The Evolution of the Trustee Ordinance: Key Amendments Impacting Hong Kong Trustees

The Hong Kong Trustee Ordinance (Cap. 29) underwent its most significant legislative overhaul in nearly a century with the passage of the Trustee (Amendment) Ordinance 2024, which came into full effect on 1 January 2025. This amendment, the first comprehensive update since the original ordinance was enacted in 1934, fundamentally repositions Hong Kong’s trust law framework to compete directly with established common law trust jurisdictions such as Jersey, Singapore, and the Cayman Islands. For the estimated 1,200 licensed trust companies operating in Hong Kong and the approximately HKD 4.5 trillion in assets under management held in Hong Kong trust structures as of 2023 (SFC Asset and Wealth Management Activities Survey), the changes introduce both new fiduciary duties and expanded settlor powers that demand immediate operational review. The amendments address three critical pressure points: the statutory codification of trustee investment powers, the modernisation of remuneration and indemnity provisions, and the introduction of a statutory power for trustees to insure trust property. Without proactive adjustment to trust deeds and internal policies, trustees risk non-compliance with the new statutory default provisions, which now override many previously negotiated contractual terms.

The Codification of Trustee Investment Powers and the Prudent Investor Rule

The 2024 amendments codify the “prudent investor rule” into Section 4 of the Trustee Ordinance, replacing the previous “prudent man of business” standard that had governed trustee investment decisions since 1934. This shift aligns Hong Kong with Section 3 of the Trustee Act 2000 (England and Wales) and Section 11A of Singapore’s Trustees Act (Cap. 337). The new statutory standard requires trustees to exercise “the care, diligence and skill that a prudent investor would exercise in making investments,” explicitly moving from a subjective standard tied to the individual trustee’s personal capacity to an objective standard benchmarked against professional investment norms.

The Standard of Care and Delegation Framework

Under the new Section 4(2), a trustee must consider the “suitability to the trust of the proposed investment, including the need for diversification of investments of the trust, insofar as is appropriate to the circumstances of the trust.” This codifies the diversification duty that had previously been developed through case law, notably the English Court of Appeal decision in Nestlé v National Westminster Bank plc [1993] 1 WLR 1260. The amendment also introduces Section 4(3), which explicitly permits trustees to obtain and consider “proper advice” before exercising any investment power, with “proper advice” defined as advice from a person who is “reasonably believed by the trustee to be qualified to give it by reason of the person’s knowledge of and experience in financial and other matters relating to the proposed investment.”

The delegation provisions in the new Section 5A represent a significant departure from the previous regime. Trustees may now delegate investment management functions to an agent, provided the trustee has prepared a written “investment policy statement” (IPS) that sets out the objectives and constraints for the delegated portfolio. This mirrors the delegation framework under Section 15 of Singapore’s Trustees Act. The trustee retains residual liability for the agent’s performance, but the statutory safe harbour in Section 5A(5) provides that a trustee is not liable for any loss arising from the agent’s acts or omissions if the trustee “has exercised due diligence in selecting the agent, in establishing the terms of the delegation, and in monitoring the agent’s performance.”

Impact on Family Office and Private Trust Structures

For family offices managing single-family trusts with HKD 500 million or more in assets, the codified prudent investor rule creates a compliance burden that did not previously exist. The requirement to maintain a written IPS, review it annually, and document all investment decisions against the statutory standard will necessitate formalised investment committee procedures. The Hong Kong Monetary Authority’s 2024 circular on trust business (HKMA B1/15C) explicitly references the amended Trustee Ordinance, warning authorised institutions that “trustee companies must ensure their investment governance frameworks are updated to reflect the statutory prudent investor standard by 31 March 2025.”

The amendment also removes the previous statutory list of authorised investments under the repealed Schedule 2 of the Ordinance. Trustees are now free to invest in any asset class, including private equity, hedge funds, and digital assets, subject to the overarching prudent investor standard. This represents a material expansion of trustee discretion, but also exposes trustees to increased litigation risk if investment losses occur in high-volatility asset classes without documented suitability analysis.

Remuneration, Indemnity, and the New Statutory Power to Insure

The 2024 amendments introduce a statutory right to remuneration for professional trustees, replacing the previous regime where remuneration was governed entirely by the trust deed or by court order under Section 60 of the Trustee Ordinance (now repealed). New Section 60A provides that a trustee acting in a professional capacity is entitled to “reasonable remuneration” for services provided, unless the trust deed expressly excludes this right. “Reasonable remuneration” is defined by reference to the trustee’s standard published fee schedule, provided that schedule is disclosed to the settlor before the trust is created and to all beneficiaries annually thereafter.

