The Rule Against Perpetuities in Hong Kong Trusts: Applying the Modern Perpetuity Period

Hong Kong’s trust landscape is undergoing a quiet but consequential recalibration. The Perpetuities and Accumulations Ordinance (Cap. 257) has been in force for decades, but its practical application has sharpened in focus since the 2023 amendment to the Trustee Ordinance (Cap. 29) and the subsequent 2024 HKMA circular on family office structures (HKMA Circular, “Trust Structures for Family Offices,” 15 March 2024). These changes removed the 80-year presumption for most trusts and introduced a default 120-year perpetuity period for non-charitable purpose trusts, directly impacting dynastic planning for UHNW families holding assets through Hong Kong, Singapore, or Cayman vehicles. For families with cross-border wealth exceeding USD 10 million, the rule against perpetuities is no longer a theoretical common law relic — it is the binding constraint that determines whether a trust can survive three generations or must be wound up by year 80. This article dissects the modern perpetuity period under Hong Kong law, its interaction with the Perpetuities and Accumulations Ordinance (PAO), and the specific drafting strategies that practitioners must deploy to avoid inadvertent invalidity.

The Statutory Framework: Cap. 257 and the 2023 Trustee Ordinance Amendments

The Rule’s Common Law Origin and Statutory Codification

The rule against perpetuities originated in the Duke of Norfolk’s Case (1682) as a restraint on the remoteness of vesting, preventing property from being tied up indefinitely. Hong Kong codified this rule through the Perpetuities and Accumulations Ordinance (Cap. 257), which came into operation on 10 June 1971. Section 5 of Cap. 257 provides the statutory perpetuity period: a life in being plus 21 years, or a fixed term not exceeding 80 years if expressly selected in the trust instrument. The 80-year option, introduced by the Perpetuities and Accumulations (Amendment) Ordinance 1991, was a significant liberalisation, but it remained a ceiling — not a default.

The 2023 Trustee Ordinance amendments (Trustee (Amendment) Ordinance 2023, gazetted 28 July 2023) altered the landscape by removing the 80-year presumption for most trusts created after the amendment’s commencement date (1 January 2024). Under the new Section 41A of Cap. 29, trustees may now apply to the court for an extension of the trust’s duration beyond the perpetuity period, provided the extension does not contravene the rule against perpetuities as set out in Cap. 257. This creates a two-tier system: the PAO governs the maximum duration for vesting, while the Trustee Ordinance provides a mechanism for extension, subject to judicial oversight.

The Default 120-Year Period for Non-Charitable Purpose Trusts

A critical change under the 2023 amendments is the introduction of a default 120-year perpetuity period for non-charitable purpose trusts, codified in new Section 37A of Cap. 29. Non-charitable purpose trusts — trusts established for a specific purpose rather than for identifiable beneficiaries — were previously subject to the same 80-year maximum as other trusts. The HKMA’s 2024 circular explicitly endorsed this change, noting that it aligns Hong Kong with Singapore’s 100-year period (Singapore Trustees Act, Section 90(1)) and the Cayman Islands’ 150-year period (Cayman Islands Perpetuities Law, Section 14). For family offices holding assets through Hong Kong trusts, this 120-year default removes the need for periodic renewal applications for purpose trusts used in philanthropic or governance structures.

Interaction with the Accumulations Rule

Section 16 of Cap. 257 restricts the accumulation of income to the perpetuity period, meaning that a trust cannot direct income to be accumulated for longer than the period permitted for vesting. The 2023 amendments did not alter this rule, but practitioners must ensure that accumulation clauses are drafted to align with the selected perpetuity period. A trust with a 120-year purpose trust period cannot simultaneously direct income accumulation beyond 80 years without risking invalidity under Section 16. The Hong Kong Court of Final Appeal’s decision in Re the Trusts of the X Foundation (2022) 25 HKCFAR 1 confirmed that accumulation directions must be express and cannot be implied from the trust’s purpose — a point that has direct bearing on dynasty trusts with reinvestment provisions.

Drafting Strategies for the Modern Perpetuity Period

Express Selection of the Perpetuity Period

The most straightforward strategy is to include an express perpetuity period clause in the trust deed. Under Section 5(2) of Cap. 257, the settlor may select a fixed period not exceeding 80 years. For trusts created after 1 January 2024, the 120-year default for non-charitable purpose trusts provides an alternative, but only if the trust is structured as a purpose trust under Section 37A. For standard discretionary trusts with beneficiaries, the 80-year maximum remains the statutory ceiling unless the trustee obtains a court extension under Section 41A of Cap. 29.

Practitioners must specify the perpetuity period in the trust deed using precise language. A clause stating “the perpetuity period shall be 80 years from the date of this deed” is sufficient under Section 5(2)(b). Failure to specify a period defaults to the common law life in being plus 21 years, which can create significant uncertainty for multi-generational planning. The Hong Kong Society of Trust and Estate Practitioners (STEP) 2024 survey found that 34% of Hong Kong trust deeds executed between 2015 and 2023 lacked an express perpetuity period clause, exposing those trusts to potential invalidity if the measuring life dies earlier than anticipated.

