Where a private trust for a family with assets in Mainland China stands now

The question a family office principal with Mainland exposure rarely asks early enough is not whether a trust will hold – it is whether the assets the trust is meant to protect will remain inside it once a claim is made. For families whose wealth sits across the boundary between Hong Kong and Mainland China, the answer turns on a cross-border interface that has shifted materially in recent years. The governing regime, the recognition risk, and the enforcement mechanics are now different from the picture that most structures were built against.

A private trust governed by Hong Kong law and settled by a Mainland-connected family offers genuine asset-protection and succession benefits under the Trustee Ordinance (Cap. 29), as substantially reformed with effect from 1 December 2013. However, the trust's practical reach stops at the boundary: Mainland law does not recognise the trust form as a proprietary mechanism, and assets situated in the Mainland sit outside the structural protection the trust provides. The question is not whether to use a trust, but how to design the structure so that its perimeter matches the family's actual risk.

This analysis covers the commercial stakes, the governing instruments on both sides of the boundary, the comparative read across Hong Kong and Mainland law, where the enforcement risk now sits, and the structural options available. It is written for general counsel, family-office principals, and cross-border advisers who are reviewing or building a structure now.

What is actually at stake: the commercial case before the legal one

Start with the money, not the documents. Mainland-connected families typically hold a combination of operating entities in the Mainland, offshore holding vehicles in the BVI or Cayman Islands above those entities, and personal assets – real property, investment accounts, insurance policies – spread across multiple jurisdictions. The trust sits above the offshore layer, in theory controlling the chain. In practice, three commercial risks test that theory every time a family's circumstances change.

The first is succession. Mainland law applies its own succession regime to property situated in the Mainland. Where a family member domiciled in the Mainland dies, the estate in the Mainland is distributed according to Mainland succession law – which includes a fixed class of legal heirs with entitlements that cannot be contracted out of by a foreign trust deed. The trust deed does not reach those assets. The family discovers this when the second generation needs to consolidate, and the asset map is far messier than the structure diagram suggested.

The second risk is creditor exposure. A properly constituted Hong Kong discretionary trust, settled in compliance with the Trustee Ordinance, provides strong protection against future creditors of the settlor and of the beneficiaries. But that protection applies to assets that have been validly transferred to the trustee. Assets that remain in the Mainland – whether held directly, through a variable interest entity (a contractual structure commonly used in restricted sectors to allow foreign capital participation in a Mainland operating entity) or through an onshore holding vehicle – have not been transferred to the trustee in any form that Mainland courts will treat as a change of ownership.

The third risk is family governance. Succession disputes in cross-border families tend to surface when a principal dies without clear governance for the offshore layer. Without a tested mechanism for the trustee to exercise control over the offshore holding companies, and without clear succession to the directorships of those companies, the structure fragments. The trust deed addresses the beneficial interest. Who controls the entities that hold the assets is a separate, equally urgent question.

What has changed: the Trustee Ordinance reform and what it actually does

The Trustee Ordinance (Cap. 29), as substantially reformed with effect from 1 December 2013, made Hong Kong one of the stronger trust jurisdictions in Asia for private wealth structures. The reforms are worth stating precisely, because they are frequently misunderstood in cross-border advice.

The rule against perpetuities and the rule against excessive accumulations were abolished for Hong Kong trusts created after the reform date. A Hong Kong discretionary trust can now run indefinitely. This matters for Mainland-connected families where the planning horizon is generational and a fixed trust period would create a forced distribution event at the wrong moment.

The statute also provides that a trust is not invalidated by reason of the settlor reserving certain powers – including the power to add or remove beneficiaries, to change the governing law, or to direct investment. This is significant for Mainland principals who are understandably reluctant to divest control entirely. The reservation of these powers does not, on its own, defeat the trust in Hong Kong. It may, however, affect the analysis under Mainland law if a Mainland court examines whether the settlor truly divested the assets. This is the first cross-border pinch point.

