Your Financial Life in Hong Kong, Part 6: Wills and Estate Planning

By quantofasiaPersonal finance

This is part 6 in my 8-part guide to your financial life in Hong Kong. It is mostly intended for foreigners living in or moving to Hong Kong looking to better understand “the system” and better manage their money both in and outside of Hong Kong.ย  Let me know if you have any questions.

“Happy Valley” is the English name for the part of town where British Hong Kong built one of its grandest and most centrally located cemeteries.ย  The Chinese call this same neighborhood “่ท‘้ฆฌๅœฐ”, literally “the place horses run”, in reference the large racecourse and Jockey Club that now dominate the area (especially during Wednesday night races).ย  While euphemism and diversion may be two culturally different ways of addressing death, neither should mask the need for a concrete financial and “what if” plan for the inevitable.

As a reminder, GFM is an investment management firm, and while I am a CERTIFIED FINANCIAL PLANNERCM professional with enough knowledge about wills, trusts, and estate planning to be dangerous, my expertise is in managing investments.ย  Please speak with us privately for a second opinion or referral to a professional specializing in this area (we receive no fees for such referrals).

Your Will

As in many other jurisdictions, Hong Kong has laws covering intestacy (called Cap 73: Intestates Estates’ Ordinance http://www.legislation.gov.hk/blis_pdf.nsf/CurEngOrd/3FBE69859EB9F06B482575EE00370769/$FILE/CAP_73_e_b5.pdf ) directing what happens to the property of a Hong Kong resident who passes away without a valid will.ย  Hong Kong also has a Wills Ordinance (Cap 30 http://www.legislation.gov.hk/blis_pdf.nsf/CurEngOrd/AF6E076356CBA0C9482575EE0030826E/$FILE/CAP_30_e_b5.pdf ) defining what makes a valid will in Hong Kong.

Hong Kong is not a signatory on the 1973 Convention Providing a Uniform Law on the Form of an International Will, which currently includes the US, UK, France, Italy, Belgium, Russia, Canada and Australia, and its laws are most likely to differ in areas dealing with minor children, trust administration, and powers and duties of executors.

Care of Minor Children

Let’s say you have a valid will and have appointed someone you trust to care for your minor children should something happen to you or your spouse, but that trusted guardian happens to be outside of Hong Kong. ย What if something happens to you before the out-of-town guardian collects your children? If you don’tย have guardians who are based in HK, then they will become wards of the state and go to a care home until the guardians arrive from abroad.

This is why, in addition to their will, many international families have one additional document appointing a temporary local guardian over their minor children to cover such cases.ย  Such a document is usually very short and very simple.

 

Estate Taxes

Hong Kong abolished its estate duty in 2005 for all deaths after 11 February 2006.ย  Hong Kong residents who are not US persons but own US property may still be subject to US estate taxes.

Several other countries, including the US, UK and Japan, tax property held within their borders when the property’s owner passes away. ย US non-citizens and non-residents who die while holding US assetsย may be required to file an estate tax return for assets worth more than US$60,000 (source: IRS).

Estate Taxes For US Citizens and Green Card Holders

As with income taxes, US citizens and green card holders as of 2017 are still subject to taxation of their worldwide estates regardless of where they live or where their assets are held, but as of 2017, the first US$5,490,000 is exempted, and the value of the estate beyond that may be taxed at rates up to 40%.

US citizens and green card holders living in or outside the US have several estate planning options to legally reduce the size of their estates to within this exemption, including the use of gift tax exemptions, irrevocable trusts, and charitable trusts, and these strategies can be continued even while living abroad.

The Basics of Trusts

Often more powerful than a will, trusts are a way to legally transfer property to a durable legal entity with a built-in administration and succession plan.ย  More basically, trusts are often used to ensure that assets and income owned by the trust continue to be available immediately to heirs without having to go through delays of a long probate process, but depending on how a trust is set up, trusts can formalize the management and distribution of assets while you are still alive, protect assets from bankruptcy or other creditors, and in some cases help manage or reduce your US taxes.

Until next time,

Tariq

+852 9476 2868