Start Thinking About An Estate Plan
It is not uncommon for an entrepreneur or business executive, despite a laser-like focus on business affairs and investment strategies, to continuously procrastinate when it comes to freshening (or creating) his or her Will.
I am not sure if this tendency is any worse in Hong Kong than elsewhere. But if it is, then it may be because Hong Kong has a relatively benign tax environment. Significant potential inheritance or estate taxes tend to focus the mind (e.g., in the U.K. and the United States).
Nearly everyone “knows” that they should prepare a Will. Many do. And that is a good start, so long as the Will is well-drafted and somewhat current.
For families with considerable wealth, particularly with assets spread across many jurisdictions, limiting considerations to a Will may be misguided. However, a commitment to seek professional advice with respect to a Will may be the catalyst for a broader review of estate planning issues and options. [i]
For example, we believe that a key process for every family, whether they have or are preparing an estate plan, is to maintain a detailed ledger of their financial assets and personal property and secure that list with a trusted family member and/or advisor. This list should detail the custody entity, account number(s), relationship manager or other contact person(s), authorized signatories and ownership structure.
Not every professional advisor with whom the family deals will need access to this list; but it will certainly be essential when designing an effective estate plan and the role that a Will would play.
It will also be very important in the case of an unexpected death. Many executors have endured something akin to “well of course, there is also the Swiss bank account, but I have forgotten which bank and in what town. My husband handled that…”. Off-shore banks tend not to spend resources chasing the heirs of inactive accounts.
Professional advice leading towards a comprehensive estate plan has an importance beyond ensuring your assets are correctly and efficiently devolved. Potential issues cover broad terrain and are specific to each family’s composition, the state of inter-family relationships, assets, succession objectives, risk aversion and desire for privacy.
Beyond the considerations that normally jump to mind, issues may also include:
- managing gift, estate or inheritance taxes in those jurisdictions in which assets (especially real property) are located, including ensuring that potential exemptions are exploited[ii];
- highlighting non-compliant legacy accounts or structures, at a time when a fix may be dramatically easier and less costly – rather than dropping a tax bomb into your heirs’ laps;
- managing the potential impact of specific local laws where certain assets are located[iii], including forced heirship regimes and potential enforcement against local heirs (particularly, if the property going to that heir is neither income producing nor easily divisible);
- considering trust arrangements, where appropriate, for dealing with potentially difficult or expensive probate processes in multiple jurisdictions, as well as tax planning, asset protection, continuity of management, and other succession issues;
- considering a situs Will for real property located in jurisdictions that might present thorny issues;
- considering structures to hold off-shore real property, particularly within jurisdictions imposing significant capital gains taxes on dispositions (ideally considered at the time of purchase, but perhaps amendments can be made without material additional costs);
- dealing with certain responsibilities that you consider moral obligations, but that might not be reflected in your current Will; and,
- considering how best to protect your assets, your legacy and your heirs against eventualities for which they might be unaware or unprepared.
And of course, ensuring peace of mind the next time you reflect upon mortality or someone’s unexpected demise.
Even where a complicated estate plan is not required, a geographically dispersed family or a family with a dispersed estate, that is relying on Wills to devolve property may endure complicated and uncertain jurisdictional issues at probate. Common law courts will generally honour a testator’s choice of forum so long a connection threshold is met. Civil law courts often have less administrative freedom.
Your professional advisor will help you consider whether you should have more than one Will.
When a single, multi-jurisdictional Will is probated, ancillary processes in other jurisdictions may need to wait until the initial probate process is complete. This could add considerable time, inconvenience and expense. A situs Will can be tailored to the laws of a particular jurisdiction, extracting the property located in that jurisdiction from the remaining estate, for purposes that include simplifying probate.
Separate Wills might also be helpful for families that highly value privacy, because probate processes in different jurisdictions can result in very different levels of public disclosure.
Most families and non-specialist advisors are not competent to properly consider these and related issues. Specialist advice should be sought, and may save you many times its initial cost over time. But in the meantime, you should sit down and prepare your List.
[i] An integrated estate plan will not necessarily be centered around Wills. But one or more Wills will likely play an important part, because even where trust arrangements dominate the estate plan, there will remain personal assets held outside of these trust arrangements.
[ii] For example, securities issued by U.S. companies can be subject to U.S. estate tax even when held by non-resident aliens, and non-U.S. banks are seeking clearances more often due to heightened awareness of the heat that the IRS can bring. There are easy fixes, primarily avoiding individual ownership, but this requires basic planning.
[iii] For real property held in Europe, the difficulties for non-resident buyers presented by forced heirship rules were reduced considerably in August 2015 with the introduction of EU regulations (known as the EU Succession Regulation). However, certain prior elections must be considered and evidenced.