The 2013 reform also strengthened Hong Kong's anti-forced-heirship firewall. A Hong Kong trust is not liable to be set aside or varied by reason only that it is inconsistent with the forced-heirship or compulsory-heirship rules of a foreign law. This is a significant protection. But it applies to Hong Kong assets held in the trust, and to the trust itself as a Hong Kong-law instrument. It does not extend to assets situated in the Mainland, which are governed by Mainland succession and property law regardless of what the trust deed says.

How the cross-border interface bites: Mainland law and the trust form

Mainland China does not have a developed trust-asset-protection regime equivalent to the Hong Kong framework. The Trust Law of the People's Republic of China (the PRC Trust Law, the primary Mainland instrument governing trust relationships) recognises a trust relationship contractually, but its treatment of the proprietary effect of a trust transfer is conceptually different from the common-law position.

Under common law – the system on which Hong Kong's Trustee Ordinance rests – the transfer of assets to a trustee creates a bifurcated ownership structure: legal title passes to the trustee; beneficial interest rests with the beneficiaries. The trust property is ring-fenced from the trustee's personal creditors and, if the trust is properly constituted, from the settlor's creditors after a defined period. That proprietary separation is the source of most of the trust's protective value.

Mainland courts do not apply that bifurcated ownership concept in the same way. Where a dispute arises over assets situated in the Mainland, a Mainland court will apply Mainland law to determine ownership and priority. A foreign trust deed – even a well-drafted Hong Kong trust deed – does not automatically shift title to those assets under Mainland property law. The question of whether a transfer of Mainland-situated assets to a foreign trustee is recognised as effective, and what formalities are required, is one the structure must answer before a dispute arises, not during one.

This is not a hypothetical concern. In our cross-border private wealth practice, we see structures regularly where the trust deed names the offshore holding company as a trust asset, the offshore holding company holds the Mainland operating entity, and the family proceeds on the assumption that the trust therefore "covers" the Mainland business. The trust covers the offshore shares. It does not reach through those shares to the underlying Mainland assets in a way that Mainland courts will recognise as a trust proprietorship. The distinction matters when a creditor, a divorcing spouse, or a disgruntled sibling brings a claim.

Where the enforcement risk sits now: the Mainland Judgments Ordinance and its limits

The Mainland Judgments in Civil and Commercial Matters (Reciprocal Enforcement) Ordinance (Cap. 645), which came into force on 29 January 2024, materially changed the enforcement landscape between Hong Kong and the Mainland. Effective Mainland judgments in civil and commercial matters – including monetary and certain non-monetary relief – can now be registered with the Court of First Instance in Hong Kong and enforced as Hong Kong judgments. The old requirement for an exclusive jurisdiction clause is gone; a connection-based test applies instead.

What does this mean for a private trust structure? The relevance runs in two directions. First, it is now easier for a Mainland creditor, a Mainland family member with a succession claim, or a Mainland court-appointed administrator to bring an effective Mainland judgment to Hong Kong and seek enforcement against assets held in Hong Kong – including, potentially, the trust assets if the claim goes to the validity or ownership of those assets. The perimeter of the anti-forced-heirship firewall may be tested in precisely this way.

Second, it is easier for a Hong Kong-resident family member holding a Hong Kong judgment or a Hong Kong trust-related court order to have that recognised on the Mainland. That is useful in theory. But Mainland courts retain their own filters: public-policy grounds for refusal remain available, and the practical enforceability of a trust-related order against Mainland-situated assets will depend on what exactly the order says and how it is framed.

The arbitral enforcement picture is a separate layer. Hong Kong-seated arbitration awards have been enforceable in the Mainland under the 1999 Arrangement and the 2020 Supplemental Arrangement, with simultaneous applications permitted since the 2021 amendment. Where a family or trustee wishes to resolve intra-family or trustee-beneficiary disputes through a neutral mechanism with cross-border teeth, Hong Kong arbitration remains the instrument of choice. The 2024 HKIAC Administered Arbitration Rules, effective 1 June 2024, are the current governing rules for HKIAC proceedings.

