For families thinking about how to pass on their wealth and their wishes, especially childless couples and blended families. It covers what a legacy plan involves, the order of inheritance and forced shares, estate and gift tax and how to pass on what you intend, what a family trust can and cannot do, blended families and the planning steps.
Apart from agreed fees, we do not handle, hold or manage client funds.
01 Legacy is more than dividing up assets
A complete legacy plan considers the heirs’ capabilities, family governance, beneficiary arrangements, tax and asset management. Planning requires a review of family members, asset types, control, beneficiary needs, tax residency and long-term maintenance costs.
02 Order of inheritance and forced shares: why childless couples should plan early
Without a will, an estate passes under intestacy rules, which set an order of heirs. A surviving spouse almost always inherits, usually together with the children; if there are no children, many places give part of the estate to the deceased’s parents, and some to brothers and sisters.
Which country’s rules apply can depend on the deceased’s nationality or home, and on where each asset is, so a family with assets in several places may face more than one set of rules.
This is where childless couples are most often caught out. In Hong Kong, a spouse with no children first receives the personal effects and a fixed sum, then shares the rest of the estate equally with the deceased’s parents or, if neither parent is alive, with full brothers and sisters. The surviving spouse may end up sharing the family home with in-laws, and disagreements over whether to sell it are common.
In Singapore, a spouse with no children shares the estate equally with the deceased’s parents, and takes everything only if neither parent is alive.
A forced share is the minimum some legal systems reserve for close family. In many civil-law jurisdictions, such as Japan and South Korea, a spouse, children and sometimes parents can claim a fixed fraction of what they would have inherited if a will leaves them less. Hong Kong and Singapore have no forced shares, so you can leave your estate as you wish, but certain family members and dependants who are left without reasonable provision can ask the court to order maintenance from the estate.
So without a will, insurance or a trust, parents or siblings may share an estate that a couple meant for each other. That is why it is essential to plan ahead:
A will
Use a will to leave your assets to your spouse or the people you want to provide for. A will must follow the formalities of the place where it is made: in Hong Kong and Singapore, for example, it must be in writing and signed in front of two witnesses, and a will that is not in proper form may be invalid.
Insurance
Name your spouse as the beneficiary of the death benefit; the proceeds are paid directly to your spouse and are not part of the division of the estate, and can also provide cash for tax and living costs.
A trust
Place assets in a trust during your lifetime with your spouse as beneficiary; after your death, the trustee continues to provide for your spouse as agreed, and the assets do not need to be divided by agreement with the other heirs. Check the tax and reporting obligations when setting it up.
03 Estate tax, gift tax and forced heirship: passing on what you intend
Before wealth reaches the next generation, two things often take a share of it. The first is tax: Japan, South Korea, the United States and the United Kingdom, among others, levy estate or gift tax, with top rates of 55% in Japan and 40% in the US and the UK. Hong Kong and Singapore have no estate duty, but holders of US assets such as US shares or property may still owe US estate tax; for people who are neither US citizens nor domiciled in the US, only US$60,000 is exempt. Without planning, families often have to raise cash for the tax and wait for succession procedures in each place, and assets may be sold at the wrong time.
The second is the forced share described in chapter 02: a will alone may not get your assets to the people you most want to provide for. The following can help your wishes carry through more fully; how well they work depends on the law of your nationality, where you live and where the assets are:
A will for the free portion
Where forced shares apply, they usually cover only part of an heir’s statutory share (often one-half), so a will can still leave the rest to the people you want to provide for. If you have assets in several countries, also check that your will can be carried out in each.
Life insurance with named beneficiaries
Policy proceeds are paid directly to the beneficiaries you name; in many jurisdictions they do not form part of the estate and do not have to wait for succession procedures. However, policies taken out at an advanced age, during serious illness or in large amounts shortly before death may be counted in the estate by the tax authorities under the substance-over-form principle.
A trust established under local law
The trust laws of Hong Kong, Singapore, the British Virgin Islands and the Cayman Islands, among others, provide that foreign forced-heirship rules do not affect a trust validly established under their law (each with its own conditions); once assets are in the trust, the trustee passes them to the people you have chosen under the trust deed. Courts where the assets are located or where you live may still take a different view, so a trust is best set up early, while there is no dispute, and reported as required.
Plan early, during your lifetime
Forced heirship mainly limits how a will can divide the estate. Whether lifetime gifts and trusts count towards forced shares, and over what period, varies by jurisdiction; Japan, for example, counts gifts made within a set period before death. Planning early usually leaves more options, and also lets you use gift tax allowances over several years.
A letter of wishes and talking to your family
Alongside a will and a trust, a letter of wishes can explain to the trustee the thinking behind your arrangements; letting your family understand the plan at the right time can also reduce misunderstandings and disputes later.
04 What a family trust can and cannot do
A trust usually involves a settlor, a trustee and beneficiaries, with assets managed and distributed according to the trust deed and the applicable law. Well-drafted trust terms may help manage some marital and property disputes, but cannot guarantee to rule out statutory rights or court proceedings entirely. A trust’s effect depends on the law where it is established, whether the asset transfer is valid, the powers the settlor keeps, the beneficiary arrangements, creditor protection and tax rules; if a debt dispute already existed when the trust was set up, or the transfer was made for an improper purpose, the trust may not give the protection expected.
