Estate Planning for US Expats Living in China

With its rich ancient history, vibrant cultures, and ever-expanding influence on the global economy, China is becoming an increasingly popular destination for US expats seeking to start new lives abroad. Relocating to Beijing, Guangzhou, Hangzhou, Hong Kong, Shanghai, or any of China’s other popular destinations offers unending unique opportunities, but of course comes with certain practical and legal hurdles as well.

One area where this is especially important for all US expats living in China is the area of estate planning. While Chinese estate planning and tax laws have made strides toward harmonization with the general principles that apply in other developed and developing countries around the world (although no two countries’ estate planning or tax laws are the same), the Chinese legal system remains very different from the system we are used to in the United States. As a result, when living in China (and ideally before you go), it is critical to make sure that you have a comprehensive and enforceable cross-border estate plan in place.

In this article, we provide answers to the following questions regarding cross-border estate planning in China:

  • Is a US will valid in China?
  • Is there probate in China?
  • What if I don’t have a valid will in China?
  • Is it possible to leave assets in China to US family members?
  • Can you use trusts for Chinese estate planning?
  • Can I use my US revocable living trust to cover my Chinese assets?

Is a US Will Valid in China?

Chinese law recognizes five different types of wills, each of which is subject to its own unique formalities and other requirements. Whether a will executed in the US will be binding in China depends upon whether the will satisfies the requisite Chinese formalities as well as a variety of other factors. The types of wills that are recognized in China include:

  • A “notarial will” made through a notary agency.
  • A written will in the testator’s own handwriting that is signed and includes the date it was written.
  • A will written on behalf of the testator that is witnessed by at least two witnesses and satisfies certain other formalities.
  • A sound-recorded will witnessed by at least two witnesses.
  • A “nuncupative will” made orally in the event of an emergency, provided that the nuncupative will becomes invalid upon execution of a valid written will or recording of a valid sound-recorded will.

Is There Probate in China?

In China, estate assets (assets that are either covered by a will or not covered by any estate planning documents, and therefore subject to China’s law governing intestate succession) are subject to a process that is similar to, although not formally known as, probate. Estate assets in China include:

  • Income
  • Houses, savings, and personal property
  • Trees, livestock, and poultry
  • Cultural objects, books, and reference materials
  • Lawfully owned means of production
  • Copyrights and patent rights
  • Any other lawful property owned by the testator (and not by a trust, limited liability company (LLC), or other estate planning vehicle)

Throughout most of China, the administration of distributing inherited property is handled by notaries, similar to the process in European and other civil law countries.

However, there is probate in Hong Kong. To open the probate process, the Hong Kong Probate Office must confirm that the will submitted for probate is valid and that it is the testator’s last will. As you might expect, for a will drafted and executed in the US according to state law standards, this can be a more challenging process than submitting a will specifically intended for use in China.

What if I Don’t Have a Valid Will in China?

If you only have a US will that does not comply with the applicable Chinese requirements, your estate assets in China will be distributed according to China’s statutory hierarchy for intestate succession. China’s statutory succession scheme generally provides that your spouse, children, and parents will be first in line to receive your assets; however, the Law of Succession includes a number of exceptions and special rules as well.

As a result, if you are planning to expatriate to China, or if you are already living in China and have not addressed your estate plan, you will ideally want to craft a plan that avoids intestate succession (and likely that seeks to avoid probate or “proving” altogether).

Is it Possible to Leave Assets in China to US Family Members?

For a number of reasons, moving money and other assets out of China has traditionally been viewed as a challenge. So, if your heirs or beneficiaries live in the US and have no intention of moving to China, can you still leave them your Chinese property?

Generally speaking, the answer is “yes.” It is possible to move cash and certain other types of property out of China. Anecdotally, it may be easier to move a non-Chinese citizen’s income out of the country, though all transfers above a certain threshold are technically subject to approval by the China state Administration of Foreign Exchange. Of course, you may run into Customs and other issues as well, and it may be worth considering dealing with some aspects of your estate plan during your lifetime in order to avoid leaving your loved ones with the burden of trying to secure possession of your assets from overseas.

Importantly, Chinese law treats real estate and securities in Chinese companies differently from other types of assets when it comes to ownership by foreign nationals. If you own (or intend to own) either of these types of assets, you will want to be certain to proactively address the applicable restrictions in your estate plan.

Can You Use Trusts for Chinese Estate Planning?

Yes. Although China traditionally has a civil law system, in 2001 the Trust Law of China introduced estate planning trusts to the mainland. However, in many ways, Chinese trust law is still in its infancy, with the courts yet to provide clear guidance on several important issues for expats seeking to plan their estates in China.

One important point to note here is that China does not impose an estate tax, inheritance tax, or gift tax on residents or non-residents. As a result, one of the primary benefits of using trusts for estate planning – avoiding these taxes – does not apply in China. However, trusts offer numerous other benefits as well, and it is certainly worth speaking with an experienced cross-border estate planning advisor who can help you make effective use of Chinese trusts in your cross-border estate plan.

Can I Use My US Revocable Living Trust to Cover My Chinese Assets?

Similar to your will, if you already have a revocable living trust that you established in the US, you may be tempted to try to use this document to transfer your Chinese assets as well. Generally speaking, this would be ill-advised. Due to lingering questions about the enforceability of foreign trusts (and foreign estate planning documents in general), the more prudent route will likely be to establish a separate estate plan for your property in China.

Contact Jiah Kim & Associates about Preparing Your Chinese Estate Plan

At Jiah Kim & Associates, we provide experienced representation for US expats seeking to protect their assets and plan their estates in China and other countries worldwide. To learn more about the considerations involved in Chinese estate planning and to begin putting your Chinese estate plan in place, contact us to arrange an initial consultation today.

This blog post is written for educational and general information purposes only, and does not constitute specific legal advice. You understand that there is no attorney-client relationship between you and the blog publisher. This blog should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.

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