How To Protect Your Family Assets
With no inheritance tax, which was abolished in 2005, Hong Kong is far from the most complex jurisdiction when it comes to making sure that, when your time is up, your assets go where you want them to.
Nonetheless, as anyone with a passing acuaintance with local news can tell you, family disputes over the distribution of estates are common in Hong Kong; while the diverse nature of many Hongkongers’ assets can make probate time-consuming.
The problem, says Waisoon Lum, head of wealth planning, UHNW, Hong Kong for UBS Wealth Management, is that “Many individuals don’t structure their assets right. Failure to put the right plans in place can cost a lot of time and money.”
“It’s really difficult to find a solution. No matter what the patriarch or matriarch’s decision is, people will feel left out, especially if some work for the family business and others don’t.”
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Your most basic succession-planning pool is the will—but a lot of Hongkongers don’t have one. According to figures from Barclays, 77% of HNWIs around the world have a will, rising to 98% in Australia, 96% in South Africa and 94% in the US, but in Hong Kong the figure is only 46%.
Part of the reason is a cultural aversion to contemplating mortality, says Lum. “There’s a sensitivity to talking about succession planning: it’s still taboo to discuss death. However, we do see a slight improvement over the years, as people who’ve been through the experience of contesting a will get older themselves.
“Everyone should have a will. In Asia some people just avoid thinking about these issues. Even in my own family, my sisters and I had to force my parents to have a will. The laws of intestacy here in Hong Kong are fairly presciptive, so people just think: let it go by the operation of the law.
They only tend to feel strongly when they don’t want it to go to the person who’d get it that way: when they want to donate to charity, don’t have children, or don’t want a family member getting it.
Wills aren’t foolproof, though: they can be legally challenged on several grounds, such as forgery or the deceased’s state of mind and capability—and then only the lawyers benefit. “Wills are probably not enough if you have a lot of assets,” says Lum.
One answer is a trust, with jurisdictions like the Bahamas, Jersey and Guerney, which offer perpetual trusts, particularly popular with Hongkongers. “Having a trust will help you to avoid probate, and they allow the person who set up the trust to retain a degree of control, even when they’re not around,” says Lum. They are popular, in other words, with people who don’t trust their children with the family jewels.
Life insurance policies are another popular option, particularly for people with lots of assets but few liquid ones. They’re often used by Hongkongers with overseas properties as a buffer against local estate taxes; and, as Lum tactfully puts it, with “Individuals concerned about taking care of non-family members in a discreet manner”—in other words, second families.
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