The Indemnity and Insurance Framework

The indemnity provisions in new Section 26A represent a careful legislative balancing act. Trustees are now entitled to be indemnified out of trust assets for all liabilities properly incurred in the execution of the trust, including legal costs incurred in defending proceedings. However, Section 26A(3) excludes indemnity for liabilities arising from the trustee’s own fraud, wilful default, or gross negligence. This codifies the common law position established in Re Duke of Norfolk’s Settlement Trusts [1982] Ch 61, but introduces a statutory definition of “gross negligence” that had previously been left to judicial interpretation. The definition in Section 26A(4) states that gross negligence means “conduct that falls far below the standard of care expected of a reasonable person in the circumstances, and which shows a serious disregard for the interests of the beneficiaries.”

The new Section 26B grants trustees a statutory power to insure trust property against loss or damage, and to pay premiums from trust income or capital. This power is exercisable without the need for an express provision in the trust deed, which had previously been standard practice for professionally drafted Hong Kong trusts. The insurance power extends to liability insurance for the trustee itself, subject to the limitation that the trustee cannot insure against its own fraud or wilful default. For trustees of Hong Kong trusts holding real estate portfolios valued at HKD 100 million or more, this statutory power eliminates the need for bespoke deed amendments and standardises insurance coverage across the industry.

Professional Trustees and Fee Transparency

The remuneration provisions have direct implications for the HKD 8.5 billion annual trust fee market in Hong Kong (estimated from HKMA trust business statistics, 2023). Professional trustees who previously relied on deed-specific fee clauses must now ensure their published fee schedules are compliant with Section 60A(2), which requires that the schedule be “clear and easily understandable” and specify “the basis on which fees are calculated.” The amendment also introduces a mandatory annual disclosure requirement: trustees must provide each beneficiary with a statement of fees charged during the preceding year, broken down by category (trustee fees, investment management fees, custody fees, and other charges). Non-compliance with the disclosure obligation is a statutory offence under Section 60A(6), punishable by a fine at Level 5 (HKD 50,000) on summary conviction.

The Rule Against Perpetuities and Modernisation of Trust Duration

The 2024 amendments abolish the common law rule against perpetuities for Hong Kong trusts, replacing it with a statutory perpetuity period of 150 years for trusts created on or after 1 January 2025. This is codified in new Section 15A of the Trustee Ordinance, which provides that “the rule against perpetuities does not apply to a trust created on or after the commencement date.” The 150-year maximum period applies only to the trust’s duration, not to the vesting of interests, which remains governed by the Perpetuities and Accumulations Ordinance (Cap. 257).

Dynasty Trusts and Cross-Border Structuring

This amendment positions Hong Kong as a competitive jurisdiction for dynasty trust structures, matching the 150-year period available in Singapore under Section 32A of the Trustees Act (Cap. 337) and exceeding the 125-year period available in Jersey under Article 11 of the Trusts (Jersey) Law 1984. For families migrating from mainland China with assets exceeding HKD 1 billion, the ability to establish a Hong Kong trust with a 150-year duration enables multi-generational wealth planning that was previously only available through BVI or Cayman Islands structures.

The amendment also introduces Section 15B, which provides that a trust may be expressed to continue for a fixed period not exceeding 150 years, or may be expressed to continue indefinitely. An indefinite trust is not void for perpetuity, but the trustee must review the trust’s continuation every 50 years and obtain the consent of the adult beneficiaries in writing to continue the trust. This “50-year review” mechanism is unique to Hong Kong and does not appear in the trust legislation of Singapore, Jersey, or the Cayman Islands. Practitioners structuring cross-border trusts for PRC residents should note that the 50-year review requirement creates a mandatory beneficiary engagement event that may trigger PRC tax reporting obligations under the new Individual Income Tax Law (2018) if any beneficiary is a PRC tax resident.

Accumulation Periods and Reserved Powers

The amendments also extend the statutory accumulation period from 21 years to 150 years under new Section 16A of the Trustee Ordinance, aligning the accumulation period with the trust duration. This change is particularly relevant for charitable trusts and purpose trusts, where accumulation of income is a standard feature. The new Section 16A(3) provides that income may be accumulated for the whole duration of the trust, subject to any contrary provision in the trust deed.

