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?
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.
Forced heirship rules, requiring a proportion of an individual’s estate to pass to certain heirs, typically the spouse or children, upon their death can be an issue for international families. Assets placed in a Hong Kong trust will now be protected from such rules, providing greater flexibility. This is not an option offered by all popular trust jurisdictions.
The regime also becomes more flexible thanks to new provisions enhancing trustees’ powers. Trustees can now appoint professional asset managers to manage a portfolio of investments, which should simplify administration.
Finally, the amendments also enhance the protection of beneficiaries, bringing trustees’ duties in line with international industry standards. For example, professional trustees will now be held to a higher standard and will no longer be able to exclude liability for wilful misconduct or gross negligence.
The impact – do the reforms go far enough?
Many commentators agree that the changes are timely and welcome but some have highlighted the reforms may not go far enough to appeal to certain client groups.
The changes do adopt a somewhat conservative approach but this is, in fact, likely to be a draw rather than drawback for the Hong Kong regime. Most of the key reservations clients and their advisers had previously in using Hong Kong law trusts have been addressed but the considered nature of the reforms allows Hong Kong to maintain a trust law with credibility.
Against the backdrop of global uncertainty, clients are seeking strong, stable trust structures and perceived credibility of the jurisdictions in which to establish them is an important consideration. Crucially, for families who would not have had Hong Kong even on their long-list of potential jurisdictions for trust structures pre-2013, it is now a real option.
Nisha Singh is a senior associate at international law firm Berwin Leighton Paisner