Update: a private trust for a family with assets in the Cayman Islands

For families whose wealth sits across the Cayman Islands and Greater China, the private trust remains the central instrument of succession planning. What changes is the regulatory environment around it – and in the past year, several concurrent shifts have made the structural review a matter of some urgency.

A private trust for a family with assets in the Cayman Islands is governed by Cayman Islands trust statute and, where the family holds a Hong Kong connection, interacts directly with Hong Kong's Trustee Ordinance (Cap. 29) and the territory's well-tested forced-heirship firewall. The 2013 reform of the Trustee Ordinance abolished the rule against perpetuities for Hong Kong-law trusts and strengthened protection against foreign forced-heirship claims – two features that make Hong Kong law attractive as a governing law even where the underlying assets are Cayman-held. Parties should verify the current position on any recent Cayman regulatory changes before acting.

This briefing covers what the development means, which families are in scope, and what the immediate action is.

What has changed – and why it matters now

The Cayman Islands has continued to refine its economic-substance and beneficial-ownership disclosure requirements for private vehicles. Private trust companies and underlying holding entities incorporated in the Cayman Islands are within scope of the substance regime. That regime requires that certain relevant activities are conducted with adequate substance in the islands. For a family that established its Cayman structure years ago, substance compliance may not have been a live question at the time. It is now.

At the same time, the interaction between a Cayman-law trust and the family's cross-border footprint has grown more complex. Where members of the same family are resident or domiciled in jurisdictions that impose forced heirship – civil-law systems across Continental Europe, parts of the Middle East, and certain Mainland Chinese succession rules in particular – the trust structure must be stress-tested against those claims. Hong Kong law provides a firewall (a statutory protection against foreign forced-heirship rules being applied to overturn a Hong Kong-law trust), but that protection applies only if the trust is expressly governed by Hong Kong law and correctly drafted. A Cayman-law trust does not carry that protection automatically.

The practical result: families with mixed-jurisdiction footprints need to revisit whether their trust's governing law, the siting of the trustee, and the substance of the underlying holding entities are still aligned with the current regulatory position on both sides.

Who is affected across the Hong Kong – Cayman corridor

The families most exposed to this confluence of pressures are those in which:

• the principal settlor or beneficiaries hold Hong Kong permanent residence or a family-office presence in the territory;
• the underlying operating assets are held through one or more Cayman Islands entities but generate income or have counterparties in the Mainland or elsewhere in Asia;
• members of the family generation are resident in civil-law jurisdictions where forced-heirship claims could arise on succession; or
• the trust structure was established before the most recent rounds of economic-substance and transparency reform in offshore centres.

In our private wealth practice, we regularly see structures that were well-designed on inception but have drifted from the regulatory baseline as both Hong Kong and the Cayman Islands have updated their requirements. The gap between the original structure and current compliance is where exposure concentrates.

What to do now

The immediate step is a structural review covering four points: the governing law of the trust instrument; the composition and location of the trustee; the substance position of any Cayman holding entities within the structure; and the forced-heirship exposure of each family member given their current domicile and residence.

Where the trust is governed by Cayman law, the family should consider whether a change of governing law to Hong Kong law – supported by the Trustee Ordinance's firewall provisions – is appropriate. That is not a default recommendation; it depends on the asset map, the family's residence profile, and the succession plan. But for families where forced-heirship risk is live, the question needs a clear answer before the next generational event occurs.

Hong Kong offers a specific advantage here. Its abolition of the rule against perpetuities for trusts established under its law, combined with the forced-heirship firewall introduced by the 2013 reform of the Trustee Ordinance, makes it a credible governing-law choice alongside the Cayman Islands as the holding centre. The two systems are not in conflict; they operate at different layers of the same structure.

For a review of your trust's position across Hong Kong and the Cayman Islands, including the governing-law question and the succession interface, write to us at info@lockhartyip.com.

Further reading: Private Wealth practice overview | Single family office structured through Hong Kong | Succession planning across Hong Kong and the United Kingdom.

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