Articles

Probate and Estate Planning

Probate and Estate Planning

By Alfred Ip, Partner and Head of Private Client


Hong Kong laws do not recognize same sex marriages. Same sex couples in Hong Kong may not be entitled to marriage rights and benefits but those who plan ahead can still achieve much of the same ends through proper estate planning.

Issues that one should consider are not limited to the disposition of assets. For example, one should consider planning and directing post-mortem arrangements, accumulating and preserving wealth for future generations, ensuring the care of children and pets, benefiting chosen charities and protecting loved ones from annoying opportunists.

 

Control over One's Estate
A will empowers one to decide everything from who can inherit specific assets like heirlooms to who can care for one's beloved children and/or pets.

Without written directions in a formal will, assets will be distributed in accordance with the Intestate Estate Ordinance, which may not be the way that one wishes assets to be distributed. The intestacy rules can be complicated as they depend upon one’s place of residence as well as the nature of one’s assets.

 

Case
Ben Keating is a UK banker who came to Hong Kong twenty years ago. His only living relatives are his aging mother in the UK who lives in the same home that Ben grew up in and his brother. Ben’s mother gifted her residence to Ben and his brother ten years ago. Ben owns his residence in Hong Kong.

Jerry Wong is from Hong Kong.

Ben and Jerry met ten years ago and fell in love. Jerry moved in with Ben five years ago. Suppose Ben passed away tragically after a car accident, leaving no will.

In the UK, the spouse of a deceased person without children inherits the entire estate of the deceased person. In Hong Kong, the spouse of a married person without issue inherits the first HK$1 million, then the estate is split into half: the surviving spouse inherits one half and the deceased’s parents/siblings share the other half. Under these circumstances, can Jerry inherit Ben’s estate?

If Ben was domiciled in the UK, the UK intestacy rules would apply to all his personal and real property except for his Hong Kong property. Jerry could inherit all of Ben’s cash (personal property) but would not inherit Ben’s Hong Kong residence. As the closest living relative, Ben’s mother would inherit the property in Hong Kong. Jerry would co-own the UK residence along with Ben’s brother.

If Ben was domiciled in Hong Kong, the Hong Kong intestacy rules would apply to all his personal and real property except for his UK property. Jerry would co-own the UK residence along with Ben’s brother. Ben’s mother would inherit all of Ben’s cash and his Hong Kong property.

Suppose Ben adopted a son last year. Although Ben and Jerry co-parent the child and the three of them lived together as a loving family, Ben had to adopt the child as a single parent in Hong Kong.

Ben’s son is the only person entitled to Ben’s estate in the event of the latter’s death. Ben was the only legally recognized parent in Hong Kong and the child would officially become an orphan. Jerry would have no rights, even though he is the child’s loving father.

The above scenario illustrates just a few of the painful ramifications if one is in a same sex marriage and passes away without a will in Hong Kong.

 

Providing for a Life Partner
A will is important for those in same sex relationships, particularly if one partner is financially dependent upon the other partner. Unfortunately in Hong Kong, dying without a will leaves one's life partner/same sex spouse without any legal means to inherit one's assets.

Legal guardians can be appointed to care for children in the event of the death of one or both parents. Without such written directions, the care and control of one's children may be decided by the authorities. This is particularly important when the relationship with one's life partner is not recognized in law.

If children require special care (such as ongoing medical needs), it is advisable to appoint financial guardian(s) to ensure that one's wealth will be properly managed to maintain such special needs.

 

Supporting Good Causes
One should make provisions in one’s will to benefit favoured charities or causes, rather than leaving excess assets to be distributed in accordance with the rules of intestacy.

 

Overseas Assets
Families often have multi-jurisdictional assets in their portfolios. The administration of such assets is not always straight forward. Unforeseen issues may arise in administering assets overseas. With proper planning and execution, such complications can be minimized.

 

Opportunists
Affluence attracts opportunists in the form of service providers, distant relatives, friends and even not-so-distant relatives. With a formal written will, one can direct the disposition of one’s assets without opportunists preying upon mourning relatives and friends.

 

OLN estate planning
With extensive experience and a global network of lawyers, accountants and other professionals, OLN addresses clients' estate planning needs in a comprehensive way.

Scherzade Burden, Registered Foreign Lawyer (England and Wales)

If you are a UK domiciled person and own property up to £1m you will be delighted when George Osborne, Chancellor of the Exchequer, today announces that the nil rate band for IHT which has been frozen at £325,000 since 2009 is to go up significantly.

Today, if you are a single person, your estate will be taxed 40% on everything you own above the “nil rate band” which is currently set at £325,000. As a married person, the law permits double this allowance so only after £650,000 is tax triggered.

As a response to increasing property prices in the UK, the Chancellor is set to raise the nil rate band to £500,000 for individuals and £1m for married couples. 

Although the changes will not be effective until 6th April 2017, there is likely to be a significant impact on how you manage your wealth and estate planning matters. 