What foreign advisers and families typically get wrong

Several structural misconceptions appear consistently in cross-border mandates. They are worth naming directly, because each one creates an identifiable enforcement risk.

The first misconception is that a trust deed's choice of Hong Kong law governs everything. It governs the trust relationship and the trust's validity as a legal instrument under Hong Kong law. It does not govern the property law of the jurisdiction where the underlying assets sit. A Mainland court applying Mainland property law to a Mainland-situated asset is not bound by a Hong Kong choice-of-law clause in a trust deed. The trust deed and the property law operate in different legal planes.

The second misconception is that the settlor's reservation of powers is cost-free. In Hong Kong, statutory protection means that certain reserved powers do not automatically invalidate the trust. But from a Mainland perspective, a settlor who retains control over investment, beneficiary selection, and the power to terminate the trust is – functionally – still the owner. If a Mainland authority or court applies a substance-over-form analysis to the structure, the trust may be re-characterised as a nominee arrangement. The structural recommendation is not to strip out all settlor powers, but to calibrate them carefully and document the rationale.

The third misconception is that the offshore layer is invisible to Mainland regulatory and tax review. Economic-substance regimes in the BVI and Cayman Islands now require genuine activity in the holding jurisdiction. Mainland regulatory developments affecting outbound foreign direct investment (capital flows from the Mainland to offshore jurisdictions, subject to Mainland approval and reporting requirements) mean that the offshore holding layer is increasingly visible to Mainland authorities. A structure that was designed when the offshore layer was lightly regulated needs to be reviewed against the current position.

A mid-market Asian family group came to our desk in late 2025. The structure had been built around a BVI holding vehicle above a Mainland operating entity, with a Hong Kong trust holding the BVI shares. The family's position had changed: a principal was moving to Hong Kong permanently, a second-generation member was seeking to return to the Mainland to manage the business, and a divorce was in progress in a third jurisdiction. The trust deed had not been reviewed in several years. The trustee was a professional trustee with no substantive knowledge of the Mainland operating entity. We reviewed the trust instrument against the Trustee Ordinance reform provisions, the current Mainland outbound investment position, and the cross-border succession exposure. The outcome was a restructured distribution of powers, a revision to the letter of wishes, and a separate governance protocol for the operating entities. The divorce-related asset-protection position required separate coordination with locally licensed Hong Kong firms.

The comparative read: where Hong Kong law is strong and where the gap remains

Hong Kong's trust regime is among the strongest in Asia. The abolition of the perpetuity period, the statutory reserved-powers protection, and the anti-forced-heirship firewall are genuine structural advantages. They make Hong Kong a rational choice of governing law for the trust instrument itself. No competing jurisdiction in the region offers the same combination of common-law tradition, proximity to the Mainland, and statutory reform.

The gap is not in the Hong Kong instruments. It is in the interface between those instruments and Mainland law. That interface has two live edges. The first is property law: assets situated in the Mainland are subject to Mainland property and succession rules, regardless of the trust deed. The second is regulatory: the Mainland's regulatory perimeter around outbound investment, cross-border capital flows, and the treatment of foreign structures holding Mainland assets has been tightening. A structure designed against an older regulatory picture may not sit well against the current one.

Singapore is sometimes presented as an alternative trust jurisdiction for Mainland-connected families. The relevant comparison is not between Hong Kong and Singapore trust law – the two regimes are broadly comparable in quality. It is between Hong Kong and Singapore as service platforms and as enforcement hubs. Hong Kong's mutual-assistance arrangements with the Mainland – on judgments, arbitral awards, and interim measures – are materially more developed than Singapore's. For a family whose assets and disputes sit across the Hong Kong–Mainland axis, Hong Kong has the enforcement architecture. Singapore does not have equivalent reciprocal mechanisms with the Mainland courts.

