To promote Hong Kong as Asia’s major asset management center and to attract more local and overseas settlors to choose Hong Kong law as the law of their trusts and to administer their trusts in Hong Kong, the Financial Services and the Treasury Bureau released its Consultation Conclusions on Review of the Trustee Ordinance and related matters (“Conclusions”) in February 2010 and its Consultation Paper on Detailed Legislative Proposals on Trusts Law Reform (“Legislative Consultation”) in March 2012.
As the conclusions for the Legislative Consultation have not yet been released, this eNews will focus on the main proposed changes in the Conclusions which essentially seek to provide statutory rules to replace or supplement the discretionary nature of the common law rules currently applicable in this area of work.
Trustee’s statutory duty of care
A new statutory duty of care for trustees has been proposed to replace the existing common law duty of care for trustees. A trustee will now be required to exercise reasonable care and skill in carrying out his duties, taking into account any special knowledge or experience of the trustee including his business or profession. This means that the proposed statutory duty of care recognizes that professional trustees have a higher duty of care than lay trustees or volunteers.
Subject to any contrary intention in the trust instrument, trustees must exercise the proposed statutory duty of care when they are exercising powers relating to investments, delegation of authority to agents, appointing nominees and custodians, taking out insurance and dealing with matters concerning reversionary interests and valuation, etc.
Trustee’s power of delegation
The power of delegation under section 27 of the Trustee Ordinance (“TO”) will be amended so that, for a trust having more than one trustee, the delegation cannot result in the trust having only one attorney or one trustee administering the trust (unless that trustee is a trust corporation). This amended section 27 will be subject to anything to the contrary in trust instruments.
Presently, section 8(3)(a) of Enduring Powers of Attorney Ordinance (Cap. 501) allows a trustee to grant a power of attorney that could survive even when the donor trustee becomes mentally incapacitated. This provision is inconsistent with the TO and will be repealed so that the power of delegation by an individual trustee will be entirely governed by the TO.
Trustee’s power to employ agents
Subject to the trust instruments and general safeguards such as the exercise of statutory duty of care and requiring a written agreement and policy statement for the delegation of asset management functions, trustees will be provided with a general power of appointing agents. The agents will not be allowed to carry out certain fundamental duties such as the distribution of trust assets and sub-delegation.
The power of delegation under section 25(2) of the TO in relation to properties outside Hong Kong will be repealed.
Subject to various conditions, trustees of charitable trusts will be given wider powers to appoint agents to generate income to finance the trust’s charitable purpose.
Trustee’s power to employ nominees and custodians
It is proposed that trustees be provided with a general power to employ nominees and custodians and to vest trust assets however they determine. This power will be subject to the trust instrument and various safeguards, such as restricting the choice of nominees and custodians to persons carrying on business which consists of acting as a nominee or custodian.
Trustee’s power to insure
It is proposed that trustees be given wider powers to insure trust property against any type of risk of loss or damage by any event and to pay the premiums out of the trust funds.
Professional Trustee’s entitlement to receive remuneration
The TO will be amended to provide for a statutory charging clause for professional trustees, but it will be subject to any contrary provision in the trust instruments.
For non-charitable trusts, if the trust instrument contains a charging provision, the professional trustee or trust corporation is entitled to receive the remuneration specified. If there is no charging provision, the professional trustee (provided he is not the only trustee and the other trustees agree to his remuneration) or trust corporation, is entitled to receive reasonable remuneration out of the trust funds for its services.
For charitable trusts, if the trust instrument contains a charging provision, a professional trustee (provided he is not the only trustee and the other trustees agree to his remuneration) or trust corporation is entitled to receive remuneration specified. If there is no charging provision, it is proposed the trust corporation or a professional trustee will also be allowed to charge a reasonable amount for its services.
Statutory control on trustee’s exemption clauses
Exemption clauses are proposed to be subject to statutory control where the clauses seek to exempt professional trustees, who receive remuneration for their services, from certain liabilities e.g. breach of trust arising from the trustee’s own fraud, wilful misconduct or reckless act.
Beneficiaries’ right to remove trustees
So long as the trust instrument does not nominate any person to appoint new trustees, all the beneficiaries, who taken together are absolutely entitled to the trust property and all are of full age and legal capacity, may by unanimous direction remove a trustee (including a trustee who is incapable by reason of mental disorder) from his office.
The rule against perpetuities
The rule against perpetuities will be repealed without retrospective effect by amending the Perpetuities and Accumulations Ordinance. As such, a trust may continue for an unlimited period unless the terms of the instrument creating the trust provide the contrary.
Experienced lawyers in our Corporate and Commercial Department regularly advise establishment of trust, estate and probate matters. If you have any question on the above eNews, please do not hesitate to contact us.