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Estate planning

What to do if there is issue regarding Testamentary Capacity?

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BACKGROUND

In our last article, ENSURING TESTAMENTARY CAPACITY FOR AGED AND INFIRM TESTATORS, we have discussed the importance of ensuring testamentary capacity for aged and infirm testators in the will-making process. The next issue then becomes: if we consider that there is issue regarding testamentary capacity, what should we do?

WHAT TO DO IF THERE IS ISSUE REGARDING TESTAMENTARY CAPACITY?

If your solicitor has concerns or doubts about your testamentary capacity, it is always advisable to instruct a medical practitioner to assess testamentary capacity. Whilst it is not necessary for the doctor tasked to be a specialist doctor with experience in diagnosing or treating of mental disorder or mental handicap or to be an Approved Doctor under s. 2(2) of the Mental Health Ordinance (Cap. 136), nevertheless, engaging a mental health expert, especially a psychiatrist, is always preferred and advised.

Usually, the psychiatrist will consider:[1]

1. Understand

Whether you are able to understand the information relevant to decision concerned:

  • Nature and purpose of the will
  • Risks and benefits of executing the will
  • Risks of not signing the will
  • Alternative and their risks and benefits

2. Retain

Whether you are able to retain the information long enough to make an effective decision;

3. Believe

Whether you are able to believe the information and to apply information realistically to own situation;

4. Weigh

Whether you are able to weigh the information in the balance to arrive at a choice – i.e. making a decision based on all the relevant factors (risks, benefits, short term outcomes, and long-term outcomes)

5. Express

Whether you are able to express the choice, through verbal or non-verbal means

If the psychiatrist considers there is testamentary capacity on the testator’s part, it is advisable to adhere to the “Golden Rule”, i.e. to have the psychiatrist to serve as a witness to your will.

HOW CAN OLN ASSIST?

At OLN, we provide initial consultation service regarding wills drafting. Our solicitors are experienced in assessing if the testator has the requisite testamentary capacity. In case of any issue, OLN can arrange mental health specialist doctor to assist in conducting an assessment for client to ascertain his/her testamentary capacity. If you have any questions on the above, please contact our Partner Mr Jonathan Lam or our Associate Mr Dexter Yuen.

[1] Dr. Gabriel B K Hung, “Framework for clinical assessment of mental capacity in older adults” (The Hong Kong Mortgage Corporation Limited, presentation material for HKMC Seminar dated 28th July 2013), available at https://www.hkmc.com.hk/files/page/82/2.%20Framework%20for%20clinical%
20assessment%20of%20mental%20capacity%20in%20older%20adults%20%20Dr.%20Gabriel%20Hung.pdf accessed at 3rd January 2025.


Disclaimer: This article is for reference only. Nothing herein shall be construed as Hong Kong legal advice or any legal advice for that matter to any person. Oldham, Li & Nie shall not be held liable for any loss and/or damage incurred by any person acting as a result of the materials contained in this article.

Ensuring Testamentary Capacity for Aged and Infirm Testators

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BACKGROUND

Population ageing has become a challenge to most metropolitans in the world. Similar to other developed economies such as the United Kingdom and Japan, Hong Kong is also facing a serious problem of aging population. The phenomenon of population ageing is expected to continue, with the median age of Hong Kong’s population estimated to reach 55.5 in 2046[1]. 

As a result, many people have become more open-minded about the discussion of those end-of-life issues, including will preparation and estate planning.

That said, before you rush to instruct solicitor to prepare a will, you must understand that you can only make a valid will when you have testamentary capacity.

But what does it mean to have testamentary capacity? How far does the assessment exercise go?

TEST ON TESTAMENTARY CAPACITY

The principles set out in the UK landmark authority of Banks v Goodfellow[2] remains the standard for determining testamentary capacity in Hong Kong. When being assessed on testamentary capacity, as a testator you must:

  • understand the nature of the act of making the Will and its effects;
  • understand the extent of the property being disposed of
  • comprehend and appreciate the claims to which you ought to give effect.

In Re Estate of Au Kong Tim (Wills: Validity),[3] the Court of Appeal of Hong Kong emphasised the importance of solicitors following this three-limb test, as well as referring to the checklist in the “Assessment of Mental Capacity: A Practical Guide for Doctors and Lawyers” (the “Checklist”) for assessing testamentary capacity.

