Hong Kong's trust law modernised to attract business

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Summary: Hong Kong’s trust law has been substantially updated in the hope of encouraging wealthy international families to establish trusts in the jurisdiction.Key changes include the ability to establish a trust which can continue indefinitely, to reserve powers to the settlor without risking the validity of the trust and to protect the trust assets from the forced heirship rules of other jurisdictions.

Hong Kong’s trust law has been substantially updated in the hope of encouraging wealthy international families to establish trusts in the jurisdiction.

Wealthy families setting up trusts are generally able to establish a trust in any of a number of jurisdictions. The characteristics of trusts vary between jurisdictions and families, and their advisors, will often compare these to select the jurisdiction which is most suitable for the family’s needs.

Hong Kong’s trust law has remained largely unchanged since it was enacted in 1934. Many other jurisdictions, including Singapore, have modernised their trust law in recent years, in some cases offering a more attractive regime than Hong Kong.

The significant changes modernise Hong Kong’s trust law. It is hoped that this will make Hong Kong a more attractive jurisdiction for families wishing to establish trusts and will enhance Hong Kong’s standing as a leading international asset management centre.

Key changes

  • It is now possible to create a trust which continues in perpetuity. This will be attractive to families wishing to establish a trust to continue over several generations.
  • A trust may be invalid if the person establishing the trust retains control over the assets. This is often a concern for families who wish to actively participate in the management or investment of the assets placed in trust. Under the new law  this will not invalidate the trust.
  • Some jurisdictions require a proportion of an individual’s wealth to pass to certain heirs (such as a spouse or children). Assets placed in a Hong Kong trust will be protected from such rules, providing greater flexibility.
  • Certain of the trustees’ powers have been enhanced to provide greater flexibility, and protection of trust assets.
  • The amendments also enhance the protection of beneficiaries and bring the trustees’ duties in line with international industry standards.

The long awaited updates will come into force on 1 December 2013.

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