On 17 July 2013, the Hong Kong Legislative Council passed the Trust Law (Amendment) Bill 2013, which will come into operation on 1 December 2013. The purpose of the amendments is to modernise Hong Kong trust law, which is considered to be outdated and out of step with more modern trust laws in comparable jurisdictions (eg, Singapore and England) and as a result has put off settlors from creating trusts in Hong Kong. The amendments cover three major areas, namely the clarifying and enhancing of trustees' duties and powers, the enhancing of beneficiaries' protection and the creation of greater flexibility and protection of trusts. The amendments that bring Hong Kong trust law at least partly in line with modern international standards are likely to be welcomed by settlors and to enhance Hong Kong's status as an international asset management centre. The key amendments include the following new provisions: |
1. Enhancing trustees' default powers with a view to facilitating the effective administration of trusts:
2. Appropriate checks and balances with a view to enhancing beneficiaries' protection:
3. Reserved powers by settlors: a trust will not be invalidated only because a settlor has retained any or all powers of investment or asset management functions.
4. Abolition of the rules against perpetuities and excessive accumulations of income: settlors will be able to set up perpetual trusts in Hong Kong (ie, trusts that last forever or for any period of time chosen by the settlor) and there will be no limits on periods for which income may be accumulated in relation to non-charitable trusts.
5. Protection against foreign forced heirship rules: trusts governed by Hong Kong law will be protected from foreign heirship rules. This means that foreign laws that provide that a portion of a testator's wealth is to be reserved for certain heirs (eg, a spouse or children) will not affect the validity of the trust, which means that a shortfall may not be clawed back out of the trust.
6. Scope of authorised investments: investment restrictions on trustees in default situations will be relaxed insofar as they relate to market capitalisation and dividend requirements of shares. However, there will be an express prohibition on investment in structured products (subject to contrary provision in the trust deed).
Comment: The reforms bring the Hong Kong legislation to a very large extent in line with the equivalent legislation in England and Singapore and it will be interesting to see if Hong Kong experiences the same upturn in trusts business that Singapore experienced. However, in terms of competing with the offshore world, Hong Kong's new trusts law is not as innovative as a number of jurisdictions who have introduced a number of novel vehicles (for example, |
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