Matter note: asset protection for a principal CIS

Asset protection for a principal with significant Commonwealth of Independent States exposure is not a single-jurisdiction task. The governing instruments – including Hong Kong's Trustee Ordinance (Cap. 29) and the succession, forced-heirship and enforcement regimes of the relevant CIS states – operate on different axes, and the sequence in which they are engaged determines whether the structure holds. This matter note describes how one such situation was addressed, without identifying the client, the jurisdiction pair within the CIS, or the asset classes involved.

The note follows the anonymised logic of the matter: the situation, the constraint, the route chosen, the turning point, and the lesson that transfers to other principals in a comparable position. Readers who recognise their own situation in these pages are encouraged to write to us for a structured read of their specific position.

The situation: a principal at the intersection of two legal worlds

The principal was a founder and controlling shareholder of an operating group with assets spread across a CIS jurisdiction, a European holding layer, and a liquid portfolio held outside the CIS. The family was multigenerational. Adult children held interests in some, but not all, of the group entities. A spouse held property in a third country.

The principal had engaged local advisers in the CIS jurisdiction for years. What those advisers had not addressed was the interaction between local succession law and the offshore structure. In our cross-border practice, this gap appears regularly: domestic counsel focus on the domestic position, and the international layer is assumed to self-manage. It does not.

The trigger was not a dispute. It was the principal's decision to consider relocating part of the family's centre of gravity to Asia. That relocation question forced a review of the succession and asset-protection position across every jurisdiction on the family's map. What emerged was a more urgent problem: the existing structure was vulnerable to forced-heirship claims under the applicable CIS law, and the trust arrangements in place at the offshore level had not been tested against those claims.

The constraint was political as much as legal. The principal needed a structure that would not create unnecessary visibility in the CIS jurisdiction, would not destabilise existing business relationships, and would be capable of surviving a forced-heirship challenge under at least two competing legal systems.

What is the forced-heirship risk for a CIS principal?

Forced heirship – the mandatory reservation of a fixed share of an estate for certain heirs, irrespective of the testator's wishes – is a live risk for principals whose assets or habitual residence remain connected to a CIS jurisdiction. Most CIS states retain civil-law inheritance regimes with mandatory-share rules. Those rules are not automatically displaced by an offshore trust or an English-law will.

The central question is characterisation. Under the private international law rules of many CIS states, immovable property is governed by the lex situs (the law of the place where the property is situated). Movable property – including shares in holding companies – may be governed by the law of the deceased's last habitual residence or domicile. If the principal remains habitually resident or domiciled in a CIS jurisdiction, the mandatory-share rules of that jurisdiction follow the movables wherever they sit in the structure.

In the matter before us, the offshore holding entity held shares in the operating group. The principal's domicile, on a strict analysis, remained in the CIS jurisdiction. The offshore trust held those shares on terms governed by a well-established offshore law. But the trust had not been stress-tested against the question of whether a CIS court would look through the trust and apply the mandatory share to the underlying assets. That question had never been asked, let alone answered.

Hong Kong sits at a different point on this spectrum. Hong Kong law has no forced-heirship regime. The 2013 reform to the Trustee Ordinance (Cap. 29), effective 1 December 2013, strengthened the protection available to Hong Kong-law trusts against foreign forced-heirship claims, and abolished the rule against perpetuities for Hong Kong trusts. Where a trust is governed by Hong Kong law and the assets are characterised as trust assets (not estate assets), a forced-heirship claimant from a CIS jurisdiction faces a materially harder task than under many European or offshore regimes.

The issue and the route chosen

The immediate issue was not the trust's validity. It was the trust's governing law and the adequacy of its terms. The offshore trust used a governing law that had reasonable statutory protections, but those protections were narrower than those available under Hong Kong's reformed Trustee Ordinance. A change of governing law to Hong Kong, combined with an update to the trust deed's reserved-powers provisions and the appointment of a Hong Kong-based trustee as co-trustee, was the primary structural move.

That sounds straightforward. In practice, it required working through several subsidiary questions before the structural move could be executed safely. First, the existing trust deed had to be reviewed for any restriction on the change of governing law. There was no absolute bar, but the mechanism required the consent of a specific class of beneficiaries and a notarial process in the offshore jurisdiction. Second, the CIS jurisdiction's private international law rules had to be assessed to determine whether a Hong Kong-law trust, once established, would be recognised as a valid structure by a CIS court in a succession dispute. The analysis was not mechanical; it required a view on how the CIS courts in question had treated offshore trusts in comparable circumstances, drawing on available comparative sources and the principal's own litigation experience in that jurisdiction.

Third, and most importantly, the change of governing law alone would not address the domicile point. If the principal remained domiciled in the CIS jurisdiction at the date of death, a CIS court might still treat the trust assets as part of the estate for mandatory-share purposes, regardless of the trust's governing law. The structural answer to that question was a long-term residency programme, not an immediate change of domicile – the principal was not ready to make a clean break from the CIS jurisdiction – but a planned migration of the principal's centre of gravity to Hong Kong over a defined period, which would progressively shift the domicile analysis.

