How to approach asset protection for a principal with the CIS exposure

A principal whose family, assets and business interests span the Commonwealth of Independent States faces a structural problem that most European or offshore advisers do not fully see. The assets sit in multiple legal systems simultaneously. The succession rules in those systems may directly conflict with the structures in place. And the enforcement environment across the CIS (the Commonwealth of Independent States, a regional grouping of post-Soviet states including Russia, Kazakhstan, Ukraine, Azerbaijan, Uzbekistan and others) remains materially different from anything a common-law practitioner encounters in London or Singapore.

Asset protection for a principal with the CIS exposure requires a structured sequence – starting with an honest asset map, moving through governing-law choices and appropriate holding structures, and concluding with verified succession arrangements – coordinated across the principal's relevant jurisdictions. The Trustee Ordinance (Cap. 29) as reformed provides a well-tested statutory base for Hong Kong-law trusts used in this context, and the absence of forced heirship in Hong Kong law is a material advantage where the family's centre of gravity is shifting westward or toward an Asian hub.

This guide sets out the decision the reader faces, the sequence of steps in order, the gate at each step, the common mistake at each stage, and a short decision checklist. It is written for in-house counsel and principals who are approaching this question for the first time, or who have an existing structure that has not been tested against the CIS-specific enforcement and succession risks.

What is the actual decision the principal is facing?

Most principals with the CIS exposure come to the protection question after a trigger event: a regulatory action in the home jurisdiction, a family breakdown, a counterparty dispute, or the first serious discussion about succession. The question they ask is often too narrow – "which trust structure?" or "which jurisdiction?" – when the prior question is: what, exactly, needs protecting, from what, and in what order?

The decision tree has three branches. The first is enforcement risk – the risk that a judgment or regulatory measure in a CIS jurisdiction reaches assets held elsewhere. The second is succession risk – the risk that forced-heirship or statutory-share rules in the principal's domicile or nationality jurisdiction override the intended distribution. The third is structural fragility – the risk that the current holding arrangement (often a BVI or Cypriot company with a thin shareholder agreement) does not survive a cross-border challenge.

Each branch requires a different answer. A principal who treats all three as a single problem tends to build a structure that partially addresses all three and fully addresses none. The first step is to be precise about which branch is active, and in what order.

The cross-border angle makes this harder. Assets in Kazakhstan are governed by Kazakhstani law regardless of what a BVI holding structure says. A principal domiciled in Russia may be subject to Russian succession rules even if the assets are held through a Cyprus SPV. And a Hong Kong trustee administering a trust with CIS-situated assets will take a different view of its obligations depending on whether there is a clear choice-of-law clause in the trust deed pointing to Hong Kong law.

How does the asset map work in practice, and why does it come first?

The asset map is the factual foundation for every subsequent decision. Without it, the structure is built on assumptions about what the principal actually owns, in what form, and through what legal vehicle. Those assumptions are usually wrong in at least one significant respect.

In our cross-border practice, the most common gap we encounter in CIS-exposed structures is the treatment of operating assets. Principals often have a relatively clear picture of their financial assets – bank accounts, securities, real property held directly – but a far less clear picture of their interests in CIS operating businesses, particularly where those interests are held informally, through nominee arrangements, or through layers of local entities that have not been consolidated into the offshore holding structure.

The asset map should record: (a) the legal form of ownership for each asset; (b) the jurisdiction of the legal situs of each asset; (c) the identity of the holding entity and its jurisdiction of incorporation; (d) whether the holding entity has an economic-substance position that would survive scrutiny; and (e) the beneficial-ownership registration position in each relevant jurisdiction.

This last point has become materially more important across the CIS in recent years. Several jurisdictions have introduced beneficial-ownership transparency requirements that interact directly with offshore holding structures. A principal who assumes that a BVI holding company maintains confidentiality in the home jurisdiction should verify that assumption against the current registration requirements in each relevant jurisdiction before proceeding to the next step.

The gate at this step is completion. The structure cannot be correctly designed until the map is accurate. Moving to step two with an incomplete asset map is the most common cause of structural failure we see in this practice area.

How do governing-law choices interact with the CIS-specific succession risk?

