Three Jurisdictions and a Missing Grant
Client: 68, Canadian citizen, Hong Kong permanent resident for 30 years, whose husband died seven months ago. His Hong Kong will, professionally drafted, leaves the residue equally to their two children - one in Vancouver, one in Hong Kong. The estate comprises: a US brokerage account holding US$2.1m of US-listed shares and ETFs held directly in his sole name; a Hong Kong flat (HK$18m) held with the widow as joint tenants; a Shenzhen apartment in his sole name; a Hong Kong bank account with HK$1.2m in his sole name; an insurance policy with a US$1m death benefit naming "my wife"; and an MPF scheme with a nomination form completed in 2011 naming his mother, who died in 2019. The widow has no income of her own, no will and no enduring power of attorney, and she holds HK$300,000 of her own cash. She wants to know why she cannot access "their" money.
1. Which assets do not pass under the will, and what follows from that for the widow?
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Three assets bypass the will:
- The Hong Kong flat - held as joint tenants, it passes to her by survivorship. She needs to register the death and the assented transfer, but probate is not required for this asset. She is now asset-rich and cash-poor: she owns an HK$18m flat and has HK$300,000 liquid.
- The insurance policy - the HK$1m death benefit is payable to the named beneficiary, "my wife". Check the exact wording and whether the nomination is irrevocable; insurers generally pay against a death certificate without probate. This is the fastest money in the estate and should be chased first.
- The MPF - the 2011 nomination names his mother, who predeceased him. The nomination lapses; the scheme trustee will apply the statutory order of priority, in which a surviving spouse ranks first. She should contact the trustee directly with the death certificate and marriage certificate; MPF death benefits do not wait for probate.
What follows: the will's residue - the US account, the Shenzhen flat and the HK$1.2m - is frozen behind a Hong Kong grant of probate, plus whatever the US broker and the Shenzhen registry demand. Her immediate cash flow therefore depends on insurance and MPF, and she should not be told to "wait for probate" while she has no income.
2. Explain the US estate tax exposure on the US$2.1m, and distinguish what could have been done from what can be done now.
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The exposure. A non-US domiciliary is taxed by the US on US-situs assets, with an exemption of only US$60,000 and graduated rates to 40%. US-listed shares held directly are US-situs regardless of where the owner lives or the custodian.
Rough quantification: US$2.1m − US$60,000 = US$2.04m of adjusted taxable estate. Applying the unified rate schedule gives a tentative tax of roughly 34% on the excess over US$1m plus approximately US$346,000, i.e. in the region of US$700,000 - about a third of the account. Hong Kong has no estate tax and no estate tax treaty with the US, so no prorated credit is available. Nor does the marital deduction rescue it: his estate passes to the children, and in any event relief for a non-citizen spouse requires a QDOT election, which was never structured.
What could have been done (and is now largely lost): hold the securities through a non-US company so the shares are foreign-situs (subject to the look-through rules for US real property holding companies and to the IRS ignoring arrangements whose principal purpose is tax avoidance); gift during life; or fund an insurance policy sized to the liability.
What can be done now: file Form 706-NA within nine months of death (extendable), consider the alternate valuation date if it reduces the estate, and check whether his domicile could arguably be Canada, which would engage the US–Canada treaty and a prorated credit. That is a specialist question - refer it, do not guess.
3. Set out the first 90 days of work and what the widow must be told about her own affairs.
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First 90 days, in order:
- Cash and cover - confirm the insurance claim documents are lodged (day 1–10) and contact the MPF trustee about the lapsed nomination. That, plus her HK$300,000, is her bridge.
- Hong Kong grant - instruct the Hong Kong probate solicitor; the will is straightforward but the Shenzhen asset will require a notarised succession procedure in the PRC, and the Hong Kong grant will likely need to be produced there.
- US side - the broker will not release the account on a Hong Kong grant alone. Expect either a US ancillary probate or a transfer certificate for a non-US personal representative. This is the long pole; start it in week two.
- US estate tax return - diary the nine-month deadline now, together with a valuation as at death.
- Inventory and provenance - statements, cost basis, the 2011 MPF form, the policy wording. Do not let the children divide anything informally.
What she must hear about her own affairs: she is in the identical position her husband was in. She needs a will, an enduring power of attorney, updated beneficiary nominations, and - because she will likely inherit US-situs securities - a decision about whether to hold them directly or through a structure before her death creates the same US$700,000 problem. That conversation should be booked before probate completes, not after.