Globalization has brought a unique situation to our assets management. Your asset portfolio is diversified. Now you live in New York, but you own a condominium in Seoul at the same time. Having a bank account and stocks in Korea is very common for the expats and people who have family in Korea. You should manage them while you live each and every day. And you should also have an estate plan in place regarding how your foreign assets shall be managed and distributed to your loved ones when you pass away.
Every jurisdiction has its own laws and procedures to govern the decedent’s assets located within its territory. Thus, having an estate plan pursuant to the New York Law does not guarantee that your wishes and priorities in the estate plan shall be honored in a foreign country. That’s why you need to set up a foreign estate plan according to the law of the country where the assets are located.
In this article, our Korean estate planning lawyer explains the basics of estate planning in Korea. We will discuss typical instruments under Korean law that you can make use of, which are a will, a living trust, and a power of attorney.
- 1 Korean Inheritance Law Overview
- 2 Will in Korea
- 3 Korean Living Trust: A Will Substitute Trust
- 4 Incapacity Planning : Power of Attorney in Korea
Korean Inheritance Law Overview
As we are dealing with a situation of someone’s passing, it is a good idea to first check how the Korean inheritance law looks like. We previously published an article on this issue.
Which Country’s Law Shall Apply?
Please note, however, that it does not always mean the Korean inheritance law shall become the governing law of your estate plan in Korea. In general, the Korean law is applicable only when (i) the deceased has a Korean citizenship or (ii) the foreign law of the deceased’s home country provides that law of the forum shall become the applicable law.
For example, if a deceased has Japanese citizenship, the Korean court will apply the Japanese inheritance law when distributing his house in Korea.
By contrast, if a U.S citizen who is a resident of New York state dies leaving a house in Seoul, Korea, the Korean law shall apply. That is because, although the deceased doesn’t hold Korean citizenship, the New York choice of law provides that the law of the state where the real property is located shall be applicable.
Designation of Governing Law by Will
If you don’t want the Korean inheritance law to come into play in your inheritance matters, you can designate a specific country’s law in your will.
However, there are some limitations to this. You can only designate a law of either (i) your habitual residence at the time of designation (you should maintain the habitual residence until the time of passing) or (ii) the country where the real property is located.
Will in Korea
Now let’s talk about the various instruments of estate planning in Korea. The first one is, without doubt, a will. Like other countries, a will is one of the most common estate plans in Korea.
The real issue would be in which country you should create a will and how.
How to Determine the Validity and Formality of a Foreign Will
As for this matter, the Korean law provides that the validity and interpretation of a will shall be governed by the law of the testator’s home country.
Further, a will become valid when it complies with the proper formalities set out by any of the following laws:
- The law of the country of the testator’s citizenship at the time of the testator’s will or passing.
- The law of the habitual residence of the testator at the time of the testator’s will or passing.
- The law of the county where the testator created a will
- In the case of real property, the law of the country where the real property is located.
As you can see, Korean law has a very broad approach regarding the validity and formalities of a foreign will. If you live in New York, you can create a will according to the laws and formalities of New York. Then it will be recognized as valid and interpreted according to the New York law.
5 Types of Will Under Korean Law
Of course, you can make a will according to Korean law as well. There are 5 types of will in Korea.
- Holographic Will
The entire part of the will should be handwritten including the date of execution and the address of the testator. And this must bear the testator’s stamp or thumbprint.
- Recording Will
This is a will made by an audio recording. the testator must verbally state testament, his full name, and the date. And the witness must verbally state the correctness of the testament and his name.
- Notarized Will
This is a will notarized by a public notary in the presence of 2 witnesses.
- Secret Will
The testator writes down his testament and puts it into an envelope with a seal on it. They should be accompanied by the testator’s declaration of his will in front of more than 2 witnesses. The testator and the witness should make their signatures on put the stamps with the date. This will must get a fixed date stamp from the public notary within 5 days.
- Dictation Will
This type of will is a substitute which can be made when the above 4 types of will are unavailable due to illness or any other urgent situation. The testator dictates his testament in the presence of 2 or more witnesses and one witness writes it down. The writing should read verbally to the testator for his confirmation, followed by the signature and stamp of the testator and the witnesses.
Korean Living Trust: A Will Substitute Trust
Trust Can Work As a Will Substitute
In Korea, a trust can be used as a will substitute. A will substitute trust is a legal mechanism where you place your assets such as real property, bank balance into a trust account, and set out the terms of how the assets are managed and/or disposed of when you pass away. It is very similar to a living trust in the U.S., and actually a very efficient way to protect your assets and transfer your wealth in Korea.
