Inheritance is regulated by the PRC Inheritance Law which took effect on 1 October 1985, and a judicial interpretation issued by the Supreme People’s Court in November 1985. While the rules are not complicated by themselves, in practice they give rise to various questions and issues, especially when it involves a foreigner with assets in China or married to a Chinese spouse.
Under the PRC Inheritance Law, assets shall be inherited in priority by the following parties:
- First level of priority: spouse, children, parents
- Second level of priority: brothers and sisters, (paternal & maternal) grandparents
A principle of Chinese inheritance law is that the successor(s) of the first level shall inherit to the exclusion of the successor(s) second in order. Only when there is no successor at the first level, then the right of inheritance goes to the successor(s) of the second level.
In addition, successors at the same level shall, in general, inherit in equal shares. Therefore, if say a foreigner living in China passes away, then property subject to Chinese law shall in principle be equally shared between this person’s surviving spouse, children and parents.
Entitlement of the Spouse
While in principle spouse, children and parents share equally, Chinese law also establishes another principle, namely that generally speaking, assets are jointly owned by the husband and wife. So if one passes, how should assets be divided among his/her spouse, children and parents?
According to the PRC Inheritance Law and unless other arrangements have been agreed in a pre- or post-nuptial agreement, half of the joint property acquired by the couple in the course of their married life shall be first allotted to the surviving spouse as his or her own property; while the remainder shall constitute the decedent's heritage to be divided among the surviving spouse, children and parents. Further, if the decedent's property is part of the common property of his/her family, then that portion of the property belonging to the other members of the family shall first be separated before dividing the decedent's property.
So to answer that question, if say the wife dies and if we presume there are two children and the wife’s parents are both alive, the husband would be entitled to 1/2 plus 1/5 from the remaining 1/2 (this part will be divided equally by the husband, her children and parents), i.e., 3/5 of the total joint property of the spouse.
We emphasize the term of joint property here because the husband does not have any first allotment on property that belongs to the wife only. This mainly involves property that she owned before she got married. This would directly constitute her heritage and therefore should be divided equally among her husband, children and parents.
The PRC Inheritance Law further establishes that the law of the place of domicile of the decedent shall apply in the case of movable property; in the case of immovable property, the law of the place where the property is located shall apply. We summarize what kind of property is subject to Chinese laws:
- When a Chinese citizen/foreigner inherits immovable property within China;
- When a Chinese citizen/foreigner inherits movable property of a Chinese citizen whose domicile is in China;
- For a Chinese citizen/foreigner to inherit movable property of a foreigner whose domicile is in China.
For a foreigner, the “domicile” refers to the place where he/she has lived for more than one year with proof provided by the local public security bureau. For a Chinese national, “domicile in China” is established if his/her household registration location is in China, or he/she has lived in China for more than one year with proof provided by the local public security bureau.
Conclusions & Take-Aways
- While the above general rules are quite straightforward, in practice there are also many special situations (such as rights of stepchildren, widowed daughters-in-law or sons-in-law, etc.) and exceptions (such as circumstance in which the right of succession can be deprived) that may apply to a specific case. In some circumstances, Chinese law may not be the only law that applies which can also create conflict.
- It is possible for someone to establish a division of assets that breaks from the established rules, by means of a well-drafted will which is notarized or witnessed. Planning for an inheritance is never nice, but especially foreigners that build up assets in China and/or that marry a Chinese spouse must be prepared for what one day may come.
- Even if no special division is established, it is good practice to inform first level successors of their rights, especially if they are living outside China and are unaware of their rights as children or parents of a foreigner whose property is subject to Chinese law in case of his death.
R&P China Lawyers is a boutique law firm focused on supporting foreign companies and individuals in China. It Private Client Group supports on legal issues relating to private affairs, mainly dealing with inheritances as well as employment, marital relations and custody matters, as well as criminal cases. For more information, please contact Lisa Qin at [email protected].