By Vlad Cuc, specialist in company formation matters
Our experts in company formation in Hong Kong assist those interested in setting up a trust, irrespective of their type, structure, or use.
| Quick Facts | |
|---|---|
| Governing Law | The Hong Kong Trustee Ordinance along with other relevant laws and regulations. |
| Trust incorporation in Hong Kong | Usually incorporated as a corporate vehicle (company) |
| Trust registration | Registration as a Trust Company with the Companies Registry. |
| Types of trusts | Charitable and non-charitable trusts |
| Trustees | Appointed for the whole or part of the trust property. |
| Number of trustees | At least 2 |
| Trustees residency requirements | Not applicable. |
| The appointment of new trustees | Yes, possible |
| Trustee duties | Act in the best interest of the trust, act impartially, observe the terms of the trust and the trust law, etc. |
| Trustee liability | Liable for breach of trust or for breaching the fiduciary duty. Our team can give you more details. |
| Trustee powers | Control, administer and distribute the trust assets to the benefit of the beneficiaries, according to the trust terms and the law. |
| Court appointed trustees | Yes, if needed. |
| Trust beneficiaries | The party/parties that will receive the assets of the trust. |
| Trust taxation | Special tax regimes apply to certain types of trusts that are categorised under certain regimes. Trust companies can be structured to benefit from the local tax advantages. |
| The transmission of property | The transfer of the property to the trustee takes place as per the trust deed. |
Table of Contents
What is a trust?
A trust is a fiduciary relationship between one party and another who is assigned to control its assets and distribute them accordingly.
The trust arrangement is the manner in which this relationship is approached, and it assigns the roles to the parties.
A trust in Hong Kong:
- Is not a legal entity in the way a limited liability company would be;
- It is an arrangement between parties, as mentioned;
- It is based on three mandatory “certainties” (see below);
- It is governed by “proper law”.
How is a Hong Kong trust used?
Our experts in company formation in Hong Kong list the following common uses:
- Estate planning;
- Investment;
- The provision of benefits (most commonly to employees).
The following uses are common for estate planning purposes:
- Family succession: when the trustees hold the assets for the beneficiaries, thus allowing the settlor to create a trust that will distribute the assets as they see fit;
- For probate avoidance: when an individual may not have left a will, but also in those cases in which a will is in force. In this situation, an executor or an administrator would have to obtain a court order to be able to act upon the assets;
- For asset protection: when an individual (the settlor) aims to protect their assets against any creditor claims. In some cases (as would be required on a case-by-case basis), this instrument could also be used to protect the settlor’s assets from a spouse who intends to obtain them.
Those who open a trust in Hong Kong for investment purposes will often set up a holding company. An important decision in this case is whether to remove the management of the investment from the trustees (and appoint it to another party).
When a trust in Hong Kong is used to provide employee benefits or retirement benefits, its setup will essentially provide for a retirement scheme. A trust can also be used to provide for an employee stock ownership plan. In case you want to start a company in Hong Kong, our team can help you in this matter too.
What are the conditions to open a trust in Hong Kong?
According to the law, and as per the definition offered by the Hong Kong Trustees’ Association, the three certainties that must be fulfilled when setting up a trust in Hong Kong are:
- Certainty of words: the intention to set up the trust is clearly defined in the deed of incorporation;
- Certainty of subject matter: the property or assets placed in the trust are also clearly defined;
- Certainty of objects: the objectives of the trust are defined unambiguously and, when a wide class of objects is concerned, individual categorization must be clear.
What types of trusts are available in Hong Kong?
Two options are available, as listed below by our Hong Kong company formation agents:
- Irrevocable trusts are those in which the settlor disposes of all its interest in the trust and its property;
- Revocable trusts are those in which the settlor maintains some interest/rights over the assets placed in the trust and the trust itself. For example, he may choose to revoke the trust or have some or all of the trust property returned to him at some point.
A trust in Hong Kong is revocable when the settlor deems it to be so. Otherwise, in principle, trusts are set up as irrevocable.
The infographic below details the setup steps:
What are the parties to a trust?
Three roles are essential to open a trust in Hong Kong: the settlor, the beneficiary, and the trustee. Other parties may also be involved; however, they are not essential.
Our agents list the main functions of the key parties to a trust in Hong Kong:
- The settlor is the one who sets up the trust and places the assets/property in the trust fund. In principle, the settlor can be any person;
- The beneficiary is the one who will use the assets/property. The settlor can also appoint themselves in this role;
- Trustee: is a natural or legal person entitled to the power to manage the assets placed in the trust fund in Hong Kong. Their powers can be delegated (to a certain extent), and they can be changed.
Other parties to a trust in Hong Kong that may be appointed include:
- The protector: they supervise the trustee and have fiduciary powers;
- The appointor: the one who appoints (or removes, as the case may be) trustees. In most cases, this is the settlor or the protector;
- The enforcer: some non-charitable trusts can have an enforcer. They also have a supervisory role.
We invite your watch a short video about trusts:
What are the powers and duties of a trustee?
A trustee has the following powers:
- Administrative: to manage the trust property, engage in trade, insure, pay tax, give receipts, employ an investment adviser, make loans, give guarantees, etc.;
- Dispositive: to receive assets;
- To pay, transfer, or appoint capital;
- To amend, change the governing law, appoint or remove Beneficiaries;
- To appoint or remove Protectors.
Examples of key duties include:
- To act with due diligence, prudence, and to the best of their abilities and skills;
- To administer the trust according to the terms;
- To act in the best interest of the Beneficiaries;
- To keep the trust assets separate from their personal ones and not profit from the trust indirectly;
- To act impartially between the Beneficiaries;
- To enforce and defend claims, to give information.
Trustees owe a fiduciary duty to the Beneficiaries. They are liable if:
- They know of a breach of trust and do not act upon its correction;
- They commit the breach of trust themselves.
Two or more trustees found guilty of a breach of trust are jointly and severally liable.
How can a trust in Hong Kong be terminated?
A trust can be terminated when:
- The trust period expires;
- The Beneficiaries decide to do so (by action of the Trustees);
- By order of the Court;
- When it is fully revocable, and it is fully revoked.
Contact us for more information on how to set up a trust in Hong Kong.