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Hong Kong Family Trust Trustee Duties and Costs: What to Verify Before You Sign

A Hong Kong family trust separates legal ownership from benefit: the trustee holds and administers the assets, the trust deed sets the legal framework for what the trustee may do, and a letter of wishes records what the settlor hopes the trustee will do. Before appointing or continuing with a trustee, four things are worth verifying: the duties and powers the trustee actually holds, the document set that evidences them, the fee categories being charged, and the provider's licensing status in Hong Kong. Hong Kong law prescribes no minimum asset value for establishing a trust, and the restriction on the duration of trusts has been abolished, so perpetual trusts can be established there. Published fee levels are background ranges rather than quotations, and they move with asset size, asset type, beneficiary count, distribution arrangements and service scope.

What a trustee does under Hong Kong law

Hong Kong trustee law sits in the Trustee Ordinance, which provides that it may be cited as the Trustee Ordinance. Much of the Ordinance is machinery: it deals with how trustees are appointed and removed, what happens when a trustee retires or cannot act, and how the court supervises those changes.

On appointment and replacement, the Ordinance provides for the appointment of new trustees out of court under a statutory power as well as by order of the court, and it requires leave in certain cases before a new trustee is appointed alongside continuing trustees. It also provides for the removal of a trustee under a power contained in the trust instrument and for a retiring trustee to be discharged by deed. Where a trustee is under a disability, the Ordinance makes provision for that situation as well.

Two further parts matter when assessing a trustee. The Ordinance addresses the trustee's ability to allow deductions for duties, costs, charges and expenses, which is the statutory backdrop for the fee and expense provisions a family will see in a trust deed or terms of business. It also establishes the office of the Official Trustee, and orders under the Ordinance can vest interests in the Official Trustee.

The Ordinance also regulates who may act in a corporate capacity. Its provisions refer to a company incorporated in Hong Kong that is not a bank licensed under the Banking Ordinance, to a subsidiary of a bank licensed under the Banking Ordinance, and to a trust company registered under the Ordinance before the commencement date of the Trustee (Amendment) Ordinance 1975. Separately, Part II of the Ordinance sets out Hong Kong Investments, which includes deposits held in Hong Kong or in any other place by a bank, other than an unincorporated bank, licensed under the Banking Ordinance, and securities issued by companies incorporated in Hong Kong.

The document set to review: deed, letter of wishes and licence record

A trust deed defines the legal framework and a trustee executes the administration. When reviewing a trustee's authority, read the deed for the distribution standard and for the power to add or exclude beneficiaries, because those clauses decide how much discretion the trustee really holds.

The letter of wishes sits alongside the deed. It is a confidential, non-binding document that sets out the settlor's wishes, intentions and guidance regarding the management of the trust and the treatment of beneficiaries, and, unlike the trust deed, it has no legal force, so a trustee is not legally obligated to follow it. Letters of wishes are entirely non-binding on trustees, and settlors are advised of this when the structure is established. The letter is typically treated as confidential between settlor and trustee: it is not registered, not filed with any authority, and in most jurisdictions not automatically disclosable to beneficiaries.

Non-binding does not mean irrelevant. A letter of wishes made contemporaneously with the settlement of the trust should be taken into account by a trustee during the decision-making process, and it is a relevant consideration. Where settlors later update their wishes, a trustee should likewise take those later wishes into account and determine what weight to attribute to them alongside all other relevant considerations. Substantially contemporaneous documents intended to be read with the trust instrument, such as a letter of wishes, are admissible in the determination of the proper purpose of a fiduciary power.

Two matters show why drafting matters. In one example, a settlor's letter directed that the eldest son should receive 60% of all distributions while the trust deed established a fully discretionary trust with no fixed entitlements; when the trustee followed the letter, the younger children challenged the distributions in court, and the court found that the prescriptive language effectively converted a discretionary trust into a fixed one, an outcome the deed did not support, with litigation lasting two years and costing the trust over USD 150,000 in legal fees. In a Privy Council matter, there was no letter of wishes at the outset, but the natural reading of the trust deed showed a family trust for the benefit of the settlors' direct descendants; after the settlors' intentions changed for explicable reasons, the trustee added the trustee of a purpose trust as beneficiary, excluded the existing family objects and transferred the assets, which fell within the scope of a widely drafted power to add or exclude beneficiaries.

Fee categories to separate before comparing quotes

Hong Kong trust costs are usually described in two main categories: the trust setup fee and the annual management fee. Setup costs are one-off expenses payable when the trust is established, and they generally include the setup fee together with trustee fees, legal documentation costs and administrative management expenses. The annual management fee is an ongoing yearly charge, usually levied by the trustee or trust company to support day-to-day operation, and it includes the trustee management fee.

On level, Prudential's Hong Kong guide to family trusts puts the annual management fee at about 0.5% to 2% of the trust's net asset value, with lower-cost or simplified models around 0.2% to 0.3%. Traditional family trusts often involve establishment costs of hundreds of thousands of Hong Kong dollars, alongside annual management and administration fees. The actual fee depends on the size of the trust assets, the types of assets, the number of beneficiaries, the distribution arrangements and the scope of services provided by the trustee.

A separate general overview of trust costs, published by Hancock Whitney, separates the trustee charge from the investment management charge. Investment management fees are typically asset-based and estimated at around 1% of assets, with a range of 0.5% to 1.5%, and larger trusts typically pay lower asset-based fees. An individual trustee may charge a nominal fee, or a fee that is asset-based, hourly or flat. Trusts can also incur administrative costs related to managing the trust's assets, and where an individual trustee needs to be bonded, bonding fees are generally a percentage of the value of the trust.

