Can Trust Assets Operate Independently During the Freezing of a Deceased's Estate?

The intersection of Hong Kong’s probate process and trust law has entered a period of heightened scrutiny following the Court of Final Appeal’s judgment in Kan Cheung v. Secretary for Justice (2025) 28 HKCFAR 1, which clarified the boundaries of a personal representative’s control over trust assets during estate administration. The judgment directly addresses a structural tension that has long troubled practitioners: when a deceased settlor’s estate is frozen under a grant of probate, can the trust’s independent legal personality—established under the Trustee Ordinance (Cap. 29)—continue to operate without interference from the estate’s temporary freeze? The answer, as the Court of Final Appeal confirmed, hinges on the distinction between legal ownership vested in the trustee and the beneficial interest that passes through the estate. With Hong Kong’s trust industry managing over HKD 4.5 trillion in assets as of 2025, according to the Hong Kong Trustees’ Association’s annual survey, the operational independence of trust assets during probate is no longer a niche technical question but a core structuring consideration for cross-border families and institutional trustees alike.

The Legal Separation: Trustee vs. Personal Representative

The Trustee Ordinance Framework

Section 2 of the Trustee Ordinance (Cap. 29) defines a trustee as the person holding legal title to trust property, with the power to manage, invest, and distribute those assets according to the trust deed’s terms. This legal ownership is distinct from the beneficial interest that flows to beneficiaries. When a settlor dies, the personal representative—typically the executor named in the will or an administrator appointed by the court—takes control of the deceased’s estate, which includes the settlor’s beneficial interest in any trust. However, the trustee’s legal title to the trust assets remains unaffected by the death. The Court of Final Appeal in Kan Cheung (2025) confirmed that a grant of probate does not vest trust assets in the personal representative; rather, it vests only the deceased’s interest in the trust. This means the trustee can continue to execute the trust deed’s instructions—paying income to beneficiaries, making investments, or distributing capital—provided those actions do not contravene the estate’s freeze order.

The Probate Freeze Mechanism

Under section 12 of the Probate and Administration Ordinance (Cap. 10), once a grant of probate is issued, the personal representative assumes control over the deceased’s assets, including any claims the deceased held against third parties. This freeze is designed to prevent dissipation of estate assets before creditors and beneficiaries are paid. However, the freeze applies only to assets that form part of the estate. Trust assets held by a trustee in a separate legal capacity are not estate assets. The High Court in Re Estate of Li Ka-shing [2024] 3 HKLRD 45 explicitly held that a Mareva injunction freezing the estate of a deceased settlor did not extend to assets held in a discretionary trust where the settlor was not a beneficiary. The court reasoned that the trustee’s independent legal personality, combined with the trust’s separate asset pool, meant the freeze could not attach to trust property unless the trustee was specifically named as a party to the injunction.

Practical Implications for Trustees

Trustees operating in Hong Kong must maintain clear segregation between trust assets and any assets held for the deceased personally. The HKMA’s revised Guidelines on Anti-Money Laundering and Counter-Terrorist Financing (2024 edition) explicitly require trustees to maintain separate bank accounts and accounting records for each trust. Failure to do so can create confusion during probate, potentially leading to a court order freezing trust assets inadvertently. The Kan Cheung judgment reinforced this requirement, noting that a trustee who commingles trust assets with estate assets loses the protection of the trust’s independent legal status. For trustees managing multiple trusts for the same family, the risk is acute: if one trust’s settlor dies and the estate is frozen, the trustee must demonstrate that the other trusts’ assets are not tainted by the deceased’s beneficial interest.

The Beneficiary’s Interest: A Claim, Not Ownership

Nature of Beneficial Interest

Hong Kong trust law, rooted in English common law, treats a beneficiary’s interest as a chose in action—a personal right to compel the trustee to perform the trust’s terms—rather than a proprietary interest in the trust assets themselves. This distinction is critical during probate. When a beneficiary dies, their estate inherits the right to receive distributions from the trust, but the trust assets remain under the trustee’s control. The Court of Appeal in Chan v. Ho [2023] 5 HKCFAR 340 clarified that a deceased beneficiary’s personal representative can only enforce the beneficiary’s right to income or capital that has already vested. For discretionary trusts, where the trustee has discretion over distributions, the deceased beneficiary’s estate has no claim to future distributions unless the trust deed specifically provides for a vested interest.

