SOUTH KOREA Trends and Developments Contributed by: Woong-kyu Cho, Barun Law LLC
The Great Wealth Transfer: Emerging Trends in Korean Succession Law The Great Wealth Transfer has begun in Korea Korea has entered an era in which the baby boomer generation born after the Korean War is reaching old age. Having experienced the country’s remarkable economic growth over the past several decades, this generation has accumulated more wealth than any other generation, giving rise to what has become known as the Great Wealth Transfer. This unprece - dented transfer of wealth is rapidly reshaping the land - scape of Korean succession practice. Korean courts are increasingly being called upon to resolve disputes involving lifetime gifts, family business succession, testamentary transfers and forced heirship, while the legislature has also embarked upon substantial reforms of Korea’s long-established succession law framework. Against this backdrop, several important trends have emerged in Korean succession practice and litigation, reflecting both evolving family dynamics and significant legislative reform. Emerging trends in Korean succession practice Estate division disputes – lifetime gifts as special benefits Several recurring issues have emerged in estate divi - sion proceedings. These include the treatment of lifetime gifts as special benefits, the concealment of estate assets, and the allocation of estate assets among heirs. Where the deceased did not specify how the estate should be distributed, or where the prior determina - tion is subsequently held to be invalid, a procedure to divide the estate is required. Where the co-heirs cannot divide the estate by agreement, the estate is divided through the judgment of the court. When a court divides an estate through a judgment, all estate assets, except assets recognised as contributory shares, are distributed in accordance with the statu - tory inheritance shares after taking into account any special benefits, including inter vivos gifts. In practice, in disputes over the division of an estate, inter vivos gifts made decades ago frequently emerge as a core issue. This is because Korean courts do not limit such gifts to those made within a certain period, but con - sider all provable inter vivos gifts as special benefits.
Korean courts have consistently maintained the posi - tion of prioritising the substance of a transaction over its outward legal form. Accordingly, where an heir is recognised to have lacked the economic capacity to acquire the relevant asset independently, even a transaction taking the form of a sale is judged as a gift in substance. Demonstrating that a transaction is a gift in substance, contrary to its legal form, is therefore the area where the expertise of an estate division counsel is most required. Estate division disputes – concealment of estate assets Since estate division is ultimately concerned with dis - tributing the assets remaining in the estate, accurately identifying the scope and nature of the estate assets is essential. However, where the deceased suffered from dementia or another condition affecting their decision-making capacity, assets may be concealed by an heir or by a third party. The details of the estate assets are also closely scrutinised by the tax authori - ties during the inheritance tax reporting and audit pro - cess, and any inaccuracies or issues may therefore be corrected in that process. Accordingly, where certain estate assets are suspected to have been omitted, it is important to participate actively in the inheritance tax investigation process and present relevant arguments to the tax authorities. If the tax authorities complete their investigation without identifying or correcting the omission, however, recovering the omitted estate assets may become substantially more difficult. Estate division disputes – allocation of estate assets Even where the heirs are able to agree on their respec - tive specific inheritance shares, it is often difficult to agree on how the individual assets comprising the estate should be allocated among them. For exam - ple, where the deceased leaves shares in an unlisted company and financial assets, Heir B, who is not expected to succeed to the company, would remain a minority shareholder of the unlisted company even if they inherit shares in that company. Unless there is a realistic prospect that the company will be listed in the future, those shares may be difficult to realise at their fair market value. From Heir B’s perspective, therefore, it may be more advantageous for Heir A to inherit the shares and for Heir B to inherit the financial assets, rather than for both heirs to receive 50% of both the
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