Hong Kong Trust Law Modernisation: Analysing the Impact on Family Trust Practice

Hong Kong’s trust law framework underwent its most significant statutory revision in nearly a century when the Trust Law (Amendment) Ordinance 2024 came into full effect on 1 January 2025. For family offices and multi-generational wealth planners operating in or through Hong Kong, the amendments directly address long-standing structural friction points that had driven settlors toward jurisdictions such as Singapore, the Cayman Islands, and New Zealand. The Trustee Ordinance (Cap. 29) now incorporates statutory powers for trustees to retain delegation of investment and asset management functions, a codified statutory duty of care calibrated to professional trustee standards, and a clearer regime for the variation of trusts without court sanction. These changes, combined with the concurrent expansion of the Family Office Tax Concession regime under the Inland Revenue Ordinance (Cap. 112), position Hong Kong as a jurisdiction that can now compete on regulatory architecture rather than merely on tax rate. The practical question for family trust practitioners is not whether the amendments are welcome, but whether they go far enough to shift the centre of gravity for Asian family wealth away from Singapore’s trust regime, which underwent its own modernisation in 2019 and 2022.

The Statutory Duty of Care: Codification of Professional Standards

The most consequential single change in the 2024 amendments is the introduction of a statutory duty of care for trustees under the new Part IVA of the Trustee Ordinance. Prior to this amendment, Hong Kong trustees operated under a common law standard that was fragmented across case law dating from the English Trustee Act 1925 and subsequent Hong Kong judicial interpretations. The result was legal uncertainty, particularly for professional trustees managing complex family trust structures with multiple asset classes spanning Hong Kong, the PRC, and international jurisdictions.

Section 41P of the amended Trustee Ordinance now imposes a duty on trustees to “exercise such care and skill as is reasonable in the circumstances, having regard to any special knowledge or experience that the trustee has or holds out as having.” For professional trustees—including licensed trust companies regulated by the Hong Kong Monetary Authority (HKMA) or the Companies Registry under the Trustee Ordinance—this standard is explicitly elevated to reflect their professional status. The statutory codification removes the ambiguity that had allowed trustee liability to be litigated on divergent standards across different trust instruments.

The practical impact for family offices is direct: the duty of care now applies uniformly regardless of whether the trust deed explicitly incorporates it. This reduces the need for bespoke drafting to replicate common law protections, though it does not eliminate the utility of carefully worded exculpatory clauses within the boundaries permitted by section 41U, which voids any clause purporting to exclude liability for fraud, wilful misconduct, or gross negligence. For settlors from mainland China who are accustomed to civil law systems where fiduciary duties are codified rather than implied, this statutory clarity reduces the cognitive gap in understanding trustee obligations.

Delegation and Investment Powers: Alignment with Modern Portfolio Practice

Statutory Power to Delegate Investment Functions

Prior to the 2024 amendments, Hong Kong trustees faced a structural limitation: the rule against delegation of discretionary powers, derived from the English case Re Speight (1883), required trustees to retain personal responsibility for investment decisions unless the trust deed expressly authorised delegation. For family trusts holding diversified portfolios across private equity, hedge funds, real estate, and listed securities—where specialised investment managers are the norm rather than the exception—this rule imposed either costly deed amendments or legal risk.

The new section 41B of the Trustee Ordinance now provides a statutory power for trustees to delegate “any of the trustee’s functions relating to the investment of trust assets” to an agent, provided the trustee maintains a written policy governing the delegation and reviews the agent’s performance at intervals of not more than 12 months. This mirrors the approach taken by the UK Trustee Act 2000 and the Singapore Trustees Act (Cap. 337) following its 2019 amendments.

For family offices acting as trustees, the delegation power is particularly relevant when the family itself wishes to retain investment control through a separate investment committee or a designated family member. The statutory framework now permits a clean separation: the trustee retains legal ownership and fiduciary oversight, while the investment function is delegated to a family-controlled entity or an external asset manager. This structure avoids the conflict that arose under the old regime, where a trustee who followed family investment instructions could be held liable for imprudent decisions.

Expanded Default Investment Powers

Section 41A of the amended ordinance expands the trustee’s default investment powers from the narrow “authorised investments” list under the previous regime to “any kind of investment” that a prudent person of business would make. This brings Hong Kong into line with the “prudent investor rule” applied in major trust jurisdictions including Delaware, Singapore, and the Cayman Islands.

