HONG KONG SAR, CHINA Law and Practice Contributed by: Jeffrey Lee, Jessica Leung and Hilary Leung, Charles Russell Speechlys
3.2 Recognition of Trusts Trusts are recognised and respected in Hong Kong. The Trustee Ordinance is an important piece of leg - islation on the law governing the powers, duties and responsibilities of trustees in Hong Kong. English decisions, the rules of equity and common law rules are also relevant to the interpretation and application of trust laws in Hong Kong. 3.3 Tax Considerations: Fiduciary or Beneficiary Designation Hong Kong adopts a territorial source principle of taxation, and chargeability to Hong Kong tax is not dependent on a person’s domicile, residence or nationality. Therefore, there are no tax consequences arising by virtue of a Hong Kong citizen or resident serving as a fiduciary or being a beneficiary of a for - eign trust. 3.4 Exercising Control Over Irrevocable Planning Vehicles The Trustee Ordinance provides that the reservation of powers of investment or asset management functions by the settlor does not invalidate a trust, and a trustee who exercises their power or function accordingly is not in breach of the trust. Discretionary trusts are increasingly common as a tool for asset protection. Once assets have been attrib - uted into a trust, they are no longer owned by the settlor and are instead held by the trustees on behalf of the beneficiaries. With an appropriate structure and if done in advance of any threatened or perceived claims, such trusts may be able to shield the underly - ing assets from future claims made against the trust or the settlor. In addition, through the use of a trust, families can consolidate or maintain control over the bulk of family assets or businesses so as to allow family members to enjoy the family wealth (for example, by receiving income distributions) without taking titles or voting rights to any capital assets in the trust fund. 4. Family Business Planning 4.1 Asset Protection
4.2 Succession Planning Discretionary trusts are useful for families to pass wealth and control of the family business from gen - eration to generation. In many cases, they are used to mitigate the overall tax exposure of the family assets and, in some cases, family members who have con - nection to high-tax jurisdictions. Tax advice is there - fore important in the setting-up and administration of the trust. It is also possible to put detailed guidelines in place for the trustees as to how they should position themselves in the event of a family conflict. In a more complex structure, additional bodies (such as a family office, a family council, an investment com - mittee and a philanthropy committee) will assist the trustee in making major decisions. These bodies may consist of family members, non-family members of the senior management of the family business and/or professional advisers. 4.3 Transfer of Partial Interest There is no transfer tax in Hong Kong. Stamp duty may be chargeable on the transfer of Hong Kong immovable property or stock, which will be calculated at the higher of the sale price and the market value, and there will be no discount for lack of marketability and control. 5. Wealth Disputes 5.1 Trends Driving Disputes Private wealth disputes in Hong Kong mainly revolve around divorce, estates and trusts. Divorce In divorce proceedings, parties make ancillary relief claims against each other in terms of: • maintenance pending suit; • periodical payments; • secured periodical payments; • lump sum orders;
• property adjustment orders; • transfer of property orders; • settlement of property orders; • variation of settlement; and • sale of property orders.
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