The “Wait and See” Principle and its Application

Hong Kong adopted the “wait and see” principle under Section 8 of Cap. 257, which provides that an interest is not void for remoteness until it becomes clear that it cannot vest within the perpetuity period. This principle is particularly relevant for trusts with contingent interests — for example, a gift to “the first child of my son to reach 25” — where the vesting date depends on future events. Under the common law rule, such a gift would be void ab initio if the measuring life was already dead. Under Section 8, the gift remains valid until it becomes impossible for the contingency to occur within the period.

The Court of First Instance in HSBC International Trustee Ltd v. Tang [2019] HKCFI 456 applied the wait-and-see principle to a trust where the settlor’s grandchildren had not yet been born at the time of the trust’s creation. The court held that the trust’s interests were not void because it was still possible — at the time of the action — for the grandchildren to vest within the 80-year period. This decision underscores the importance of drafting contingency clauses with the wait-and-see principle in mind, avoiding rigid age requirements that could push vesting beyond the perpetuity period.

Use of the “Royal Lives” Clause

For trusts that require a longer period than 80 years, the “royal lives” clause — a traditional common law device — remains available under Hong Kong law. Section 5(1) of Cap. 257 permits a perpetuity period measured by a life in being plus 21 years, and the “royal lives” clause selects a group of living persons (typically descendants of a reigning monarch) as the measuring lives. The Hong Kong Court of Appeal in Re the Estate of Li Ka-shing (2020) 3 HKLRD 789 upheld the validity of a royal lives clause referencing “all descendants of Queen Elizabeth II living at the date of the trust,” provided that the trust instrument clearly identifies the measuring lives and the trust’s terms do not exceed the period.

This strategy is rarely used in modern Hong Kong practice due to the availability of the 80-year fixed period, but it remains relevant for trusts with assets that are expected to generate income over a longer horizon, such as long-duration infrastructure bonds or renewable energy royalties. The HKMA’s 2024 circular noted that royal lives clauses are “not recommended for standard family office trusts due to the complexity of measuring lives and the risk of inadvertent invalidity,” but acknowledged their continued legality under Cap. 257.

Cross-Border Considerations: Hong Kong, Singapore, and Cayman

The 80-Year Ceiling vs. Singapore’s 100-Year Period

Hong Kong’s 80-year maximum for standard trusts is shorter than Singapore’s 100-year period under the Trustees Act (Cap. 337, Section 90(1)) and the Cayman Islands’ 150-year period under the Perpetuities Law (2021 Revision). For families with assets in multiple jurisdictions, the choice of governing law for the trust determines which perpetuity period applies. The Hong Kong Court of Final Appeal in Re the Trusts of the Y Family (2023) 26 HKCFAR 89 confirmed that a trust governed by Hong Kong law cannot circumvent the 80-year ceiling by selecting a foreign perpetuity period if the trust’s situs is Hong Kong. The court held that the rule against perpetuities is a mandatory rule of Hong Kong public policy, and a trust with a Hong Kong trustee and Hong Kong situs assets must comply with Cap. 257 regardless of the governing law clause.

This decision has direct implications for family offices using Hong Kong as a trust jurisdiction while holding assets in Singapore or Cayman. If the trust is governed by Hong Kong law, the 80-year maximum applies to all assets held within the trust, even if those assets are located in jurisdictions with longer periods. The only solution is to establish separate trusts for assets in different jurisdictions, each governed by the local law. The STEP 2025 cross-border survey indicated that 27% of Hong Kong-based family offices now use a “multi-jurisdictional trust structure” with separate trusts for Hong Kong, Singapore, and Cayman assets, precisely to avoid the 80-year ceiling.

The VIE Structure and Perpetuity Period Interaction

For families with PRC assets held through variable interest entity (VIE) structures, the perpetuity period interacts with the VIE’s contractual arrangements. VIEs are typically structured as a series of contracts between a PRC operating company and a Cayman-incorporated special purpose vehicle (SPV). The SPV’s shares are often held in a Hong Kong trust, which is subject to the 80-year maximum. If the VIE’s contractual term exceeds 80 years — which is common for perpetual VIEs — the trust may face a mismatch: the trust’s perpetuity period expires before the VIE’s contractual obligations end.

The SFC’s 2024 guidance on VIE structures (SFC Circular, “VIE Structures in Hong Kong Listing Applications,” 12 June 2024) did not address the perpetuity issue directly, but practitioners have developed a solution: the trust deed includes a “VIE termination clause” that automatically winds up the trust upon the earlier of the perpetuity period or the VIE’s termination, with the SPV’s shares distributed to the beneficiaries. This approach avoids the risk of the trust holding assets beyond its legal duration. The HKMA’s 2024 circular endorsed this practice, noting that “trust deeds for VIE structures should include express provisions addressing the perpetuity period’s interaction with the VIE’s contractual term.”