THE CHECKLIST

According to the Checklist, the three-limb test is particularised as follows:

1. Understand the nature of the act of making the Will and its effects:

You should understand:

  • you will die
  • your Will shall come into operation on your death, but not before
  • you can change or revoke the Will at any time before your death, provided you have the capacity to do so

2. Understand the extent of the property being disposed of:

You should understand and make choices:

  • who should be appointed as executor(s) (and perhaps why they should be appointed)
  • who gets what under the Will
  • whether a beneficiary’s gift is outright or conditional (for example, where the beneficiary is only entitled to the income from a lump sum during his or her lifetime, or is allowed to occupy residential property for the rest of the beneficiary’s life)
  • that if you spend your money or give away or sell your property during your lifetime, the beneficiaries might lose out
  • that a beneficiary might die before you
  • whether you have already made a Will and, if so, how and why the new Will differs from the old one

3. Comprehend and appreciate the claims to which the testator ought to give effect:

Crucially, the judge in Banks v Goodfellow used the word extent, rather than value. There could also be practical difficulties when investments are managed by somebody else, and there are no recent statements or valuations.

In these cases, a reasonableness test should be applied by your solicitors to any estimate you give about the extent of your wealth.

You should understand:

  • the extent of all the properties owned solely by you
  • the fact that certain types of jointly owned properties might automatically pass to the other joint owner, regardless of anything that is said in the will
  • whether there are benefits payable on your death which might be unaffected by the terms of their will (insurance policies, pension rights, etc)
  • that the extent of your properties could change during their lifetime

4. Potential claim of others:

You should be able to comprehend and appreciate the claims to which you ought to give effect. As a testator, you have the right to ignore these claims, despite being up to the extent of being prejudiced or capricious. You must be able to give reasons for preferring some beneficiaries and, perhaps, excluding others. For example possible beneficiaries:

  • may already have received adequate provision from you
  • may be financially better off than others
  • may have been more attentive or caring than others
  • may be in greater need of assistance because of their age, or physical or mental disabilities

HOW CAN OLN ASSIST?

At OLN, we provide initial consultation service regarding wills drafting, as well as advisory work regarding testamentary capacity. Our solicitors are experienced in assessing if the testator has the requisite testamentary capacity. In case of any issue, OLN can arrange mental health specialist doctor to assist in conducting an assessment for client to ascertain his/her testamentary capacity. If you have any questions on the above, please contact our Partner Mr Jonathan Lam or our Associate Mr Dexter Yuen.

[1] Yiu, William and Ng, Kang-Chung, “Hong Kong going grey faster than expected, sparking fears over healthcare, calls for new retirement policies” (South China Morning Post, 17 August 2023), available at https://www.scmp.com/news/hong-kong/society/article/3231335/hong-kong-going-grey-faster-expected-sparking-fears-over-healthcare-calls-new-retirement-policies, accessed on 8 January 2025.

[2] (1870) LR 5 QB 549.

[3] [2018] 2 HKLRD 864.

Disclaimer: This article is for reference only. Nothing herein shall be construed as Hong Kong legal advice or any legal advice for that matter to any person. Oldham, Li & Nie shall not be held liable for any loss and/or damage incurred by any person acting as a result of the materials contained in this article.

Breaking the Hell’s Gate and the Importance of Funeral Arrangement Clauses

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INTRODUCTION

The local blockbuster movie “the Last Dance” has become a cultural phenomenon in Hong Kong. The movie explores the traditional Taoist practice of “Breaking the Hell’s Gate” through a couple of connected stories and addresses the topic of deathcare in a thematic and touching manner, thereby sparking awareness and discussion about end-of-life planning.

This article aims to discuss how one can ensure one’s wishes regarding funeral arrangements be respected, i.e. the specific ceremonies to be performed, the location and type of the service, and burial or cremation.

PRACTICAL STEPS

  1. CONSULTING FUNERAL DIRECTOR OR RELIGIOUS LEADER
    If you have a particular preference regarding your funeral arrangement, you should first consult a funeral director or religious leader to ensure the eligibility and availability of your wishes. This can be particularly important if you desire a ceremony that reflects your faith, as different faiths and religious believes may have different requirements or formalities regarding holding a funeral arrangement in accordance with that religious practice and tradition.

