Hong Kong’s Trustee Ordinance has been practically untouched for the last 85 years. It is largely a reproduction of the English Trustee Act 1925.  Virtually every other trust law jurisdiction has comprehensively updated its trust legislation in recent years so as to make their jurisdiction an attractive and secure place to locate a trust.

Trusts can last a long time. The usual trust period for a Hong Kong trust is 80 years. A trust’s governing law, that is the legislation to which it is subject, is the vehicle that gets your trust (and your money) to its destination. You need something which is modern but durable, rather like the latest 4x4.  Unfortunately Hong Kong’s 1925 vintage trust law is the trust equivalent of a Model T Ford or an Austin 7.

To be fair, the Hong Kong Special Administrative Region Government realises there is a problem.  In February 2010, after a period of consultation, it announced proposals for the reform of the Trustee Ordinance. Draft legislation is apparently ready but the Trustee Bill will not be tabled in the Legislative Council during the 2012 session. Legislation is therefore still some way off, perhaps several years away. 

The Government’s proposals are modest. They are a basic update rather than cutting edge legislation.  For example Hong Kong trustees will still be limited to a list of permitted trust investments (unless the trust deed gives them greater freedom). Trustees of English trusts can generally place trust funds in virtually any investment they please, just like a private individual. Nor do the proposals provide any protection for Hong Kong trusts from the judgments of foreign courts which seek to attach Hong Kong trust assets in connection with divorce, insolvency or some other foreign court proceedings.

There is however a more fundamental lacuna in the Government’s proposals. At present there is no regulation of trust business in Hong Kong. Any private individual resident in Hong Kong may act as a professional trustee and be remunerated accordingly. Even a trust corporation requires a paid up share capital of only HK$3 million ($386,000)  together with a further HK$1.5 million deposited with the Government plus a guarantee from a bank. 

In the inflation-eroded values of today, this is very meagre protection for those who have set up trusts, which may contain many millions of dollars. Even with a trust corporation, there is no investigation as to whether the directors or other interested parties are fit and proper persons. For example, do they possess a criminal record in Hong Kong or overseas? And a trust corporation may obtain a grant of probate if appointed executor under a will, thus opening the door to the administration of very considerable assets.  To all of this the Hong Kong Government simply says it is considering the position. 

Let us hope the Government does not need a financial scandal in the trust sector before it acts.