One of the common examples of will substitute trust in Korea is the case where the parent transfers real property to a trust account and appoints him as the lifetime primary beneficiary and his child as the contingent beneficiary in the event the primary beneficiary dies. By doing this the parent can benefit from the real property such as receiving rents or even residing in that site for the entire life. The child shall benefit from the real property only after the parent passes away. By this, the trust serves like a will.
Advantage of Will Substitute Trust
The will substitute trust has many advantages as a good estate planning in Korea.
First of all, it has flexibility which a will doesn’t have. You can set out various ways of how your estate is managed after you pass away. You can’t be too creative. And it is processed without the involvement of the probate court.
You can even determine who shall become the beneficiary even after the contingent beneficiary dies. For example, you can set the terms that your niece shall become the beneficiary when your child, a contingent beneficiary dies. This cannot be accomplished by other instruments of estate planning in Korea such as a will or an intestate succession.
Also the trust doesn’t require a high level of formality. Unlike a will in Korea, a trust can’t be easily contested by a dissatisfied heir.
Also, the will substitute trust can work towards the protection of your loved ones who have mental or physical incapacity. You can appoint a financial institution or a reliable profession as a trustee. Then they can manage the estate properly and provide your loved ones with sustainable financial support from the estate. This also can’t be accomplished by a will. Under the will or intestate succession, the heir shall take his own responsibility to take care of the inherited assets.
Can a Will Substitute Trust Disinherit a Family Member?
One interesting issue regarding a will substitute trust is whether it can be used as a valid estate plan that disinherit someone.
When the Korean inheritance law applies, you cannot disinherit someone. There is a statutory elective share by which an heir can claim for a minimum share even when he is disinherited by a will.
Some states in the U.S. permit a living trust to be used as a legitimate way of disinheriting a family member. There is, however, no statute or established case law in Korea. In 2020, a local district court of South Korea had ruled that a will substitute trust which was created before 1 year of the death shall be exempted from the claim of elective share. This means the court opened a possibility that a will substitute trust can be used as a way of disinheriting an heir. However, this case was appealed and the appellate proceedings are still pending. We will provide an update on this case when the ruling comes out from the upper court.
Incapacity Planning : Power of Attorney in Korea
Until now we discussed estate planning which allows you to manage the financial matters of your estate after you pass away. However, life is full of unexpected events. While you are living, you might experience a mental or physical incapacity. In such a case, a power of attorney can be used as a protective measure. This is worth being included in your Korean estate plan.
Power of attorney is a legal document that empowers someone, i.e. an agent, to do legal acts and determination on behalf of you, i.e. a principal, in case you later become unwell and need care or medical treatment. The agent can make an important decision about you such as medical care and about your assets such as entering into a financial agreement.
There are two types of power of attorney that can be used as an estate plan in Korea. One is as adult guardianship and the other is a private power of attorney.
Private Power of Attorney
The private power of attorney is a private arrangement between a principal and an agent. It is simple to make, but it has the limited legal authority because the private power of attorney is not certified by nor registered in the Korean court system. Many financial institutions and government agencies often question and challenge the validity of this kind of document. They often require the document should be prepared by their own forms or more recently prepared document should be submitted, which often evokes another legal dispute.
Standby Adult Guardianship
Adult guardianship is a court guardianship where, by the application, the court appoints an adult guardian for an adult who is experiencing a lack or limitation of mental capacity due to illness, impairment, or age. The adult guardian can perform various legal acts such as entering into a contract, giving legal consent, and making medical/care decisions. This works for the same purpose as the private power of attorney but has the absolute legal authority because this is a court order.
Standby Adult Guardianship As a Korean Estate Plan
As the term implies, the adult guardianship is usually used when the person actually experiences mental incapacity. But, there is a special type of adult guardianship that you can have in place while you are healthy as a preparation just in case you later become mentally ill and need a guardianship. That is called a standby adult guardianship in Korea.
In a standby adult guardianship, you enter into a standby guardianship agreement with someone you chose for your future guardian. You can set down your personal preferences and wishes regarding upon what events the guardianship may go into effect, i.e. triggering events, and what kind of decisions and acts the guardian can make on behalf of you.
How to Prepare a Standby Adult Guardianship
The guardianship agreement must be notarized and registered with the court. When a triggering event occurs such as you become mentally ill, the guardian file a petition with the court, and the court declares the guardianship comes into effect.
Protect Your Parent’s Asset in Korea from Mental Incapacity
What if your parent has already experienced mental incapacity? Are you worried if someone misappropriates your mentally disabled or impaired parent’s assets in Korea? In such a case you should consider asking the Korean Family Court to appoint an Adult Guardianship. There are several types of adult guardianship that can protect your parent’s assets in Korea.
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Because of the generality of this update, the information provided herein may or may not reflect the most current legal development at the time of view, nor is it applicable in all situations nor should be acted upon without specific legal advice based on particular situations.
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