How to approach a private trust for a family Mainland

A family with wealth concentrated in Mainland China faces a question that cuts across law, tax and succession planning simultaneously: how do you place assets held in one legal system inside a trust structure that operates under another? The answer is not purely technical. It involves sequencing choices that, if made in the wrong order, are difficult and sometimes impossible to reverse.

A private trust for a family with assets in Mainland China requires the governing law of the trust to be chosen before the asset-holding structure is designed, because the chosen law determines what the trustee can do, what the settlor can reserve, and how the structure interacts with Mainland succession rules – including the forced-heirship provisions of the Civil Code of the People's Republic of China. Hong Kong trust law, substantially reformed with effect from 1 December 2013 under the Trustee Ordinance (Cap. 29), offers a mature and tested environment for structures of this kind, including express firewall protection against foreign forced-heirship claims.

This guide walks through the decision points, in order. It covers the gate at each step, the common structural mistake, and a short decision checklist for in-house counsel and family advisers approaching the question for the first time.

What decision does the family actually face at the outset?

The starting point is not "which trust?" but "what outcome must this structure achieve?" Families with Mainland assets typically approach a private trust for one or more of three reasons: succession planning (passing wealth across generations without Mainland probate complications), asset protection (insulating assets from personal liability or creditor claims), and residence transition (restructuring as one or more family members relocate or diversify their personal tax footprint).

These three objectives pull in different directions on timing. A succession-driven structure can be established gradually, with assets transferred in stages as offshore holding entities are reorganised. An asset-protection structure may need to be in place before a risk crystallises – and, crucially, before any transfer could be characterised as fraudulent conveyance (a transfer made to defeat known or anticipated creditors, which courts in multiple jurisdictions can set aside). A residence-transition structure is often time-sensitive in a different way: the personal tax position of the settlor at the moment of settlement can determine how the trust is treated in the settlor's new residence jurisdiction for years afterwards.

The family needs to define, in writing, which objective is primary. That definition controls everything that follows. Where the objectives are mixed – as they usually are – the sequencing of steps has to reflect a priority order, because some steps are prerequisites for others.

How does the Mainland China legal position shape the structure?

Mainland China does not have a trust law that operates in the same way as a common-law trust. The Trust Law of the People's Republic of China (the Mainland trust statute, in force since 2001) governs trust relationships in the Mainland, but it operates within a civil-law property framework that differs fundamentally from the common-law concept of separated legal and beneficial ownership. A Mainland court will generally not give effect to the mechanisms of a common-law trust as if they were familiar domestic instruments.

This matters immediately for two reasons. First, assets located in the Mainland – land-use rights, equity interests in Mainland companies, bank accounts held in renminbi onshore – cannot simply be "transferred into" a Hong Kong or offshore trust in the way that shares in a BVI holdco can. The Mainland's capital-account rules impose controls on the outbound transfer of capital by PRC residents and PRC-resident entities. Any restructuring that moves Mainland-sited value offshore must work within those controls, not around them.

Second, the Civil Code of the People's Republic of China contains forced-heirship provisions (rules that reserve a mandatory share of an estate for certain close family members, regardless of the deceased's intentions). These provisions apply to the Mainland estates of PRC nationals. A trust established under Hong Kong law with a proper choice-of-law clause and Hong Kong-sited trustees can, under the firewall provisions of the 2013 Trustee Ordinance reform, resist a challenge based on foreign forced-heirship rules. But that protection applies to the trust structure itself – not to the Mainland-sited assets, which remain subject to Mainland succession law until they are legitimately transferred offshore.

The practical implication: the offshore trust structure and the Mainland asset-holding layer are two distinct legal problems. They must be designed together but solved separately, in a defined sequence.

What is the correct sequence of steps?

Step one is the family asset map. Before any legal structure is touched, the family's assets need to be catalogued by jurisdiction, entity type, current ownership, and nature of the interest (direct, via a Mainland operating company, via an existing offshore holding entity). This is not a formality. The map determines which assets can move, in what order, and what regulatory approvals or filings are required at each stage. In our cross-border practice, incomplete asset maps are the single most common cause of structural delays and aborted steps.