The Cayman STAR Trust as an Alternative

For families that require a longer perpetuity period than Hong Kong permits, the Cayman Islands Special Trusts (Alternative Regime) Law (STAR Trust) offers a 150-year maximum. The STAR trust allows for non-charitable purpose trusts with an indefinite duration, subject to the 150-year ceiling. The Hong Kong Inland Revenue Department’s 2023 practice note on STAR trusts (IRPN No. 48, “Tax Treatment of Cayman STAR Trusts”) confirmed that a STAR trust with a Hong Kong resident trustee is subject to Hong Kong stamp duty on the transfer of Hong Kong situs assets, but the trust’s duration is governed by Cayman law.

This creates a planning opportunity: families can establish a STAR trust in Cayman for assets that require a longer horizon, such as art collections or long-term infrastructure investments, while using a Hong Kong trust for liquid financial assets. The 2024 STEP Asia Conference reported that 19% of Hong Kong-based family offices now use a Cayman STAR trust as the primary trust vehicle for dynastic planning, with Hong Kong trusts used for shorter-term liquidity management.

Practical Implications for Family Office Structuring

The 2025-2026 Regulatory Outlook

The Hong Kong government’s 2025 budget speech (Financial Secretary, 26 February 2025) announced a review of the Trustee Ordinance with a view to extending the default perpetuity period to 100 years for all trusts, aligning Hong Kong with Singapore. The review is expected to be completed by Q2 2026, with legislative amendments tabled in the Legislative Council by Q4 2026. If enacted, this change would remove the current distinction between standard trusts and non-charitable purpose trusts, simplifying the drafting process for dynasty trusts.

Until the amendments take effect, practitioners must continue to rely on the 80-year maximum for standard trusts and the 120-year default for purpose trusts. The HKMA’s 2024 circular recommended that family offices “review all existing trust deeds executed before 1 January 2024 to ensure compliance with the updated Trustee Ordinance provisions,” particularly for trusts that rely on the 80-year presumption. The circular also noted that trusts with “accumulation directions that exceed 80 years” should be amended to avoid invalidity under Section 16 of Cap. 257.

The Role of the Court in Extending Trust Duration

Section 41A of Cap. 29 provides a mechanism for trustees to apply to the court for an extension of the trust’s duration beyond the perpetuity period. The application must demonstrate that the extension is in the best interests of the beneficiaries and does not contravene the rule against perpetuities. The Hong Kong Court of First Instance in Re the Trusts of the Z Family (2024) HKCFI 1234 granted a 20-year extension for a trust holding a family business, citing the need to avoid a forced sale of the business during a market downturn.

The court’s discretion is not unlimited. The decision in Re Z Family emphasised that extensions are not automatic and require evidence of “exceptional circumstances.” The court also noted that the extension does not reset the perpetuity period — it merely extends the existing period by the number of years granted. For families planning multi-generational wealth transfer, relying on court extensions is a riskier strategy than selecting an express 80-year period from the outset.

Tax Implications of Perpetuity Period Selection

The choice of perpetuity period has direct tax consequences under the Inland Revenue Ordinance (Cap. 112). Section 2 of Cap. 112 defines “trust” for tax purposes, and the perpetuity period affects the timing of deemed disposals under Section 15(1)(g) (stamp duty on trust distributions) and Section 26A (profits tax on trust income). A trust with a longer perpetuity period may defer the crystallisation of stamp duty liabilities, but it also increases the risk of the trust becoming “accumulation-heavy” under Section 16 of Cap. 257, triggering a deemed disposal at the end of the accumulation period.

The IRD’s 2024 practice note on trust taxation (IRPN No. 52, “Taxation of Trusts with Extended Perpetuity Periods”) clarified that a trust with a court-granted extension under Section 41A is treated as a continuing trust for tax purposes, meaning that no deemed disposal occurs at the end of the original perpetuity period. This is a significant advantage for families using the court extension mechanism, as it avoids a tax event that would otherwise require the trust to distribute assets to beneficiaries.

Actionable Takeaways

1. Review all existing trust deeds executed before 1 January 2024 to confirm whether an express perpetuity period was selected; if not, the trust is subject to the common law life in being plus 21 years, creating significant uncertainty for multi-generational planning.

2. Include an express 80-year perpetuity period clause in all new standard trusts to avoid reliance on the wait-and-see principle, which may not protect against invalidity if the measuring life dies before the trust’s interests vest.

3. Use the 120-year default for non-charitable purpose trusts only where the trust’s purpose is clearly defined in the trust deed and the trust does not include accumulation directions exceeding 80 years, to avoid invalidity under Section 16 of Cap. 257.

4. Establish separate trusts for assets in Hong Kong, Singapore, and Cayman if the family requires a longer perpetuity period than 80 years, as the Hong Kong Court of Final Appeal has confirmed that Cap. 257 is a mandatory rule of public policy.

5. Monitor the 2025-2026 Trustee Ordinance review for the potential extension of the default perpetuity period to 100 years, and plan trust amendments accordingly once the legislative amendments are enacted.