A new dawn for Hong Kong's trust law

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Summary: A new era for Hong Kong’s trust law was marked in December last year as a range of modernisations came into effect. Hong Kong trust law has remained largely unchanged since it was first enacted in 1934 and the update was eagerly awaited.

A new era for Hong Kong’s trust law was marked in December last year as a range of modernisations came into effect. Hong Kong trust law has remained largely unchanged since it was first enacted in 1934 and the update was eagerly awaited.

Many other jurisdictions - among them Singapore, Hong Kong’s rival for the position of Asia’s leading asset management centre - have modernised their trust law in recent years, in some cases offering a more attractive regime. Will December’s reforms succeed in placing Hong Kong in a better position to compete?

Key changes

Perhaps the biggest advantage to Hong Kong is likely to come from a removal of restrictions on the length of time a trust may operate. With the changes in effect, it is now possible to create a trust which continues in perpetuity, which could become a significant differentiating factor for Hong Kong. Many popular trust jurisdictions have a fixed maximum period for which a trust can be established, and such time limits can be a concern for families who would like to see a trust continue over several generations.

The other key change concerns settlor powers. Typically, a trust may be invalid if the person establishing it retains control over the assets, which can be an issue for families who wish to actively participate in the management or investment of the trust assets. Under the new law, however, such active participation by the family need not invalidate the trust, which is similar to the approach taken by Singapore.

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