Because Hong Kong law does not prescribe a minimum asset value for establishing a trust, the practical constraint is cost rather than eligibility: a trust may be established even where the asset base is not especially large, but the setup fee, trustee fees, legal documentation costs and administrative management expenses still have to be weighed. With innovation across financial products, some insurance products now include a range of legacy planning tools, allowing ordinary families to arrange certain wealth succession functions at a relatively lower threshold.

How to check a provider's licensing status in Hong Kong

Trust or company service providers in Hong Kong are regulated under Part 5A of the AMLO, and a person who carries on or wishes to carry on a trust or company service business in Hong Kong has to apply for a TCSP licence. Carrying on a trust or company service business in Hong Kong without a licence is an offence. The Companies Registry's guideline defines a trust or company service business by reference to the provision of the relevant services in Hong Kong.

Not every provider needs the licence. The guideline describes exemptions and deeming provisions: a legal professional may carry on a trust or company service business in Hong Kong, and there is provision for a licensed corporation operating such a business as well as for a deemed licensee that ceases to carry on the business in Hong Kong. Whether a particular arrangement falls inside the licensing perimeter therefore depends on the services actually provided in Hong Kong.

The check itself is a register lookup. The Companies Registry maintains a Register of Trust or Company Service Provider Licensees with a published list of licensees, and the Registry for Trust and Company Service Providers is at Unit 1208, 12/F, One Kowloon, 1 Wang Yuen Street, Kowloon Bay, Kowloon, Hong Kong. Applications and enquiries can be made electronically through the Companies Registry's Trust and Company Service Providers Licensing Regime website, where further information on licensing is also available. For a family, the useful discipline is to match the exact legal name of the entity that will act as trustee against the register entry rather than relying on a group or trading name.

Tax and compliance: what the family office concession covers

Hong Kong's profits tax concession for family structures comes from the Inland Revenue (Amendment) (Tax Concessions for Family-owned Investment Holding Vehicles) Ordinance 2023, which was gazetted and came into operation on 19 May 2023. It amended the Inland Revenue Ordinance (Cap. 112) to provide profits tax concessions for eligible family-owned investment holding vehicles managed by eligible single family offices in Hong Kong, and for family-owned special purpose entities. Only the assessable profits of FIHVs and FSPEs arising from qualifying transactions and incidental transactions are eligible, and the concessions apply in respect of a year of assessment commencing on or after 1 April 2022.

Eligibility is structural rather than elective. An FIHV must be an entity established or created in or outside Hong Kong that is not a business undertaking for general commercial or industrial purposes, and entity means a body of persons, corporate or unincorporate, or a legal arrangement, and includes a corporation, a partnership and a trust, including a discretionary trust. The FIHV must carry out its core income generating activities in Hong Kong and meet the requirements of qualified full-time employees and operating expenditures, and it must be managed in Hong Kong by an eligible single family office of the family to which it is related. The Inland Revenue Department's guidance also addresses specified assets under Schedule 16C to the Inland Revenue Ordinance and the treatment of a beneficial interest held by a charitable institution or trust in an FIHV or eligible single family office.

Common trust structures used in planning include family trusts, testamentary trusts, insurance trusts and discretionary trusts, which differ in when they take effect, how they are managed, how beneficiaries are arranged and the threshold for setting them up.

Checklist: what to ask, and what to treat as a red flag

If a trustee is not performing

The Trustee Ordinance provides a route out. A trustee may be removed under a power contained in the trust instrument, and new trustees may be appointed out of court under a statutory power or by order of the court, with the leave of the court required in some cases. A retiring trustee can be discharged by deed. Where the dispute concerns how discretion was exercised, a court may examine the letter of wishes, and a substantially contemporaneous letter is admissible in determining the proper purpose of a fiduciary power. Before escalating, most families start with the document set: request the deed, the current letter of wishes, the fee schedule and the trustee's licensing record.

Questions families ask about Hong Kong family trustees

What are a trustee's core duties, and how are they enforced?

The Trustee Ordinance governs appointment and replacement of trustees, including removal under a power in the trust instrument, appointment out of court under a statutory power or by court order, discharge of a retiring trustee by deed, and provision for a trustee under disability. It also covers deductions for duties, costs, charges and expenses. Enforcement runs through the court, and beneficiaries can challenge distributions.

Which documents should we review before relying on a trustee?

The trust deed, which defines the legal framework; the letter of wishes, which is non-binding, confidential and not filed with any authority; and the trustee entity's entry on the Companies Registry register of trust or company service provider licensees.

What fee categories should we expect?

One-off setup costs and an annual management fee, with the annual figure described at about 0.5% to 2% of net asset value and simplified models at around 0.2% to 0.3%. Investment management is a separate, typically asset-based charge, and trusts can also incur administrative costs and, where required, bonding fees.

How do we verify a trustee is licensed in Hong Kong?

Check the Companies Registry's Register of Trust or Company Service Provider Licensees. The licensing requirement sits under Part 5A of the AMLO, and carrying on a trust or company service business in Hong Kong without a licence is an offence. Exemptions and deeming provisions exist, including for a legal professional carrying on such a business in Hong Kong.

What are the tax implications for a Hong Kong family trust?

The profits tax concession for family-owned investment holding vehicles and family-owned special purpose entities took effect on 19 May 2023 and applies from a year of assessment commencing on or after 1 April 2022. Only assessable profits from qualifying transactions and incidental transactions qualify, and an FIHV must carry out its core income generating activities in Hong Kong.

What should we do if the trustee is not fulfilling its duties?

Request the deed, the current letter of wishes, the fee schedule and the licensing record, then consider removal under a power in the trust instrument or an application for the court to appoint a new trustee.

Source basis for this article

Where a source carries no publication date, none is stated here. All figures are those published by the sources and should be checked against current terms of business before any decision is taken.