05 Blended families: keeping your wealth for your own children
The most common worry in a blended family is this: after you die, part of your assets passes to your spouse by law; when your spouse later dies, those assets form part of your spouse’s estate and go to your spouse’s children, including children from a previous relationship, while your own children from an earlier marriage are usually not your spouse’s heirs. Many people want their wealth to end up with their own children, but without planning, it can pass step by step to their spouse’s children instead.
Watch for these risks:
Your spouse’s legal rights. Without a will, a spouse is an heir by law, and in some jurisdictions can first claim a share of the marital property; in many jurisdictions, a spouse’s forced share or claim to marital property cannot be excluded by a will alone.
Joint accounts and property. Jointly held accounts and property may pass straight to the surviving owner, whatever your will says.
Out-of-date beneficiaries. Insurance and pension beneficiaries not updated after remarriage may send money to people you did not intend.
Your children’s inheritance. Assets inherited by minor children are usually managed by the surviving parent, who may be a former spouse.
Stepchildren. Stepchildren are not statutory heirs in most jurisdictions, but rules differ: in Mainland China, for example, stepchildren who have been raised and supported by the deceased are heirs.
The key is to put arrangements in place during your lifetime. Common international tools are listed below; how well they work depends on the law of your nationality, where you live and where the assets are:
Wills in each jurisdiction
Use a will to leave your estate to your own children, apart from what your spouse is entitled to by law; where your assets are in different countries, make wills in each that do not conflict with one another.
Naming your children or a trust as insurance beneficiaries
Policy proceeds are paid directly to the named beneficiaries without passing through your spouse. While your children are minors, a trust can receive the proceeds and the trustee pays their education and living costs as agreed, so the money does not have to be managed by a former or current spouse. Update the beneficiaries after remarriage or the birth of a child.
A lifetime trust for your own children
Move assets into a trust during your lifetime and name your own children as beneficiaries. The assets belong to the trust rather than to your estate, so they will not become part of your spouse’s estate either. If you also want to provide for your spouse, the trust can let your spouse receive living costs or use the family home for life, with the remaining assets going to your children afterwards; your spouse cannot pass the capital on to anyone else.
A holding company and share arrangements
Hold the family business or investments through an offshore holding company, with the trust holding the company’s shares, so that control and benefit can be arranged separately and the shares do not pass to another family on inheritance.
A marital property agreement
Agree on marital property in writing (for example, keeping property separate) to reduce your spouse’s claim to it. What can be agreed, and what makes it effective, depends on local law; see Marriage and Family Assets.
06 Planning steps
Legacy planning usually follows five steps, and the plan should be reviewed as the family changes:
01 Understanding your family’s needs
First, understanding your family members, the people you want to provide for and what concerns you, for example whether you have no children, are in a blended family or have children living overseas.
02 Reviewing assets and the legal position
Listing where your assets are, who holds them, their currencies and any existing beneficiary arrangements, and confirming which inheritance, tax and marital property rules apply given your nationality, residence and tax residency.
03 Designing the plan
Combining wills, insurance, trusts, holding companies and other tools to suit your needs, with a clear explanation of what each does, what it costs and its limits.
04 Professional review
Lawyers, accountants and other professionals familiar with the law of the relevant jurisdictions review the documents and their tax effects.
05 Putting it in place and reviewing it
Signing the documents, transferring assets and naming beneficiaries; then reviewing the plan after a marriage, remarriage, the birth of a child, a move abroad or a change in the law.
Frequently asked questions
How is a family trust different from a will, and can I have both?
A will usually takes effect only after death, and in many jurisdictions it must also go through probate or other succession procedures before the assets are distributed according to it; a trust, by contrast, can be set up during your lifetime, with the trustee managing the assets on an ongoing basis under the trust deed and distributing them to the beneficiaries in stages or on conditions, as agreed. The two can be used together, for example with a will dealing with assets not placed in the trust. Which approach is more suitable depends on where the assets are located, the family’s needs and the law of the relevant jurisdictions.
Once a trust is set up, can the settlor still use or manage the assets?
It depends on how the trust is designed. Some trusts allow the settlor to keep certain powers, such as revoking the trust, replacing the trustee or giving investment advice; but the more powers the settlor keeps, the more easily the trust’s effect for creditor protection or tax purposes may be challenged. Which powers to keep should be assessed with the help of professionals familiar with the law of the place where the trust is established.
If my children are still minors, can they be beneficiaries of a trust?
Generally, yes. Trusts are often used to provide for minor children, with the trustee managing the assets under the trust deed, for example paying for education and living costs, or distributing assets only once a child reaches a certain age or meets certain conditions. Whether the trust can also cover family members not yet born, and how long it can last, depends on the law of the place where the trust is established.
How can a professional adviser help?
Nextrate starts from the needs of each case: we help clarify your goals, list the documents required, set out feasible options and the main risks, and work with qualified legal, tax and other professionals where needed. Any bank application, tax outcome or legal effect is determined independently by the relevant institution, case by case.