As of 2021, China has 9.2 million residents categorized as HNWIs, the highest number in the Asia-Pacific region, and this number is expected to nearly double by 2026.
In the context of globalization, more and more high net worth individuals (HNWIs) are owning assets overseas. If an asset holder dies intestate, the inheritance of his or her overseas assets may face legal, tax and litigation challenges. Different countries have different legal systems, and intestate succession may result in assets being distributed in a way that is not in line with the holder’s intentions, or even lead to legal disputes. Therefore, it is important for both asset holders and heirs to understand the relevant legal requirements and plan ahead.
This article will explore common asset inheritance issues for HNWIs in intestacy situations and analyze how to prevent the associated risks to help address the complex challenges that may be encountered during cross-border inheritance.
Situation of intestate succession
In cases of intestacy, inheritance laws vary from country to country, and the inheritance law of the location of the assets generally applies. For example, in common law countries such as the United States, the United Kingdom and Australia, assets are usually distributed in the legal order of succession, with priority given to the spouse and immediate children. In Australia, the spouse usually receives the majority of the estate if there is no will, while the children receive the remainder, or in the absence of a spouse and children, the order of inheritance is that of the parents, siblings, and so on. In contrast, civil law countries (e.g., France, Germany) follow the principle of forced heirship, where a portion of assets must be distributed to immediate family members. In addition, some member states of the European Union allow the option of applying the law of the home country of the asset holder, while others strictly follow local law. Therefore, when it comes to cross-border inheritance, one needs to carefully examine the specific applicable laws to ensure a smooth succession of assets.
Common problems with intestate succession
1.Succession disputes
In international succession, particularly in cases of intestacy, there is a significantly increased risk of disputes between heirs over the distribution of the estate and resulting litigation. For example, in general, estates are distributed to heirs in accordance with the law of intestate succession. However, because the law does not fully accommodate all possible family situations, some heirs may feel that they have not received a fair distribution, leading to litigation. In Australia, affected heirs can ask the court to reconsider the distribution of their estate by filing a Family Provision Application. This legal process often leads to protracted legal battles and can cause irreparable rifts in family relationships.
2.Complex legal procedures
Cross-border inheritance cases often involve complex and burdensome legal procedures, especially when the estate is large or the assets are diverse. Determining which State’s courts have jurisdiction is often a challenge when assets from multiple states are involved. There are differences in the legal provisions governing inheritance in different states, and such differences may lead to conflicts of law. For example, the manner of distribution of an estate that may be recognized in some countries may not be recognized in another. In addition, judgments in cross-border inheritance cases are not always automatically enforceable in other countries and may require additional legal steps. Cultural and linguistic differences may also exacerbate misunderstandings, further making enforcement more difficult.
3.other risks
In the course of intestate succession, in addition to legal-related issues, the treatment of special assets, issues of estate transparency, and tax issues are common challenges. Special assets, such as works of art, equity or business assets, may require special treatment, involving complex processes such as valuation and transfer. In the absence of a will, heirs may not have accurate information about all of the estate, leading to a lack of transparency in the inheritance process and even disputes. In addition, tax issues are an important consideration. Many countries impose inheritance or succession taxes on inheritance, and the rates and standards vary from country to country and region to region, and even from state to state within the same country. In the case of cross-border inheritance, the tax differences are even more complex and the heirs may face a double tax burden.
How to avoid inheritance risks?
1.Making a valid will
Making a will in advance is the most direct way to avoid inheritance disputes and legal risks. By clearly naming the heirs and how the assets will be distributed, it ensures that all relatives are aware of the decedent’s intentions and minimizes potential disputes. To ensure the validity of a will, it is advisable to set up a legal will in accordance with local laws in the country where the assets are located to avoid legal disputes arising from an invalid or unenforceable will. For example, in Australia, if a Chinese national owns Australian property, it is advisable to create a will in accordance with Australian law to ensure smooth distribution of the estate. A valid will must comply with the relevant legal requirements, contain the necessary format and information, clearly designate an executor, and be kept in a safe and secure place.
2.Testamentary trusts
The establishment of testamentary trusts is another important tool for effectively avoiding inheritance risks. By setting up a trust, asset holders can ensure that assets are distributed in accordance with the individual’s wishes and avoid the tax burdens that may arise during the inheritance process. Trust property does not become an inheritance, which means it can help minimize estate taxes and provide flexibility in managing assets. Additionally, the income from an estate can be “diverted” to beneficiaries through a testamentary trust, effectively reducing the income tax burden. The creation of a trust also ensures that heirs inherit assets according to set terms, regardless of the legal order of succession, thereby effectively minimizing legal disputes and tax risks during the inheritance process.
3.Advance Planning & Consultation with Lawyers
In cross-border inheritance, advance planning and consultation with a specialized attorney are key to ensuring that the process runs smoothly. As inheritance laws vary significantly from country to country, a specialized attorney will be able to develop an appropriate inheritance plan in accordance with local laws and help to understand the related tax implications in advance. By working with an attorney, asset holders can optimize the structure of their inheritance in accordance with local laws and avoid potential risks. In addition, attorneys can assist in planning the distribution of assets to minimize the tax burden on heirs and ensure that the entire inheritance process is as simple and smooth as possible.
Conclusion
Overseas asset inheritance may face multiple legal, tax and procedural complexities in the absence of a will. In order to ensure the smooth inheritance of assets and avoid potential legal and financial disputes, HNWIs should plan as early as possible, make clear their wishes on asset distribution by making a will or setting up a trust, and seek professional legal and tax advice where necessary. With rich professional experience in the field of estate planning, Sunfield Chambers Solicitors & Associates is able to provide clients with tailor-made solutions to help cope with complex cross-border inheritance issues. By optimizing the asset structure, gaining a thorough understanding of local legal requirements, and keeping relevant legal documents in a safe place, the decedent can effectively reduce future legal obstacles and ensure a smooth and efficient transfer of assets to the heirs. Advance planning and professional support are not only the protection of assets, but also a responsibility and guarantee for the future of family members.
Writer: Xueying (Grace) Yang; Content Planner: Yan Zhou; Xueying(Grace) Yang; Proofreading: Gang(Abraham) Sun
This article is based on publicly available information and the author’s understanding, and does not constitute any form of professional legal advice or business decision. Readers should refer to this article in light of their own actual situation and consult relevant professionals for specific guidance. The author and the publishing platform assume no legal responsibility for any consequences arising from the use of the information in this article.
Consultation with Specialized Lawyers
Annette Leung
Partner, Solicitor, Notary Public
Annette is an experienced lawyer who works with clients in a wide range of commercial and civil disputes, with a particular focus on marriage and family affairs. Also, her experience extends to assisting clients in other common law countries.
Si Zhang
Senior Associate, Notary Public
Si specializes in legal provisions in all areas of business, corporate and property matters, in terms of acquisitions/sales, property, corporate, commercial, industrial and retail leasing, as well as off-the-plan properties, commercial development, foreign investment, joint ventures, providing professional and pertinent advice to clients within these areas.
Abraham Sun
Principal Solicitor
As the Principal Solicitor, Abraham has been working with numerous clients including listed companies, state-owned enterprises, ultra-high-net-worth clients, and investment banks. Customers in various industries including Australian and Chinese companies and individual investors, had achieved considerable economic benefits with his professional legal advice.
Jingjing Zhan
Solicitor
Jingjing brings a strong background in property law, focusing on the acquisition and sale of residential and commercial properties, commercial and retail leasing, and business transactions. Additionally, she provides strategic advice on loan agreements and family law matters, including divorce applications and financial agreements.
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