are released you can move immediately rather than losing ground while you gather paperwork.”
He recommends appointing a forex specialist as soon as you know you are a beneficiary, and not when the funds are released. “On an inheritance of £200,000, a 5% move in the pound-rand rate can shift the outcome by R250,000 or more – and the beneficiary almost never controls the timing,” he adds.
Step three: Using foreign inheritance to buy a home
For many South African beneficiaries, a foreign inheritance represents a once-in-a-generation opportunity to enter the property market, move up the property ladder or significantly reduce an existing home loan. But the third process – a bond application – introduces its own documentation requirements, and foreign-sourced funds add a layer of complexity.
Banks are required to verify the source of any funds used as a deposit. For locally-sourced deposits derived from savings, a policy payout or the proceeds of a sale, this is usually via bank statements. However, with foreign-sourced funds, under South Africa’s regulatory requirements, lenders must be able to trace the funds from the foreign estate to the applicant’s local bank account.
Fortunately, the same documents used during the first step generally satisfies these requirements.
The credit assessor can use the will, the executor’s letter, the final liquidation and distribution account and proof of the international transfer to confirm the source of funds.
“The good news for beneficiaries is that an inheritance can be one of the simplest deposit sources to work with, provided the paperwork is in order.” says Bradd Bendall, National Head of Sales at BetterBond.
“Once the funds have landed in South Africa, using them towards a home loan is really about being able to show the bank a clear paper trail – the same documents that got the money into the country compliantly (the will, the executor’s letter, the final distribution account, proof of the transfer) are what a credit assessor wants to see to confirm the source of funds.”
“Our advice is to start the bond pre-approval conversation early, even while the estate is still being finalised. That way, by the time the inheritance lands, you’re not starting from scratch – you already know your affordability, your price range and what additional documents the bank will need, which means the funds can go towards securing a home as soon as they’re available rather than sitting while the application catches up.”
Starting the pre-approval process early can also reduce delays. Property transfers, bond approvals and credit assessments all take time and buyers who prepare while waiting for the estate to be finalised are often able to move much faster once the funds become available.
Connected picture
Although inheriting money from overseas may seem like a single event, it requires a process involving several interconnected stages.
The foreign estate determines when the funds are released, exchange rate management influences how much the inheritance is ultimately worth in rand, and preparation and complete documentation makes it easier to use the money towards a home purchase.
By understanding these steps in advance and working with the right professionals – the foreign exchange executor, the forex specialist and the bond originator – at each stage, beneficiaries can avoid unnecessary delays, protect the value of their inheritance and be ready to put it to work as soon as it reaches South Africa.