The route therefore had three interlocking elements: the trust restructuring, the residence migration plan, and an interim protective layer in the form of an updated letra de instrucciones (a letter of wishes in formal terms) and a revised governance framework for the underlying operating entities.

For a structured assessment of your own succession and asset-protection position across the relevant jurisdictions, write to us at info@lockhartyip.com. The sequence and the analysis above give a flavour of the work; the application to a specific family situation requires a separate read.

The sequence and the turning point

The matter ran over approximately two years. The first phase was a full mapping exercise: every jurisdiction in which the family held assets, every entity in the structure, every individual's residence and domicile position, and every potential claimant's legal standing under the applicable succession laws. This produced a document that the principal described as the first time the family's full legal exposure had been seen in one place.

The mapping exercise had an immediate effect. It identified an asset class – real property held in the CIS jurisdiction – that the existing trust structure had never addressed. That property was registered in the principal's personal name, subject to the CIS jurisdiction's forced-heirship rules without qualification. No offshore trust could reach it; no Hong Kong-law instrument could govern its succession. The only route was a local will, properly executed in the CIS jurisdiction, combined with a local succession plan for that asset. We coordinated that step with allied counsel admitted in the relevant jurisdiction.

The turning point in the matter came at the midpoint of the trust restructuring. The consent process for the change of governing law surfaced a dispute between two branches of the family about the identity of the protector. That dispute, if unresolved, would have blocked the restructuring. The resolution was a negotiated amendment to the trust deed that redefined the protector's role and established a dispute-resolution mechanism for future governance disagreements within the family. In effect, the restructuring forced a conversation that the family had been avoiding for several years. The outcome was a trust that not only had a stronger governing law but had clearer governance terms than the original.

The second phase – the residence migration plan – was structured as a staged programme. The principal applied for a Hong Kong long-term residence pathway that aligned with the family's business interests in the region. We mapped the tax-residence implications of each stage of the migration across the CIS jurisdiction, Hong Kong, and the European holding jurisdiction, coordinating with tax counsel in each. The Pillar Two minimum top-up tax implications for the group, given that it exceeded the relevant consolidated revenue threshold, required separate analysis under Hong Kong's minimum top-up tax regime effective for fiscal years beginning on or after 1 January 2025.

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

How does the cross-border interface work in practice?

The cross-border interface in a CIS-to-Hong Kong asset-protection matter runs on three tracks simultaneously: succession law, recognition of trust structures, and enforcement. Each track has a different governing logic, and they do not move at the same pace.

On succession law, the starting point is always the private international law of the jurisdiction most likely to be used as the forum for a succession challenge. In most CIS jurisdictions, that means a civil-law conflicts analysis that will look to domicile for movables and lex situs for immovables. A well-drafted Hong Kong-law trust deed, with an appropriate choice-of-law clause and a properly recorded change of situs for the trust assets where possible, addresses part of this exposure. It does not address the domicile point until the principal's domicile has genuinely shifted.

On recognition of trust structures, the position varies across the CIS. Civil-law systems that have not ratified the Convention on the Law Applicable to Trusts and on their Recognition (the Hague Trusts Convention) are not obliged to give effect to a trust as a matter of their own domestic law. Some CIS jurisdictions recognise trust-like structures through their civil codes; others treat the arrangement as a foreign nominee or agency relationship. The practical consequence is that the structure must be designed to function even if the CIS court characterises it differently from its governing-law label. That typically means ensuring that the trust assets are demonstrably separated from the principal's personal assets in any records, that the trustee has exercised genuine discretion, and that the trust has not been used as a pass-through for personal expenditure in a way that could ground a sham argument.

On enforcement, the question is whether a Hong Kong court judgment or a foreign judgment in favour of a forced-heirship claimant could reach the trust assets. The answer depends on the structure of the trust and the nature of the claimant's rights. A discretionary trust – under which no beneficiary has a fixed entitlement – provides a materially different profile from a bare trust or a fixed-interest structure. In this matter, the original trust had fixed-interest elements that were redesigned as fully discretionary interests in the restructured deed, with the trustee's discretion properly documented and exercised in the period following restructuring.

This is the kind of cross-border interface that requires counsel experienced in both the common-law trust tradition and the civil-law conflicts rules of the CIS. We work across that interface regularly, coordinating with allied counsel admitted in the relevant CIS jurisdiction on local-law points.

What foreign advisers most often miss

In our experience handling similar CIS-to-Hong Kong cross-border private wealth mandates, the same set of omissions appears with regularity. Each one creates an exposure that the principal often discovers only when a family dispute or a succession event triggers it.

The first is the domicile assumption. Many foreign advisers assume that an offshore structure breaks the connection between the principal and the CIS jurisdiction's succession law. It does not, as long as the principal's domicile remains in the CIS. Offshore structures govern the disposition of assets after they reach the trust; they do not change the succession law that determines whether the assets were validly settled into the trust in the first place.

