Hong Kong’s plans to revise its trust law evolved out of a consultation process that began in 2008, and are aimed at modernising and simplifying a trust law that shares a common law heritage with the trust laws of such other key trust centres as England, Jersey and Singapore – which have already updated theirs.
Although trust industry sources in Hong Kong say it is not yet clear when the Hong Kong legislature will consider the revised law, they believe that draft legislation may be issued later this year.
That there is some political desire to update the law is evident in statements made at a gathering of the Hong Kong Trustees’ Association (HKTA) last November, where Prof KC Chan, Hong Kong’s Secretary for Financial Services and the Treasury Board, told his audience – in a reference to the FSTB’s review of the Trustee Ordinance – “As you would expect from a trust law that was enacted in 1934, many provisions are outdated.”
By updating its laws, Hong Kong hopes to enhance its position as one of the world’s top asset management centres, according to Philip Munro, a solicitor at Withers in Hong Kong and a member of the Society of Trust Estate Practitioners (STEP), which along with the HKTA, has been involved in the consultation process.
“Where a high net worth family is setting up a trust, they are, generally, in a position where they can choose the trust’s governing law. As the characteristics of a trust stem from its governing law, you will look to choose a governing law that offers advantages in light of that family’s particular concerns,” Munro explains.
“At the moment, if a family is given the choice between a Hong Kong law trust and, say, a Jersey law trust, they might often prefer the Jersey law one, because Jersey trusts no longer need to have a perpetuity period, nor does Jersey have a rule like Hong Kong preventing the long-term accumulation of trust income.”
That said, Munro noted that Hong Kong seems to have taken its time over the Trustees Ordinance changes, and, evidently to maintain the quality of its trust law, appears determined to avoid participating in an intra-jurisdictional competition that has seen other trust law jurisdictions race to update their trust laws significantly over recent years.
“As I understand [its] position from the consultation process, Hong Kong wanted to maintain a trust law with integrity and substance,” Munro said.
Key features of the existing Hong Kong Trust law
• The settlor of a Hong Kong trust is not required to be Hong Kong resident
• There is no minimum to the size of a trust fund, and trust instruments do not require registration
Forms of trust
• Hong Kong trusts may only be established for the benefit of beneficiaries or in the furtherance of charitable purposes. This means that Hong Kong trust law does not recognise non-charitable purpose trusts
• Although Hong Kong trusts are presumed to be irrevocable, a settlor may choose to retain a power of revocation
Trustees
• It is possible for trustees of Hong Kong trusts to be either individuals or companies.
Perpetuities
• Hong Kong trusts are allowed a fixed perpetuity period of up to 80 years, although a ‘lives in being’ period can also be chosen.(It is understood that new Hong Kong trusts will not be subject to perpetuities rules following the revision of the Trustee Ordinance.)
Accumulations
• A number of different accumulation periods are permitted, including the lifetime of the settlor and 21 years following the settlor’s death. (The rule against the accumulation of income may be limited following the revision of the Trustee Ordinance.)
Authorised investments
• Trustees have the power to invest in the permitted investment types that are set out in Schedule 2 of the Trustee Ordinance. Where trusts are established with a professional trustee, it is relatively common to draft the trust instrument so that the trustee has the power to invest in investments which are not set out in Schedule 2 to give trustees greater investment flexibility.
For more on the proposed changes to the Hong Kong Trustee Ordinance, see the January issue of the STEP Journal, from which the above overview of Hong Kong’s existing law was taken.
