How to approach succession planning across Hong Kong and the BVI

A family with assets held through a BVI holding company and a principal residence or business presence in Hong Kong is, structurally speaking, operating in two legal systems simultaneously. That is not a problem. It is, however, a set of decisions that must be taken in a particular order – and in the right sequence. Get the sequence wrong, and the structure that was meant to protect the family across generations can become the obstacle that slows or defeats the transfer.

Succession planning across Hong Kong and the BVI requires a coordinated approach under both the Trustee Ordinance (Cap. 29) as reformed and the BVI Business Companies Act, working through residence, forced-heirship exposure and asset location before any document is drafted. The 2013 reform of the Trustee Ordinance abolished the rule against perpetuities for Hong Kong trusts and strengthened protection against foreign forced-heirship claims – two features that make Hong Kong-law trusts particularly well-suited to multi-generational structures where the family's succession law of origin might otherwise reach in.

This guide sets out the decision the reader faces, the sequence of steps with the gate at each, the most common mistake we see in cross-border structures, and a short checklist before any document is signed.

What does succession planning actually require in a Hong Kong–BVI structure?

The starting point is not which documents to draft. It is a map of three things: where the assets legally sit, which succession law would apply if the principal died today, and whether any member of the family is domiciled or habitually resident in a jurisdiction with forced heirship (mandatory share entitlements for children or spouses under civil-law systems). Those three answers determine the design of everything that follows.

In the most common configuration we encounter, the family's operating or investment assets are held by one or more BVI companies. Those companies are owned – directly or through a chain – by the principal. The principal may be domiciled in Hong Kong, in a civil-law jurisdiction, or in a Mainland Chinese city. Hong Kong has no forced-heirship regime. The BVI, equally, imposes no mandatory share requirements under local law. But if the principal is domiciled in France, Germany, or a number of Mainland-connected legal systems at the point of death, the succession law of that domicile may seek to characterise the beneficial interest in the BVI company as a relevant asset subject to mandatory shares – and the BVI wrapper alone does not extinguish that risk.

The private-wealth team at our desk regularly advises on this three-way intersection: Hong Kong as the planning forum, the BVI as the holding layer, and the family's personal succession law as the pressure point. Each leg of that triangle needs to be read before the structure is finalised. For a broader map of the practice and the instruments we work with, see our Private Wealth practice page.

Step one – Map the family's succession law exposure before designing the structure

The first gate in any succession plan is a domicile and residence analysis: under the private international law of each jurisdiction in which a family member holds relevant status, which succession law would apply to which assets on the principal's death?

This question is not answered by looking only at the BVI or Hong Kong. A principal who was born in and retains connections to a civil-law jurisdiction may retain a domicile of origin there even after years of Hong Kong residence. Domicile is a common-law concept; it does not map easily onto civil-law notions of habitual residence or résidence habituelle (the concept used in many European succession instruments to allocate jurisdiction and applicable law). The cross-border adviser's job at this step is to identify: which succession law applies to immovable property (typically the law of the situs), which applies to movable property (typically the domicile at death), and whether the BVI shares are characterised as movables situated in the BVI or elsewhere.

Only once that map is drawn does the structure design begin. The design question is then: can the planning be arranged so that the family's assets pass according to the chosen succession law rather than the default? And can that be done through instruments that Hong Kong courts and BVI courts will both recognise and enforce?

The answer is usually yes – but the sequencing matters. A structure put in place after a forced-heirship claim has already crystallised faces a much harder legal environment than one arranged during the principal's lifetime in orderly circumstances.

Step two – Choose the holding vehicle and the trust situs

Given a clear succession-law map, the next decision is where the principal structure sits: a Hong Kong-law trust, a BVI-law trust, a private trust company (a trustee entity owned by or for the family, used to concentrate governance and reduce dependence on an institutional trustee), or a combination. This is the step at which the Trustee Ordinance becomes the central instrument for the Hong Kong leg.

The 2013 reform of the Trustee Ordinance, which took effect on 1 December 2013, made three changes that matter directly to international succession planning. First, the rule against perpetuities and the rule against excessive accumulations were abolished for Hong Kong trusts. A Hong Kong-law trust can now run indefinitely – which is essential for multi-generational family structures where the goal is a holding container, not a finite arrangement. Second, a settlor may reserve certain powers – including investment powers, powers to add or remove beneficiaries, and powers to change the governing law – without the trust being invalidated on the grounds that the settlor has not fully divested control. Third, the reform strengthened Hong Kong's firewall against foreign forced-heirship claims: a Hong Kong-law trust is not invalidated and no beneficiary's interest is reduced merely because a foreign court or law would treat the transfer into trust as defeating a forced-heirship entitlement.