Forced heirship is the single most important legal concept for a CIS-exposed principal to understand. Forced heirship (mandatory statutory inheritance rights protecting specified family members, regardless of the deceased's stated wishes) is a feature of civil-law systems. Most CIS jurisdictions are civil-law systems. The interaction between a CIS domicile and a common-law trust can produce results that the principal did not intend and the trustee cannot simply override.

Hong Kong law has no forced-heirship regime. The 2013 reform of the Trustee Ordinance (Cap. 29), effective 1 December 2013, strengthened the protection of Hong Kong-law trusts against foreign forced-heirship claims. This is a material structural advantage for a CIS-exposed principal who is building or migrating toward a Hong Kong-law trust. It means that, subject to the facts of the case, a Hong Kong-law trust properly established and administered may resist a claim by a CIS-jurisdiction court seeking to apply local succession rules to assets held in trust.

But the protection is not absolute, and it is not automatic. Two conditions must be met. First, the trust assets must not be situated in the jurisdiction asserting the forced-heirship claim – or, if they are, the local courts will apply local law regardless of the trust deed. This is where the asset map from step one becomes decisive. Assets with a CIS situs that cannot be moved out of that jurisdiction are effectively governed by the local succession law, regardless of the offshore structure above them.

Second, the trust must be validly constituted under Hong Kong law. A rushed or poorly documented trust instrument, settled with assets that remain practically under the control of the settlor, may not be recognised as a true trust at all by the relevant courts. The sham trust (a purported trust that in substance gives the settlor continuing control, and which courts may disregard) risk is particularly acute where the principal is settling CIS-derived assets and retaining informal control through undocumented understandings with the trustee.

The governing-law question therefore operates at two levels. At the trust level, Hong Kong law provides a well-tested base with the firewall provisions noted above. At the asset level, the situs of each asset will determine whether that asset is effectively protected. The two levels must be aligned, not just the trust-level instrument.

For succession across the family's map, this means the principal needs a view not only of the trust law but also of the lex successionis (the law that governs succession to an asset in a given jurisdiction) in each jurisdiction where assets or family members are located. In our cross-border practice, we regularly work with locally licensed counsel in the relevant CIS jurisdiction to map this position before the structure is finalised.

What is the correct sequence of steps, and what is the gate at each?

The sequence is not arbitrary. Each step creates a condition for the next. Running the steps out of order is the most common structural mistake, and it tends to produce structures that look sound on paper but fail at the enforcement stage.

Step one: complete the asset map (described above). Gate: all assets correctly identified, legally characterised, and mapped to a situs jurisdiction. No proceeding to step two without this.

Step two: determine the principal's current domicile and residence position. This is not a question about where the principal spends the most time. It is a question about the legal domicile in each relevant jurisdiction and the tax-residence position. Both affect which succession law applies to which assets. In the CIS context, some jurisdictions apply succession law based on nationality, some on domicile, and some on the situs of the specific asset. The answer will differ by jurisdiction and by asset class.

Gate: a clear legal opinion – not an informal view – on the domicile and residence position in each material jurisdiction. Where the position is ambiguous, the ambiguity must be resolved, or the structure must be designed to function under both possible outcomes.

Step three: assess the existing structures against the two risks identified in step one. Many CIS-exposed principals have existing offshore structures – typically BVI or Cayman holding companies, sometimes a Cyprus intermediate layer, occasionally an older-style trust that was not designed with forced-heirship protection in mind. These must be assessed against the current enforcement and succession risks before any new layer is added. Adding a new trust on top of a fragile holding company does not fix the holding company.

Gate: a clear assessment of what the existing structure would do, and would not do, in the event of (a) an enforcement action against the principal in the home jurisdiction; (b) the principal's death with the current structure in place; and (c) a relationship breakdown requiring a division of assets. If any of these scenarios produces an unacceptable outcome, the structure at the relevant level must be adjusted before the next step.

Step four: design the target structure. This is where the trust, the holding layer, the residence strategy and the succession instruments are designed together, not separately. The trust jurisdiction, the trust law, the trustee selection, the letter of wishes, the protector arrangement (if any), and the underlying asset-holding structure must all be designed as an integrated whole. A Hong Kong-law trust with a well-drafted Hong Kong-law deed, properly settled and administered, provides a strong base. Where assets have a CIS situs and cannot be moved, a parallel succession instrument in the relevant jurisdiction – coordinated with the trust – is required.

