Hong Kong Court Holds That Trust Has More Advantages Than Gift For A Mentally Incapacitated Person

• Published date: 02 June 2022
• Subject Matter: Wealth Management, Litigation, Mediation & Arbitration, Wealth & Asset Management, Trials & Appeals & Compensation
• Law Firm: Herbert Smith Freehills
• Author: Mr Gareth Thomas, Richard Norridge and Peter Ng

Under the Mental Health Ordinance, Cap. 136 (the 'MHO'), the court is empowered to make such orders as it thinks fit for, among other things, ' the execution for the mentally incapacitated person of a will making any provision' and for 'the settlement of any property of the mentally incapacitated person, or the gift of any property of that person ' on behalf of a mentally incapacitated person ('MIP').

In LCK v DLKY and others (unreported, HCMH 7/2016), on 9 February 2022, the Hong Kong Court of First Instance reiterated the legal principles applicable to the exercise of these powers. Notably in this case, one of the sons of the MIP in question was also himself an MIP. A question before the Court, therefore, was whether it should make provision by way of a trust or a gift for that son.

Background

In LCK v DLKY and others, the Court was dealing with an application for a statutory will for an MIP, WSY.

WSY was the widow of the late LH. WSY was an MIP and she was represented by the WSY Committee, a mental health committee appointed by the Court for the estate of WSY pursuant to the MHO. WSY has one son with LH, CK. CK was also an MIP and, the same person acting as the WSY Committee was also appointed by the Court to be the committee of his estate. However, CK was represented by a litigation guardian especially appointed for the purposes of these proceedings ('CK's Guardian') to prevent conflicts of interest.

The WSY estate was valued at around HK$800 million. The parties to the statutory will proceedings all agreed that the provision for CK should be at least HK$320 million. However, there was a dispute over the mechanism for the provision for CK in the statutory will of WSY; more specifically, whether it should be made by way of a trust or a gift. The WSY Committee took the position that a trust should be set up for CK. On the other hand, CK's Guardian argued that it should be in the form of an outright gift to CK (in which case, it will form part of CK's assets, administered by his court-appointed committee).

Decision

The Court held that the principles applicable to the making of a statutory will also apply in the case of a lifetime settlement or gift. In particular:

• The court shall have regard to, as a paramount consideration the requirements of the MIP; and
• The court should have a reasonable degree of confidence that the disposition was both objectively reasonable and that it was something which the patient herself would have wished, if she had been...