Patrick Hamlin, partner at global law firm Withers, has seen a steady increase in family disputes relating to succession. Here he tells WealthBriefingAsia exclusively how to avoid a financially and emotionally damaging family rift.

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During his 16 years practice in Hong Kong, Patrick Hamlin, a partner at global law firm Withers, has seen a steady increase in family disputes relating to trust and succession issues.  Here he tells WealthBriefingAsia exclusively how to avoid a financially and emotionally damaging family rift.

Many family feuds occur because of inadequate estate planning, for example the failure to write a will.  If you do not make a will, intestacy laws will decide on the distribution of your estate.  This is unlikely to satisfy your family members and indeed if you have no next-of-kin within the statutory definition, the government (certainly those in Hong Kong, Singapore or the UK) will take your entire estate.

A will must also be properly structured to make adequate provision for family and dependants.  Although the common law allows freedom of disposition, you cannot disinherit your spouse or other dependants.  Failure to make reasonable provision for such family members is another source of dispute.  In appropriate cases the Court can normally increase the amount of legacies left to the family.

If family members or others are unhappy about the amount they receive under a will, they may attack the validity of a will.  For example, if a testator has health problems at the time of making his will, disappointed beneficiaries may claim he lacked the mental capacity to make a will.  Or a testator may leave an unusually generous gift to a carer or someone else who was close to them and in a position to exercise undue influence over the testator towards the end of his life.  This may give rise to a claim that the will was invalid because the carer or other close person exercising undue influence over the testator did so for the purpose of receiving a benefit under the will.

Another difficult situation which has become increasingly common is where an elderly person with considerable assets loses mental capacity during his lifetime.  A will of course does not take effect until death. What happens if the wealthy head of a family who controls a significant business contracts dementia or Alzheimers and becomes unable to manage his affairs, including the family business? Those suffering from mental incapacity cannot make legally effective decisions about their property and affairs.  With the various advances in medical science, such patients may be physically quite robust and survive for many years despite their mental disorder.

Effective estate planning can help to deal with the problem.  A trust set up during the settlor’s lifetime can be used to hold important assets such as a family business.  The owner of the assets can give his trustee a letter of wishes indicating how the trust should be operated should the settlor die or lose mental capacity. 

In this way a business can pass seamlessly to the next generation without the need to wait for a grant of probate (which can in some jurisdictions be a very protracted exercise).  The trust will also prevent attempts by those close to the settlor to get him (or her) to execute documents which a frail or elderly person may not understand.  Legal title remains vested in the trustee so that any attempts to persuade such a person to reorganise their affairs, such as the corporate structure of a business, will be ineffective.