Introduction

When a deceased passes away without a will (i.e. intestate), there can be a number of complicated factors that comes into play. One of them is found in section 5(1)(c) of the Intestates’ Estates Ordinance (Cap 73) (the “IEO”) on the concept of “advancement” which is applicable to an intestate’s estate. Advancement means that a property transferred in the deceased’s lifetime to a beneficiary may be treated as an early distribution of that particular beneficiary’s share from the deceased’s estate. This is an area where family disputes can arise such as when the parent gifted property during his/her lifetime to one of his/her children, but not the other(s). In Chan Oi Kwan (陳愛群), one of the beneficiaries of the Estate of Chan Yuen (陳源), Deceased v Chan Fu Wing (陳富榮), The Administrator of the Estate of Chan Yuen (陳源), Deceased [2023] 4 HKC 238, the Court of Appeal dealt with the dispute between two siblings over their deceased father’s transfer of property to the elder son during his lifetime.

Brief facts

The Deceased died intestate with two surviving children, the Defendant (who is the elder son and the administrator of the Deceased’s estate) and the Plaintiff (the elder son’s younger sister and daughter of the Deceased). As the wife of the Deceased passed away before the Deceased, the Defendant and Plaintiff were the only two beneficiaries of the Deceased’s estate.

The Deceased had a property on Tai Tam Road Property held under joint tenancy by the Deceased and his wife (the “Property”). On 22 April 2010, after the Deceased’s wife had already passed away, the Deceased was the sole owner of the Property and transferred it to the Defendant and his wife as joint tenants. On 13 July 2015, the Deceased passed away.

On its face, the transfer of the Property was done by way of a sale and purchase agreement with consideration of HK$1,350,000. However, there is no dispute that this sum was not actually paid to the Deceased. The Plaintiff alleged, among other things, that the Property constituted an “advancement” to the Defendant.

S5(1)(c) of IEO

S5(1)(c) of the IEO (sometimes referred to as the “hotchpot” provision) in summary provides that where a deceased died intestate, any child of the deceased who received a property/money by way of advancement or gift on marriage from the deceased when he/she was alive will have his/her share of the deceased’s estate reduced by the value of the advance unless the intestate showed a contrary intention.

Annotated Ordinance of Hong Kong: Intestates’ Estates Ordinance ( Cap. 73 ) sheds light on s5(1)(c) of the IEO as follows:

“The rationale for this rule is to achieve equality amongst the children of the intestate, based on the presumed intentions of a parent in favour of such equality. However, since a parent might clearly wish to prefer one or more of their children over the others, this statutory rule is subject always to any contrary intention expressed.”

To establish that a gift constitutes an advancement, the plaintiff must prove that the gift was something that may fairly be described as a permanent provision for the intestate’s child and should be substantial in value (both absolutely and relatively to the intestate’s whole estate). Other factors which the plaintiff should establish for the Court’s consideration is the donor’s intention as well as the purpose for which and the circumstances under which the gift was given.  

Once the above has been proved, the onus falls upon the defendant to prove that the deceased had a contrary intention against adding back. This test is subjective – looking at all the circumstances, do they require an inference that the intestate’s intention was that the gift was given to prefer the defendant than the plaintiff not just earlier in time but also in terms of its value and nature?  

In other words, s5(1)(c) of the IEO operates to add back certain property transferred to one of the deceased’s children during the deceased’s lifetime to the estate hotchpot (i.e. to be available for division), unless the beneficiary receiving the gift can demonstrate that the deceased intended not to add it back.

The Court’s ruling

Court of First Instance

The Court of First Instance Judge (the “CFI Judge”) found that the transfer of the Property was not an advancement, agreeing with the Defendant that the Property was intended by the Deceased to be an “ancestral home” (祖屋) to be passed down from generation to generation in the male lineage of the family. Even if the transfer of the Property was an advancement, there was a contrary intention that the Deceased did not intend to include it in the hotchpot as the substantial value of the Property tends to suggest that the transfer of the Property was not an advancement but for the desire to pass the “ancestral home” to the elder son and be treated separately from the rest of the estate. The Plaintiff was not satisfied with the CFI Judge’s decision and appealed it.

Court of Appeal

The Plaintiff raised four grounds of appeal:

1.       The CFI Judge erred in finding that the Property was an “ancestral home”; (“Ground 1”)

2.       The CFI Judge erred in finding that the transfer of the Property was not an advancement; (“Ground 2”)

3.       Further or alternatively, the CFI Judge overlooked that the transfer of the Property was a settlement made by the Deceased for the benefit of the Defendant which had to be accounted for; (“Ground 3”) and

4.       The CFI Judge erred in holding that there was a contrary intention that the Deceased did not intend to include the Property in the hotchpot. (“Ground 4”)

For Ground 1, the Court of Appeal (the “CA”) held that the CFI Judge did not make any finding that the Property was an “ancestral home”. She had properly decided that it was the Deceased’s subjective intention to treat the Property as the “ancestral home” from a layman’s perspective without having to approach the Deceased’s understanding “ancestral home” with unduly technical understanding of such laws.

For Ground 2, the CA held that the CFI Judge properly took into account the following factors to come to her decision: (1) that the Defendant did not gain any benefit out of the Property during the Deceased’s lifetime. After the Deceased transferred the Property to the Defendant and his wife, the Deceased still resided at the Property until he passed away. (2) The Defendant was relatively established in life so had no need for the Property. (3) the Property was transferred to the Defendant and his wife with a “hope” that the Defendant would preserve and “pass it on” to the next generation. The CFI Judge was entitled to rely on these matters to support the Deceased’s intention for the Property to be transferred to the Defendant and his wife was not an advancement.

For Ground 3, the CA turned to the interpretation of s5(1)(c) of IEO. The CA held that there are only two situations under which a transfer of property by an intestate to his/her child would be caught by the hotchpot provision, namely, (1) transfer by way of advancement or (2) on the marriage of the child. The references to “settled” only in s5(1)(c) of IEO provides that the transfer may be effected by a means of settlement but it does not mean any settlement of property in favour of a child triggers hotchpot provision.

For Ground 4, the CA agreed that it was open to the CFI Judge to find that the Deceased had contrary intention based on the Defendant’s case that the Deceased intended the Property to be treated as an “ancestral home” and be passed down from generation to generation in the male lineage of the family. It was practically unnecessary for the CA to deal with Ground 4 upon their finding that the transfer of the Property by the Deceased to the Defendant and his wife was already not an “advancement”.

Key takeaways

When one or both parents transfers certain properties to certain sibling(s) to the exclusion of others, this will likely cause conflict amongst the children. However, the parent’s intention is paramount and needs to be carefully considered based on evidence. If a party is attempting to claim that the “transferred property” was an advancement under s5(1)(c) of the IEO, it is important to consider and assess how that property was transferred during the deceased’s lifetime and take into account all relevant facts and circumstances. One way to get around the potential issue of advancement in the administration of your estate is ensuring that you have a will in place before you pass away, so that s5(1)(c) of the IEO will not be applicable to your estate. As always, if this matter concerns you and your situation, it is critical to seek for independent legal advice.