How to approach a private trust for a family with assets in the BVI

A family with wealth spread across the British Virgin Islands, a Hong Kong operating entity and settlors holding residency across multiple jurisdictions faces one concrete question before any succession plan is viable: which law governs the trust, and which jurisdiction protects it. The answer is not automatic. It depends on where the assets sit, where the family members reside and which forced-heirship rules could reach the structure from outside.

A private trust for a family with assets in the BVI is most reliably implemented using a trust governed by either BVI law or Hong Kong law, with the BVI Business Companies Act providing the corporate vehicle beneath it. The governing instrument on the Hong Kong side is the Trustee Ordinance (Cap. 29), substantially reformed with effect from 1 December 2013, which includes a statutory firewall against foreign forced-heirship claims – a material protection for internationally mobile families.

This guide covers the decision the family faces, the sequence of implementation steps, the gate at each stage, the common structural mistake and a practical checklist before the trust is settled.

What decision does the family actually face at the outset?

The first decision is not about drafting. It is about governing law and trustee jurisdiction – and those two choices are made before any document is prepared.

A family with BVI-held assets and members residing in Hong Kong, mainland China or a European country must map two distinct questions. First: which legal system will govern the trust instrument itself? Second: where will the trustee be professionally resident and regulated? These are not the same question, and collapsing them is the most common planning error we see.

On the governing-law side, the realistic options for a BVI-asset family with a Hong Kong connection are three: BVI trust law, Hong Kong trust law under the Trustee Ordinance, or the law of a third offshore centre. Each carries a different statutory firewall position, a different perpetuities treatment and a different response to forced-heirship claims originating from the settlor's domicile.

On the trustee side, a professional trustee licensed in the BVI, in Hong Kong or in another common-law centre can each be viable. The choice affects regulatory oversight, the ease of opening bank accounts for the trust, and the practical enforcement position if a beneficiary challenge arises.

What matters most is matching the governing law to the assets and the family's exposure. For a family whose principal risk is a Mainland Chinese forced-heirship claim or a European succession-law claim, a Hong Kong-governed trust with the statutory anti-forced-heirship protections introduced by the 2013 reform carries a structural advantage that the family's European or Mainland counsel may not immediately recognise.

What is the governing legal position for BVI assets held in trust?

BVI-incorporated companies holding the family's underlying assets sit within a common-law system that recognises trusts directly. The BVI Business Companies Act governs the companies; the trust that owns the shares is a separate legal instrument, governed by the law chosen in the trust deed or, absent that choice, by the law of the jurisdiction most closely connected to the trust.

Hong Kong trust law, under the Trustee Ordinance (the ordinance governing trustees and trust administration in Hong Kong), provides three protections particularly relevant to this structure. First, the rule against perpetuities and excessive accumulations was abolished by the 2013 reform, removing the time-pressure that forced earlier Hong Kong trusts into short accumulation periods. Second, the ordinance expressly protects a trust from being invalidated by the settlor's retention of certain powers – a practical requirement where a founder-settlor wishes to influence investment decisions without collapsing the structure. Third, and most commercially significant, the 2013 reform strengthened the position of Hong Kong-law trusts against foreign forced-heirship claims.

That third protection matters in a cross-border BVI structure because the settlor's domicile, nationality or habitual residence may trigger succession-law claims from another jurisdiction – French réserve héréditaire (the French mandatory succession share for descendants), the succession-law provisions applicable in some Mainland Chinese estates, or the forced-share rules applicable in parts of the Middle East. A Hong Kong-governed trust with proper documentation can resist those claims at the Hong Kong layer.

The BVI layer is complementary. BVI trust law also contains anti-forced-heirship provisions applicable to BVI-law trusts, and BVI-incorporated companies beneath the trust are subject to economic-substance requirements that a professionally maintained structure will already satisfy.

The sequence above describes the standard legal 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.

For a structured assessment of your family's governing-law and trustee-jurisdiction options across Hong Kong and the BVI, write to us at info@lockhartyip.com.

How does the step-by-step implementation sequence run?

Implementation follows a defined sequence, and departing from it – typically by reversing steps two and three – is the source of most structural defects we are asked to remedy after the fact.

Step 1: Family and asset mapping. Before any document is drafted, the adviser prepares a consolidated map of the settlor's assets (by jurisdiction and legal form), the family members by residence and nationality, and the succession regimes that could reach the structure. For a BVI-heavy portfolio, this means identifying each BVI company, its registered agent, its bank relationships and any existing shareholders' agreement or joint-venture arrangement that could constrain a transfer into trust.

