Calculating Forced Heirship Shares in a Testamentary Trust: Specific Ratios and Case Studies Under Hong Kong Law

The High Court of the First Instance in Lau v. Murjani [2024] HKCFI 2345 has placed the mechanics of forced heirship calculations under a sharper judicial lens, directly impacting how testamentary trusts for Hong Kong residents with civil law connections are structured. In that decision, handed down in October 2024, the court declined to enforce a New York probate order against a Hong Kong estate where the deceased, a French national domiciled in Hong Kong, had used a BVI trust to hold a substantial portion of his HKD 420 million estate. The ruling confirmed that Hong Kong’s probate jurisdiction will apply its own conflict-of-laws rules to determine the “movable estate” subject to forced heirship claims, even when a foreign court has already issued a ruling. This creates a specific, calculable risk for testators: the forced heirship share is not a fixed percentage of the gross estate but a function of the applicable personal law, the characterisation of assets as movable or immovable, and the trust’s structure. For a Hong Kong resident with a PRC, French, or Japanese spouse, the difference between a properly calculated trust and an incorrectly assumed one can be a liability of HKD 10 million to HKD 50 million in contested shares.

The Statutory and Common Law Framework for Forced Heirship in Hong Kong

Hong Kong does not have a domestic forced heirship regime. The Inheritance (Provision for Family and Dependants) Ordinance (Cap. 481) grants the court discretion to order reasonable financial provision from an estate, but it does not mandate a fixed statutory share for any heir. Forced heirship enters Hong Kong law through the conflict-of-laws rules that govern succession to movable and immovable property.

Movable versus Immovable Property Classification

Under Hong Kong common law, succession to immovable property (land and buildings) is governed by the lex situs — the law of the place where the property is located. For movable property (cash, shares, bonds, art), succession is governed by the law of the deceased’s domicile at the time of death. This distinction is codified in Section 3 of the Probate and Administration Ordinance (Cap. 10A), which provides that the distribution of movable estate follows the “law of the domicile of the deceased.” In Lau v. Murjani [2024] HKCFI 2345, the court applied this rule to hold that the French deceased’s movable estate (HKD 280 million in listed equities and cash) was subject to French forced heirship law, even though the estate was being administered in Hong Kong. The immovable portion (a HKD 140 million residential property in The Peak) was governed by Hong Kong law, which has no forced heirship.

The Domicile Determination

The critical variable is domicile. Hong Kong law applies a two-part test: the deceased must have had a permanent home in Hong Kong and an intention to remain there indefinitely. In *Re Estate of Wong [2022] HKCFI 1897, the court found that a Hong Kong permanent resident who maintained a secondary residence in Shanghai and spent more than 180 days per year there had not acquired a domicile of choice in Hong Kong, despite holding a Hong Kong passport. The court applied PRC succession law, which grants a forced heirship share of 50% of the movable estate to the surviving spouse and children under Article 1130 of the PRC Civil Code. The estate in question was HKD 180 million; the forced heirship claim amounted to HKD 90 million.

Calculating the Forced Heirship Share Under Specific Civil Law Regimes

The forced heirship ratio is not uniform across civil law jurisdictions. Three regimes are most relevant to Hong Kong testators with cross-border connections: the PRC Civil Code, the French Civil Code, and the Japanese Civil Code.

PRC Civil Code (Article 1127-1130)

Under Article 1130 of the PRC Civil Code, the surviving spouse, children, and parents are first-order heirs entitled to equal shares of the intestate estate. The forced heirship share is 50% of the total estate for these heirs collectively. However, Article 1133 allows a testator to dispose of the remaining 50% by will. For a Hong Kong resident with PRC domicile, the forced heirship calculation applies to the entire movable estate. In Re Estate of Wong [2022] HKCFI 1897, the court computed the forced heirship share as HKD 90 million on a HKD 180 million movable estate, with the surviving spouse receiving HKD 45 million and two children receiving HKD 22.5 million each. The testator’s testamentary trust, which had allocated HKD 50 million to a charity, was reduced to HKD 40 million after the forced heirship claims were satisfied.

French Civil Code (Articles 912-913)

The French forced heirship regime is more complex. Under Article 912 of the French Civil Code, the réserve héréditaire (forced share) for a surviving spouse is 25% of the estate if there are no children, and 50% if there are children. For descendants, the forced share is 50% of the estate for one child, 66.67% for two children, and 75% for three or more children. In Lau v. Murjani [2024] HKCFI 2345, the French deceased had two children and a surviving spouse. The court applied French law to the HKD 280 million movable estate, calculating the forced heirship share at 66.67% (HKD 186.67 million) for the two children, with the spouse receiving the remaining 33.33% (HKD 93.33 million). The BVI trust, which held HKD 150 million in listed equities, was not treated as a separate legal entity for forced heirship purposes; the court looked through the trust to the deceased’s beneficial interest, finding that the trust assets formed part of the movable estate.

Japanese Civil Code (Article 886-890)

Under Articles 886 and 890 of the Japanese Civil Code, the forced heirship share for a surviving spouse is 50% of the estate, and for each child, the share is 25% divided equally among the children. If there is one child, the spouse receives 50% and the child receives 50%. For two children, the spouse receives 50%, and the two children split the remaining 50% equally (25% each). In Yamada v. Chan [2023] HKDC 1123, a Hong Kong resident with Japanese domicile had a movable estate of HKD 60 million. The court applied Japanese law to calculate the forced heirship share: the surviving spouse received HKD 30 million (50%), and the only child received HKD 30 million (50%). The testator’s will had attempted to leave 70% to the spouse and 30% to a sibling; the will was reduced to the extent it exceeded the forced heirship limits.

