5 May 2015
Hong Kong Private Trust Company
There are many reasons for having a trust. Trusts are traditionally used for succession, estate planning, asset protection against taxes, lawsuits, marital claims etc. However, the main obstacles for adopting trust structure for individuals and families is the relatively expensive maintain cost and handing over control of assets to a trustee. A traditional trust require appointing and transferring assets to a licensed trustee which may be expensive to maintain. The question of whether you are comfortable with a service provider governing and controlling your wealth is another issue. It’s similar to giving your butler all your assets so they can take care of you.
When we look at the financial requirement in setting up of a licensed trustee under the current Hong Kong regulations, the registration of a trust company is only required a share capital of no less than HK$3,000,000 (http://www.cr.gov.hk/en/publications/docs/22-e.pdf). Overseas trusts may have a higher financial requirement but that amount is often only a fraction of the overall assets under its management.
To complicate the matter more, often with traditional trusts you are bogged down by sophisticated trust structure and paperwork that is hard to understand. Unless you are a lawyer or have significant background in law, it is unlikely to be easy to understand.
Considering the above, is a trust structure a cost effective management of your assets?
What is a Private Trust Company?
Private Trust Company (“PTC”) as the name stands is a trust specifically tailored and managed for your needs. It is not managed by a license trustee that may have hundreds of trust under its portfolio but rather a private dedicated trust that can be managed by the Settlor or anybody they deem suitable.
Typically, PTC is established as a company limited by guarantee with a cascading chain of ownership. The participants of the PTC will be members rather than shareholders which allows for continuity of ownership like most clubs in Hong Kong which is also based on companies limited by guarantee. The advantage of using a guarantee company is that membership expires on death leaving the remaining members to manage the trust, whereas shares of a company is left to the estate and distributed according to the will and relevant law at the time. PTC may even be structured so that subsequent generations inherit the membership by birth rights or different members of the PTC can be given different voting rights so ownership can be arranged in such a way as to give the Settlor the majority vote and control.
Exiting or changing a trustee in a traditional trust is usually a matter that is not considered when setting up trusts. However, when there are disputes ranging from provision of services to fee arrangements, often there are obstacles in appointing a new trustee. With a PTC the setup and termination is a less complicated and more straightforward process since the assets belong to the PTC there is less reliance on the trustee to comply with their removal.
In short, PTC has similar characteristics of a traditional trust but at the same time, is more cost effective and gives full access and control of your wealth.
Why use a Hong Kong Private Trust Company?
Hong Kong rely on the English legal system which in turn developed the trust structure and therefore is easily understood and enforceable. The register of directors is public information making the management of the trust transparent. Similar to a traditional trust, register of members is not required to be disclosed thereby keeping the members of a Hong Kong PTC private and confidential.
Trust involves transfer of assets to trustees, with the settlors losing control of their assets. In general, the Hong Kong PTC can be setup in such a way that the Settler is able to manage and stay in control of the assets. This will ensure the Settlor do not have to “ask” for funds if and when they require.
Overseas trust is often suggested when establishing a trust structure, the problem with overseas trust is that the laws may differ significantly from what we know. Most importantly, when there are legal matters and/or disputes this often involves overseas lawyers and trustees as demonstrated in the Sun Hung Kai Properties family feud which involved arbitration in Switzerland and court cases in Liechtenstein.
Who should be interested in Hong Kong Private Trust Company?
Foreign Individuals and/or families with assets in multiple jurisdictions not under a trust structure may have to deal with estate in the event of death in the family. During this period, assets are normally frozen and usually an appointed Executor will take full control of the assets to work out how it should be distributed which can take years.
Hong Kong abolished estate duty a while back, however Hong Kong Individuals and/or families with assets overseas may still be subject to overseas estate duties. By transferring over assets into a Hong Kong PTC will ensure the rights of the assets is continuous and does not expire.
For individuals and/or families that is concerned about the ever changing tax environment in the world economy, a Hong Kong PTC is also favourable. If the PTC is only holding shares in an investment holding company, receives dividends from that investment holding company and its subsidiaries, then there would be no Hong Kong profits tax exposure to the trust. Beneficiaries of a Hong Kong PTC are also not liable to Hong Kong taxation on distributions they receive from the trust, whether income or capital.
Setting up of a Hong Kong Private Trust Company
Proper planning should require input from professional advisors. A Hong Kong PTC will need to be setup so that it will survive a tax audit and is compliant with other relevant regulations. Under current regulations, a company limited by guarantee needs to have at least 2 members and 2 individual directors. Although audited accounts are required to be filed with the Companies Registry on a yearly basis, however with appropriate planning limited disclosure is ever filed on public record.
For more information on Hong Kong Private Trust Company, please do not hesitate to contact us.
CONTACT PERSON
Derrick Liu
derrick@alcpa.com.hk
(852) 2574 8289 (Ext. 121)
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