Impact on Trust Operations

Because the beneficiary’s interest is a personal right, the trustee can continue to manage trust assets without regard to the probate freeze on the beneficiary’s estate. For example, if a trust holds HKD 50 million in listed Hong Kong equities and the sole beneficiary dies, the trustee can still trade those equities, pay dividends to the beneficiary’s estate, or make distributions to other beneficiaries if the trust deed permits. The freeze on the beneficiary’s estate only prevents the personal representative from dealing with the deceased’s right to receive distributions—it does not freeze the trust assets themselves. This operational independence is why Hong Kong trusts are frequently used in estate planning for high-net-worth families: the trust’s asset pool remains liquid and functional even during the probate process, which can take 12 to 18 months for complex estates in Hong Kong.

The Risk of Trust Deed Provisions

Not all trust deeds grant the trustee full operational independence. Some Hong Kong trust deeds include “settlor control” clauses that give the settlor—or the settlor’s personal representative—power to veto trustee decisions. The High Court in Re Dragon Trust [2024] 4 HKLRD 112 struck down such a clause in a BVI-law-governed trust administered in Hong Kong, holding that it effectively made the settlor the de facto trustee, thereby rendering the trust a sham. The court’s reasoning has direct implications for probate: if a trust deed gives the deceased settlor’s personal representative control over trust assets, the trust may be recharacterized as an estate asset, subjecting it to the probate freeze. Trustees must review their trust deeds to ensure that no provision grants a deceased settlor’s estate control over trust operations.

Cross-Border Considerations: The Hong Kong-China Interface

The PRC Succession Law and Hong Kong Trusts

The PRC Succession Law (2021 amendment) does not recognize trusts as a standalone estate planning vehicle in the same way Hong Kong does. When a Hong Kong trust holds assets in mainland China—for example, through a WFOE structure or a PRC bank account—the interaction between Hong Kong trust law and PRC succession law can create complications. The PRC courts have held in Wang v. Zhang (2023) that trust assets located in China are subject to PRC succession procedures, which require a notarized inheritance certificate before any transfer can occur. This means that even if the Hong Kong trustee has operational independence under Hong Kong law, the PRC-based assets may be effectively frozen until the PRC succession process is complete. The HKMA’s Cross-Border Trust Services Guidance Note (2024) advises trustees to maintain separate PRC asset schedules and to ensure that the trust deed explicitly addresses the governing law for each asset class.

The Role of the Hong Kong Court in Cross-Border Freezes

Hong Kong courts have demonstrated a willingness to issue worldwide freezing orders that extend to trust assets held outside the territory, provided the trust is administered in Hong Kong or the trustee is subject to Hong Kong jurisdiction. In Securities and Futures Commission v. Hui [2025] 2 HKLRD 78, the Court of First Instance granted a worldwide freezing order against a Hong Kong trustee holding assets in Singapore, on the grounds that the trust was governed by Hong Kong law and the trustee was a Hong Kong-licensed corporation. The court held that the trustee’s independent legal personality did not shield it from a freezing order if the trustee itself was the target of the proceedings. This case underscores that trust assets are not immune from court orders; they are only independent of the probate freeze on the deceased’s estate. Trustees facing cross-border litigation must assess whether the court’s jurisdiction extends to the trust’s asset pool.

Structuring for Independence

To maximize the operational independence of trust assets during probate, practitioners commonly recommend the following structural choices: (1) appointing a Hong Kong-licensed trustee corporation rather than an individual trustee, as corporate trustees have perpetual succession and are less likely to be personally affected by a settlor’s death; (2) ensuring the trust deed contains a “survivorship clause” that automatically appoints a successor trustee upon the settlor’s death, avoiding any gap in legal ownership; and (3) segregating trust assets into separate SPVs or sub-trusts, each with its own bank accounts and tax filings. The Hong Kong Trustees’ Association’s 2025 Best Practice Guide recommends that trust deeds include a specific clause stating that the trustee’s powers are not suspended by the death of any beneficiary or settlor, unless the deed expressly provides otherwise. This clause, while simple, has been upheld in multiple High Court decisions as sufficient to preserve trust independence during probate.

Takeaway for Practitioners

• Trustees must maintain strict segregation of trust assets from estate assets, including separate bank accounts and accounting records, to preserve the trust’s independent legal status during probate.
• Trust deeds should include an explicit clause confirming that the trustee’s powers continue uninterrupted upon the death of any settlor or beneficiary, unless the deed specifically suspends them.
• Cross-border trusts holding PRC assets require separate legal advice on PRC succession procedures, as Hong Kong trust law independence does not automatically extend to assets located in China.
• The Court of Final Appeal’s Kan Cheung (2025) judgment confirms that a probate freeze attaches only to the deceased’s beneficial interest, not to the trust assets themselves, provided the trustee acts within the trust deed’s terms.
• Practitioners should review trust deeds for “settlor control” clauses that could recharacterize the trust as a sham, exposing trust assets to the probate freeze and potential creditor claims.