Trusts have many applications and advantages – the protection and preservation of assets, tax planning, succession planning or simply avoiding the expense and delay of obtaining probate under a will. They also provide a high degree of confidentiality.
Hong Kong’s trust law regime was based primarily on English common law, which was supplemented by the Trustee Ordinance (Cap 29) and the Perpetuities and Accumulation Ordinance (Cap 257), enacted in 1934 and 1970 respectively. With the introduction of the Trust Law (Amendment) Ordinance 2013, however, Hong Kong comprehensively modernised its trust law to make it a much more competitive and attractive proposition for trusts.
The major changes brought in by the Trust Law (Amendment) Ordinance 2013 were to:
- Abolish the rule against perpetuity and the rule against accumulations for all new non-charitable trusts, enabling settlors to set up perpetual trusts in Hong Kong.
- Protect against forced heirship rules by providing that the transfer of movable property held on trust should not be affected by foreign laws of inheritance.
- Provide that a trust will not be invalidated because the settlor has retained the power of investment or asset management functions.
- Provide a clear statement of the standard of care to be expected from a trustee.
- Limit the use of trustees’ exemption clause to enhance the protection for beneficiaries.
- Enhance the default powers of trustees to facilitate the effective administration of trusts by providing powers to:
- appoint agents, nominees and custodians;
- insure the trust property against risks of loss or damage caused by any event;
- receive remuneration under specific circumstances if they act in a professional capacity; and
- make investments with less restriction.
Placing the shares of an offshore company within a trust can offer substantial tax and non-tax related advantages,which will accrue both on death, and during the lifetime of the trust settlor. These advantages may be summarised as follows:
- Inheritance tax: On death, the inheritance tax which would normally be assessed on the value of the shares would generally be eradicated.
- Lifetime tax savings: Substantial income and capital gains tax advantages may accrue to a settlor as a result of transferring assets into trust.
- Asset protection: Assets placed into trust are generally beyond the reach of creditors who might arise as a result of financial difficulties, divorce proceedings, litigation etc.
- Avoidance of probate: Assets in trust can be passed on to the next generation without the disruption, delays, costs and loss of confidentiality associated with the probate procedure when assets are bequeathed by will.
- Continuity: Trusts provide a means whereby assets can continue to be administered in accordance with the wishes of the settlor after death, such as to protect minors, infirm, weak or spendthrift beneficiaries.
- Retaining investment powers: Hong Kong trust law allows the settlor to retain substantial investment powers over trust assets, without affecting the validity of the trust.
Fees for drafting the trust deed and for the provision of trustee services will be quoted on a case-by-case basis. Please contact your nearest Sovereign office for an exploratory discussion.