How to Manage Gold and Precious Metal Investments Through a Family Trust

The Hong Kong Monetary Authority’s (HKMA) December 2024 circular on the revised Supervisory Policy Manual for Authorized Institutions on Commodities Business (SPM module CA-S-2) has tightened the capital treatment for unallocated gold positions held by banks, raising the risk weighting from 50% to 100% for positions not backed by allocated bullion. This regulatory recalibration, effective 1 January 2026, directly impacts family offices and trusts that use bank custody accounts as the primary vehicle for precious metal exposure. For a UHNW family with HKD 100 million or more in gold, the shift could mean an additional HKD 500,000 in annual capital costs passed through by the custodian — a material drag on a typically low-yielding asset class. The solution lies in restructuring the holding vehicle: moving from unallocated bank accounts to allocated, segregated storage within a family trust structure, which not only neutralises the regulatory cost but also provides superior asset protection and succession planning benefits under Hong Kong’s Trustee Ordinance (Cap. 29) and the Powers of Attorney Ordinance (Cap. 31).

The Regulatory and Market Case for Trust-Based Gold Holding

The 2024 SPM revision is not an isolated event. It sits within a broader global trend — the Basel III endgame, the Financial Action Task Force (FATF) Travel Rule for virtual assets, and the increasing scrutiny of physical commodity holdings by tax authorities. For a Hong Kong family trust, the question is no longer whether to hold gold, but how to hold it in a manner that is capital-efficient, tax-transparent, and succession-ready.

The Cost of Unallocated Gold Under the New Regime

Unallocated gold — where the bank holds a pool of bullion and the client holds a contractual claim, not a specific bar — has been the default for most private banking clients. Under the pre-2025 framework, a bank could hold HKD 100 million in unallocated gold with a 50% risk weighting, requiring HKD 50 million in capital. The new SPM CA-S-2 mandates a 100% risk weighting, requiring HKD 100 million in capital. For a bank operating at a 12% return on equity, this means an incremental cost of HKD 600,000 per annum (HKD 50 million additional capital × 12% ROE). This cost is passed through to the client as a higher storage fee or a wider bid-offer spread.

By contrast, allocated gold — where the trust holds specific, serial-numbered bars in a secure vault — carries a 0% risk weighting under the SPM because the bank has no counterparty risk. The trust, as the legal owner, bears the storage cost directly, which at Hong Kong’s major vaults (Brink’s, Malca-Amit, Loomis) runs approximately 0.15% to 0.25% per annum. For HKD 100 million in gold, that is HKD 150,000 to HKD 250,000 — less than half the implied pass-through cost of the unallocated structure.

The FATF and Anti-Money Laundering (AML) Implications

Hong Kong’s Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap. 615) requires all precious metal dealers to register with the Customs and Excise Department. For a trust holding physical gold, the trustee must ensure that the dealer, vault operator, and any intermediary are registered. The 2024 FATF mutual evaluation report on Hong Kong specifically noted the need for enhanced transparency in the precious metals supply chain. A family trust that can demonstrate a clear chain of custody — from refiner to vault to trust — satisfies both the Ordinance and FATF recommendations, reducing the risk of a suspicious transaction report (STR) being filed against the trust’s account.

Structuring the Trust for Precious Metal Holdings

The choice of trust jurisdiction, trustee, and the specific trust deed provisions determines the efficiency of the gold holding structure. Hong Kong remains the preferred jurisdiction for Asian families due to its common law framework, the absence of capital gains tax, and the availability of professional trustees regulated by the Hong Kong Monetary Authority or the Companies Registry.

Jurisdiction and Trustee Selection

For a family with assets exceeding USD 10 million, the trust should be established under Hong Kong law, with a Hong Kong-licensed trust company as trustee. The Trustee Ordinance (Cap. 29) provides the trustee with the power to invest in physical assets, including precious metals, under Section 4(1). However, the trustee must exercise the standard of care of a prudent person of business — a standard that requires the trustee to obtain independent valuations, secure appropriate insurance, and ensure proper storage.

A common mistake is using a corporate trustee that lacks experience in physical asset management. The trustee must have a relationship with a vault operator, understand the London Bullion Market Association (LBMA) Good Delivery standards, and be able to execute a physical delivery instruction. The trustee’s fee for a gold-heavy trust typically ranges from 0.5% to 1.0% of net asset value (NAV) per annum, with a minimum of HKD 100,000. This is higher than a plain-vanilla financial asset trust (0.3% to 0.5%) but reflects the operational complexity.

The Trust Deed: Specific Provisions for Gold

The trust deed must contain a specific investment clause authorising the trustee to hold physical gold and other precious metals. Without this clause, the trustee may be limited to financial instruments under the Trustee Ordinance default powers. The clause should specify:

• Type of metal: Gold, silver, platinum, palladium — each with LBMA or London Platinum and Palladium Market (LPPM) Good Delivery specifications.
• Storage location: Hong Kong, Singapore, London, or Zurich. For a Hong Kong trust, storing in Hong Kong avoids cross-border custody issues but subjects the metal to Hong Kong’s security and insurance laws.
• Insurance: The trust must maintain all-risks insurance covering theft, loss, and damage, with a minimum coverage of 110% of the metal’s market value. The policy should name the trustee as the insured party.
• Valuation frequency: Monthly valuation based on the LBMA Gold Price PM Fix, with an annual independent audit of the physical inventory.

