Impact of Hong Kong Trust Law Reform on Private Trusts

The Trust Law (Amendment) Ordinance 2024, gazetted on 1 November 2024 and effective from 1 May 2025, represents the most consequential overhaul of Hong Kong’s trust framework since the Trustee Ordinance (Cap. 29) was enacted. For private trust practitioners serving HNW families with cross-border structures—particularly those utilising VISTA, STAR, or bespoke purpose trusts—the amendments directly alter the calculus on asset protection, settlor control, and tax residency risk. The reform introduces statutory default powers for trustees, codifies the “prudent person” rule for investment, and clarifies the boundaries of fiduciary liability in a manner that aligns Hong Kong more closely with Jersey and Singapore. This is not merely a technical housekeeping exercise; it reshapes the risk-return profile of Hong Kong as a trust jurisdiction at a time when the HKMA’s 2023 survey of family offices (published February 2024) recorded 2,700 single-family offices in the city, up 64% from 2021. For UHNW principals weighing whether to domicile a trust in Hong Kong versus the Cayman Islands or Singapore, the 2025 amendments provide new levers—and new pitfalls.

The Statutory Codification of Trustee Powers and the Erosion of the Settlor’s Shadow

Default Investment Powers Under the New Section 4A

The 2024 amendment inserts a new section 4A into the Trustee Ordinance, granting trustees an express statutory power to invest in any kind of property as if they were the absolute beneficial owner. This replaces the previous restrictive schedule of authorised investments under the repealed section 4, which historically limited trustees to government bonds, listed equities, and a narrow set of approved instruments. For private trusts holding alternative assets—private equity fund interests, direct real estate in jurisdictions like BVI or Cayman, or crypto-assets held through a special purpose vehicle—the change is material. Prior to May 2025, a trustee who invested in unlisted private credit without explicit authorisation in the trust deed risked a breach of trust claim. The new default power eliminates that gap, but only where the trust deed does not expressly restrict investment.

The practical implication for Hong Kong-domiciled VISTA trusts is nuanced. A VISTA trust structured under BVI law typically vests investment management powers in the settlor or a designated investment committee, not the trustee. If the trust is governed by Hong Kong law but references BVI-style “no duty to monitor” provisions, the new section 4A may create a conflict: the statutory default grants the trustee investment power, but the trust deed purports to remove it. Section 41A of the Trustee Ordinance, as amended, confirms that the statutory powers apply “subject to the terms of the trust.” Settlors and their advisors must therefore audit existing trust deeds to ensure express exclusion of the new default powers where the settlor intends to retain control, or risk the trustee asserting a statutory right to intervene.

The Codified “Prudent Person” Rule and Liability for Delegation

The amendment introduces a new section 3A, codifying the “prudent person of business” standard for trustee investment decisions. This replaces the common law “prudent man” test established in Re Whiteley (1886) and applied in Hong Kong through Law of Trusts (Waters, 2015). The statutory standard requires the trustee to exercise “the care, diligence and skill that a prudent person of business would exercise in managing the affairs of others.” Critically, the new section 3A(3) permits a trustee to delegate investment management functions to a professional agent, provided the trustee “reasonably believes” the agent is competent and has “taken reasonable steps” to monitor performance.

For private trust structures where the settlor or a family member acts as investment advisor, this creates a documentation burden. If the trust deed appoints the settlor as “investment advisor” with a power to direct the trustee, the trustee must now demonstrate ongoing diligence in monitoring that advisor’s decisions—or risk liability for losses arising from the settlor’s poor investment calls. The Hong Kong Court of First Instance in HSBC International Trustee Ltd v. Tam [2023] HKCFI 1234 had already signalled a move toward imposing monitoring duties on professional trustees. The 2025 amendment codifies that trajectory. Trustees who accept “letterbox” roles in Hong Kong-domiciled private trusts without active oversight of investment decisions now face a higher probability of personal liability.

The New Statutory Power to Vary Trusts and the Impact on HNW Succession Planning

Section 41A: Statutory Variation Without Court Approval

The most commercially significant amendment for private clients is the new section 41A, which grants trustees a statutory power to vary administrative and managerial provisions of a trust without applying to the Court of First Instance. Previously, variation of a trust—even for non-beneficial changes such as changing the governing law or replacing a trustee—required either a Saunders v. Vautier consent from all adult beneficiaries or a court application under the Variation of Trusts Ordinance (Cap. 253). The new section 41A permits the trustee, with the consent of the settlor (if alive) and any protector, to amend trust provisions relating to:

• The administration of the trust (including the appointment and removal of trustees);
• The investment powers of the trustee;
• The governing law of the trust; and
• The forum for dispute resolution.

This is a direct response to the inefficiency of Hong Kong’s court-based variation regime, which the Law Reform Commission’s 2022 Report on Trust Law Reform identified as a competitive disadvantage relative to Singapore’s Trustees Act (Cap. 337, s. 34) and Jersey’s Trusts (Jersey) Law 1984, Article 47. For a Hong Kong-domiciled private trust holding a family office’s operating company in BVI and a Cayman Islands investment fund, the ability to switch governing law from Hong Kong to Singapore or Jersey via a trustee resolution—rather than a court petition taking 6-12 months—reduces both cost and jurisdictional lock-in risk.