For settlors who wish to retain control over trust assets, the amendments introduce a statutory recognition of reserved powers in new Section 41A. This section provides that a settlor may reserve to themselves powers including the power to appoint or remove trustees, the power to add or exclude beneficiaries, the power to direct investments, and the power to veto trustee decisions. Reserved powers do not, by themselves, render the trust invalid or cause the trust to be treated as a sham. This codifies the position established in TMSF v Merrill Lynch Bank and Trust Company (Cayman) Limited [2011] UKPC 17 and aligns Hong Kong with the reserved powers legislation of the Cayman Islands (Trusts Law (2021 Revision), Part VIII) and Singapore (Trustees Act, Section 90). For PRC families establishing Hong Kong trusts, the statutory recognition of reserved powers provides comfort that the settlor’s continued involvement in investment decisions will not jeopardise the trust’s validity under Hong Kong law.

Beneficiary Rights and Disclosure Obligations

The 2024 amendments introduce a statutory right for beneficiaries to request information about the trust, codified in new Section 50A. This right is subject to the trustee’s discretion to withhold information where disclosure would be prejudicial to the interests of the beneficiaries as a whole, or would breach the trustee’s duty of confidentiality to a third party. The amendment replaces the previous common law position, which had been governed by the English Court of Appeal decision in Schmidt v Rosewood Trust Ltd [2003] UKPC 26, with a statutory framework that provides greater certainty for trustees.

The Information Request Framework

Under Section 50A(2), a beneficiary may request the following information in writing: the trust deed (subject to redaction of confidential information), the trust accounts for the preceding three financial years, a list of trust assets and their approximate values, and the trustee’s fee schedule. The trustee must respond within 30 days, either providing the requested information or giving written reasons for withholding it. Section 50A(5) provides that a beneficiary who is dissatisfied with the trustee’s response may apply to the Court of First Instance for an order compelling disclosure. The court must balance the beneficiary’s right to information against the trustee’s duty to protect the confidentiality of the trust’s affairs and the interests of other beneficiaries.

For trustees of Hong Kong trusts with multiple beneficiaries, particularly those structured as discretionary trusts for PRC families, the statutory disclosure framework creates operational challenges. The requirement to provide a list of trust assets and their approximate values to any beneficiary who requests it may conflict with the settlor’s intention to maintain confidentiality among family members. Trustees should consider whether to include express provisions in the trust deed modifying or excluding the statutory disclosure obligations, as Section 50A(7) permits the trust deed to vary the information rights provided that the variation is not “manifestly unreasonable” having regard to the purposes of the trust.

Anti-Forced Heirship Provisions

The amendments also introduce new Section 41B, which provides that a Hong Kong trust governed by Hong Kong law is not invalidated by any foreign forced heirship rules. This section states that “a trust created under the law of Hong Kong is not void, voidable, or liable to be set aside by reason that the law of a place outside Hong Kong prohibits or does not recognise the concept of a trust, or that the trust defeats or varies rights conferred by the law of a place outside Hong Kong in relation to succession or matrimonial property.” This provision is critical for Hong Kong trusts established by settlors from civil law jurisdictions such as France, Italy, or the PRC, where forced heirship rules would otherwise override the trust’s disposition of assets.

The anti-forced heirship provision is subject to the limitation that it does not apply if, at the time the trust was created, the settlor was domiciled in the foreign jurisdiction and the trust was created with the predominant purpose of defeating that jurisdiction’s forced heirship rights. This limitation mirrors Article 15 of the Hague Convention on the Law Applicable to Trusts and on their Recognition (1985), to which Hong Kong is a party through the PRC’s extension. Practitioners structuring trusts for PRC settlors should note that the limitation creates a factual inquiry into the settlor’s domicile and purpose, which may be challenged by disgruntled heirs in Hong Kong or PRC courts.

Actionable Takeaways for Hong Kong Trustees and Practitioners

Review all existing trust deeds by 30 June 2025 to identify provisions that are superseded by the new statutory default rules, particularly regarding investment powers, remuneration, and indemnity, and consider whether to execute supplemental deeds to preserve the original contractual intent.

Update trustee investment governance frameworks to include a written investment policy statement, annual investment committee reviews, and documented suitability analysis for all asset classes, as the codified prudent investor standard now creates statutory liability for investment losses without proper documentation.

Implement a beneficiary disclosure policy that complies with Section 50A’s 30-day response timeline, and consider whether to include express deed provisions modifying the statutory disclosure obligations to protect settlor confidentiality in multi-beneficiary discretionary trusts.

Review published fee schedules for compliance with the new transparency requirements under Section 60A, ensuring that fee bases are clearly stated and that annual beneficiary disclosure statements are prepared for the financial year ending 31 December 2025.

**Assess the suitability of extending trust duration to 150 years for new trusts, particularly for PRC families with multi-generational wealth transfer objectives, but ensure that the 50-year review mechanism is addressed in the trust deed to avoid unintended tax consequences in the PRC.