Isogeometric analysis is a powerful paradigm which exploits the high smoothness of splines for the numerical solution of high order partial differential equations. However, the tensor-product structure of standard multivariate B-spline models is not well suited for the representation of complex geometries, and to maintain high continuity on general domains special constructions on multi-patch geometries must be used. In this paper we focus on adaptive isogeometric methods with hierarchical splines, and extend the construction of $C^1$ isogeometric spline spaces on multi-patch planar domains to the hierarchical setting. We introduce a new abstract framework for the definition of hierarchical splines, which replaces the hypothesis of local linear independence for the basis of each level by a weaker assumption. We also develop a refinement algorithm that guarantees that the assumption is fulfilled by $C^1$ splines on certain suitably graded hierarchical multi-patch mesh configurations, and prove that it has linear complexity. The performance of the adaptive method is tested by solving the Poisson and the biharmonic problems.