The Role of the Protector

A protector — a person or entity with the power to remove the trustee and approve certain investment decisions — is advisable for a precious metal trust. The protector can ensure that the trustee does not deviate from the gold holding strategy, particularly during periods of high volatility when a trustee might be tempted to sell the metal to meet income distribution requirements. The protector’s powers should be explicitly set out in the trust deed, referencing the Protector’s Powers Guidelines published by the Hong Kong Trustees’ Association (HKTA) in 2023.

Tax and Succession Planning Considerations

Hong Kong’s territorial tax system — no capital gains tax, no withholding tax on dividends or interest, and no estate duty — makes it one of the most tax-efficient jurisdictions for holding gold in trust. However, the family must consider the tax implications of the trust’s settlor and beneficiaries.

The Settlor’s Tax Position

If the settlor is a Hong Kong tax resident, the transfer of gold into the trust is not a taxable event. The Inland Revenue Department (IRD) has confirmed in its Departmental Interpretation and Practice Notes No. 45 (DIPN 45, 2020) that a gift of assets into a trust does not trigger profits tax, salaries tax, or property tax. However, if the settlor is a non-Hong Kong resident, the settlor’s home jurisdiction may impose a capital gains tax on the deemed disposal of the gold. For example, a US settlor would be subject to US capital gains tax on the transfer, as the IRS treats the trust as a grantor trust unless the trust is structured as a foreign non-grantor trust.

The Beneficiary’s Position

Distributions of gold from the trust to a beneficiary are treated as capital distributions, not income, under Hong Kong law. The beneficiary receives the gold at the trust’s cost base, meaning no Hong Kong tax is payable. However, if the beneficiary sells the gold, the sale proceeds are subject to profits tax only if the beneficiary is a trader in gold — a determination made by the IRD based on the frequency and volume of transactions. For a beneficiary who receives gold as a long-term inheritance, the sale is a capital transaction and not subject to profits tax.

Cross-Border Succession

For a family with members in multiple jurisdictions, the trust can hold gold in a Hong Kong vault, with the trustee managing the metal under Hong Kong law. This avoids the need for probate in each jurisdiction where a beneficiary resides. The Hague Convention on the Law Applicable to Trusts and on their Recognition (1985), to which Hong Kong is a party, ensures that the trust is recognised in all signatory countries, including the UK, Australia, and Singapore. China is not a signatory, so for a PRC-resident beneficiary, the trust must be structured to comply with PRC inheritance laws, which may require the trust to be revocable or to have a PRC-resident protector.

Operational Mechanics: From Bank to Vault

The transition from a bank-held unallocated position to a trust-held allocated position requires careful execution. The family must work with a trustee, a vault operator, and a bullion dealer to execute the physical delivery.

Step 1: The Physical Delivery

The bank holding the unallocated gold must be instructed to deliver the equivalent weight in LBMA Good Delivery bars (400 oz for gold) to the trust’s vault account. The bank will charge a delivery fee, typically 0.1% to 0.2% of the value, plus any assay costs if the bars need to be re-assayed to meet the vault’s standards. The delivery must be documented with a Delivery Order and a Certificate of Analysis from the refiner.

Step 2: Vault Account Setup

The trust opens a vault account with a Hong Kong-based vault operator. The account is in the name of the trustee, with the trust’s name as the beneficial owner. The vault operator will issue a Vault Receipt — a negotiable document that can be used as collateral for borrowing. The vault receipt is not a security under the Securities and Futures Ordinance (Cap. 571), so it does not trigger the SFC’s licensing requirements. However, if the trust uses the receipt as collateral for a loan from a bank, the bank will require the receipt to be held under a charge, which must be registered with the Companies Registry under the Companies Ordinance (Cap. 622).

Step 3: Ongoing Management

The trustee must conduct a monthly reconciliation of the vault account against the trust’s records. The trustee should also monitor the LBMA Gold Price and ensure that the insurance coverage is adequate. If the family wishes to sell gold, the trustee can instruct the vault to deliver the bars to the buyer’s vault, with settlement through the LBMA’s electronic system. The sale proceeds are then credited to the trust’s bank account.

Actionable Takeaways

1. Restructure unallocated gold positions into allocated, segregated storage within a Hong Kong family trust before the HKMA’s SPM CA-S-2 takes effect on 1 January 2026 to avoid the 100% risk weighting pass-through cost.
2. Ensure the trust deed contains a specific investment clause authorising physical precious metal holdings, with provisions for LBMA Good Delivery standards, vault location, and all-risks insurance at 110% of market value.
3. Appoint a protector with explicit powers over gold-related investment decisions to prevent the trustee from liquidating the metal during market volatility.
4. Verify that the vault operator and bullion dealer are registered under Hong Kong’s Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap. 615) to mitigate AML compliance risk.
5. Document the chain of custody from the bank’s unallocated pool to the trust’s allocated vault account with Delivery Orders and Certificates of Analysis to satisfy both the IRD and FATF transparency requirements.