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Changes in the probate and administration system in the PRC – Introduction of estate administrators

2021-02-28

Introduction

Up till 2020, all civil probate and estate affairs in the PRC have been handled in accordance with the Law of Succession of the People’s Republic of China (中華人民共和國繼承法》) promulgated in 1985 (the “1985 Law”). With the enactment of the Civil Code of the People's Republic of China (中華人民共和國民法典) (the “Civil Code”), which has taken effect from 1 January 2021, the rules governing matters in relation to succession of the deceased’s assets in the PRC has been revamped in a more systematic and organised fashion. One of the remarkable amendments made on the 1985 Law is the introduction of new rules regarding estate administrators (遺產管理).


Background

Under the 1985 Law, there were only provisions for the roles of “probate executor” (遺囑執行人) and “estate custodian” (遺產保管人), but none for a role like the administrator which is common in many other jurisdictions. Despite so, the 1985 Law did not contain specific provisions on what is the scope of power/duty of a probate executor, or how a probate executor should discharge his duties etc. Moreover, this role is only applicable to situations where the deceased is testate. As for an estate custodian, his/her duty was simply to safekeep the deceased’s estate temporarily. Inheritance disputes often arise due to the absence of sufficiently clear mechanisms or rules stating how the estate of a deceased should be handled in case of testacy or intestacy. In addition, since there was no requirement of systematic administration of the deceased’s estate and different kinds of inheritable property were often handled independently in practice, it was considered a difficult task to ensure that estate of a deceased would be handled timely and adequately.


New rules on estate administrators

In view of the problems mentioned above and the robust economic development in the PRC in recent years, PRC citizens have been accumulating larger amount of private wealth, and the types and forms of assets being held are also becoming more diversified. The 1985 Law might no longer be able to provide sufficient mechanism to administer the diversified types of estate assets of the deceased. In May 2020, the Civil Code has been passed and amendments are made to the 1985 Law while it has been integrated as part of the Civil Code. In particular, new provisions regarding the estate administrators were added to the inheritance part of the Civil Code.

Mechanism of appointment

Under the Civil Code, there are four available methods for determining and appointing an administrator in respect of handling a deceased’s estate. In short:-

1.    Existing probate executors shall become the administrators of the respective estates;

2.    Where there is no probate executor, the successor(s) of the estate should appoint an administrator in a timely manner;

3.    Where the successor chooses not to appoint one, he shall be the administrator himself;

4.    Where the successor gives up his right to succession, the local government authority of the deceased will become the administrator.

Where there are disputes on appointment of administrator, any interested party can apply designation of administrator(s) by the People’s Court.  

Scope of power/duty

Article 1147 of the Civil Code lists out the statutory duties of an administrator of an estate, which include:-

1.     Taking inventory of the estate and preparing a list of the same;

2.     Reporting to the successor(s) in regard to the status of the estate;

3.     Taking necessary measures to prevent damage or loss of the estate;

4.     Settling the deceased’s outstanding debts and handling claims from the deceased’s creditors; and

5.     Distributing the estate in accordance with the will or the law.

Accountability and right to remuneration

Article 1148 of the Civil Code provides that, in the case where the estate administrators breach their statutory duties and cause loss and damage to the successors, creditors or devisees intentionally or with gross negligence, they shall be liable for compensation. Article 1149 of the Civil Code provides that the estate administrators have right to remuneration for performing their duties.


Benefits of appointing estate administrators

Relieving the burden on successors

Under the 1985 Law, the burden of handling the estate was on the successors, and they were responsible for ascertaining and verifying the estate, preserving the value of the estate, handling debts of the deceased and allocating the estate according to the will or laws. In many cases, especially where complex legal issues arose in respect of the deceased’s estate, the successors were not capable of performing such actions. With the new rules, such burden can be transferred to the estate administrators, who can be professional parties such as lawyers, and the successors can hold them accountable for misconduct or gross negligence. Such a way of division of responsibility will better facilitate the orderly succession of estate.

Protecting the interests of creditors

Since the estate administrators have the statutory duty to settle the deceased’s outstanding debts, the creditors’ ability to receive repayments will no longer depend on whether the successors could have the capacity or a positive attitude in handling the inheritable assets and debts of the deceased. Moreover, because the creditors are able to hold the estate administrators accountable in certain cases, they can be protected against the risk of not being repaid when there has been loss in the value of the deceased’s estate resulting from misconduct or gross negligence of the estate administrators.

Facilitating cross-border probate and administration

The appointment of estate administrators also significantly affect the succession of assets of Hong Kong residents that are located in Mainland China. Under the old system regulated by the 1985 Law, the property rights could only be transferred to the successors directly and neither the probate executor nor the estate custodian were clearly given the powers to control or manage the deceased’s property. Thus, the executor(s) appointed in the will of a deceased in Hong Kong, or the administrator(s) of a deceased in Hong Kong who dies intestate, may not have the legal right to collect or take control of the assets in Mainland China. With the new rules introduced to the Civil Code, the Hong Kong executors or administrators can be appointed as estate administrators under PRC law and if so, they will be given similar powers as those prescribed under Hong Kong law and become able to properly perform their duties as personal representatives of the deceased under Hong Kong law.


Conclusion

In view of the need for more organised estate administration due to the rapid growth in wealth of the PRC citizens, the introduction of a system of estate administrators in the Civil Code will improve the current unsystematic way of allocating resources under the 1985 Law and hence greatly enhance the efficiency of estate succession and lower the risk of dispute among the successors and creditors. It is worth noting that the new rules on estate administrators in the Civil Code are general and principled in nature and it is therefore expected that guidance on how these rules shall work in practice in the form of implementation rules and judicial interpretations are likely to be issued in the future.




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Important: The law and procedure on this subject are very specialised and complicated. This article is just a very general outline for reference and cannot be relied upon as legal advice in any individual case. If any advice or assistance is needed, please contact our solicitors.

Published by ONC Lawyers © 2021


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