Step two is the residency and domicile analysis. Each adult family member's current tax-residence status and domicile – in the legal sense, not the everyday sense – shapes what the trust can achieve for them. A settlor who is PRC-domiciled at the time of settlement is in a different position from one who has relocated, or whose children have relocated, to a third jurisdiction. This step is a gate: the structure cannot be finalised until the personal position of each relevant family member is understood, because that position affects the choice of governing law, the trustee's obligations, and the tax treatment of distributions.

Step three is the offshore holding structure. Mainland assets are typically held by way of a layered structure: a Mainland operating company or asset-holding entity, owned by a Hong Kong company or an offshore entity (commonly BVI or Cayman), which in turn will be the subject of the trust. The design of this intermediate layer requires attention to Mainland foreign-investment rules, the Variable Interest Entity structure (a contractual arrangement used in regulated Mainland sectors, where direct foreign ownership is restricted), and the Mainland's rules on equity transfer and security. Where a VIE exists, the trust adviser must understand that the common-law trust mechanism applies to the offshore shell, not to the Mainland operating entity – a distinction that affects both succession planning and enforcement.

Step four is the choice of governing law and trust jurisdiction. For a family with this profile, Hong Kong trust law offers a well-tested combination: the Trustee Ordinance permits a settlor to reserve significant powers without invalidating the trust; the rule against perpetuities and excessive accumulations was abolished by the 2013 reform; and the firewall provisions provide express protection against foreign forced-heirship challenges. The alternative – an offshore trust jurisdiction such as the BVI, Cayman, Jersey or the Cook Islands – may offer additional features, but introduces a third legal system into the enforcement chain. In our cross-border practice, we regularly advise families to choose the governing law based on the enforcement environment they anticipate needing, not on the jurisdiction where the trustee is easiest to find.

Step five is the settlement and transfer. The trust deed is executed; the offshore holding entities are transferred into the trust structure; and the relevant registrations, filings and notifications are made. Where Mainland approvals are required for the transfer of offshore equity, those approvals must be obtained before the trust can take full effect over the relevant assets. This step often takes longer than families expect, because the Mainland regulatory calendar and the offshore incorporation calendar do not run in parallel.

Step six is the documentation of the letter of wishes and the family governance framework. A private trust is not a will substitute on its own. The trustee must exercise its powers in accordance with the trust deed, but the family's intentions, the distribution philosophy and the succession plan for the next generation need to be recorded separately in a non-binding letter of wishes and, where appropriate, a family charter or governance protocol. These documents do not form part of the trust deed and are not legally binding on the trustee, but they guide the trustee's discretion and reduce the risk of future disputes.

What is the most common structural mistake, and how does the correct route avoid it?

The most common mistake is inverting the sequence: establishing the offshore trust first, and then attempting to transfer the Mainland assets into it. This approach consistently produces the same result. The family has a trust with no assets in it, a set of offshore entities that cannot receive the Mainland value without regulatory approval, and – in some cases – a time pressure because the settlor's personal circumstances have changed in the meantime.

The reason this mistake happens is understandable. Families and their advisers are often more comfortable with the offshore corporate layer than with the Mainland regulatory process. The trust documentation is familiar; the Mainland approval process is not. The temptation is to establish the structure "in principle" and deal with the Mainland transfers later.

The correct route reverses this priority. The Mainland asset position is clarified and, where possible, reorganised first. The offshore holding entities are cleaned up and confirmed. Only then is the trust deed executed and the transfer of offshore interests made. This sequence means the trust is funded at settlement, not hypothetically funded in a future state that depends on Mainland approvals that may not be granted on the expected timeline.

A second common mistake is using a trust deed that was drafted for a family with purely offshore or UK assets, without adapting it for the Mainland dimension. Standard trust deed precedents do not contain provisions addressing the VIE structure, the Mainland succession interaction, or the specific reporting obligations that arise in some jurisdictions when the beneficial owners of offshore entities are PRC nationals. A deed of this kind may be technically valid but practically inadequate – it will not serve the family in the scenarios it was designed for.

The sequence described in this guide avoids both mistakes. It places the Mainland regulatory and succession analysis at the front, before any documentation is executed. It designs the trust deed around the specific asset profile and family profile of this family, not a generic international family. And it treats the Hong Kong / Mainland interface as a structural feature to be addressed, not a complication to be noted and set aside.

