A Hong Kong Trust

A Hong Kong Trust can be created with a settlor’s declaration that a trustee holds property for the benefit of a specific person(s) or for a purpose. Then the settlor transfers the property to the trustee. This is basic English common law followed in the United Kingdom, its colonies and territories for centuries. Former colonies adopted English common law into their legal systems like Canada and the United States.

Hong Kong followed English common law and supplemented it with several laws like the Trustee Ordinance of 1934, the Perpetuities and Accumulation Ordinance of 1970.

Then Hong Kong modernized trusts laws to compete with other countries when it enacted the Trust Law Ordinance of 2013. This new law made the following changes:

• Abolished the Rule Against Perpetuity for non-charitable trusts so they can be set up indefinitely (perpetual).

• Protected against forced heirship laws found in other countries by declaring that movable properties will not be subject to foreign inheritance laws.

• A trust cannot be declared invalid when a settlor retains the power of asset management and investment decisions.

• Established clear standards of care by trustees.

• Limited the trustees from exemption of liabilities in order to better protect the beneficiaries. Trustees cannot be exempt from liability for committing fraud, gross negligence or misconduct.

• Provided greater powers for trustees to:
(a) appoint nominees, agents, and custodians [This allows trustees to appoint experts to assist with the management of assets which may be beyond the trustee’s expertise];
(b) obtain insurance for trust properties against damage or loss caused by any events [In the past, trustees did not have the power to purchase insurance for the assets];
(c) have less restrictions for making investments [This provides greater discretion and powers for trustees to actively participate in trust investments]; and
(d) receive compensation when acting in a professional capacity. [Unless a professional trustee services company was hired, there was no mechanism to pay trustees for their time]

Next: Hong Kong Trust Benefits

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