Gate: the target structure must be reviewable against the three scenarios identified in step three. If it does not produce an acceptable outcome in all three, it is not the target structure.

Step five: implement in the correct order. The order of implementation is legally significant. A trust settled with assets that are subject to a pending enforcement action may be challenged as a transaction defrauding creditors. A holding-company restructuring that precedes a personal bankruptcy by a short interval may be reversed. The timing and sequence of each implementation step must be reviewed against the applicable laws in each relevant jurisdiction before the first document is signed.

Gate: legal sign-off – from the relevant locally licensed counsel in each jurisdiction – on the timing and sequence of each step, with specific attention to the clawback period (the period during which a disposition may be reversed by an insolvency or fraud-on-creditors claim) in the home jurisdiction.

What is the most common mistake, and how does the sequence avoid it?

The most common mistake is settlor control. A principal who has spent years managing a business does not easily relinquish the informal authority that comes with beneficial ownership. The structure that results is one where the trust is validly constituted on paper, the trustee is a professional institution in a respectable jurisdiction, the deed is carefully drafted – and none of it works at the enforcement stage because the principal has continued to direct the assets through a side arrangement with the trustee, retained a power of revocation that was not properly documented, or settled assets subject to an undisclosed charge.

Courts across common-law jurisdictions have a well-developed body of analysis on sham trusts. A court that finds that the trust was at all times operated as the principal's own asset will disregard the trust structure and treat the assets as the principal's property – available to creditors, available to forced-heirship claimants, available to a judgment creditor who has obtained a recognition order in the relevant jurisdiction.

The sequence described above addresses this directly. Step three includes an assessment of the existing structure precisely because the sham risk is almost always an existing structural problem, not a new one. Step four designs a target structure with appropriate protector and distribution arrangements that give the trustee real authority. And step five addresses the implementation timing so that the settlement is not made in circumstances that invite a clawback challenge.

A second common mistake is treating the CIS-jurisdiction assets as outside the structure. Principals often focus the protection effort on the financial and real-property assets held offshore, while leaving the operating businesses in the home jurisdiction in an unstructured position. In the event of an enforcement action, those operating businesses are the most visible and most reachable target. A comprehensive structure must address the situs assets as well as the offshore layer.

What foreign counsel – including well-qualified offshore counsel – sometimes get wrong is the enforcement environment in the CIS. The assumption that an asset in a BVI holding company is effectively unreachable from a CIS-jurisdiction court is not always correct. Where the BVI company is the sole beneficial owner of a CIS-situated asset, and where the principal is the sole beneficial owner of the BVI company, the practical path to that asset for a determined creditor is through the local courts applying local law to the local asset, without needing to pierce the offshore structure. The structure must address the situs-level exposure, not just the offshore layer.

How does the Hong Kong angle apply specifically to the CIS-exposed principal?

Hong Kong is not the obvious first answer for a principal whose assets and family are primarily in the CIS. It is, however, a structurally well-positioned answer for a principal who is moving – or planning to move – part of the family, part of the assets, or part of the business activity toward Asia, or who is seeking a neutral common-law forum that is not subject to the geopolitical pressures that affect European offshore centres.

Three features of the Hong Kong position are relevant to the CIS-exposed principal. First, the absence of forced heirship and the statutory firewall provision under the reformed Trustee Ordinance (Cap. 29) means that a Hong Kong-law trust provides a well-tested resistance to the civil-law succession claims that CIS-jurisdiction courts may seek to assert. Second, Hong Kong's common-law system and its mature courts – the Court of First Instance, the Court of Appeal and the Court of Final Appeal – provide a well-tested enforcement environment for trust-related disputes that is independent of any CIS-jurisdiction political pressure. Third, Hong Kong's position as a cross-border hub between the Mainland and the principal offshore centres (BVI, Cayman, Channel Islands) means that a Hong Kong-based adviser can co-ordinate the full structure, including the Mainland-facing and the CIS-facing components, from a single point.

For the CIS-exposed principal, the question is not whether Hong Kong is the right answer for every asset. It is whether Hong Kong is the right governing law for the trust, the right forum for trust administration, and the right coordination point for a structure that spans multiple jurisdictions. In our cross-border practice, we regularly advise on exactly this configuration – a Hong Kong-law trust holding a BVI intermediate layer above operating assets in the CIS, with succession instruments coordinated across the family's map.

