Update: succession planning across Hong Kong and Cyprus

Families with assets and residence across the Hong Kong–Cyprus corridor face a structural tension that becomes visible only at the point of succession. Hong Kong law has no forced-heirship regime. Cyprus, as an EU member state, applies EU Succession Regulation No. 650/2012 – which can, in certain circumstances, import the forced-heirship rules of another jurisdiction into the estate. That interaction has sharpened in practical terms as more principals take up Cypriot residence or citizenship by investment, while holding assets through Hong Kong-seated structures.

The immediate trigger for this briefing is the increasing number of cross-border families where a change in habitual residence – particularly a move to Cyprus – alters which jurisdiction's succession law governs the estate under EU rules, exposing a previously structured Hong Kong position to forced-heirship claims it was not designed to withstand. The governing instrument on the Cyprus side is EU Succession Regulation No. 650/2012. On the Hong Kong side, the Trustee Ordinance (Cap. 29) and its 2013 reforms provide the principal protective tools. Both instruments must be read together.

This briefing sets out what the corridor now looks like, who it affects, and what families and their advisers should do.

What has changed – and what the corridor now looks like

The practical change is one of accumulation rather than a single statutory event. More principals from CIS, Middle Eastern and European family groups now hold Cypriot permanent residency or citizenship alongside a Hong Kong-based holding structure. That combination creates a cross-border succession position that few original structures anticipated.

Under EU Succession Regulation No. 650/2012, the law of the jurisdiction where the deceased was habitually resident at the time of death ordinarily governs the succession to the estate as a whole. A principal who has shifted habitual residence from, say, a civil-law jurisdiction to Cyprus may find that Cypriot law – or, through it, the law of the deceased's nationality – governs the distribution of assets that were always intended to pass under Hong Kong law.

Cyprus permits a national of an EU member state to elect the law of their nationality to govern their succession. That election, made in a valid professio iuris (a formal choice-of-law declaration in a will or separate instrument), can lock in the law of the principal's home state. Where that home state has its own forced-heirship regime, the election preserves the problem rather than solving it.

For a principal with no EU nationality, the position is different: the choice is ordinarily between Cypriot law and the law of habitual residence. In-scope individuals should verify the current position with their adviser before acting.

What this means for a Hong Kong-seated structure is direct. A discretionary trust settled under Hong Kong law benefits from the Trustee Ordinance's anti-forced-heirship firewall, strengthened by the reforms that took effect on 1 December 2013. That firewall provides that a Hong Kong-law trust is not invalidated merely because a foreign court or law would reach a different outcome. But the firewall protects the trust itself – it does not necessarily prevent a forced-heirship claim from being litigated in a Cypriot court against estate assets that sit outside the trust, or against a settlor who has retained an interest.

The structural gap, therefore, is between assets inside a well-drafted Hong Kong trust and those held directly or through corporate vehicles that have not been swept into a protective structure. That gap is where the enforcement risk concentrates.

Who this affects

The corridor is most acute for three categories of principal.

First, CIS and Eastern European principals who took Cypriot citizenship or permanent residency and who hold assets through a Hong Kong or offshore holding chain. Their estate position may now be governed by a law they assumed they had moved away from.

Second, Middle Eastern family groups using Cyprus as a European base and Hong Kong as an Asian operating hub. Where the principal spends significant time in Cyprus, habitual residence may have shifted without formal succession planning having followed.

Third, families in the process of relocating to Cyprus from another jurisdiction – whether for tax, residency, or lifestyle reasons. The succession question is triggered at the point of relocation, not at the point of death. Structures that have not been reviewed before the move is completed are at risk from the moment habitual residence shifts.

In our cross-border practice, we regularly see structures that were sound at inception but were never updated to reflect a change in the principal's residence profile. The result is a forced-heirship exposure that the original documentation did not contemplate.

What to do now

The action is specific. Any family with assets in or through Hong Kong and a principal with Cypriot residence or citizenship should undertake a succession audit that addresses three things: first, which jurisdiction's law currently governs the estate on the facts; second, which assets sit inside a Hong Kong trust with an effective anti-forced-heirship clause and which do not; and third, whether a professio iuris election is available and, if so, whether it helps or compounds the position.

On the Hong Kong side, the Trustee Ordinance provides useful tools. Settled powers may be reserved by the settlor without invalidating the trust. The anti-forced-heirship firewall is available for trusts governed by Hong Kong law. Where assets are held corporately rather than in trust, a review of whether those assets should be transferred into a trust structure is a standard first step.

On the Cyprus side, a valid choice-of-law declaration in the principal's will may shape the outcome materially – but only where that choice is legally available and where the law chosen does not itself carry the forced-heirship rules the family is seeking to manage. Both conditions require verification.

Where assets extend to Singapore, the considerations addressed in our analysis on wills and estate plans covering Singapore assets are also relevant, as three-corridor families increasingly use all three hubs simultaneously. For families considering a private trust company as the structural vehicle, our analysis on private trust companies for multi-generational families sets out the structural options in detail.

The contextual bridge is worth stating plainly. The sequence described above covers the standard position. Your specific matter turns on the facts of the principal's residence, the governing law of each asset, and whether a trust or will has been executed and in what form. The route is resolved in the detail, not in the general position.

To review the succession and asset-protection position across Hong Kong and Cyprus, and to map the trust and residence options for your family's structure, write to us at info@lockhartyip.com. Our private wealth practice handles cross-border succession mandates of this kind as a core part of our work.

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This publication is general information and does not constitute legal advice. For advice on your situation, contact info@lockhartyip.com.