Matter note: a will and estate plan covering assets in the BVI

A will and estate plan covering assets held through a British Virgin Islands (BVI) company presents a precise structural challenge: the governing law of the shares, the law of the settlor's residence, and the law most protective of the estate do not automatically align. Working across Hong Kong and the BVI, the route to a durable plan depends on identifying that conflict early – and resolving it deliberately, not by default.

This matter note describes an anonymised engagement. No client-identifying facts, named parties, or sums appear. The purpose is to illustrate the cross-border issues that arise in this fact pattern, the instruments engaged, and the sequence that proved effective. Counsel on our private-wealth desk work through structures of this kind regularly; the lessons below reflect that experience directly.

The situation: a family with assets on two maps

The principals were a family with deep commercial roots in the region. The operating businesses sat onshore. Above them, a BVI company held the core investment assets – listed equities, a portfolio of fixed-income instruments, and participations in two offshore funds. The family's residential picture was mixed: senior members resident in Hong Kong, adult children elsewhere in Asia.

No formal will governed the BVI shares. The family had proceeded on the assumption – common, and frequently incorrect – that a will dealing with Hong Kong assets would extend automatically to the offshore holding. It does not. The lex situs (the law of the place where an asset is situated) determines succession to shares in a BVI company. For those shares, the relevant law is BVI law, not the law of the deceased shareholder's domicile.

The second constraint was succession law in the jurisdiction where certain family members were domiciled. That system includes a forced-heirship (a mandatory-share entitlement for certain heirs, which a will cannot defeat) that would, absent careful planning, reach into the structure. The interaction between that forced-heirship and the BVI holding was the structural problem. No document in existence addressed it.

When the family approached our desk, the immediate trigger was a health event affecting the senior principal. The practical question was urgent: what would actually happen to the BVI company on death, and who would control the assets during any administration period?

The issue and the route chosen

The central issue was a succession gap – the point at which no instrument takes effect, and the asset falls to an unplanned administration regime. For a BVI company, an intestacy or a poorly drawn will produces a probate process that may run for months or longer, during which the shares are frozen. For a family with active investment positions, that is an operational and financial risk, not merely a legal inconvenience.

Three routes were considered. First, a standalone BVI will, limited to the BVI shares. Second, a trust overlay, transferring the shares from the individual into a properly constituted trust governed by a chosen law. Third, a combination of a BVI will and a Hong Kong trust holding the BVI shares, with the trust structured to rebut the forced-heirship claim under the applicable firewall provisions.

The third route was chosen. The reason was not complexity for its own sake. A BVI will alone would have left the forced-heirship exposure unaddressed. A trust alone – without a current, signed will as a residual instrument – would have left gaps for assets that had not yet been transferred into the trust at the time of death. The combination closed both gaps.

The Hong Kong trust was structured under Hong Kong law. Under the Trustee Ordinance (Cap. 29), as substantially reformed with effect from 1 December 2013, a Hong Kong-law trust benefits from several protective features relevant to this matter. The rule against perpetuities and the rule against excessive accumulations were abolished by that reform, removing timing constraints that had historically limited trust design. Importantly, the 2013 reform also strengthened the protection of Hong Kong-law trusts against foreign forced-heirship claims, giving the structure a statutory foundation for the firewall argument rather than relying on case-by-case judicial discretion.

Hong Kong law also has no forced-heirship regime of its own. That asymmetry was structurally useful: a Hong Kong-law trust holding BVI shares insulates those shares from a forced-heirship system operating in a third jurisdiction, provided the trust is properly constituted and the connections to Hong Kong are genuine.

The BVI will was drawn as a residual instrument, limited expressly to BVI-sited assets not already in the trust. It was executed in compliance with BVI formal requirements, with execution advice coordinated through BVI counsel working alongside our desk.

The sequence above describes the standard position for this structure type. Your matter turns on the documents, the jurisdictions actually engaged, and the order of steps – which is where the route is won or lost. For a structured assessment of your succession and holding position across Hong Kong and the relevant offshore centre, write to us at info@lockhartyip.com.

The sequence and the turning point

The engagement ran in four phases. The first phase was a mapping exercise: a systematic account of every asset, its legal character, its situs, and the succession rule that would apply to it on death. This step is often skipped in favour of document drafting, and its omission is the most common cause of structural failure in cross-border estate planning. You cannot design a will without first knowing what law governs each asset.

The mapping exercise produced a surprise. One of the two offshore fund participations was structured as a limited-partnership interest, not as a share in the BVI company. Its situs was in dispute: depending on how the limited-partnership agreement characterised the interest, the applicable succession law might be different again. That issue was quarantined and addressed separately with the fund's administrators; it did not delay the main structure.

The second phase was the trust design. The principal issues were settlor reserved powers, the appointment of protector and trustee, and the investment mandate. Under the Trustee Ordinance's 2013 reforms, a trust is not invalidated by the settlor reserving certain powers. That protection was used: the senior principal retained investment direction over the listed portfolio during his lifetime, giving him the operational continuity the family needed without undermining the trust's succession function.

The third phase was the transfer of the BVI shares into the trust. This step required BVI corporate formalities – a share transfer, updates to the BVI company's register, and a formal board process. BVI counsel handled the local execution. Our desk coordinated the sequence to ensure the transfer occurred before the trust instrument was completed, so that the trust received the shares as a going concern rather than as a transfer following a partial administration.

