Hong Kong: Trustee Ordinance to Get Long-overdue Makeover

Last Updated: 21 April 2010
Article by Duncan A.W. Abate and Sophia W.Y. Man
Most Read Contributor in Hong Kong, October 2018

Originally published 21 April 2010

Keywords: trustee ordinance, review, trust law, Hong Kong, TO, proposed amendments

After a three-month public consultation, the government has recently published its consultation conclusions on the Trustee Ordinance review. Based on the consultation, the government has put forward a list of proposed amendments, intended to benefit settlors, trustees and beneficiaries by providing greater clarity and certainty in relation to trust law in Hong Kong.

Background

Recognising that some of the provisions in the Trustee Ordinance ("TO") are outdated (especially those concerning the powers and duties of trustees), the government submitted proposals to reform the TO and related matters. A three-month public consultation was held from June to September 2009 to gauge views on the proposals. The proposals are aimed at strengthening the competitiveness and attractiveness of Hong Kong's trust service industry. It is believed that a modern trust law will attract more settlors to utilise trust services in Hong Kong, in turn bringing earnings as well as employment opportunities.

The government has recently published its consultation conclusions of the TO review. Most reform proposal were endorsed by trust service providers and practitioners and other stakeholders. Based on the consultation, the government has put forward a list of proposed amendments. They aim to provide greater clarity and certainty with regard to trust law in Hong Kong. Keep in mind that as several provisions were last enacted in 1934, this is indeed a make-over long overdue.

The proposed amendments

Here is a summary of the proposed amendments:

Statutory duty of care

Trustees will be subject to a statutory duty of care in their exercise of power in relation to investment, delegation, appointment of nominees and taking out of insurance etc. While the statutory duty of care would be the benchmark for trustees, settlors and trustees will be permitted to contract out of the statutory duty. In any event, the common law duty of care would continue to apply and offer protection to the beneficiaries' interests.

Power of investment

Investments authorised under the second schedule to the TO will be amended to keep up with market trends, pending further study on detailed amendments. The schedule is a default arrangement and can be displaced by a more general power of investment provided in a trust instrument.

Power of delegation

Trustees' statutory powers of delegation will be retained subject to a condition that if a trust has more than one trustee, the exercise of the power of delegation should not result in the trust having only one attorney or trustee administering the trust, unless that trustee is a trust corporation. This statutory power should not preclude or limit any express power of delegation contained in the trust instrument.

Power to employ agents

Trustees will be empowered, subject to any contrary intention expressed in the trust instrument, to appoint agents with specified safeguards. Meanwhile, the power of delegation in relation to properties outside Hong Kong will be removed.

Power to employ nominees and custodians

Trustees will be empowered to employ nominees and custodians in relation to trust assets with specified safeguards, subject to any contrary intention in the trust instrument.

Power to insure

Trustees will have wider powers to insure any trust property against risks of loss or damage by any event, and pay the premium out of the trust fund, subject to any express contrary intention in the trust instrument. On the issue of whether professional indemnity insurance costs should be paid out of the administration fee, it is a contractual matter to be negotiated between the settlor and trustees.

Professional trustee's entitlement to receive remuneration

Professional trustees will be entitled to receive remuneration for their services, subject to any contrary intention expressed in the trust instrument. In the event where no charging provision is contained in the trust instrument or any legislation, a professional trustee (provided that he is not the sole trustee and each other trustee has agreed that he may be remunerated) or a trust corporation is entitled to receive reasonable remuneration out of the trust funds for its services, even if they are services which are capable of being provided by lay trustees.

Beneficiaries' right to remove trustees

Beneficiaries will be empowered to remove a trustee if the beneficiaries are all of full age and legal capacity and are absolutely entitled to the trust property, provided that the trust instrument does not nominate any person to appoint new trustees.

Rule against perpetuities and rule against accumulation of income

The existing rules against perpetuity and rules against excessive accumulation in respect of new trusts to under the Perpetuity and Accumulations Ordinance will be repealed. The rules are complex and fail to meet the market needs today. However, trustees of a charitable trust will be allowed to accumulate income up to 21 years.

Reserved powers of settlors

A reservation of settlors' powers to investment and asset management will not invalidate a trust and a trustee will be exempted from liability for acting in accordance with the powers that a settlor has reserved.

Conclusion

The proposed amendments to the TO are to be welcomed. They are a timely step to modernise Hong Kong trust law in order to enable it to meet the evolving market needs of Hong Kong.

The Government aims to introduce the relevant amendments into the Legislative Council in 2010-11, so stay tuned for further developments.
Learn more about our Hong Kong office and Employment & Benefits practice.

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Copyright 2010. JSM, Mayer Brown International LLP and/or Mayer Brown LLP. All rights reserved. Mayer Brown is a global legal services organization comprising legal practices that are separate entities ("Mayer Brown Practices"). The Mayer Brown Practices are: JSM, a Hong Kong partnership, and its associated entities in Asia; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales; and Mayer Brown LLP, a limited liability partnership established in the United States. The Mayer Brown Practices are known as Mayer Brown JSM in Asia.

This article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein. Please also read the JSM legal publications Disclaimer.

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