Legal and financial planning for our children is clearly a topic of enormous interest for SNNHK members, and we were delighted by the enthusiastic response with more than 70 people signing up for our webinar on Thursday 7 July, 2022. We greatly appreciated hearing the in-depth expert advice offered by Lilian Ma, a certified financial planner from Manulife and an SNNHK parent, as well as Sharon Ser, partner, and Sarina Cheung, associate, from Rita Ku & Ser law firm in Hong Kong.
It is not the most cheerful task to think of one’s own demise, but as parents of special needs children, we are accustomed to being practical, super-organised, and ready to plan for all eventualities! None of us knows how long we are going to live and what health issues we might encounter, and planning ahead for our children is therefore a necessity. Our speakers delivered incredibly practical and useful advice.
Lilian started the discussion by asking why do we need to plan ahead? The legal age of adulthood in Hong Kong is 18, and as soon as a child turns 18, we as parents can no longer enter a contract on their behalf – with regards to bank accounts, insurance policies, and so on. Therefore, some thought needs to be given to how our children with special needs can remain financially secure into adulthood.
As a result of parents’ lobbying efforts over several years, which Lilian was involved with, together with the HK University Faculty of Law and the Guardianship and Financial Affairs Concern Group, the Special Needs Trust Office was set up by the Social Welfare Department (SWD) in Hong Kong in 2018. The Special Needs Trust (SNT) has the Director of Social Welfare as the trustee and, after parents pass away, a pre-arranged care plan will be implemented by a specified individual or institutional carer, with the supporting funds coming from the parents’ estate. Eligible beneficiaries of the SNT include people with intellectual disabilities including Down’s Syndrome, mental disorders or autism. They must be a permanent resident of HK, and eligible for rehabilitation services under the SWD or special schooling under the Education Bureau (pros and cons of the SNT are described in more detail later in this article).
Why do we need a trust? As we often read in shocking headlines, financial con artists have been known to target adults with special needs, who are three times more likely to have fallen victim to an online scam, according to UK researchers. We need to protect our adult children from financial exploitation. There is a spectrum of vulnerability to such exploitation according to the severity of the individual’s needs, ranging from:
very dependent – for instance, incapable of self-protection, or vulnerable to exploitation by family members or caregivers;
moderately dependent – having a weak money concept, longing for friends, unable to discern fraud;
independent – although their disability is invisible, may still have weak money concepts and their trust is easily abused, unable to discern fraud.
In terms of planning ahead, some questions you can ask yourself are Do you have an estate (ie, assets to pass on after death)? If not, what financial resources can you put in place during your lifetime to plan for your child’s future? Options may include a life insurance or savings plan. Regardless of the size of the assets you expect to pass on to your child, you should ask whether the child is able to manage the estate themselves. If not, do you have someone who is willing, capable and trustworthy to manage the estate from among your family or friends. Another option would be using a corporate or public trustee.
For insurance plans, an important point to remember is that death benefits from life insurance policies typically pay out to the beneficiary soon after the insured person’s death – and a great deal faster than distribution of the person’s estate through the probate process, which in Hong Kong takes around one year.
Insurance policies and savings plans can be structured in different ways, but there are typically three aspects to the policy: a policy owner, an insured person, and a beneficiary. The policy terminates on the death of the insured person, not the policyowner. Lilian gave examples of how a life insurance policy might be structured, with the beneficiary being a third party (eg, second parent, sibling, or private trust) rather than the adult child with special needs. She also gave an example of a savings plan that would be differently structured, with the insured being the child, and the beneficiary again being a family member. A savings plan can be usefully structured to provide regular income without awaiting the parents’ death, and you can appoint a successor policy owner to avoid the need to go through probate to transfer the policy.
Lilian concluded that insurance plans can be used as a tool with trust-like features. Payments can also be structured as regular disbursements so that the beneficiary doesn’t have the burden of a lump sum.
Things to consider include:
The size and nature of your estate
Cost of setting up a trust
Are there any low-cost options?
How about guardianship?
Our next speakers were Sharon Ser and Sarina Cheung from Rita Ku & Ser (RKS) law firm.
Sharon Ser explained that RKS is actively involved with philanthropy and organisations who need help with understanding the “big topics”. Sharon has had more than three decades of experience in Hong Kong focusing on family law and has become increasingly interested in the topic of special needs. Recently, she noticed some of her clients were considering leaving Hong Kong when they realised that facilities for special needs children or young adults may not be available. This is an incredibly difficult decision which then causes bigger issues for families.
Sharon advised that, first, you have to make a will. This is really the number one priority for parents and Sharon recommends all SNNHK members to create one if they have not done so already. More on that later!