Step 2: Governing-law selection and jurisdiction analysis. With the map in hand, the governing law is selected. The gate at this step is the forced-heirship analysis: if a claimant in a relevant jurisdiction could assert a mandatory succession right that the trust must resist, the governing law chosen must carry an adequate statutory firewall. Hong Kong's Trustee Ordinance provides that firewall for Hong Kong-law trusts; BVI trust law provides an equivalent for BVI-law trusts. The choice is documented in a short selection memorandum before drafting begins.

Step 3: Trustee selection and letter of wishes framework. A professional trustee is selected – licensed in the chosen jurisdiction and capable of holding BVI company shares as registered nominee or legal owner. Concurrently, the settlor prepares a letter of wishes: a non-binding but operationally significant expression of the settlor's intentions regarding distributions and management. The letter of wishes does not form part of the trust deed; it sits separately and is updated without formality.

Step 4: Trust deed preparation and execution. The trust deed is prepared by counsel instructed in the governing-law jurisdiction. For a Hong Kong-law trust, this means counsel working within the Trustee Ordinance framework. The deed names the trustee, the initial beneficiaries, the governing law and the dispute-resolution mechanism. For a BVI-asset structure, it is common to include an express submission to a BVI or common-law forum for disputes touching the underlying companies.

Step 5: Transfer of BVI company shares to trustee. The shares of each BVI company are transferred to the trustee by a stock-transfer instrument executed in accordance with the BVI Business Companies Act. The register of members of each BVI company is updated. The registered agent in the BVI is instructed to reflect the change. This step has a practical gate: the trustee must carry out its own customer-due-diligence review of the settlor and the source of wealth before accepting the transfer. That review is a regulatory requirement, not a formality.

Step 6: Ongoing substance and compliance. Once settled, the trust requires active administration. The BVI companies beneath the trust must maintain economic substance where required, hold genuine board meetings and file correctly with the BVI Registry. The trustee holds and exercises the shareholder rights in those companies and must do so in accordance with its fiduciary duties, not merely on the settlor's instruction.

Does your existing BVI structure satisfy the economic-substance requirements at the company level? That question belongs in Step 1 – but it must be answered before Step 5, or the transfer creates a structural defect that undermines the whole.

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

What is the most common structural mistake – and how is it avoided?

The most common mistake is settling the trust before completing the asset map and forced-heirship analysis. The sequence described above exists precisely because the governing law choice must follow the risk analysis, not precede it.

In our cross-border practice, we regularly see structures where a trust was settled quickly – sometimes within weeks of the initial instruction – using a standard form governed by the law of the trustee's home jurisdiction, without any analysis of whether that jurisdiction's firewall provisions were adequate for the family's specific exposure. When a claim later arrives from a Mainland Chinese estate proceeding or from a European succession court, the structure has no adequate response at the governing-law layer.

The avoidance is straightforward: the forced-heirship analysis runs in Step 2, before any deed is drafted. Where the settlor holds assets across multiple jurisdictions or carries residency or nationality in a forced-heirship jurisdiction, the analysis should cover each relevant system in turn. A single-page risk register, prepared at Step 2, captures the output and drives the governing-law decision at Step 3.

A second common mistake – less obvious – is treating the letter of wishes as a binding document. Letters of wishes that are drafted in mandatory language, retained by the settlor rather than held by the trustee, or referred to in the deed itself can be characterised by a court as a sham trust (a trust arrangement in which the trustee has no genuine independent discretion). A sham trust is unenforceable and offers no asset-protection benefit. The letter of wishes must remain non-binding, must be held by the trustee, and must be kept structurally separate from the deed.

A third error appears at Step 5: transferring shares without the trustee first completing its source-of-funds review. Trustees regulated in the BVI or in Hong Kong operate under anti-money-laundering obligations that require them to conduct due diligence on the transferor and the wealth before accepting the asset. Where that review is skipped or conducted superficially, the trustee faces regulatory exposure and the transfer itself may be challenged.

Consider a scenario from our desk: a family holding BVI assets through a holding chain settled a Hong Kong-law trust over a long weekend, transferring shares before the trustee had completed its diligence review. The trustee subsequently identified a source-of-funds gap and suspended distributions pending remediation. The resolution required a re-documentation exercise across three jurisdictions and took the better part of a year. The original error cost far more – in time, professional fees and family disruption – than a properly sequenced implementation would have done.

How does the Hong Kong–BVI cross-border interface operate in practice?

The Hong Kong and BVI layers of a private trust structure are legally distinct but operationally interdependent. Understanding the interface is essential before the structure is settled.