The second is the letter of wishes. A letter of wishes is not a legally binding instrument. It is a statement of the settlor's intentions, addressed to the trustee, intended to guide the trustee's discretion. Many principals – and some advisers – treat it as a second will. That misconception can create adverse consequences: a poorly drafted letter that effectively fetters the trustee's discretion is evidence against the trust being genuinely discretionary, which undermines the protection the discretionary structure is supposed to provide.

The third is the absence of a CIS-jurisdiction will for locally situated assets. No international structure covers everything. Property in the CIS jurisdiction, registered in the principal's name, will be governed by the succession law of that jurisdiction regardless of what any offshore trust document says. A local will, reviewed regularly and coordinated with the international structure, is not optional for any principal with meaningful assets on the ground in the CIS.

The fourth is the tax layer. A change of governing law, a new trustee, or a distribution from the trust can all have tax consequences in the CIS jurisdiction, in Hong Kong, or in both. Those consequences should be modelled before any structural step is taken, not after.

For a preliminary read on your private wealth position and the succession route across the relevant jurisdictions, email info@lockhartyip.com.

The qualitative outcome and the transferable lesson

At the close of the matter, the family's position had been materially strengthened on each of the three tracks described above. The trust deed was governed by Hong Kong law, with express anti-forced-heirship provisions and a fully discretionary beneficial structure. The principal had commenced a residency pathway in Hong Kong, with a documented intention to establish Hong Kong as the primary centre of gravity over a defined horizon. The locally situated CIS assets were covered by a local will, coordinated with the international structure, and reviewed with allied counsel in the relevant jurisdiction. The governance framework for the operating group had been updated to reflect the family's revised succession intentions.

The qualitative outcome was not certainty. No structure provides certainty against every succession challenge across every jurisdiction. What the restructured position provided was a materially stronger starting point in the event of a forced-heirship claim: a trust with a well-tested governing law, a genuinely discretionary structure, and a documented history of trustee discretion exercised independently. That is a different matter from the position at the outset.

The transferable lesson is structural. A CIS principal with international assets needs to address succession law, trust recognition, and enforcement on the same planning horizon, not sequentially. The instinct to fix the most visible problem first – typically, the offshore holding structure – and defer the domicile and local-succession questions produces a false sense of security. The forced-heirship exposure persists until the domicile point is addressed. Everything else is a partial answer.

A second lesson is procedural. The consent process for the change of governing law in this matter was the point of greatest friction. In future mandates of this kind, we now recommend a preliminary review of the trust deed's amendment and migration provisions before any restructuring steps are confirmed with the client. That review takes a short time. Discovering the obstacle mid-process costs materially more.

Principals considering a similar exercise are invited to review our practice pages on private wealth, the related material on philanthropy and charitable structuring in Hong Kong, and the analysis on succession planning across Hong Kong and Cyprus.

Related practices

Private Wealth – succession, trust structuring and asset protection across jurisdictions
Holding Structures – offshore and Hong Kong entity design for international groups

Frequently asked questions

What are the main risks in asset protection for a principal with the CIS exposure?

The primary risks are forced-heirship exposure under the applicable CIS succession law, inadequate recognition of offshore trust structures by CIS civil-law courts, and the persistence of domicile-based succession law despite the presence of an offshore structure. A principal whose domicile remains in the CIS jurisdiction may find that the mandatory-share rules of that jurisdiction follow the movable assets regardless of where they are held or what governing law the trust instrument specifies. Local assets – particularly immovable property – remain entirely subject to local succession law and require a separately executed local will.

Which jurisdiction's law applies to asset protection for a principal with the CIS exposure?

The applicable law depends on the type of asset and the conflicts rules of the forum likely to hear a challenge. For movable assets, the succession law of the principal's domicile at the date of death typically governs; for immovable property, the lex situs applies. A Hong Kong-law trust, restructured under the Trustee Ordinance (Cap. 29) with express anti-forced-heirship provisions, can provide strong protection for assets properly settled into trust – but only where the principal's domicile has shifted away from the CIS jurisdiction, or where the CIS court is prepared to recognise the trust structure under its own conflicts rules.

What does the route look like for asset protection for a principal with the CIS exposure?

The standard route involves three parallel workstreams. First, a review and restructuring of the existing offshore trust to a governing law with strong anti-forced-heirship protections – Hong Kong law, as reformed in 2013, offers a well-tested position. Second, a residence migration plan that progressively shifts the principal's domicile away from the CIS jurisdiction, with tax-residence implications modelled at each stage. Third, a local will in the CIS jurisdiction covering assets that cannot be settled into the trust structure, coordinated with allied counsel admitted in the relevant jurisdiction. The workstreams are interdependent; the sequence in which they are engaged determines the outcome.

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

Matter note: asset protection for a principal with the CIS exposure