The Trust Law (Amendment) Ordinance 2013 ("the Ordinance"), which aims to modernize Hong Kong's trust laws, will come into effect on 1 December 2013.
The Ordinance states that its purpose is to amend the Trustee Ordinance and Perpetuities and Accumulations Ordinance to:-
- extend trustees' powers in certain aspects;
- impose a statutory duty of care on trustees;
- provide for the validity of certain trusts;
- abolish the rule against perpetuities; and
- change the rule against excessive accumulations of income
The major changes include the following:-
- Extension of trustees' powersto do certain acts, where the trust deed does not provide for such, including to:-
- insure trust property against loss or damage due to any event;
- appoint agents to perform the trustee's delegable functions and nominees and custodians of trust assets, subject to the trustees keeping such appointments under review;
- receive reasonable remuneration, where acting as trustee in a professional capacity and even where the services are capable of being provided by a lay trustee;
- invest in quoted companies with a market capitalisation of not less than HK$5 billion and a track record of having paid cash dividends over the preceding 3 years (previously a market capitalisation of not less than HK$10 billion and 5 years track record was required).
- Introduction of a default provision on statutory duty of care on trusteesi.e. subject to a contrary intention in the trust instrument, the statutory duty will replace the common law duty for trustees exercising certain prescribed functions. The Ordinance imposes a statutory duty of care on trustees, requiring them 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 himself out as having; and
- if the trustee is acting in the course of a business or profession, any special knowledge or experience that is reasonably expected of a person acting in the course of that kind of profession.
- Imposition of statutory controls on trustee's exemption clauses so that if a clause seeks to exonerate remunerated professional trustees from liability for breach of trust arising from the trustee's own fraud, wilful misconduct or gross negligence, the term will be invalid. This will apply to trusts created on or after commencement of the Ordinance on 1 December 2013, but in respect of existing trusts, will only come into effect on 1 December 2014.
- Provision of a court-free process for the appointment and retirement of trustees on beneficiaries' directions, subject to a contrary intention in the trust instrument and certain conditions being met.
- Provisions against forced heirship rules, so that no foreign rule relating to inheritance or succession will affect the validity of transfer of moveable assets by a settler during his lifetime into a trust expressed to be governed by Hong Kong law.
- Abolition of the rule against perpetuities and excessive accumulations of income, so that settlors can set up trusts which can continue in existence for an unlimited period of time and there will be no limits on the periods of time over which income can be accumulated in respect of non-chartable trusts.
- Inclusion in the trust of provisions reserving powers relating to investment and asset management functions will not invalidate the trust.
The above provisions will bring welcome improvements to Hong Kong's trust law and will no doubt enhance Hong Kong's position as an international asset management and trust planning centre and make it a more attractive trust domicile for settlors.