SOUTH KOREA Trends and Developments Contributed by: Woong-kyu Cho, Barun Law LLC
shares and the financial assets. Conversely, if Heir A has not yet secured management control, Heir B may have an opportunity to obtain a higher valuation for their shares. As a result, disputes may arise over how the estate should be divided. Where the heirs fail to reach an agreement on the meth - od of division, courts often divide the estate accord - ing to the heirs’ respective inheritance shares, rather than allocating specific assets exclusively to particular heirs. However, if the co-heirs come to hold estate assets in co-ownership according to their respective shares, various restrictions may arise in managing or disposing of those assets. Accordingly, even where estate assets are divided into co-ownership, it may be necessary to bring a claim for partition of co-owned property in order to subsequently divide the relevant property in kind, allocate the property to a specific co-owner in exchange for monetary compensation to the other co-owners, or sell the property through an auction and distribute the proceeds according to the co-owners’ respective shares. Will - related disputes The deceased may determine in advance, through a will, how and to whom their estate should be distrib- uted. Accordingly, the estate may be transferred to the persons designated in the will without the need for disputes over estate division. However, in Korea, a will may deal only with matters that are recognised by law as capable of testamentary disposition, and disputes often arise because a will is valid only if it satisfies the formalities and requirements prescribed by law. A will that fails to satisfy even one statutory requirement cannot be recognised as legally effective, even if it is proven that the contents of the will reflect the deceased’s true intent. However, even if a will is made in compliance with the required formalities, it does not necessarily prevent disputes among the surviving heirs. Unless the will can be properly implemented, conflicts among the heirs may still be inevitable. The existence of a will does not, by itself, immediately transfer the estate to the beneficiary. Instead, Korean law requires a sepa - rate process of will administration through which the estate is transferred to the beneficiary in accordance with the terms of the will. The will is administered by
the executor. Where the deceased has not appoint - ed an executor, all heirs become joint executors by operation of law. Where there are multiple executors, decisions concerning the administration of the will must be made by a majority. Consequently, if the other heirs refuse to co-operate with the administration of the will, the beneficiary must bring legal proceedings against the non-cooperating heirs in order to enforce the will and obtain the transfer of the estate in accord - ance with the will. For this reason, careful estate plan - ning is essential when preparing a will. Appointing an executor, imposing appropriate obligations under the will where necessary, and otherwise ensuring that the deceased’s intentions can be effectively implemented may significantly reduce the likelihood of future dis - putes. Accordingly, practitioners increasingly consider alternatives to traditional wills as succession planning tools. As an alternative to a traditional will, establish - ing a will-substitute trust and arranging for estate assets to be transferred by the trustee in accordance with the trust terms may also provide a more efficient and secure succession mechanism. Forced heirship in transition The current Civil Law recognises a statutory reserved portion system, which guarantees certain heirs a mini - mum share of the estate so that a certain portion of the estate is reserved for them, even if the deceased made a testamentary gift or a lifetime gift. Therefore, even if the deceased arranged for the entire estate to be transferred to a particular heir or to a third party, lineal descendants, lineal ascendants and the spouse may claim a certain proportion of their statutory inher - itance share as their statutory reserved portion. As with estate division, when calculating the statutory reserved portion, property received by an heir as a lifetime gift is included in the estate used as the basis for calculating the statutory reserved portion without any time limit. Accordingly, identifying lifetime gifts is also very important in statutory reserved portion return claims. In particular, because property received as a lifetime gift is assessed as of the time of the com - mencement of inheritance rather than the time of the gift, this may give rise to further complexity. Is there a way to avoid the statutory reserved por - tion system, which may alter the succession arrange - ments prepared by the deceased after their death? It
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