HK’s Trust Amendments to Take Effect from 1st December
HK TrustHong Kong being the gateway to China, its trust industry has a clear comparative advantage over other locations in Asia.
However, many industry players have long felt that Hong Kong’s premier position is being eroded by its trust law, which is relatively out of date and inflexible. Since its enactment in 1934, the Trustee Ordinance has not been substantially reviewed and amended.
In response to such market sentiment and increasing competition from Singapore, the Trust Law (Amendment) Ordinance 2013 was gazetted in February this year and will take effect from 1st December.
These amendments are intended to strengthen the clarity and certainty of Hong Kong trust law, and grant trustees modernised powers necessary for the efficient management of trusts in Hong Kong.
The Ordinance updates the existing legislation in certain specific aspects of by enhancing trustees default powers, abolishing the rule against perpetuities and changing the rule against excessive accumulation of income. In practice though, in most cases there will be a trust deed drafted to govern the powers and obligations of professional trustees.
Here is a brief summary of the main changes to HK trust legislation:
Introduction a statutory duty of care for trustees when they are exercising their powers in relation to investment, delegation, and appointment of nominees.
General power for trustees to appoint agents, with specified safeguards.
Abrogation of the existing rules against perpetuity in respect of new trusts to be set up.
Abrogation of the rules against excessive accumulation of income in respect of new trusts to be set up, except for charitable trusts.
Granting of more powers to insure trust assets against risk of loss or damage by any event, and pay the premium out of the trust funds.
Foreign forced heirship rules will not affect the validity of a lifetime transfer of moveable assets to a trust expressed to be governed by Hong Kong law.
Trust instruments can no longer exempt a trustee from liability for fraud, wilful misconduct and gross negligence.
Having considered the essential features of the Trust Law (Amendment) Ordinance 2013, the advantages for the settlor in setting up a trust based in HK and with a HK trustee will depend mostly on the settlor’s personal circumstances and country of residence. Some may be attracted by the fact that HK is a major finance and business centre well known internationally compared to “exotic” jurisdictions.