Trust law reform

On 22 March 2012, the Financial Services and Treasury Bureau (FSTB) of the Hong Kong government released a consultation paper on detailed legislative proposals on trust law reform following a public consultation  which concluded in 2010.  The proposals seek to provide clarification of the duties and powers of trustees, better protection of beneficiaries' interests and modernisation of Hong Kong trust law generally.

We set out below a summary of the legislative proposals, which involve amending the Trustee Ordinance, the Perpetuities and Accumulations Ordinance and the Enduring Powers of Attorney Ordinance.

Clarification of trustees' duties and powers

• A new statutory duty of care for trustees, in certain circumstances, will be introduced.
• A trustee's power of delegation will be clarified – there should be at least one attorney and one trustee or, alternatively, a trust corporation administering the trust.
• Trustees will be given a general power to appoint agents, nominees and custodians, subject to certain safeguards.
• Trustees will be provided with wider powers to insure trust assets and to pay insurance premiums out of trust funds.

Better protection of beneficiaries' interests

• Professional trustees and trust corporations will be able to receive remuneration for their services subject to specific safeguards.
• Certain trustee exemption clauses will be subjected to statutory control: for example  clauses purporting  to exempt remunerated professional trustees from liability for breach of trust arising from the trustee's own fraud, wilful misconduct or reckless act (including reckless omission).
• Beneficiaries will be provided the right to remove a trustee through a court-free process.

Modernisation of trust law

• Where a settlor reserves himself power of investment or asset management, the trust will not be invalidated and the trustee will be exempted from liability if he has acted in accordance with the powers the settlor has reserved. 
• The rules against perpetuity will be repealed with respect to new trusts.
• The rules against excessive accumulation of income will be abolished with respect to new charitable trusts.

The trust law reform proposals are likely to be well-received.  They serve to provide a better framework for the operation of trusts in Hong Kong.  It is worth noting that the proposed amendments are unlikely to impact a fund structured as unit trust, as the trustees' powers conferred by the Trustee Ordinance apply only to the extent the trust deed is silent.

The next step

The consultation period ended on 21 May 2012.  The FSTB plans to introduce an amendment bill into the Legislative Council within the next year.