    Further, regarding burial or cremation, it must be noted that with a growing and ageing population in Hong Kong, there is a greater demand for such facilities in Hong Kong[1]. It is advisable to consider the costs and availability of these facilities and plan ahead during your lifetime in securing them.

  2. COMMUNICATING YOUR WISH WITH YOUR FAMILY MEMBERS
    Once you have made up your mind regarding your funeral arrangement, you should also communicate your wishes with your family members. This is to ensure that your family members understand your preferences. It also provides an opportunity for them to ask questions or to clarify with you in case of any ambiguity.

  3. CONSULTING A LAWYER AND DRAFTING FUNERAL ARRANGEMENTS CLAUSE
    After you have been confirmed your preference regarding funeral arrangement and practice can be catered for, you should then consult a solicitor to draft a specific funeral arrangement clause in order to express your funeral wishes.  Clarity is key so that your executor of your Will can honour your wishes.

LIMITATION REGARDING ENFORCEABILITY OF WILL DISPOSITION

Even though you have already followed the above practical steps, you should note that there is a limitation under the law in Hong Kong, namely that there is no property in a dead body, and that a will disposition regarding disposal of a dead body cannot be legally enforced.

In Re Estate of Lu Han Lung [2010] 3 HKLRD 651, the principles surrounding property in dead body, enforceability of will disposition and funeral arrangement are laid down by the Court as follows:-

  1. There is no property in a corpse;
  2. A man cannot by will dispose of his dead body, and any direction by will or otherwise by the deceased on burial cannot be enforced;
  3. As a starting position, the executor named in a will or the known personal representative (if the deceased passed away without leaving a will) is entitled to the possession of the body and is responsible for its burial;
  4. The right of the surviving spouse or de facto spouse will also generally be preferred to the right of the children;
  5. However, such starting position can be displaced where there are special circumstances;
  6. A person with the privilege of choosing how to bury a body is expected to consult with other stakeholders, but is not legally bound to do so; and
  7. The person with the privilege of organizing the funeral and burial cannot exclude friends and relatives of the deceased from expressing their affection for the deceased in a reasonable and appropriate manner.

It is therefore important for the testator to appreciate and understand that even though he/she can include funeral arrangement clause, such clause is not legally enforceable. However, having funeral wishes documented can serve as guidance and help prevent family disputes.

HOW CAN OLN ASSIST?

At OLN, we provide initial consultation service regarding wills drafting. Our solicitors are experienced in drafting will clauses that could cater one’s wishes and instructions regarding funeral arrangement. If you have any questions on the above, please contact our partner Mr Jonathan Lam or our Associate Mr Dexter Yuen.

[1] “LCQ18: Supply of niches” (Press Releases, 4th May 2022), available at https://www.info.gov.hk/gia/general/202205/04/P2022050400446.htm, accessed at 2nd January 2025.

Disclaimer: This article is for reference only. Nothing herein shall be construed as Hong Kong legal advice or any legal advice for that matter to any person. Oldham, Li & Nie shall not be held liable for any loss and/or damage incurred by any person acting as a result of the materials contained in this article.

Trusts for Pets

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Love for our four-legged friends

Our most precious family and friends in later years may be of the four-legged variety and we may worry about how to provide for them after we have departed. 

It was reported by the South China Morning Post in January 2024 that a woman in China left her US$ 2.8 million estate to her beloved cats and dogs. She did have children but they never visited her and her pets were her only comfort when she was aged and ill. Her will stipulated that her entire estate was to be used to care for her pets and their offspring. The local vet clinic was apparently appointed to administrate her estate.

How does one provide for one’s pets in the event of one’s inevitable passing? The simplest way is to discuss the issue with trusted family members or friends and agree verbally that the pets will one day be adopted by a trusted family member or friend. A more formal appointment can be drafted in a will and even include a fixed amount or a regular stipend, to be distributed by the executor of the will to the pet guardian. A lump sum bequest would suffice for a trustworthy pet guardian. On the other hand, a regular stipend, coupled with specific conditions, can incentivise pet guardians to diligently fulfil their responsibilities and ensure that essential health checks are conducted on the pets in their care.