For families with assets across multiple jurisdictions – the UAE, the CIS region, the United Kingdom – the choice of trust governing law and the choice of trustee location are separate decisions. Our colleagues' analysis of estate planning covering UAE assets and succession planning across Hong Kong and the CIS region address those specific interfaces in detail. The starting point for all of them is the same: map the assets first, then design the structure around the asset map rather than the other way around.

Our read on where the risk sits now

The risk for Mainland-connected family trusts has not fundamentally changed in character. It has intensified in three specific areas as a result of the developments since 2024.

First, the bilateral enforcement architecture now works better in both directions. That is broadly positive for families using Hong Kong as a forum for trust-related disputes. It also means that a Mainland succession or creditor claim backed by a Mainland court judgment has a clearer path to enforcement in Hong Kong than it did before 29 January 2024. The anti-forced-heirship firewall in the Trustee Ordinance will be tested against this mechanism. How well the firewall holds depends on the facts: whether the assets in question are properly constituted trust assets, whether the trust was settled at a time and in circumstances that the Mainland claim cannot reach, and whether the trust deed and its administration are defensible under Hong Kong law.

Second, the regulatory environment around offshore holding structures has tightened on the Mainland side. Families and their advisers need to review whether existing structures remain compliant with current Mainland outbound investment reporting requirements. A structure that is not compliant is not just a regulatory problem – it creates an argument that the trust was settled in circumstances that a Mainland court could characterise as irregular, which in turn undermines the structural protection.

Third, the tax position across the structure deserves a fresh read. Hong Kong's territorial profits tax system – with corporations taxed at 8.25% on the first HK$2,000,000 of assessable profits and 16.5% above that threshold, capital gains tax absent, and no withholding tax on dividends – remains an efficient base for holding structures. The foreign-sourced income exemption regime, in force from 1 January 2023, introduces economic-substance conditions for foreign-sourced passive income to qualify for the exemption. For holding entities in the structure, compliance with those conditions is now part of the maintenance requirement, not an optional step. Where the group has consolidated revenue at or above EUR 750 million, the Pillar Two minimum top-up tax applies for fiscal years beginning on or after 1 January 2025.

The sequence of risks is this: regulatory non-compliance on the Mainland creates an irregularity argument. The irregularity argument weakens the trust. A weakened trust is more vulnerable to a succession or creditor claim. A claim backed by a Mainland judgment now has a more direct enforcement path to Hong Kong. The chain is not hypothetical – we have seen it in progress across mandates in the past eighteen months.

The sequence of corrections runs the other way: verify the Mainland outbound investment position; verify the offshore substance position; review the trust instrument against the current Trustee Ordinance framework; review the letter of wishes and the governance protocol for the underlying entities; and ensure the trustee has the information and the authority to act when a challenge comes. None of these steps is complex individually. Collectively, they constitute the maintenance programme that most structures lack.

Is the structure worth retaining? In almost every case we see, yes – the Hong Kong trust framework, properly maintained, offers the best available combination of succession clarity, creditor protection, and enforcement access for Mainland-connected families. The question is not whether to have the structure, but whether the current structure actually works as designed against the current risk environment.

The sequence above describes the standard analytical position. Your structure turns on the specific assets engaged, the family's domicile and residence map, and the current state of the governing documents – which is where the gap between protection on paper and protection in practice is found.

If you are reviewing an existing structure or designing a new one for a family with Mainland-situated assets, write to us at info@lockhartyip.com to discuss the cross-border position in detail.

Decision map: situation, instrument, route, and risk

How the analysis applies in practice depends on the family's specific fact pattern. Several common configurations illustrate the range of positions.