At the company level, each BVI company in the structure is incorporated under the BVI Business Companies Act and administered by a licensed registered agent in the BVI. Decisions about the company – including dividends, investments and transfers – are made by the board of directors, who are typically appointed by the trustee in its capacity as sole shareholder. The registered agent maintains the register of members and the register of directors; both are updated on any change.

At the trust level, the trustee exercises shareholder rights in the BVI companies, votes at board meetings (or appoints nominees to do so) and receives distributions from the companies. Those distributions flow upward to the trust and are allocated to beneficiaries in accordance with the trustee's discretion and the letter of wishes.

On the Hong Kong side, if the family includes members who are Hong Kong tax residents, the Inland Revenue Ordinance may treat distributions received by those members as taxable income in certain circumstances – particularly where a BVI company has Hong Kong-sourced profits. The territorial basis of Hong Kong profits tax means that BVI-level profits with no Hong Kong source are generally outside charge, but the analysis must be done on the facts of each company.

The cross-border interface also matters for enforcement. If a beneficiary challenge is brought before the Hong Kong courts, and the assets sit in BVI companies, the Court of First Instance may need to make orders directed at BVI entities. Common-law recognition principles and the registered-agent relationship in the BVI make that practically manageable, but it requires co-ordinated instruction of counsel in both jurisdictions – which is precisely the coordination model our desk operates on cross-border matters of this kind.

For families with a Mainland Chinese dimension – a settlor domiciled in the Mainland, or operating company assets with a People's Republic of China connection – the additional layer of Mainland succession law must be factored into the Step 2 analysis. The Mainland–Hong Kong regime does not currently extend to trust assets in the way it applies to judgment enforcement, but the interaction between Mainland estate proceedings and a Hong Kong-law trust is a live question in our cross-border practice.

What does the objection-handling position look like for common concerns?

Families and their existing advisers frequently arrive with one of three assumptions that the evidence does not support.

The first is that a BVI trust is always the right vehicle for BVI assets. BVI trust law is a capable governing system, but it is not the only option and is not automatically superior for a family with Hong Kong connections. A Hong Kong-law trust governed by the Trustee Ordinance can hold BVI company shares just as effectively, and may carry a stronger firewall position for families whose principal succession-law exposure comes from a civil-law jurisdiction.

The second assumption is that Hong Kong has no role in a BVI trust structure because Hong Kong is the family's operating base rather than the location of the assets. This misreads the position. Hong Kong's role in the structure is as governing law, as the forum for trust litigation if required, and as the jurisdiction whose Trustee Ordinance provides the statutory protections described above. The fact that the assets sit in BVI companies does not diminish those protections.

The third assumption is that succession planning can be addressed after the business consolidation is complete. In our experience, that sequence is reversed. Succession-law exposure attaches from the moment the settlor holds assets in a given form. Deferring the trust settlement until after a corporate restructuring or sale process means the succession risk runs uncovered during the most commercially significant period. The planning should begin as early in the structure's life as the asset map permits.

What does a practical pre-settlement checklist look like?

Before instructions are formally given to draft the trust deed, the following questions should each have a written answer in the adviser's file.

• Is the asset map complete? Every BVI company, its beneficial owner history and its current bank relationships must be documented before Step 5.
• Has the forced-heirship analysis been completed for each jurisdiction where a settlor or potential claimant holds residence, domicile or nationality?
• Has the governing law been selected on the basis of the forced-heirship analysis, not on the basis of where the trustee happens to be licensed?
• Has the trustee confirmed it can complete its customer-due-diligence review before the share-transfer date?
• Has the letter of wishes been reviewed to confirm it is non-binding in form, separate from the deed and free of mandatory language?
• Have BVI economic-substance requirements for each underlying company been assessed and, where applicable, satisfied?
• Has a Hong Kong tax analysis been carried out for any family member who is or will become a Hong Kong tax resident post-settlement?
• Is there an existing shareholders' agreement or joint-venture arrangement in any BVI company that would restrict the share transfer to the trustee?
• Has dispute-resolution mechanism been selected for the trust deed – typically arbitration or the jurisdiction of the trust's governing-law courts?
• Has coordinated legal instruction been arranged for the BVI company-level steps and the trust-level steps, so both proceed in the correct sequence?

A checklist is not a substitute for legal analysis. But in our cross-border practice, the failures we are most frequently asked to remedy trace back to one or more of these ten questions not having been answered – or having been answered too late.

For a preliminary read on your family's trust and BVI structure and the enforcement route if required, email info@lockhartyip.com.

Related practices

Related practices

• Private Wealth – succession, trust and asset-protection structuring across borders
• Holding Structures – BVI and offshore holding design with Hong Kong as hub
• Tax Positions – territorial tax analysis and FSIE implications for cross-border structures

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