That last point is particularly significant for families with civil-law connections. It does not mean the forced-heirship risk disappears – the foreign court may still seek recognition elsewhere – but it means a Hong Kong-law trust, properly established, is a well-tested structure for containing it. For a detailed treatment of private trust companies in multi-generational planning, see our guide to the private trust company in multi-generational family planning.

On the BVI side, the key structural choice is whether the BVI company is owned by the trust from the outset or transferred in later. Transfer-in carries its own set of considerations: BVI stamp duty and transfer mechanics, potential capital-gains implications in the principal's tax-residence jurisdiction, and the question of whether the transfer at undervalue would be challenged under the applicable insolvency or forced-heirship law. The cleaner route – where commercially possible – is to settle the trust and subscribe for shares in the BVI company through the trust from incorporation, so that the principal never holds the shares personally.

Step three – Attend to the governing-law and jurisdiction clauses

A trust deed that specifies Hong Kong as the governing law, but places the trustee in a jurisdiction whose courts have historically disregarded governing-law clauses in favour of the law of the trustee's seat, is a weaker instrument than it appears. The governing-law clause in the trust deed, the jurisdiction clause in any ancillary agreement, and the seat of the trustee entity are three separate choices – and they need to be aligned.

For the BVI company layer, the governing instrument is the BVI Business Companies Act, and the company's constitution – its Memorandum and Articles of Association – is the principal governance document. The Articles can be drafted to restrict share transfer (preventing a forced-heirship claimant from demanding a transfer of shares in satisfaction of a judgment) and to require trustee-director consent for significant decisions. Those provisions do not create additional legal risk; they are standard BVI drafting practice for family structures.

The interaction between the trust deed and the BVI Articles is not automatic. Counsel on our desk frequently sees structures where the trust deed contemplates certain rights for the trustee-as-shareholder, but those rights are not reflected in the Articles or in a shareholders' agreement. When the structure is tested – at a contested succession, a divorce, or an enforcement attempt by a creditor – the gap between the trust deed and the company constitution becomes the point of entry for the claim. The fix is straightforward at the drafting stage; it is expensive and uncertain at the litigation stage.

Step four – Address residence, substance and tax transparency

Succession planning in a BVI structure does not happen in a tax-reporting vacuum. Several transparency and substance regimes are now in operation that affect how the structure is treated in the principal's residence jurisdiction and in the reporting chains that reach through to beneficiaries.

Hong Kong's foreign-sourced income exemption (FSIE) regime, which came into force on 1 January 2023 and has since been amended, requires that certain foreign-sourced passive income received by a Hong Kong entity – including a Hong Kong trust company or the local administration vehicle – meet economic-substance conditions before the exemption applies. For a trust structure with Hong Kong-based administration, that means the trustee's activity in Hong Kong must be genuine, not nominal. The FSIE regime is not an obstacle to Hong Kong-sited trust administration; it is a condition on the tax treatment of income flows.

On the Pillar Two side: Hong Kong has introduced a minimum top-up tax and an income inclusion rule (IIR) for multinational enterprise groups (MNE groups – business groups with consolidated annual revenue of EUR 750 million or more) for fiscal years beginning on or after 1 January 2025. Most family-trust structures do not reach that revenue threshold, but groups with substantial commercial operations beneath the holding layer should verify the position. The BVI does not impose corporate tax; that neutrality is preserved but does not prevent Pillar Two top-up applying at the parent-entity level if an MNE-group test is met.

For family members resident or domiciled in CIS jurisdictions, the additional layer of structuring considerations around source-of-funds documentation, cross-border capital flows and estate administration is addressed separately – see our briefing on wills and estate plans covering assets in CIS jurisdictions.

Step five – Draft and execute in the right order

The document sequence for a Hong Kong–BVI succession structure runs in a defined order. Deviation from that order creates gaps that are difficult to close retroactively.

First, the trust deed. The trust deed is the foundational document and determines the governing law, the trustee's powers, the reserved powers of the settlor, the class of beneficiaries, and the anti-forced-heirship provisions. It should be executed by the settlor before the BVI company shares are transferred or subscribed.

Second, the BVI company documents. The Memorandum and Articles of Association should be reviewed or amended (for an existing company) to align with the trust structure. Where the trustee is to be the sole shareholder from the outset, the subscription and allotment of shares should be documented immediately following trust execution. Any existing shareholders' agreement should be reviewed for consistency.