The sequence above describes the standard position. Your matter turns on the specific asset map, the family members' residency positions, and the Mainland regulatory steps required – which is where the route is either secured or stalled.

To discuss how a structured approach to this sequencing applies to your family's position, contact us at info@lockhartyip.com.

How does the Hong Kong / Mainland China cross-border interface work in practice?

Hong Kong and Mainland China operate under different legal systems. Hong Kong is a common-law jurisdiction; Mainland China is a civil-law system. This is not merely a technical distinction – it affects how courts in each system interpret trust instruments, how they treat beneficial ownership, and how they respond to enforcement requests.

Under the Mainland Judgments in Civil and Commercial Matters (Reciprocal Enforcement) Ordinance (Cap. 645), which came into force on 29 January 2024, Mainland civil and commercial judgments can be registered with the Court of First Instance in Hong Kong, and Hong Kong judgments can be used in the Mainland courts. This regime is relevant where a trust dispute produces a judgment rather than an arbitral award, and where assets are located on both sides of the boundary. The registration mechanism replaces the older and narrower regime that required an exclusive-jurisdiction clause, broadening the range of judgments eligible for recognition.

For arbitral awards, the mutual-enforcement Arrangements between Hong Kong and the Mainland provide a separate route. Since the 2020 Supplemental Arrangement and its 2021 amendment, simultaneous enforcement applications in both jurisdictions are permitted, which is material for a family trust that holds assets in both Hong Kong and the Mainland.

Where the trust deed is governed by Hong Kong law and the trustees are Hong Kong entities, disputes about the trust can be brought before the Hong Kong courts. This gives the family access to a common-law court system with well-developed trust jurisprudence, and to an enforcement route under the Cap. 645 regime if a judgment needs to be enforced against assets in the Mainland. The combination is a meaningful structural advantage over a purely offshore trust whose judgments may not benefit from the same direct enforcement route into Mainland courts.

In our cross-border practice, we have acted on matters where families have needed to use both the arbitration route and the judgment-registration route in the same dispute. The lesson is that the trust structure should be designed with both routes in mind, not assumed to function in a benign environment.

It is also worth noting that Hong Kong implements United Nations sanctions and does not give domestic effect to unilateral measures of other states. The sanctioned-person analysis for a family trust is therefore governed by the UN framework in the Hong Kong context, which is relevant for trustee due diligence and for the source-of-funds position. A related question – how source-of-wealth and source-of-funds documentation operates in a family-office context – is addressed separately in our matter note on source-of-wealth and source-of-funds files for family offices.

What does the decision checklist look like?

Before instructing advisers to document a private trust for a Mainland-connected family, the family's in-house counsel or primary adviser should be in a position to answer the following questions. These are not exhaustive, but they are the gate questions: if any of them cannot be answered, the structure cannot be safely designed.

Asset mapping: Is there a complete list of assets by jurisdiction, entity type and ownership chain? Are any assets held through a VIE structure? Are there existing offshore entities that will be transferred into the trust, and have those entities been reviewed for compliance with current economic-substance requirements in their home jurisdictions?

Personal positions: What is the tax-residence status and domicile of the settlor? Of the intended beneficiaries? Are any family members resident in a jurisdiction with a controlled-foreign-corporation regime or a foreign-trust reporting requirement that will apply to the trust once established?

Mainland regulatory position: Have the required Mainland approvals or filings for the offshore transfer of equity or capital been identified? What is the expected timeline for those approvals? Has the foreign-exchange registration position for Mainland-resident family members been reviewed?

Succession interface: Which family members are PRC nationals? Are there Mainland-sited assets that will remain in the Mainland after the trust is established? What is the intended succession plan for those assets, and how does it interact with Mainland forced-heirship rules?

Governing law and enforcement: Has the governing law of the trust been selected based on the anticipated enforcement environment, not just trustee availability? Is the trust deed adapted to the Mainland asset profile? Does it address the VIE structure if one exists?

Documentation: Is a letter of wishes to be prepared alongside the trust deed? Is a family governance framework required? Have the trustee's ongoing reporting and administrative obligations been understood and accepted by the family?

