A planned modernisation of Hong Kong's antiquated trust law aims to allow the city to better attract wealthy individuals and companies who want to set up investment and estate planning vehicles.
The reform plan includes introducing a statutory duty of care for trustees, giving those who set up the trusts a better understanding of their rights and responsibilities. The planned changes come after a consultation on the drafting of the law in 2009.
A two-month public consultation on the new draft legislation began yesterday
'The trust law in Hong Kong is very outdated, which is not favourable to the development of the asset management business,' said Paul Chan Mo-po, the legislator for the accountancy sector.
Hong Kong is jostling for the role of Asia's asset management centre with rivals such as Singapore. At the end of 2010, combined fund management business amounted to HK$10.1 trillion in Hong Kong, up by 18.6 per cent year on year.
Trusts, which play a vital role in asset management business, are used in family estate planning and as a tool for various commercial transactions. For example, several real estate investment trusts, have been listed in Hong Kong.
Under the existing trust law, which was enacted in 1934 and originated from Britain, a trustee's duty of care is only covered by the common law.
Under a new statutory duty of care, trustees will be held responsible for losses arising from wilful misconduct or reckless acts, as well as fraud. Under the present law trustees are only accountable for fraudulent conduct.
'The clarification of a trustee's duty will help to encourage more settlors to set up their trusts in Hong Kong,' said Darryl Chan, deputy secretary for financial services and the treasury.
Beneficiaries of trusts will also be able to retire or remove trustees simply without going to court, provided all beneficiaries agree.
The new law also proposes to lift the time limits on accumulated trust income, releasing the trust from having to distribute regular income to beneficiaries if it is not needed.
That could help overseas beneficiaries as dividends can be taxable in certain countries, Chan said.
It is expected that the new draft legislation would be reviewed by lawmakers as soon as September and be passed by the end of the legislative year.
The government is also reviewing the scope of investment for trusts and it is expected that more flexibility and choices would be introduced for trustees.
The combined funds, in HK dollars, handled by asset management companies at the end of 2010. This was an 18.6 per cent rise on 2009