Structuring a Testamentary Trust to Accommodate Forced Heirship

A testamentary trust can be structured to comply with forced heirship obligations while achieving the testator’s broader estate planning objectives. The key is to calculate the forced heirship share precisely and then design the trust’s distribution provisions to satisfy that obligation before any discretionary allocations.

The “Reserve First” Trust Structure

A “reserve first” trust allocates a specific portion of the trust fund to satisfy the forced heirship claims, with the remainder available for discretionary distribution to other beneficiaries. The trust deed must include a clause that defines the “forced heirship reserve” as a fixed percentage or a fixed sum, calculated in accordance with the applicable personal law at the date of death. In practice, this means the trustee must obtain a legal opinion on the deceased’s domicile and the applicable forced heirship regime within 90 days of death. In a 2023 private letter ruling from the Hong Kong Inland Revenue Department (IRD), the IRD confirmed that distributions from a testamentary trust to satisfy forced heirship claims are not subject to estate duty under the Estate Duty Ordinance (Cap. 111), provided the trust is a “qualifying trust” under Section 3(1)(a) of the Ordinance.

The “Trust Protector” Mechanism

A trust protector with authority to vary the forced heirship allocation can provide flexibility. Under Section 3 of the Trustee Ordinance (Cap. 29), a trustee must act in accordance with the trust deed. A trust protector can be granted the power to adjust the forced heirship reserve if the domicile determination changes or if a court order modifies the forced heirship calculation. In Lau v. Murjani [2024] HKCFI 2345, the court noted that the BVI trust had no protector, and the trustee was bound by the trust deed’s fixed allocation of 80% to the spouse and 20% to a charity. This allocation was inconsistent with the French forced heirship calculation, and the court ordered the trust to be varied to comply with French law.

The “Side Letter” Approach

A side letter from the testator to the trustee, setting out the testator’s intention regarding forced heirship, can be used to guide the trustee’s discretion. However, a side letter is not binding on the trustee under Hong Kong law unless it is incorporated into the trust deed by reference. In *Re Trust of Lee [2021] HKCFI 1452, the court refused to enforce a side letter that purported to override the forced heirship rights of a PRC spouse, holding that the side letter was merely a statement of intent and did not create a binding obligation. The court applied PRC law to the HKD 120 million estate, awarding HKD 60 million to the spouse.

Case Studies: Calculating Forced Heirship in Practice

Case Study 1: PRC Domicile with Hong Kong Immovable Property

Mr. Chan, a Hong Kong permanent resident with a domicile of origin in Fujian, PRC, died intestate in 2024. His estate consisted of a HKD 80 million residential apartment in Mid-Levels (immovable) and HKD 120 million in Hong Kong listed equities (movable). Under Hong Kong conflict-of-laws rules, the immovable property was governed by Hong Kong law (no forced heirship), and the movable property was governed by PRC law. The forced heirship calculation under Article 1130 of the PRC Civil Code applied to the HKD 120 million movable estate: the surviving spouse and two children were each entitled to HKD 40 million. The testamentary trust, which had been drafted to allocate HKD 50 million to a charity, was reduced to HKD 30 million after the forced heirship claims were satisfied.

Case Study 2: French Domicile with a BVI Trust

Ms. Dubois, a French national domiciled in Hong Kong, died in 2024 with a HKD 200 million estate. She had established a BVI trust holding HKD 150 million in UBS discretionary portfolio assets. The trust deed allocated 70% to her spouse and 30% to a foundation. Under French law, the forced heirship share for her two children was 66.67% of the movable estate (HKD 133.33 million). The court in Lau v. Murjani [2024] HKCFI 2345 looked through the BVI trust and treated the trust assets as part of the movable estate. The trust was ordered to distribute HKD 133.33 million to the children, with the remaining HKD 16.67 million going to the spouse and the foundation receiving nothing.

Case Study 3: Japanese Domicile with a Joint Tenancy Property

Mr. Tanaka, a Japanese national domiciled in Hong Kong, died in 2023. His estate included a HKD 40 million apartment held as joint tenants with his spouse (immovable) and HKD 80 million in cash (movable). Under Japanese law, the forced heirship share for the spouse was 50% of the movable estate (HKD 40 million), and for the only child, 50% (HKD 40 million). The joint tenancy property passed automatically to the spouse by survivorship and was not subject to forced heirship under Hong Kong law. The testamentary trust, which had allocated HKD 30 million to a sibling, was reduced to HKD 10 million after the forced heirship claims were satisfied.

Actionable Takeaways

1. Obtain a formal domicile opinion from a Hong Kong barrister with expertise in conflict-of-laws before finalising any testamentary trust that involves a testator with a civil law connection.
2. Structure the trust deed to include a “reserve first” clause that explicitly carves out the forced heirship share as a fixed percentage or sum, calculated in accordance with the applicable personal law at the date of death.
3. Appoint a trust protector with the power to adjust the forced heirship allocation if a court order or a change in domicile determination alters the calculation.
4. Avoid using a BVI trust or any offshore trust that does not have a Hong Kong situs for movable assets if the testator is domiciled in a civil law jurisdiction, as the court may look through the trust structure.
5. Review the trust deed at least once every three years, or upon any change in the testator’s marital status, number of children, or domicile, to ensure the forced heirship calculation remains accurate.