13 March 2020

Considerations for estate planning in Hong Kong amidst the coronavirus pandemic


Click here to read more insights on how we can weather the coronavirus outbreak with you.

With an increasing number of countries and territories having reported cases of the novel coronavirus (COVID-19) over the past few days, the global number of confirmed cases of COVID-19 has by now surpassed 100,000. With schools closed, public events cancelled and towns under lockdown, the pandemic is affecting lives around the world on a daily basis. With increased home time, this may give you an opportunity or new perspective to revisit your estate plan (or prepare one, if you do not already have an estate plan in place), as well as to deal with succession planning issues for your family businesses. While Wills and death have always been taboo subjects in Hong Kong, you should consider taking steps to ensure that your loved ones are properly provided for when you are no longer around. This is especially true if what the intestacy rules dictate would be different from what you would have intended to provide for in your Will.

For those who already have a Will in place, you may want to review it and see if any important events have happened since you last executed your Will. These would include marriage, divorce, birth, death, relocation, purchase of an overseas property and change in tax laws. Below are a few examples of how these events would affect your Will:

  • Marriage: A Will is generally revoked by the testator’s subsequent marriage.
  • Divorce or death: If the testator has divorced or if a family member has passed away, the appointment of the former spouse or the deceased family member as executor and any testamentary gift in favour of that person will generally lapse.
  • Birth: If the testator has a new child after executing his or her Will, that child may not necessarily be included in the class of the beneficiaries under the Will, depending on how the Will was drafted.
  • Relocation: If you relocate to a new jurisdiction on a long term basis, it would generally be advisable to review and consider updating your Will.
  • Purchase of an overseas property: If you have purchased a property in a non-common law jurisdiction (such as mainland China), your common law Will may not necessarily be recognized in that non-common law jurisdiction. Even if you have a Will in that non-common law jurisdiction, you should always make sure the execution of that Will did not inadvertently revoke your common law Will. Inconsistencies among separate situs Wills could also cause problems in getting the Wills probated.
  • Change in tax laws: While this is not normally an issue for families based in Hong Kong without any overseas connections, if any beneficiary is a citizen or resident of a high-tax jurisdiction or is going to relocate to that jurisdiction, you may want to consider any changes in the tax laws of that high-tax jurisdiction when you review your Will.

It is also helpful to update your list of assets and liabilities from time to time, for example, when a significant asset is acquired, and provide a copy of the list to your executors (or if you do not feel comfortable doing so, to your estate planning lawyer who will keep that together with your original Will). Doing so could speed up the probate process, as your executors could avoid all the hassle of figuring out what assets and liabilities are involved in your estate.

As death is not a pleasant topic to talk about, quite a number of people would choose to avoid this topic altogether and not to have a Will. Also, there has always been a misconception among the Hong Kong community that only the very wealthy individuals would need a Will. In fact, in case you do not have a Will yet, you should always consider having a Will in place. Even if your estate is not worth a lot, if you make a simple Will, you can at least control what will happen to your estate after your death.

  • Control over who should inherit from your estate and in what manner: Most importantly, you can control who is going to inherit your property by having a Will. Under Hong Kong intestacy laws, if you pass away leaving your surviving spouse and your children, only your surviving spouse and your children will be entitled to your intestate estate irrespective of whether any other family members survive you. If you wish to make a testamentary gift to your other family members (for example, your parents and your siblings) or even friends or if you want a portion of your estate to go to your preferred charities, you will need to do so under a Will. In case any beneficiary is a citizen or resident of a high-tax jurisdiction (such as the United States), you may consider leaving your assets to such beneficiary in a will trust (rather than having such beneficiary inherit these assets outright).
  • Control over who should take on certain important roles: You can also appoint (i) your preferred executor(s) to administer your estate, and (ii) your preferred guardian(s) to look after your minor children under your Will.

There are also other important issues to consider outside of your estate plan, for example, family business succession issues. In Hong Kong, it is not uncommon to see family businesses owned and controlled by a sole shareholder/director. In that case, the sole shareholder/director may want to consider appointing a reserve director. If the sole shareholder/director of a Hong Kong private company passes away without a reserve director being validly appointed, then the company will not have any director to exercise its powers. As the sole director is also the sole shareholder, there will not be any shareholder who can appoint a new director. The company is effectively at a standstill until after a grant of representation is obtained. If a reserve director has been appointed, he or she can act in the place of the sole director immediately upon the sole director’s passing.

The above is not intended to be an exhaustive list of issues to be considered in relation to estate planning and succession planning. If you would like to discuss any of these further, please feel free to reach out to a member of our Private Client and Tax Team.

Click here to read more insights on how we can weather the coronavirus outbreak with you.

Authors

Category: Article