Third, ancillary documents: a letter of wishes from the settlor to the trustee (non-binding but operationally important), a Memorandum of Transfer if existing personal assets are being transferred into the trust, and a will in each relevant jurisdiction covering any personally held assets that sit outside the trust structure. On the will point: a single will purporting to deal with assets in multiple jurisdictions is often a source of difficulty, because the formal validity requirements for a will differ by jurisdiction. A coordinated set of jurisdiction-specific wills, with clearly delineated scope, is generally the more reliable approach – though the interaction between them must be checked to avoid revocation-by-implication problems.

Fourth, the regulatory and reporting filings: notification of the BVI Registry where required, compliance with the BVI's economic-substance regime if the company conducts a relevant activity, and confirmation that the trust structure is captured correctly in any automatic exchange-of-information filings that the trustee or the principal's residence jurisdiction may require.

The common mistake – and how the sequence avoids it

The most frequent error in Hong Kong–BVI succession planning is not a drafting error. It is a sequencing error: establishing the BVI company first, running it under personal ownership for several years, and then attempting to transfer the shares into a trust structure at a later stage – often after a health event, a change in the family's circumstances, or a regulatory prompt.

Why does this create difficulty? Several reasons. First, a transfer of shares into a trust after the fact may be challenged as a disposition at undervalue if the principal's estate later becomes insolvent, or as a fraudulent conveyance under the applicable law of the principal's domicile. Second, if forced-heirship rights have already vested under the applicable succession law – which in some civil-law systems occurs at birth of a child, not at death – a subsequent transfer into trust may be voidable as against the forced heir. Third, the tax consequences of a transfer in – particularly where the BVI company holds appreciated assets – may produce a charge in the principal's residence jurisdiction that would have been avoided by a properly structured initial settlement.

The sequence described in this guide – map the law, choose the structure, align the documents, execute in order – exists to prevent that retroactive transfer problem. A structure established correctly at inception is not immune to later challenge, but it is substantially more defensible than one assembled after the fact.

A concrete illustration: an Asian principal with a family operating business held through a BVI company came to us after an estate-planning review flagged that the shares were held personally, with no trust structure and no will in the BVI. The principal had children in two jurisdictions with different succession laws. We mapped the forced-heirship exposure in each, settled a Hong Kong-law trust with the BVI company's shares subscribed through the trustee, and prepared a coordinated set of jurisdiction-specific wills covering the principal's personally held assets. The structure was operational within one quarter. The same result retroactively – after a health event – would have been materially more difficult and more expensive to defend.

Decision checklist before any document is signed

Before instructing counsel to draft, the principal and their advisers should be able to answer each of the following questions:

• In which jurisdiction is the principal currently domiciled – under common-law domicile rules, not merely by residence or tax residence?
• Does the applicable succession law of that domicile impose forced-heirship entitlements on any current or potential beneficiary?
• Where are the relevant assets legally situated – including the registered seat of any BVI company and the situs of any underlying real property?
• Has any family member been resident or domiciled in a civil-law jurisdiction long enough to raise a domicile-of-choice argument under the laws of that jurisdiction?
• Is the BVI company currently held personally, or already through a trust or holding structure? If personally held, has the tax and legal cost of transfer-in been assessed?
• Does the proposed trust structure meet the economic-substance and FSIE conditions that apply to Hong Kong-based administration?
• Has a jurisdiction-specific will been prepared for each jurisdiction in which the principal holds personally situated assets outside the trust?
• Have the BVI Articles of Association been reviewed for consistency with the proposed trust structure and the trustee's rights as shareholder?
• Has the reporting position – automatic exchange of information, beneficial ownership registers, local tax-authority disclosure – been considered from the trustee's seat and from the principal's residence jurisdiction?

A "no" or "not yet" against any item on that list is an instruction to pause before signing. Each item represents a gate. The gate exists because a document executed without the preceding analysis in place is likely to require amendment – or, in the worst case, to be unenforceable or challengeable at the moment it matters most.

The sequence above describes the standard analytical position. Your matter turns on the family's specific jurisdictional map, the assets actually engaged, and the order of steps – which is where the route is won or lost at a contested succession or enforcement moment.

To discuss how the Hong Kong and BVI succession regime applies to your cross-border position, contact info@lockhartyip.com.

Related practices

• Private Wealth – succession, trust structures and asset protection across jurisdictions
• Holding Structures – BVI, Cayman and offshore holding-layer design and governance
• Tax Positions – FSIE, Pillar Two and treaty implications for cross-border family structures

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Related

• Private Wealth
• Private Trust Company Multi Generational Family Guide 2
• Will Estate Plan Covering Assets Cis Cis Briefing

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