About OLN’s Estate Planning Practice:

The department, headed by partner, Alfred Ip, prides itself on giving bespoke advice to clients with cross-border challenges. As a result of the department’s numerous contentious matters we can assist to ensure that your estate planning does not fall prey to the pitfalls and risks inherent in our probate system in Hong Kong. 

OLN is a Hong Kong law firm with extensive experience in cross-border succession planning. If you would like to discuss any UK specific issues please contact Scherzade Burden.

Mutual Wills

Friday, 29 May 2015 12:21

By Alfred Ip, Partner

It is common for couples to leave everything to the spouse in their Wills, and to their children if the spouse predeceases them.  Their Wills will be like mirror images of each other, and thus they are commonly referred to as “Mirror Wills”.

However, Mirror Wills do not prevent the surviving spouse from subsequently changing their Will and leaving assets to other people, such as a new spouse. There is  therefore a risk that family assets may not go to their children.

Couples can agree with each other not to change their Will during their lifetime. If any beneficiary is disinherited or suffers financial loss due to any breach of such agreement, they can claim against the estate of the surviving spouse after he or she has passes away. Such Wills are called "Mutual Wills".

However, problems arise when the aggrieved beneficiaries wish to enforce their rights under the Mutual Wills:-

1.    Can they still find the Mutual Will that evidences such an agreement? They are often destroyed by the surviving spouse who revoked the same and breached the agreement.

2.    Can they claim their rights to family assets against a third party if those assets have been given away by the surviving spouse as inter vivos gifts?

3.    Can they set aside the new Will made in breach of such agreement?

4.    Is the whole estate of the surviving spouse subject to such an agreement?

5.    Would the surviving spouse’s remarriage revoke the Mutual Will?

6.    What are the rights of a new spouse towards the estate under the Mutual Will?

The above is not an exhaustive list of issues that may arise with Mutual Wills, but it is enough to demonstrate that making Mutual Wills is never a good idea. It often causes more trouble and confusion than providing protection. This defeats the primary reason for making a Will which is certainty.

Family legacies should be planned properly in order to hold the family together.  Talk to us if you wish to know more about how to avoid the above pitfalls.  

How To Make a Will in Hong Kong

Friday, 12 September 2014 18:26

By Scherzade Burden,Foreign Qualified Lawyer

Making a Will in Hong Kong

Time to face the music and make a Will


Issue I
Let’s be honest, no one really wants to have to make a Will because it has everything to do with those two certainties in life we all wish to avoid: death and taxes.
But, any prudent or commercially savvy person will realise that it is better to make a Will and contemplate their mortality, than not make one.

Once you face the fact it’s time to make a Will, you’re then faced with the challenge of choosing a service provider. You can actually do this yourself of course, but there are good reasons why you may need a professional’s assistance.

How to Make a Will

Will writing is an anomaly in that it is a legal document which can be drafted by an unqualified person. The Legal Practitioners’ Ordinance (LPO) defines an “unqualified person” as “a person who is not a solicitor”. Section 47 of the LPO also says that whilst an unqualified person must not prepare certain documents, one of the exempted documents is a Will.

So in other words anyone can write a Will and provided it is properly executed, should be legally binding.

However, there are many pitfalls involved in Will writing because it should form only part of your Estate Planning, which may include taking advice on tax issues and financial planning. There may be jurisdictional issues you are not aware, particularly if you are an expat in Hong Kong.

The bottom line is this: unless someone in Hong Kong is a Solicitor qualified in this jurisdiction, then they cannot give legal advice on matters of Hong Kong law. This means that should there be complications in relation to your Estate Planning, and you unwittingly make a Will without seeking advice, this may result in an adverse situation for those who are carrying out the Administration of your Estate and for those who are supposed to benefit from your Estate.

Take for example the case of a man, married with dependent children. His wife, unwittingly, does not realise the man has disinherited her in his Will for whatever reason and just wanted to ensure that his estate after he passed away benefitted his children. The wife does not work and has not worked for the past 15 years as she has been bringing up the children of the marriage.

This man did not take legal advice in relation to the writing of his Will in which he disinherited his wife.

There is a great risk of litigation in such a situation, as the wife, assuming there is no life insurance policy of which she is the beneficiary, will now have no income as her financial support has died. How will she pay for the rent, the bills, how will she feed and clothe herself?

Naturally, there must be a remedy for the wife in this situation, which is found under the Inheritance (Provision for Family and Dependents) Ordinance in section 3(1). This explains that the wife of the deceased may make an application to the Court for an order on the ground that “the disposition of the deceased’s estate effected by his will… is not such as to make reasonable financial provision for the applicant”.

Had this man taken some basic legal advice, he could have ensured that his beneficiaries did not have to become subject to litigation, an often costly and protracted process.
The above is only one of the many examples but these will follow in subsequent issues.