When thinking about your child’s future after they turn 18, the question of their mental capacity is key. How can one determine mental capacity? This might seem like an obvious question for a group like ours, but the answer can be borderline at times, and it can be a legal issue. Everyone is assumed to have mental capacity unless proved otherwise. What is needed to prove otherwise? Mental capacity is task-specific: Can the child understand the consequences of a decision and properly weigh up facts and choices that are presented to them? We all make mistakes, but are we dealing with someone who can’t see the qualitative nature of the decisions they make in order to make up their mind? Another element of mental capacity is that it is time-specific: is that person at this moment able to make decisions? Not past or future, but at this present moment.
A person who does not have the required mental capacity to handle that specific task will be considered a “mentally incapacitated person”, or MIP for that context.
Guardianship: Welfare and medical decisions
For Minors: Parents are by default the legal guardians of their children. What do we need to do in the case of both parents’ demise if the children are under 18? We can set up a Deed of Guardianship, which is a very simple document and the best form of protection for your children – not just in case of death, but in case for any reason you are unable to come back to Hong Kong. Putting a plan in place means that your children can be kept in an environment they are comfortable with and with people they know. The most common form of appointing a guardian is a Guardianship clause in a will, which determines who would look after your children in event of your death.
It all becomes much more complicated when the child turns 18.
Sarina Cheung explained the issues in terms of Guardianship for adult children: parental guardianship automatically terminates when the child turns 18. Not all special needs adults need a guardian – the test is whether they are mentally capable to manage their own welfare. If they are considered an MIP, this is governed by part IVB of the Mental Health Ordinance. An application needs to be made to the Guardianship Board (a legal quasi-judicial tribunal of HKSAR).
Is there a need to apply? Could the child receive medical welfare or treatment without a formally appointed guardian? Sharon explained that, in general, hospitals honour the wishes of Next of Kin, which generally refers to parents, siblings or other relatives. As we have seen recently with vaccinations and elderly care in Hong Kong, however, this doesn’t always work and has led to some alarming decisions and complications around who is permitted to make decisions on behalf of an MIP.
Sarina explained that it really depends on individual situations. Parents are often concerned about the potential involvement of the Social Welfare Department and, in these unstable times, it may be worth considering appointing a parent as a formal guardian.
Legal position without planning
What happens if both parents die with no will in place? Children will still inherit all or part of the estate. If they are deemed to be mentally incapacitated, the estate would be left with the administrator. This may not be the parents’ choice and comes with risks.
The proper way to do it is to appoint a Committee under the Mental Health Ordinance Part II. This committee has the ability to handle the inheritance which the child is entitled to. Any concerned third party can make this application if the parents are deceased. If the adult child is not declared mentally incapable but they are just not very diligent with money, they can still be at risk as they are the ones responsible for their own assets. It is very important for parents to have advanced planning in place for such cases.
Planning Tools available
Enduring Power of Attorney. This is not for the child but actually for the parents. We don’t only plan in case of our own demise. But we also need to plan in case we are alive but unable to look after the child (eg, suffering from mental incapacitation ourselves).
Will. Everyone needs to have a will. This is the less costly option and parents can have a choice of executor and trustee, and they have flexibility in administration. The downside is that it only takes place after the testator is dead, hence hard to rectify. And privacy may be a concern as probate documents are publicly accessible.
Special Needs Trust. This is a very trustworthy option specifically for your child with special needs, and the Director of Welfare is the trustee. You have the benefit of a pool of assets to enjoy economies of scale. The disadvantages are that not all children are eligible, it is a “one size fits all” approach, and parents can’t give investment directions. It requires an initial injection of HK$234,000, but this is not interest-bearing. If the child moves overseas, it might be complicated to retrieve the funds for the Child.
Inter vivos trust (also widely used by non-special needs families). If costs are not an issue, this is the most flexible option. Details can be confirmed during the lifetime of parents, there are bespoke arrangements, a choice of trustee, it is multijurisdictional, and conveys parents’ wishes through Letters of Wishes. The downside is that it is costly to set up and requires a significant annual administration fee.
Comparison of trustees
There are various options for trustees, and they all come with pros and cons as outlined below.
What is the best option for your family?
If cost is a huge concern and you have a family member or friend that has already been helping, then a will appointing them as executor might be a good option.
If friends and relatives are not available, and you have a modest estate size but insufficient cash flow during your lifetime, you may consider appointing individual professionals as executors and trustees of the will.
If you have a modest estate size, sufficient cash flow, and no strong opinions on managing the assets for your child, you could consider Special Needs Trust. This has the benefit of the SWD behind it.
If you have a medium estate size and sufficient cash flow, you could consider an inter vivos trust as this offers maximum flexibility and bespoke options for the whole family.