The interaction with the family's residence strategy also matters here. A principal who is themselves moving to Hong Kong, or whose next generation is based in Hong Kong, has a strong practical reason to use Hong Kong law as the governing law for the trust and succession instruments. The alignment between the trustee's jurisdiction, the governing law, and the family's actual centre of gravity is not merely a legal nicety – it affects how easily the trust can be administered and how confidently the trustee can exercise its discretion.

For further context on related succession planning considerations, see our briefing on estate planning covering assets in the United Kingdom and our separate briefing on choosing a trust jurisdiction for Asia-based families. Both bear directly on the multi-jurisdictional configuration a CIS-exposed principal typically presents.

What does a decision checklist look like in practice?

The checklist below is not a substitute for legal advice. It is a diagnostic tool – a set of questions that the principal and the in-house counsel should be able to answer before instructing counsel to design or revise a structure. If any question cannot be answered clearly, that gap is the starting point for the engagement.

• Can the principal identify every asset by legal form, situs jurisdiction, and holding vehicle – without needing to check with an administrator?
• Is the principal's domicile position in each material jurisdiction supported by a current legal opinion, or is it an informal assumption?
• Does the existing structure – trust, company, or both – produce an acceptable outcome in the event of the principal's death tomorrow, with the current documents in place?
• Has the existing structure been reviewed against the forced-heirship and mandatory-share rules in each jurisdiction where family members are domiciled or assets are situated?
• Does the trustee exercise genuine discretion, or does the principal continue to direct distributions and asset management through informal instructions?
• Has the clawback-period exposure in the home jurisdiction been assessed for each proposed disposition or settlement?
• Are the operating assets in the CIS addressed in the structure, or only the offshore financial and real-property assets?
• Is there a coordinated succession instrument – a will, a letter of wishes, or a specific disposition mechanism – in each jurisdiction where an asset is situated?
• Has the structure been tested against a relationship-breakdown scenario, not only a death scenario?
• Is there a locally licensed adviser in each relevant CIS jurisdiction who has reviewed the local-law aspects of the structure and confirmed that the offshore layer does not conflict with local mandatory rules?

A "no" or "I don't know" answer to any of these questions identifies a gap. The appropriate response is to address the gap, in the order in which it appears in the sequence above, before adding any further structural layer.

The sequence above describes the standard position. Your matter turns on the documents, the jurisdictions actually engaged, and the order of steps – which is where the route is won or lost. To discuss how the asset-protection analysis applies to your cross-border position, contact info@lockhartyip.com.

What does the engagement look like, and where does it start?

The first engagement step is not a retainer. It is a structured conversation around the asset map and the principal's current structure. In our cross-border practice, we begin by asking for a summary of the existing structure – the holding entities, the trust documents if any, the jurisdictions involved, and the succession instruments currently in place. From that summary, we prepare a preliminary read of where the gaps are and what the priority steps look like.

For CIS-exposed principals, the engagement typically involves co-ordination with locally licensed counsel in the relevant CIS jurisdiction and, where the trust layer is being established or migrated, with the trustee and the trustee's own legal team. We do not act as a one-stop provider for all of these functions. We act as international and cross-border counsel, coordinating the multi-jurisdictional analysis and the structural design, while locally licensed firms in Hong Kong and the relevant CIS jurisdiction handle the Hong Kong-law and local-law execution respectively.

If an earlier structure or enforcement attempt produced a stalled or adverse result, a second read can identify the strategic error and the routes still open. The starting point is the same – the asset map and the current documents – but the analysis focuses on what went wrong and what the remaining options are before any new layer is added.

For a structured assessment of your asset-protection position across the relevant jurisdictions, write to us at info@lockhartyip.com.

Our broader private wealth practice covers succession planning, trust structuring, family governance and cross-border asset protection for principals and family offices with multi-jurisdictional exposure.

Related practices

• Holding Structures – structuring and maintaining offshore and Hong Kong holding entities above CIS operating assets
• Tax Positions – residence, FSIE regime and Pillar Two analysis for principals relocating through Hong Kong

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