To conclude this first issue, you can instruct any professional to write your Will but bear in mind that they won’t be able to give you legal advice as such.
The Private Client department at OLN can provide a bespoke service to you if that is what you are after, or, if you just need a quick holdover Will or something very basic as it is the first time you’re addressing the issue, we can do that too.

We always offer a complimentary first meeting on how to make a Will so contact one of the team if you’d like to discuss further.

OLN Estate Planning Team

Alfred Ip

Scherzade Burden

Testamentary Freedom — Is it absolute?

Friday, 12 September 2014 17:59

By Alfred Ip, Partner

Knowing that you are excluded from your spouse’s or parent’s will can be most traumatic, especially when there was a good relationship when he was alive and you were still in grief for his death.

Unlike some European countries, there are no forced heirship rules in Hong Kong. Theoretically, anyone can make a Will leaving his estate to whomsoever he wishes, even to someone unrelated or to a charitable cause. However, those who are disinherited would, naturally, not be very pleased, and may want to go to a lawyer in order to see whether they can do something about it.

To challenge the Will is often the first option to consider, but it may not be easy, especially when the Will is prepared and attested by solicitors.

When a Will is challenged on the mental capacity of the testator, Bank v Goodfellow, a case determined in the 19th century, still provides very good guidance:

‘It is essential to the exercise of such a power that a testator shall understand the nature of the act and its effects; shall understand the extent of the property of which he is disposing; shall be able to comprehend and appreciate the claims to which he ought to give effect; and, with a view to the latter object, that no disorder of the mind shall poison his affections, pervert his sense of right, or prevent the exercise of his natural faculties – that no insane delusion shall influence his will in disposing of his property and bring about a disposal of it which, if the mind had been sound, would not have been made.’

Otherwise, a will can be contested on the ground of fraud or undue influence on the testator, but such person bears the persuasive burden of establishing such fraud or undue influence: NINA KUNG v. WANG DIN SHIN [2005] HKCFA 54, and that person usually has little knowledge about the circumstances surrounding which the Will was made.

An alternative to challenging the Will is to claim under the Inheritance (Provision for Family and Dependents) Ordinance (Cap. 481) (“IPFDO”).

Under IPFDO, the following persons are eligible to claim:-

(i) the wife or husband of the deceased;
(ii) a former wife or former husband of the deceased who has not remarried and was being maintained, either wholly or substantially, by the deceased immediately before his death;
(iii) a tsip or male partner of the deceased by a union of concubinage;
(iv) a parent of the deceased who immediately before the death of the deceased was being maintained, either wholly or substantially, by the deceased;
(v) an infant child of the deceased, or a child of the deceased who is, by reason of some mental or physical disability, incapable of maintaining himself;
(vi) an adult child of the deceased who immediately before the death of the deceased was being
maintained, either wholly or substantially, by the deceased;
(vii) any person (not being a child of the deceased) who, in the case of any marriage to which the deceased was at any time a party, was treated by the deceased as a child of the family in relation to that marriage and was being maintained, either wholly or substantially, by the deceased immediately before his death;
(viii) a brother or sister of the half blood or the whole blood of the deceased who immediately before the death of the deceased was being maintained, either wholly or substantially, by the deceased;
(ix) any person (not being a person included in the foregoing paragraphs of this subsection) who
immediately before the death of the deceased was being maintained, either wholly or substantially, by the deceased,

In other words, the scope of eligible persons under IPFDO is very wide.

Those eligible to claim under IPFDO can seek “reasonable financial provision”, which is further defined in s3(2) of IPFDO:

(a) in the case of any application made-
(i) by virtue of subsection (1)(i) by the husband or wife of the deceased (except where the marriage with the deceased was the subject of a decree of judicial separation and at the date of death the decree was in force and the separation was continuing); or
(ii) by virtue of subsection (1)(iii) by a tsip or male partner of the deceased by a union of
concubinage, means such financial provision as it would be reasonable in all the circumstances of the case for such a person to receive, whether or not that provision is required for his or her maintenance;
(b) in the case of any other application made by virtue of subsection (1), means such financial provision as it would be reasonable in all the circumstances of the case for the applicant to receive for his maintenance.


There are indeed two different standards of provision, which the spouse of the deceased (legal marriage or union of concubinage) can claim such provision as in reasonable in ALL circumstances whether or not that provision is required for his or her maintenance, higher than the other classes of claimants which are only entitled to such provision as is necessary for his or her maintenance.

In other words, the court would likely to apply a “deemed divorce test” in assessing a claim by surviving spouse under IPFDO.

Unless leave is obtained from Court, claim under the IPFDO must be made within 6 months of the grant of probate or letters of administration.

Conclusion

The above is just an overview on the claims that may be available to you if you are being shut out from the will of your deceased family member. The above claims involve complex legal proceedings with specific rules and procedures that only a lawyer specialised in probate and estate planning can protect your interest adequately. Legal advice should be sought without delay.

OLN Estate Planning Team

Alfred Ip

Scherzade Burden

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