If an earlier attempt to establish or transfer a structure has stalled – whether at the Mainland regulatory stage, the offshore documentation stage, or at the trustee's due-diligence stage – a fresh analysis of the sequence can identify the step where the route broke down and the options available to correct it.

To discuss how this checklist applies to your family's specific position, write to us at info@lockhartyip.com.

How does a Hong Kong trust interact with private wealth planning more broadly?

A private trust is rarely the only structure in play. For a family with Mainland assets, it sits alongside a corporate holding layer, a personal residence plan, and – increasingly – a family-office governance structure. The trust provides the succession and asset-protection foundation; the other elements provide the operational and tax platform.

The FSIE (foreign-sourced income exemption) regime, in force from 1 January 2023 and subsequently amended, applies to certain categories of passive income received by Hong Kong entities, including entities held by a trust. Where the trust holds a Hong Kong company that receives dividends, interest or royalties from offshore, the economic-substance conditions of the FSIE regime apply. This is a structural consideration, not merely a filing question: the way the trust is structured, and the activities of the Hong Kong holding entity, affect whether the exemption is available.

For families whose corporate group reaches the threshold for the Pillar Two global minimum tax – consolidated group revenue of at least EUR 750 million, with the Hong Kong minimum top-up tax effective for fiscal years beginning on or after 1 January 2025 – the trust structure intersects with the Pillar Two analysis at the holding-entity level. Whether a trust-held entity is in scope, and how the top-up tax applies to its profits, requires a coordinated read across the trust and tax structures. These questions sit at the intersection of our Private Wealth and Tax Positions practices.

For families considering a trust structure alongside a UK holding or residential element, the governing-law and succession interaction between Hong Kong trust law and UK succession rules raises a separate set of questions, addressed in our guide to private trusts for families with UK assets.

The common thread is this: a private trust for a Mainland-connected family is always part of a wider structure. Designing it in isolation produces a structure that is technically sound in its own terms but does not work as intended when the other elements are introduced.

Related practices

Private Wealth – succession, trust structuring and asset-protection planning across jurisdictions
Holding Structures – offshore and Hong Kong holding-entity design for cross-border family groups
Tax Positions – FSIE, Pillar Two and treaty planning for trust-held entities

Frequently asked questions

How does the cross-border element affect a private trust for a family with assets in Mainland China?

The cross-border element affects a private trust for a Mainland-connected family in three specific ways: Mainland capital-account rules restrict the outbound transfer of Mainland-sited assets; Mainland forced-heirship provisions in the Civil Code apply to PRC nationals' Mainland estates regardless of a foreign trust deed; and the governing-law and enforcement position of the trust must be designed for a two-system environment. A Hong Kong-law trust can resist foreign forced-heirship challenges under the firewall provisions of the Trustee Ordinance, but those protections apply to the trust structure, not to assets that remain in the Mainland. Getting the sequencing right – Mainland asset reorganisation before trust settlement – is the critical practical step.

Which jurisdiction's law applies to a private trust for a family with assets in Mainland China?

The parties can choose the governing law of the trust deed. A properly drafted choice-of-law clause selecting Hong Kong law will generally be given effect under Hong Kong conflict-of-laws rules, and Hong Kong courts will apply the Trustee Ordinance (Cap. 29) including its firewall provisions. However, the governing law of the trust governs the trust instrument itself – it does not override Mainland law as applied to Mainland-sited assets. Those assets remain subject to Mainland property law, capital-account rules and succession law until they are validly transferred offshore. The choice of Hong Kong law as the trust's governing law is therefore a necessary step, but not sufficient on its own to resolve the Mainland dimension.

What is the first step in a private trust for a family with assets in Mainland China?

The first step is a complete asset map: a catalogue of all assets by jurisdiction, entity type, current ownership, and nature of the interest. This map identifies which assets can move offshore, in what sequence, and what Mainland regulatory approvals are required. Without a complete asset map, the trust adviser cannot design the offshore holding structure, cannot assess the Mainland capital-account position, and cannot sequence the steps in the correct order. In practice, families often arrive with a partial asset map; completing it is the first and most important gate in the entire process. Parties should verify the current Mainland regulatory requirements before acting, as these are subject to change.

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

How to approach a private trust for a family with assets in Mainland China