The turning point in the matter came during phase three. The BVI company's existing articles of association contained a pre-emption right: on any transfer of shares – including a transfer to a trust – the other notional shareholders (in this case, a dormant holding vehicle used for historical tax reasons) had a right of first refusal. The family had not been aware of this provision. Had the transfer proceeded without addressing it, the trust's title to the shares would have been vulnerable.

The pre-emption right was waived by the dormant holder through a formal consent resolution, executed under BVI law and filed with the BVI company's records. The transfer then completed cleanly. The lesson from that turning point – one we now raise as a standard checking step in all BVI share-transfer work – is that the company's own constitutional documents can override what the parties intend. Reading the articles before drafting the trust is not optional.

The fourth phase was execution of the BVI will as the residual instrument, and a Letter of Wishes addressed to the trustees. The Letter of Wishes is not legally binding. It is, however, an important tool for communicating the principal's intentions to the trustee in a way that survives the principal and can guide discretionary decisions without locking the structure into a rigid distribution formula.

If an earlier filing, structure or enforcement attempt produced an adverse or stalled result, a second read can identify the strategic error and the routes still open. For a preliminary review of an existing BVI holding structure or estate plan, email info@lockhartyip.com.

The qualitative outcome and the transferable lesson

The structure was completed within one planning cycle. The senior principal signed a complete set of documents – the Hong Kong trust deed, the BVI share transfer, the BVI will, and the Letter of Wishes – in a coordinated execution sequence. The forced-heirship exposure was addressed by the trust's firewall provisions. The succession gap was closed. The operating continuity of the investment portfolio was preserved through the settlor's reserved powers.

The family's general counsel commented that the matter had clarified, for the first time, what would actually happen to each asset class in each jurisdiction on the death of the principal. That level of clarity is the baseline output a cross-border estate plan should produce. Surprisingly often, it does not exist until a matter of this kind forces the question.

The transferable lessons from this matter are four.

First: a will executed in one jurisdiction does not govern assets in another. The lex situs applies to immovables and – in most common-law systems, including Hong Kong and the BVI – to shares. A family holding assets through multiple jurisdictions requires instruments in each relevant jurisdiction, drawn consistently with each other.

Second: the forced-heirship systems of the jurisdictions in which family members are domiciled must be mapped before the structure is designed. A trust that does not account for a mandatory-share regime may be challenged after death, at exactly the moment when it should be performing its protective function.

Third: the constitutional documents of any company being brought into an estate plan must be read in full before any transfer step is taken. Pre-emption rights, drag-along provisions, and change-of-control triggers are all capable of defeating an otherwise well-planned structure.

Fourth: the residual instrument – the will covering assets outside the trust – is not an afterthought. It is the safety net for every asset that was not transferred, every asset acquired after the trust was established, and every asset whose situs was not correctly identified at the time of planning. It should be drawn and executed with the same care as the trust deed itself.

The Hong Kong and BVI interface: what this matter illustrates

The legal interface between Hong Kong and the BVI is one our desk encounters more frequently than any other in private-wealth work. It arises because BVI companies are the dominant holding vehicle for families with Hong Kong connections, and because the two systems interact in ways that are not always intuitive, even for experienced advisers in either jurisdiction alone.

Hong Kong is a common-law jurisdiction. The BVI is also a common-law jurisdiction. That shared heritage is a practical advantage: concepts transfer, documents are recognisable, and courts in both jurisdictions operate in English. The Trustee Ordinance (Cap. 29) and its BVI equivalents are both well-developed trust statutes, and the cross-border interaction between a Hong Kong-law trust holding BVI shares is legally coherent and well-tested in practice.

Where the interface produces friction is in the multi-layer succession analysis. A Hong Kong-resident settlor who is domiciled (in the legal sense) in a civil-law jurisdiction with forced heirship occupies three different legal systems simultaneously. Each system has its own rule for what it will recognise from the others. The Hong Kong trust firewall under the reformed Trustee Ordinance is a significant protective tool, but it is not absolute: the structure must be genuine, the connections to Hong Kong must be real, and the trust must have been established at a time and in circumstances that do not make it look like a last-minute device to defeat a claim that had already crystallised.

The interaction also requires attention to what Hong Kong international private wealth counsel does not do. Counsel on our desk advise on the international and cross-border dimensions: the choice of governing law, the trust design, the succession map, the coordination with offshore counsel, the Letter of Wishes and the planning sequence. Matters of Hong Kong law – court applications, grant of probate, local execution – are handled together with locally licensed Hong Kong firms with whom we work.

For families considering a similar structure, the starting point is a clear understanding of each family member's domicile and residence in the legal sense – not the colloquial sense. Domicile and residence are terms of art in succession and trust law, and the difference between them determines which jurisdiction's rules will govern the forced-heirship analysis. That mapping exercise should occur before any documents are drafted.

Our desk works across the private-wealth practice as described at our Private Wealth page. Readers considering how succession planning operates across multiple Asian jurisdictions may also find the analysis at Succession Planning across Hong Kong and Singapore a useful reference point. For those whose planning involves a change of residence or pre-immigration steps, the briefing at Pre-Immigration and Pre-Residence Wealth Planning addresses the timing constraints that determine whether a structure is effective at the moment it is needed most.

Related practices

• Private Wealth – succession, trust structure and asset protection across borders
• Holding Structures – BVI and offshore holding entity design and review

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Related

• Private Wealth
• Succession Planning Across Hong Kong Singapore Singapore Analysis
• Pre Immigration Pre Residence Wealth Planning Briefing

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