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Hong Kong – The Trust Law (Amendment) Bill 2013.

16 May, 2013

 

Legal News & Analysis – Asia Pacific – Hong Kong – Dispute Resolution

 

The Trust Law (Amendment) Bill 2013, which aims to modernize Hong Kong's trust laws, was gazetted on 8 February 2013 and had its second reading in LegCo on 20 February 2013.

 

The purpose of the Bill is to amend the Trustee Ordinance (Cap. 29) and the Perpetuities and Accumulations Ordinance (Cap. 257) to: –

 

  • extend trustees' powers in certain aspects

  • impose a statutory duty of care on trustees

  • provide for the validity of certain trusts

  • abolish the rule against perpetuities

  • change the rule against excessive accumulations of income

 

Hong Kong's trust law is based mainly on the common law and supplemented by the Trustee Ordinance and the Perpetuities and Accumulations Ordinance and those ordinances have not been substantially reviewed or modified since they were enacted in 1934 and 1970, respectively and some of their provisions are outdated Some of the major Changes the include: –
 

  • Enhancement of Trustees' default powers in order to facilitate the effective administration of trusts, where the trust instrument does not contain specific provisions on these matters, such as a General power to appoint agents, Nominees and Custodians, PoWeR to insure trust property, entitlement to receive remuneration. The Second Schedule to the new Ordinance also sets out a default range of authorised investments in which a trustee may invest. There is also a relaxation of the market capitalisation and dividend requirements in relation to the investment in shares.
  • Providing for appropriate Checks and Balances to ensure that the Trustees will EXERCISE their new STATUTORY powers properly, including: –

     

    • A new default STATUTORY duty of care on Trustees ie Subject to the contrary intention in the trust instrument, the the STATUTORY duty would replace the common law duty for Trustees exercising certain Prescribed Functions To comply with the new Duty of a Trustee must show a level of CARE and skill that is reasonable in the circumstances of the case, having regard to the trustee's special knowledge, experience or professional status.
    • The Statutory control on Trustee Exemption … risks clauses of. Under the common law, a Trustee's Exemption Clause CAN validly exempt a Trustee from Liability of all BREACHES of trust, except Chatter is abusive To better Protect beneficiaries in the Event of a Breach of trust, a remunerated Trustee, acting in a professional capacity, will not be exempt from liability for a breach of trust arising from the trustee's own fraud, wilful misconduct or gross negligence.
    • A REQUIREMENT for Trustees to give clear guidance to their agents who are Delegated with FUNCTIONS relating to the Investment of Trust ASSETS and the Acquisition, Disposal and Management of Trust Property Trustees will have a duty to Review Arrangements under which Their Agents, Nominees and Custodians act. There will also be certain restrictions on who may be appointed as a nominee or custodian.
    • COURT-free process for beneficiaries to appoint and retire Trustees , subject to a contrary intention in the trust instrument and Certain conditions being met. Under the common law, the Beneficiaries A who wish to replace a Trustee need authority under the trust Deed or to resort to the court, which can be costly and time consuming.
  • Clarification of to a settlor's reserved Powers Under the common law IT is generally acceptable for a settler to reserve some (of BUT Not the EXCESSIVE) Powers to CONTrol the trust Property There will BE a ProVision in The New ORDINANCE that a limited reservation of a settlor's Powers relating to investment or asset management functions does not invalidate a trust. There will also be a provision that a trustee who has acted in accordance with the exercise of the reserved power is exempt from liability.
  • Abolition of the rule against perpetuities and excessive accumulations of the rule Against The rule against perpetuities specifies a time within which the for a PERiod trust Property Must Vest INCOME prohibits a person from accumulating any trust in the beneficiaries and the rule Against excessive accumulations of INCOMEof Income. longer than one of the six statutory periods specified in the Perpetuities and Accumulations Ordinance (Cap. 257). The new Ordinance abolishes these rules to allow the setting up of perpetual trusts, with a view to enhancing Hong Kong as a trust domicile.
  • Provisions Against Forced heirship the rules. These the rules are mandatory Rules Found in some Admiralty law Jurisdictions and which restrict testators' freedom to Decide how to pass on their Estate on death, by requiring that a particular portion of the estate be reserved for Designated Categories of heirs. If there is insufficient left in the estate to satisfy this requirement, the property held in trust set up by the settler during his lifetime may be clawed back to make up for the shortfall. The new Ordinance will include a provision that foreign forced heirship rules will not affect the validity of a lifetime transfer of movable property assets to a trust which is expressed to be governed by Hong Kong law.

 

We shall report further once the Bill makes further progress through LegCo.

 

 

For further information, please contact:

 

Karen Dicks, Deacons

karen.dicks@deacons.com.hk
 

 

 

 

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