Where the family holds Mainland assets indirectly through an offshore holding vehicle above which a Hong Kong trust sits, the trust is properly constituted as to the offshore shares. The Mainland assets are not trust assets in the proprietary sense under Mainland law. The risk is primarily one of succession and creditor exposure at the Mainland level. The instrument is the trust deed combined with a clear governance protocol for the offshore entity. The route for disputes is Hong Kong arbitration with enforcement under the Mainland–HK arbitral arrangements. The residual risk is the argument that the settlor's retained powers make the transfer ineffective.

Where the family holds Mainland real property or other registered assets in a principal's personal name, those assets sit entirely outside the trust structure. The governing instrument for succession to those assets is Mainland succession law. The trust does not help. The route, if the family wishes to include those assets in a structured succession plan, runs through Mainland estate-planning instruments – a Mainland will, properly executed, and a clear nomination of heirs – coordinated with the trust deed so that the two documents do not conflict. The risk is the interface between the Mainland will and the trust's position on the offshore layer.

Where the family is considering the appointment of a professional trustee, the key question is not the trustee's jurisdiction of residence but the trustee's capacity to exercise discretions in relation to assets across the structure. A trustee who holds the offshore shares but has no visibility into the Mainland operating entities cannot exercise meaningful discretion when the family's circumstances change. The instrument here is a detailed trustee-information protocol and a governance agreement with the directors of the underlying entities. The risk of a passive trustee is that the trust looks – and may function – like a nominee arrangement rather than a genuine trust, which undermines the asset-protection rationale.

Where an intra-family dispute is already in progress, the sequence of steps determines what remains available. A creditor or claimant who obtains a Mainland judgment against a family member can now register that judgment in Hong Kong under the Mainland Judgments in Civil and Commercial Matters (Reciprocal Enforcement) Ordinance and seek enforcement. Whether that enforcement reaches the trust assets depends on the merits of the underlying claim, whether the assets were properly constituted trust assets before the cause of action arose, and whether the Hong Kong anti-forced-heirship firewall applies on the facts. An early review of the trust's current position – before a Mainland judgment is obtained – is significantly more effective than a defensive argument after registration.

If an earlier filing, structure, or enforcement attempt has produced an adverse or stalled result, a second read can identify the strategic error and the routes still open. To discuss the position in your matter, write to info@lockhartyip.com.

The objection answered: the trust is too complex and too expensive to maintain

The objection heard most often from Mainland-connected families is that a cross-border trust structure involves too much ongoing administration, too many jurisdictions, and too many advisers to be practical. The objection is understandable. It is not the right frame for the risk.

The alternative to a maintained trust structure is not simplicity. It is Mainland succession law applying to Mainland assets, with no structural protection for the offshore layer, and no tested dispute-resolution mechanism if the family disagrees. The administration costs of a trust are the ongoing cost of maintaining protection that would otherwise be unavailable. The question is whether the protection is worth the cost – and for families with substantial cross-border wealth, the answer is almost invariably yes.

What has changed is not the argument for the structure. It is the maintenance requirement. Under the current regulatory and enforcement environment, a trust that was set up and left to run without regular review is not a well-maintained trust. It is a structure that has drifted from the conditions under which it provides protection. The cost of that drift is not administrative. It is the loss of the protection the structure was built to provide.

Our desk regularly acts on cross-border private wealth matters of this kind, from initial structuring to ongoing review and dispute response. We work alongside locally licensed Hong Kong firms on matters of Hong Kong law and alongside allied counsel in the relevant offshore centres. The Private Wealth practice at Lockhart & Yip covers succession, trust structures, family governance, and cross-border enforcement across the Greater China and principal offshore corridors.

Related practices

• Disputes & Arbitration – cross-border enforcement, arbitration, and Hong Kong–Mainland mutual assistance
• Holding Structures – BVI, Cayman, and Hong Kong holding entity design for international groups
• Tax Positions – FSIE compliance, Pillar Two analysis, and cross-border tax structuring

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This publication is general information and does not constitute legal advice. For advice on your situation, contact info@lockhartyip.com.