The expanded investment power is not unlimited: the trustee must still consider the suitability of the investment to the trust’s circumstances, the need for diversification, and the overall risk profile of the trust portfolio. For family trusts holding concentrated positions in a family operating company—a common structure for Hong Kong and PRC business families—the trustee must document the rationale for retaining such concentration rather than diversifying. Section 41A(3) explicitly requires the trustee to have regard to “the desirability of diversifying trust investments,” which creates a statutory expectation that can be rebutted only by clear evidence of the family’s commercial rationale.

Variation of Trusts: The New Statutory Regime Without Court Sanction

Section 41V and the Statutory Power to Vary

One of the most frequently cited disadvantages of Hong Kong trust law compared to offshore jurisdictions was the absence of a statutory power to vary trusts without court approval. In Singapore, section 86 of the Trustees Act has since 2019 permitted trustees to vary administrative provisions of a trust with the consent of adult beneficiaries. In the Cayman Islands, the STAR Trust regime and the variation of trusts provisions under the Trusts Law (2021 Revision) offer substantial flexibility.

Hong Kong’s new section 41V addresses this gap by granting trustees a statutory power to vary the terms of a trust where the variation is for the “administration or management” of the trust and does not alter the beneficial interests of any beneficiary. The power requires the trustee to obtain the written consent of all adult beneficiaries with vested interests, but does not require court sanction. For unborn or minor beneficiaries, the trustee may apply to the court for approval on their behalf under section 41W.

The practical application for family trusts is significant. Trust deeds drafted before 2025 often contain rigid administrative provisions—such as the governing law, the trustee’s power to add or exclude beneficiaries, or the mechanics for appointing a protector—that may no longer align with the family’s circumstances. Under the old regime, varying these provisions required either a court application under the Variation of Trusts Ordinance (Cap. 253) or a deed of variation if all beneficiaries were sui juris and consented. The new section 41V streamlines this process for administrative changes, though it expressly excludes changes that would affect the beneficial interests, the trust’s perpetuity period, or the trustee’s remuneration.

Protector and Enforcer Provisions

The amendments also codify, for the first time in Hong Kong statute, the role of a protector in a trust. Section 41Y defines a protector as a person appointed to exercise supervisory or consent functions over the trustee, and confirms that a protector does not owe fiduciary duties to the beneficiaries unless the trust deed expressly imposes them. This codification resolves a long-standing debate in Hong Kong case law about whether a protector’s powers are personal or fiduciary.

For family trusts established by PRC settlors, the protector role is often filled by a trusted family advisor or a senior family member who retains a degree of oversight over the trustee’s decisions, particularly on matters such as the appointment of new trustees, the addition of beneficiaries, or the variation of the trust’s investment strategy. The statutory recognition of the protector role, combined with the default position that the protector’s powers are non-fiduciary, gives settlors greater confidence that the protector can act in the family’s interest without the legal risk of being treated as a de facto trustee.

Tax Alignment: The Family Office Concession and Trust Structuring

The 2025 Family Office Tax Concession Regime

The trust law amendments do not operate in isolation. The Inland Revenue (Amendment) (Family Offices) Ordinance 2024, which took effect on 1 April 2025, provides a 0% profits tax rate for qualifying family-owned investment holding vehicles (FIHVs) that are managed by a single family office in Hong Kong. The concession applies to profits derived from qualifying transactions, which include dealings in securities, futures contracts, foreign exchange contracts, and other financial instruments as defined under Schedule 16 to the Inland Revenue Ordinance.

The structural requirement for the concession is that the FIHV must be wholly owned by one family, defined as individuals who are connected by blood, marriage, or adoption within a single lineage. The family office managing the FIHV must employ at least two full-time qualified investment professionals in Hong Kong and incur annual operating expenditure of not less than HKD 20 million.

For family trusts, the critical interaction is that a trust can qualify as an FIHV if the trustee holds the assets for the benefit of a single family and the trust deed restricts the class of beneficiaries to that family. This allows a family trust to sit at the top of the family’s investment holding structure, with the trustee as the legal owner, while the underlying investment activities are managed by the family office and benefit from the 0% tax rate. The HKMA has confirmed in its guidance notes of March 2025 that a trust structured in this manner will not be treated as a separate family for the purposes of the “single family” test, provided the trust deed explicitly limits beneficiaries to the defined family lineage.

