Natalie Smith is an English Solicitor admitted to the Supreme Court of Justice of England & Wales in 2003. Prior to taking up her role at Lutea (Hong Kong) Limited and relocating to Hong Kong, she worked extensively in Tax & Estate Planning and Trust & Company structures. She’s worked with family offices, international entrepreneurs, both regional and city law firms, and headed up the Private Client and Wealth Structuring department for one of the ‘Big 4’ Accountancy Firms. After nearly 2 decades of practice, she joined Lutea (Hong Kong) Limited as Director in November 2019.

Lutea has been providing trustee & advisory services to residents of Hong Kong and Asia for over 25 years and focuses on helping private individuals, families and businesses around the world maintain family wealth and ensure succession throughout the generations. The firm does this with practical and holistic succession planning, trusteeship of family trusts and pension schemes, international will drafting, company incorporation and administration services and UK tax advice. As a global organisation, Lutea has offices in Jersey, Hong Kong, Singapore, Anguilla, and the UK. It prides itself on personal service and employs modern technology to meet the evolving needs of clients.

We caught up with Natalie to hear about the ins and outs of establishing a trust in Hong Kong.

How attractive is Hong Kong as a trust jurisdiction?

Since 2013, Hong Kong has been following modern trust laws due to the Trust Law (Amendment) Bill under Trustee Ordinance. Since Hong Kong’s trust legislation is based on English trust law, with a judiciary experienced in trust law, Hong Kong has become an attractive trust jurisdiction by giving a high level of confidence in the legal framework. It also is a party to a wide range on International Tax Treaties.

Hong Kong offers a combination of advantages for those who set up trusts and has become one of the most attractive Asian trust jurisdictions. It is one of the major international financial centres and stock exchanges in the world. Hong Kong is a hub of international business in Asia due to its central geographic location. The well-developed transportation network, airport and telecommunications network facilitate business activities.

With its comprehensive investment infrastructure and owing to the support provided by different professionals in various areas, Hong Kong has also become an ideal platform and vehicle for investment.

What are the advantages of setting up and operating a trust in Hong Kong?

Hong Kong has a favourable tax regime as well as a robust regulatory environment. A trust in Hong Kong will be set up and managed according to a well-tested set of laws and regulations, including the Trust Law (Amendment) Ordinance, the Trustee Ordinance, the Companies Ordinance and elements of common law stretching back centuries.  As a result, a trust in Hong Kong is regarded as a secure, reliable, and effective way for families and individuals to manage their assets.

Trusts usually have a period of existence, called a ‘perpetuity period’ during which the trust can exist and is usually defined in the trust deed that first establishes the trust. However, in Hong Kong, there is no such limit, trusts can exist indefinitely and can be used to plan for multiple generations ahead, safeguarding capital and permitting longer-term, more strategic planning.

Hong Kong is a member of The Financial Action Task Force on Money Laundering (“FATF”) therefore Hong Kong fully subscribes to the FATF's recommendations in combating money laundering and terrorist financing.

In Hong Kong, it’s possible to set up a trust in which the trust entity, the trustee, banking and investment activity, legal, and accounting services are all covered by the same jurisdiction and subject to the same law.

In some jurisdictions, a trust’s settlor cannot have any control over the day-to-day operation of the trust. In Hong Kong, that is not the case - settlors can reserve some powers of investment and management of the trust to themselves, meaning settlors can retain greater control over the trust assets.

Some jurisdictions permit full freedom of testation, allowing a person to set up a trust to confer their assets on whomever they please. Other jurisdictions, however, practice various forms of forced heirship, in which certain individuals are automatically entitled to a portion of a deceased person’s assets. While you can usually place the affected assets in a trust, this still affects how you can set up trusts. Hong Kong has no forced heirship laws. When you set up a trust in Hong Kong, you can divide and confer your assets in any way you choose, and assets placed in the trust are beyond the legal reach of forced heirs in other jurisdictions on the death of the settlor.

Hong Kong has a tax regime that is unusually positive for the beneficiaries of trusts and does not treat trusts like businesses. There is no capital gains tax levied, the taxation of income is assessed on a territorial basis so only income arising in or derived from Hong Kong, is subject to tax here.

In Hong Kong, it’s possible to set up a trust in which the trust entity, the trustee, banking and investment activity, legal, and accounting services are all covered by the same jurisdiction and subject to the same law. Since all such entities are familiar with interacting with the others under the aegis of Hong Kong trust law, setting up a trust in Hong Kong can also be more efficient and run more smoothly.

What are the key things to consider when establishing a trust in Hong Kong?

The trustees are the appointed legal owners of the assets within the trust and they have the responsibility of administering the trust and the trust assets in accordance with the terms of the trust deed and the prevailing trust law.

The selection of a trustee is crucial when creating a trust, the choice of trustee should consider knowledge, experience, access to the assets and management abilities. Choosing a trustee is a personal decision because the trustee will be deciding how the beneficiaries will receive distributions from the trust. This can be guided by informed decision making when creating the trust. The settlor typically provides the trustees with a letter of wishes regarding their desired wishes on how they would like the trustees to execute their discretion with regard to the trust fund and distribution of the trust assets. The wishes contained will cover both the period during the settlor’s’ lifetime and also after death. A letter of wishes is not a legal document and can be reviewed and amended from time to time but does not form part of the trust deed itself.

Often a priority for settlors is the continuation of wealth for the benefit of future generations. This can be achieved by effectively locking up the capital of the trust and specifying to whom of the family the income and capital should be paid in the years to follow. A settlor can also give the trustees the discretion to pay capital to beneficiaries if he/she think it appropriate.

The settlor should consider guarding against or providing for, in particular, the following:

  • Children/grandchildren under the age of majority who require provision for their maintenance and education until they come of age.
  • Extravagant beneficiaries who would otherwise waste away capital given to them outright.
  • Naive members of the family who would be taken advantage of by others.
  • Vulnerable beneficiaries who are unlikely to be able to look after their own affairs.
  • To help succession planning in family businesses.

How can Lutea help clients to successfully protect and grow their wealth?

Our objective is to provide trustee, corporate, administration and advisory services to individuals and families concerning the organisation, management, preservation, protection, and succession of their wealth. Leveraging our global network and local expertise, we deliver high-quality, tailored services to our clients, ensuring that we understand their changing needs and providing them with the comprehensive support they require.

How has the global pandemic affected your operations?

We have a business continuity policy in place meaning we can smoothly change our operations from office-based to remote working and ensure minimal impact to our operations. Following the Hong Kong Government’s direction, we have implemented work from home arrangements and flexible working hours to limit the number of staff in the office, and avoid staff travelling during peak hours.

Armed with modern technology, all staff are equipped with devices to allow them to work remotely. This has also minimised the impact on our business, by allowing us to conduct virtual meetings and video conferencing on platforms such as Skype, Zoom, and Microsoft Teams.