The widow of Gene Roddenberry (creator of Star Trek) passed in 2009 at the age of 76 and purportedly left a US$ 4 million trust to benefit her faithful dogs plus US$ 1 million for a helper to care for them on her estate, for as long as the four-legged beneficiaries lived. In more complex cases, it may be prudent to set up a trust if an estate is particularly large or if the testator wishes to provide for their pets’ offspring i.e., a multigenerational legacy. Depending upon the jurisdiction, there may be tax benefits associated with a trust. A further advantage of setting up a trust is that one can specify how the trust funds are to be used and managed and include provisions for checks and balances. For example, there could be three separate parties in care arrangements – the actual caregiver(s), the entity/person disbursing funds and the entity/person overseeing the arrangements. If a certain property is designated for the exclusive use of said beneficiaries during their lifetime, provisions should be made regarding its eventual sale, including when the property should be sold and how the proceeds should be distributed.

Conclusion

Providing for our precious pets in the event of our passing requires some planning and careful consideration. While a simple verbal agreement or a simple will may be sufficient for some testators, a trust can offer a more comprehensive solution for larger estates or those who wish to provide for their pets’ descendants. By taking the time to plan for our pets’ futures, we can ensure that they receive the care and comfort they deserve in their older years.

Disclaimer: This article is for reference only. Nothing herein shall be construed as Hong Kong legal advice or any legal advice for that matter to any person. Oldham, Li & Nie shall not be held liable for any loss and/or damage incurred by any person acting as a result of the materials contained in this article.

On Death and Taxes Around the World

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“Nothing can be said as certain except death and taxes” is the phrase attributed to Benjamin Franklin, US Founding Father and polymath. To avoid adding insult to injury, we would recommend trying to avoid taxes after death.

The US Treasury reported on 28 February 2023 that an amount of US$7 billion for “estate and gift taxes” was collected on that day, the highest amount collected since at least 2005. Privacy rules prohibited the disclosure of further details but speculation was rife about the identity of the person(s) who may have had to make this payment, either as a deposit as part of advance estate planning (to avoid having to pay an even higher amount in the future) or a delayed payment by a late billionaire, possibly due to an enforcement action.

Hong Kong abolished estate duty on 11 February 2006. Thereafter, no estate duty affidavits and accounts have been required and no estate duty clearance papers have been needed for the application for a grant of representation in respect of deaths in Hong Kong.

However, in the United Kingdom, inheritance tax (IHT) is still applicable. IHT is charged at 40% on the value of an estate above the nil-rate band, which is currently set at £325,000 per person. Any unused nil-rate band can be transferred to a surviving spouse or civil partner, effectively giving one person a £650,000 nil-rate band. There are various useful exemptions and reliefs available to reduce the IHT liability. For example, if everything is bequeathed to a surviving spouse or civil partner, a charity or a community amateur sports club, then IHT would not be payable.

For citizens and residents of the United States, the federal estate tax exemption for 2023 is US$12.92 million per individual (US$25.84 million per married couple). The highest federal estate tax rate is 40%. Many US states also impose their own estate or inheritance taxes, with exemption levels and rates at varying rates. There are no state estate taxes payable in 33 of the 50 statues, such as Alabama, Alaska, Arizona, Arkansas, California, Colorado, Delaware or Florida, just to name a few.

In Canada, there is no federal estate tax or inheritance tax. However, upon death, there is a deemed disposition of all capital property, which can trigger capital gains taxes payable by the estate of the deceased. The deceased’s final tax return must report all capital gains and losses, as well as regular income. The top marginal tax rate in Canada can reach a whopping 54% depending on the province.

In the European Union, estate and inheritance tax rules differ significantly across member states. 19 of 27 EU countries still levy some form of death tax. 8 EU countries (Austria, Cyprus, Estonia, Latvia, Malta, Romania, Slovakia and Sweden) have abolished inheritance taxes. The applicable rules and exemptions vary widely depending on the specific country, the relationship between the deceased and the beneficiary and the size of the estate. Tax rates also vary widely, from 0-20% in Poland to 7.65-87.6% in Spain.

Taiwan has a progressive inheritance tax from 10-20% on assets exceeding a certain threshold, currently set at NTD13.3 million, with exemptions and deductions available for heirs and funeral expenses.