Q&A
After the presentations concluded, questions submitted by event participants were raised questions during the Q&A session.
1. Wills: Can we assign a guardian or a committee to manage the finances of a special needs adult in the will?
Yes, you can appoint someone in the capacity of executor or trustee. A Guardian appointment in a will only concerns minors, and they look after the welfare and medical decisions of the child. For financial affairs it would be the Committee. If you use a will to appoint someone to handle financial affairs of an MIP, we are talking about choice of the executor or the trustee.
2. a) In the will, do we need to state clearly about the child’s special needs, and what would the impact be when they reach 18 in terms of being able to take the inheritance?
This depends on whether the executor knows about it. It would be additional protection for people who are trying to safeguard your child’s interest to know what they are dealing with. However, this is a public document, you need to consider what details you are comfortable making public. The choice of executor is important – it would be a disaster if they only learn after the death of the parent. You would be very wise to select the executor or trustee and ensure they are aware of what they are responsible for.
b) Would medical records or care details be advisable to share in advance with the executor?
Absolutely – all documents and evidence are useful. This can also be done as a Letter of Wishes, which would not be a public document. The better prepared the executor, the better the care for your child is likely to be.
3. Is the Letter of Wishes presented as part of the will?
A Letter of Wishes is not a legally binding document and not part of the will. Just a letter setting out wishes of the person signing the will, giving guidelines and areas they should be aware of. It can be used in each of these scenarios and not just a will.
4. How can we accurately consider the changing circumstances of child’s health in the future?
You don’t have to change your will too often, but you can keep the executor and trustee updated on the medical condition (or other circumstances) of your child. You can use the Letter of Wishes, for more details. As parents of children with special needs we are used to being very organised – this it when having a binder at home with all your child’s care information in it becomes crucial!
5. Will Jurisdiction – if a person has made a will in another country, is this valid in Hong Kong?
It depends on the country and their relationship to HK. If it is common law jurisdiction, then it is more likely to be valid if the execution complies with the formality under Hong Kong law. You should update your will if you come to HK.
6. If you have four children and you mention in your will that your estate will be equally distributed between them, but you have a special needs child. Do you need a statement in the will that a sibling, for example, would manage their sibling’s share?
You can state that the maintenance or payments would only be made to the guardian. You can impose conditions on the payments. It might be a big burden to impose on a sibling and might be better to have a professional third party appointed to manage it.
7. Can we write a will ourselves or must we use a lawyer?
You can, although it’s advisable to seek professional advice. There are templates online.
8. Recap Guardianship Board please? Does deed of guardianship have to be submitted by the Guardianship Board?
No, these are separate things. Deed of Guardianship is for minors. Application to the Guardianship Board is for appointment of a guardian for adult. Application to the Guardianship board is not complicated if it is not a contested application, there are guidelines on their website.
9. If I don’t apply for Guardianship can I still make decisions for my child, or will I be challenged?
Hospitals and other medical facilities generally accept next of kin as the person they take instructions from.
10. Is it better for a parent to apply to the Guardianship Board to be a guardian or use Power of Attorney?
Power of Attorney covers finances while Guardianship covers welfare, a guardian can only use a very small amount of the person’s money.
11. Can you assign or request an individual to be a guardian under the Guardianship Board?
You can nominate whom to be appointed through a letter of wishes or a pre-written letter to the Board, but the ultimate decision is for the Board to decide whom is the suitable person to be the guardian.
12. Inter vivos trust – is it possible to set up both an inter vivos trust and a special needs trust?
You can, but they would overlap. Unless the parent is very concerned with the choice of trustee and they want the Government to be the trustee, there is no real need to have both. Inter vivos trusts also applies to non-special needs children. There are much more options under inter vivos trusts. You can be very creative.
13. a) Special needs trust – starting sum is HK$234,000?
A Guardian can only handle HK$18,000 per month, the formula is 18 x 12 plus set up sum = one year of expenses. This amount will probably go up, as there is always a review.
b) What if you anticipate your child’s expenses being more than that?
Assets can be injected into both special needs trust and inter vivos trust. If you think your child’s expenses are going to be much more then can set out in the letter of wishes how you wish you child to be taken care of. But the disadvantage of the special needs trust is that it is more “one size fits all”.
14. Wills – how do you deal with a situation where a child is not able to make good decisions but is not mentally incapacitated?
This is the most important reason to have a will. You can state who would look after the money and how to make payments to that child regardless of whether the person is a special needs child or a child who spends a lot of money.
Our main takeaway from this detailed discussion of many complex topics, is that a mix of the tools may be the best option!
Sharon and Sarina’s contact details can be found here: rkslaws.com, and if you would like to reach Lilian or have any other questions, please contact us at connect@snnhk.org.
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