Where there's a will, there's certainty for your chosen heirs

PUBLISHED : Sunday, 12 July, 2009, 12:00am
UPDATED : Sunday, 12 July, 2009, 12:00am

Making a will can be an emotive task. So much so that many people never get around to making one.

If you are one of those sensible people who have sought professional advice then it may well be that you have most of your assets in a trust structure already. If so, a will is only needed to deal with the residue of your estate and some administrative matters - but you do still need one. If you do nothing then you are doing your loved ones a serious disservice.

Intestacy rules prescribe the way in which your estate will be divided on death if you have not made a will. These rules vary from country to country but always favour the surviving spouse, children, parents and remoter relatives of the deceased, in that order of preference. This may not result in your estate being divided between those that matter to you - especially if you are not married.

The intestacy rules in Hong Kong closely mirror those in Britain. Briefly, they state that if you die leaving a spouse and children, your spouse will receive the first HK$500,000 of your estate (HK$1 million if there are no children) plus a life interest in half of the rest of the estate.

This means the spouse can have the income generated by that portion of the estate but the capital sum must be preserved and goes to the children when the spouse dies. The children take the rest of the estate immediately but their share will be held on trust for them until they reach the age of 18.

Generally, your estate will be dealt with according to the rules of the place where you make your main will, but taxes on the estate may be payable outside Hong Kong according to the rules of their situs. Careful planning may eradicate such taxes.

There are many benefits of making a will, the more important ones being:

- Certainty. You dictate who inherits your estate.

- You can benefit people who would ordinarily not receive anything under intestacy rules. Most importantly, a partner to whom you are not married (who would otherwise have no entitlement as of right), friends, more distant relations, grandchildren and godchildren.

- Philanthropy. You can make a gift to charity.

- Tax planning. With a will you can ensure that your estate is dealt with and passes to your loved ones in the most tax-efficient manner.

- Appointment of guardians. Intestacy rules do not provide for who should be appointed to look after children in the event of your death. If you have not made any provision it is possible that your children will be placed with family members not of your choosing or, in extreme situations, a local authority or government agency.

- Funeral wishes. It may seem surprising but this issue is one that frequently creates disputes within families. Therefore it is advisable for you to decide whether you wish to be buried or cremated and account for any special arrangements that you may desire.

- Your choice of executors and trustees. Your executors administer your estate by collecting your assets, paying any liabilities, and then distributing your estate in accordance with your will.

There are prescribed rules on who can administer an estate but those individuals may not be best suited to the role or the task. It is possible to appoint friends or beneficiaries but it is a difficult and thankless task, so many prefer to appoint lawyers or at the very least instruct them to assist.

In our shrinking world, more and more individuals own assets in more than one country. In such circumstances, dying without a will can leave loved ones with a major headache to go with their heartache, a needless and major tax bill and a large and time-consuming administrative problem.

Although not absolutely necessary, it is advisable to create a will in each jurisdiction where you hold assets. By doing so, the administration of your estate should be quicker as the assets in each country can be dealt with separately. Care must, however, be taken to ensure that successive wills do not automatically revoke earlier wills.

A will is automatically revoked if you marry, but not on a divorce. Your will should be reviewed periodically and altered, if necessary, by making a codicil.

The question of domicile may be crucial in determining tax. If you are domiciled or deemed domiciled in Hong Kong, your estate can pass to your chosen beneficiaries free of Hong Kong inheritance tax. If you are domiciled or deemed domiciled in the UK, your worldwide estate will be subject to tax at 40 per cent. If you are a British citizen you should establish with certainty where you are domiciled and plan accordingly if you wish your estate to avoid the 40 per cent charge.

Your will should always contain a declaration that it is to be construed and to take effect according to the laws of the place of your domicile.

Any assets held in trust or a foundation fall outside the estate and generally avoid being taxed, so the obvious solution is get it all into trust and leave the will to deal only with personal effects and wishes regarding your funeral, etc.