Singapore has no estate, inheritance or capital gains tax but stamp duty may be payable upon the transfer of company shares in a Singapore company.

Macau, a special administrative region of the People’s Republic of China like Hong Kong, also has no inheritance tax.

Mainland China once issued a draft rule on inheritance tax in 2002 but a statute has never been passed. There are currently no estate, gift or inheritance taxes.

By contrast, it was reported in 2021 that the estate of Samsung Electronics chairman Lee Kun-hee will have paid more than 12 trillion won (US$10.78 billion) in inheritance taxes as South Korea has one of the highest rates of inheritance tax in the world. A premium can be added to a deceased’s ownership of shares that comprise a controlling interest in a company, potentially topping the standard 50% inheritance tax. It was reported that Mr Lee’s collection of fine art including works by Chagall, Gaugin, Miro, Monet and Picasso will be donated to the National Museum of Korea to help relieve some of the tax burden.

The taxation of estates and inheritances varies widely around the world, with some jurisdictions like Hong Kong abolishing them altogether while others maintain complex systems of deduction, exemptions and increasing marginal rates. As individuals plan their financial affairs and legacies, it is important to stay up-to-date with the estate and inheritance tax landscape in relevant jurisdictions. Careful estate planning can help to eliminate or at least minimise the tax burden on heirs and ensure a smooth transition of wealth across generations. Whilst death and taxes may be a certainty, taxes after death can be skilfully avoided with professional guidance.

Disclaimer: This article is for reference only. Nothing herein shall be construed as legal advice, whether generally or for any specific person. Oldham, Li & Nie shall not be held liable for any loss and/or damage incurred by any person acting as a result of the materials contained in this article.

Succession of Chinese Nationals of the HKSAR Estate in the United Kingdom (UK)

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Hong Kong permanent residents may have assets in various other jurisdictions.  One of the most common emigration destinations in recent years is the UK. 

There are many common characteristics between the succession law of deceased’ estate in the UK and in Hong Kong.  

The deceased has a Will governing estate in the UK

If the deceased has a Will governing estate in UK, the executor appointed with his/her named in the last Will of the testator usually applies for probate through the local Probate Registry in the UK to deal with the deceased’s estate. The executor will then follow the Will and distribute the estate of the deceased.

The deceased does not have a Will governing estate in the UK

If the deceased does not have a Will governing his or her immovable estate, the succession of the estate is usually governed by statutory law and the person(s) who inherit your property is governed by the statutory rules of intestacy. In general, the successors will be your closest surviving relatives in accordance to the classes listed out in the legislation, depending on the nature of marriage of the deceased and whether the deceased has any children. Please see the table below for details:

ClassDetails
Has spouse but no children, parent(s) or sibling(s)The spouse (or civil partner) will inherit all of the estate
Has both spouse and childrenThe surviving spouse (or civil partner) will inherit:
  • all personal belongings
  • first £250,000 of the estate (£125,000 if the death was before 1/2/2009)
  • a life interest in half of the remainder

The children will inherit the remaining half of the estate. If the children of the deceased have died, their share of the inheritance go to their children equally.  
Has spouse, no children but has parent(s) or sibling(s)The spouse (or civil partner) will inherit:
  • all personal belongings
  • £450,000, and
  • half of the residue

The remaining half goes to surviving parents or to the siblings (if the deceased has no parents or parents were dead).
Has no surviving spouseThe surviving relatives will inherit in priority order as follows:
  1. Children, grandchildren, great-grandchildren
  2. Parents
  3. Full-blood siblings or their descendants
  4. Half-blood siblings or their descendants
  5. Nieces and nephews
  6. Grandparents
  7. Full-blood uncles and aunts or their descendants
  8. Half-blood uncles and aunts or their descendants
  9. The Crown
Note: The right of inheritance of subsequent categories do not begin until those in a prior class is exhausted.
Has no relativesIf there are no surviving relatives, the estate is classed as ownerless property (‘Bona Vacantia’) and goes to the Crown.

Disclaimer: This article is for reference only. Nothing herein shall be construed as Hong Kong legal advice or any legal advice for that matter to any person. Oldham, Li & Nie shall not be held liable for any loss and/or damage incurred by any person acting as a result of the materials contained in this article.