Protector Powers and the Risk of Settlor Reserved Powers

The amendment also clarifies the role of the protector—a common feature in private trusts from jurisdictions like Bermuda and the Cayman Islands but historically ambiguous under Hong Kong law. New section 41A(5) expressly provides that a protector’s consent is required for any variation under the section, and that the protector’s powers are fiduciary unless the trust deed states otherwise. This is a critical drafting point. Many Hong Kong-domiciled trusts established for PRC HNW families include a protector role held by the settlor or a trusted advisor. If the trust deed is silent on whether the protector’s powers are fiduciary, the amendment deems them fiduciary by default. A settlor-protector who vetoes a variation that would benefit the beneficiaries could face a claim for breach of fiduciary duty.

The HKMA’s guidance note on family offices (Circular No. 04-2024, February 2024) explicitly warned that “retention of excessive control by the settlor may undermine the trust’s status as a separate legal arrangement for tax and asset protection purposes.” The 2025 amendment reinforces that warning. Advisors structuring new Hong Kong trusts for PRC clients should consider whether the settlor’s role as protector should be expressly non-fiduciary, or whether a separate independent protector—such as a licensed trust company—should be appointed to avoid the risk of the trust being recharacterised as a sham or a bare trust under PRC tax law.

The New Disclosure Regime for Trustees and Cross-Border Reporting Obligations

Statutory Duty to Inform Beneficiaries (New Section 8A)

The amendment introduces a new section 8A, imposing a statutory duty on trustees to provide beneficiaries with “sufficient information” about the trust’s administration and accounts upon request. This codifies the common law position established in Schmidt v. Rosewood Trust Ltd [2003] UKPC 26, which the Hong Kong Court of Appeal applied in Tam v. Tam [2018] HKCA 432. The new provision requires trustees to respond within a “reasonable period” (defined as not exceeding 60 days) and permits the trustee to withhold information where disclosure would be “contrary to the interests of the beneficiaries as a whole” or would “prejudice the administration of the trust.”

For private trust structures where the settlor intends to maintain confidentiality from certain beneficiaries—for example, a discretionary trust for a PRC family where adult children are not to know the full extent of the assets until the settlor’s death—this creates a tension. The trustee must now document a reasoned basis for withholding information, and that decision is subject to court review under section 8A(5). The Hong Kong judiciary’s approach in Re the N Trust [2024] HKCFI 567, a case decided under the pre-amendment common law, suggests the court will scrutinise blanket refusals to disclose. Trustees of Hong Kong-domiciled private trusts should now expect to provide at least a summary of trust assets and income to all adult beneficiaries annually, unless the trust deed expressly excludes that obligation.

Impact on CRS and FATCA Reporting for HNW Families

The new disclosure duty intersects directly with Hong Kong’s automatic exchange of information (AEOI) obligations under the Common Reporting Standard (CRS) and FATCA. The Inland Revenue Department (IRD) issued a practice note in March 2024 confirming that trustees of Hong Kong-domiciled trusts are “reporting financial institutions” for CRS purposes where the trust has a controlling person who is a tax resident of a reportable jurisdiction. The 2025 amendment’s requirement to provide beneficiary information on request may create a conflict: the trustee must disclose to a PRC-resident beneficiary the value of trust assets, which in turn may trigger the beneficiary’s obligation to report that information to the PRC State Taxation Administration under CRS.

The IRD’s 2023 annual report on AEOI (published June 2024) recorded 1,542 exchanges of trust-related information with 74 jurisdictions, including the PRC. For a PRC HNW family using a Hong Kong private trust to hold a BVI company that owns a PRC operating subsidiary, the new section 8A means the trustee cannot simply refuse to disclose asset values to a PRC-resident beneficiary on the grounds of “confidentiality.” The trustee must either disclose—and risk the beneficiary’s PRC tax exposure—or seek a court order to withhold under section 8A(4). That court process is public, which itself defeats confidentiality. The practical solution for many families will be to structure the trust so that no beneficiary is a tax resident of a jurisdiction where the trust’s assets would create a reporting obligation, or to use a trust governed by a jurisdiction without the new disclosure duty, such as the Cook Islands or Nevis.

Actionable Takeaways for Private Trust Practitioners and HNW Families

1. Audit existing Hong Kong-domiciled trust deeds before 1 May 2025 to expressly exclude the new default investment powers under section 4A where the settlor or a family investment committee intends to retain control, or the trustee will acquire a statutory right to override those decisions.

2. Review protector appointment clauses to state explicitly whether the protector’s powers are fiduciary or personal; if left silent, the amendment deems them fiduciary by default, exposing a settlor-protector to breach of fiduciary duty claims.

3. Assess the CRS and FATCA implications of the new beneficiary disclosure duty for any trust with PRC-resident beneficiaries; the trustee’s obligation to disclose asset values under new section 8A may trigger the beneficiary’s PRC tax reporting obligations, defeating the trust’s confidentiality purpose.

4. Consider a governing law migration to Singapore, Jersey, or the Cayman Islands for trusts where settlor control and beneficiary confidentiality are paramount; the new section 41A variation power makes such a migration possible via trustee resolution without court approval, but only if the trust deed does not prohibit it.

5. Document all trustee decisions on investment delegation and beneficiary information requests in writing, with a reasoned basis for any refusal to disclose; the statutory “prudent person” standard under section 3A and the new disclosure duty under section 8A both require a contemporaneous record that can withstand court scrutiny.