The Perpetuity Period and Tax Planning

Hong Kong’s trust law historically imposed a perpetuity period of 80 years under the Perpetuities and Accumulations Ordinance (Cap. 257). The 2024 amendments did not alter this period, which remains shorter than the 100-year period available in Singapore (since 2022) and the perpetual trusts available in the Cayman Islands, Jersey, and several US states.

For families planning multi-generational wealth transfer, the 80-year period imposes a structural constraint. A trust settled in 2025 for a 40-year-old settlor with young grandchildren will expire in 2105, which may be sufficient for three generations but not for a dynasty trust intended to last in perpetuity. The practical workaround used by many Hong Kong-based family offices is to establish the trust in a jurisdiction with a longer or no perpetuity period—typically the Cayman Islands or Jersey—while retaining Hong Kong as the jurisdiction for the family office and investment management functions. The trust law amendments do not change this calculus, but they do make Hong Kong more competitive as the “centre of administration” for such structures, particularly where the trustee is a Hong Kong-licensed trust company.

Comparative Analysis: Hong Kong vs. Singapore vs. Cayman Islands

Trustee Regulation and Licensing

Hong Kong’s trust company licensing regime under the Trustee Ordinance requires any company carrying on trust business in Hong Kong to hold a licence from the Registrar of Trust Companies, who is the Chief Executive of the Companies Registry. As of 31 December 2024, the Companies Registry reported 198 licensed trust companies in Hong Kong, compared to the Monetary Authority of Singapore’s 64 licensed trust companies under the Trust Companies Act (Cap. 336) as of the same date.

The disparity in numbers reflects Hong Kong’s historical role as a regional trust services hub, particularly for mainland Chinese families. However, the quality of regulation has been a point of differentiation: Singapore’s trust companies are regulated by the MAS under a more intensive supervisory framework, including on-site inspections and capital adequacy requirements. Hong Kong’s 2024 amendments do not directly address the regulatory framework for trust companies, which remains under the Companies Registry rather than the SFC or HKMA. For family offices comparing jurisdictions, the regulatory intensity of the trustee is a factor that weighs against Hong Kong for families that prioritise regulatory oversight, despite the larger number of service providers.

Asset Protection and Creditor Claims

Hong Kong’s trust law does not offer the same level of statutory asset protection as the Cayman Islands or the Cook Islands. The Cayman Islands Trusts Law (2021 Revision) provides that a trust cannot be set aside by a creditor unless the creditor can prove the settlor was insolvent at the time of settlement and that the transfer was made with intent to defraud. Hong Kong operates under the common law rules on fraudulent conveyances, codified in the Conveyancing and Property Ordinance (Cap. 219), which allow a creditor to set aside a transfer made with intent to defraud creditors, regardless of the settlor’s solvency at the time.

For PRC families who are concerned about potential creditor claims arising from business operations in the mainland, Hong Kong’s asset protection framework is weaker than that of the Cayman Islands or the Cook Islands. The trust law amendments do not address this gap, and it remains a structural reason for families to consider a dual-jurisdiction structure: a Cayman Islands or Cook Islands trust for asset protection, with Hong Kong as the investment management and family office jurisdiction.

Actionable Takeaways

1. Review existing trust deeds for delegation and investment clauses: Trusts settled before 1 January 2025 may contain restrictions on delegation of investment functions that are no longer necessary under the new statutory powers; trustees should consider executing a deed of variation under section 41V to align with the modernised framework.

2. Document the statutory duty of care compliance framework: Professional trustees and family offices acting as trustees should update their internal policies and procedures to reflect the codified duty of care under section 41P, particularly in relation to investment decisions and the monitoring of delegated agents.

3. Evaluate the Family Office Tax Concession for trust structures: Families with a single-family office in Hong Kong should assess whether their trust structure can be restructured to qualify as an FIHV under the Inland Revenue (Amendment) (Family Offices) Ordinance 2024, potentially achieving a 0% tax rate on investment income.

4. Consider the perpetuity period in trust formation: For multi-generational wealth transfer beyond 80 years, the trust should be settled in a jurisdiction with a longer or no perpetuity period, with Hong Kong retained as the centre of administration and family office operations.

5. Assess asset protection needs separately from trust modernisation: The 2024 amendments do not enhance Hong Kong’s asset protection framework; families with material creditor risk should structure the trust in the Cayman Islands or Cook Islands while using Hong Kong for investment management and family office services.