Matter note: a private trust for a family Mainland

A private trust structured under Hong Kong law can provide succession continuity, asset protection, and a credible legal boundary between family assets and Mainland China regulatory exposure – but only if the structure is built around the family's actual cross-border map, not a generic offshore template. The governing instrument in Hong Kong is the Trustee Ordinance (Cap. 29), which was substantially reformed with effect from 1 December 2013 and abolished the rule against perpetuities for Hong Kong trusts while introducing statutory protection for settlor-reserved powers. The sequence of steps – and the order in which they are taken – determines whether the structure holds.

This note describes an anonymised matter our private wealth desk handled for a family with its principal asset base in Mainland China. It records the cross-border constraint the family faced, the route chosen, and the transferable lesson for other principals in a similar position.

What was the situation, and why did a standard offshore structure fall short?

The family had operated successfully across two generations. The senior generation held interests in operating entities in the Mainland, a residential property portfolio partly situated in Mainland cities, and liquid assets in an account maintained through a Hong Kong bank. The succeeding generation was split across three jurisdictions: one member was resident in Hong Kong, one had established residence in a European Union member state, and one had returned to live in the Mainland.

An adviser in the family's home region had previously recommended a BVI holding company sitting above the Mainland assets. On paper, this resolved the ownership layer. In practice, it created a different problem. The BVI vehicle held no independent economic substance. The Mainland assets – real property and equity interests in domestic operating companies – remained subject to Mainland rules on ownership transfer, inheritance registration, and the practical constraint that Mainland-situated assets cannot simply be "moved" into an offshore trust by paper assignment.

The family came to our desk after the senior principal suffered a health event. There was no will, no trust instrument, and no documented succession plan. The BVI company lacked a functioning shareholders' agreement. The European-resident beneficiary had obtained independent legal advice in her country of residence, flagging that her jurisdiction applied forced heirship (mandatory inheritance shares for children and spouses, which cannot be defeated by testamentary disposition) as a matter of domestic law. That advice left the family with an unresolved question: which law governed the succession to which assets?

What was the cross-border legal problem at the heart of the matter?

The core issue was a conflict between three legal systems operating simultaneously over the same family's asset map. Mainland China applies its own rules to Mainland-situated assets on inheritance; those rules operate regardless of any offshore structure over the assets. Hong Kong law – under the Trustee Ordinance as reformed in 2013 – offers a well-tested anti-forced-heirship firewall for trusts properly governed by Hong Kong law, but that protection extends to assets properly held within the trust structure, not to assets that remain outside it because of regulatory constraints on transfer.

The European jurisdiction's forced-heirship rules applied to the resident beneficiary's "inheritance" as a matter of her habitual residence. Whether they could reach assets held in a Hong Kong trust depended on a recognised private international law question: did the trust instrument validly exclude their application, and would a Hong Kong court or the relevant Mainland authority recognise that exclusion?

Hong Kong has no forced-heirship regime of its own. The 2013 reforms to the Trustee Ordinance specifically strengthened protection of Hong Kong-law trusts against foreign forced-heirship claims. That provision was directly relevant. But the family first needed to understand which assets could realistically be settled into a Hong Kong trust without triggering a Mainland regulatory event, and which could not – at least not immediately.

This is the junction where many cross-border families encounter the gap between what international private wealth theory prescribes and what Mainland practice permits. Our desk sees this question regularly, and the answer is never the same twice. The asset mix, the residency of each generation, and the timing of any proposed transfer each carry their own implications.

What route did the family choose, and how was the sequence structured?

The engagement began with a cross-border asset map. Before any instrument was drafted, we worked with the family and with locally licensed advisers in the Mainland to establish which assets were capable of being held within a Hong Kong trust structure in the near term, and which required a longer sequencing approach.

The liquid Hong Kong assets were the clearest candidate. These were settled into a discretionary trust governed by the law of Hong Kong, with a Hong Kong professional trustee engaged at the outset. The trust deed incorporated an express choice of Hong Kong law, a letter of wishes from the settlor to the trustee, and an anti-forced-heirship clause relying on the Trustee Ordinance's statutory firewall. The beneficiary class was defined to include all three succeeding-generation members across their respective jurisdictions of residence.

The Mainland operating interests posed the harder question. Mainland equity interests in domestic companies cannot be simply assigned to an offshore trust in the way that shares in a BVI or Cayman vehicle can. Instead, the structure accommodated this through a layered approach. The BVI holding company was retained above the Mainland operating interests, but its ownership was restructured: its shares were issued to the newly settled Hong Kong trust as an asset of the trust estate. The BVI company's governance documents were updated to reflect the trustee as the registered shareholder and to introduce a succession-ready directors' structure.

This meant the Mainland assets remained technically outside the trust in terms of registered ownership – they sat within the BVI entity – but the economic interest in those assets, and the succession to that economic interest, was now determined by the trust instrument under Hong Kong law. For the European-resident beneficiary, the anti-forced-heirship clause and the choice of Hong Kong law as the governing law of the trust provided a documented basis on which to resist any claim that her domestic forced-heirship entitlement extended to assets held in this structure.

The Mainland property holdings required separate documentation through the applicable Mainland inheritance and property registration processes. Those steps were coordinated by locally licensed Mainland counsel working in parallel with our desk. The family's Hong Kong-resident member was in a position to assist with the Mainland-side formalities as a matter of convenience and proximity.

Where was the turning point, and what did it change?

The turning point in this matter was not legal – it was sequencing. The family had assumed, on the basis of earlier general advice, that the correct first move was to draft a will or trust deed covering all assets globally. That instinct is understandable. It is also, in a cross-border matter of this kind, usually wrong.

A trust instrument drafted to cover all assets without first establishing which assets can actually be held within the structure creates an immediate gap between the instrument's stated scope and its practical effect. If the instrument purports to settle Mainland-situated assets that cannot legally be transferred to an offshore trustee, it either fails silently or creates ambiguity about the legal relationship between the trustee and those assets. That ambiguity is precisely what a forced-heirship claimant – or a Mainland creditor – would exploit.

The turning point in this engagement came when the family accepted a phased structure: assets capable of settlement were settled immediately, assets requiring longer-form Mainland process were documented in a parallel arrangement that would feed into the trust structure as each Mainland formality was completed. This gave the family an operative, legally valid trust from the outset, covering the assets that could be covered, while the Mainland-side work proceeded on its own timetable under its own applicable law.

Within one review cycle, the liquid Hong Kong assets were in a functioning trust, the BVI vehicle had been restructured under the trust, and the Mainland property registration process had been initiated. The European-resident beneficiary's independent adviser confirmed that the trust structure, as documented, presented a credible answer to the forced-heirship question under her domestic private international law rules.

A mid-sized holding group with principals spread across the Greater Bay Area and Europe faces exactly this kind of phased constraint. The lesson this matter illustrates – that sequencing is the strategic decision, not instrument selection – is one we bring to every comparable engagement.

For related reading on asset-protection considerations for principals with offshore holding vehicles, see our briefing on asset protection and BVI exposure. For the cross-border succession interaction with a second common-law jurisdiction, our analysis on succession planning across Hong Kong and the United Kingdom addresses comparable issues in a different jurisdiction pair.

If you are assessing the structure for a principal whose assets span the Mainland–Hong Kong boundary and whose family has residence in a third country, the questions below are the right ones to start with. Contact the desk at info@lockhartyip.com.

What is the transferable lesson for comparable cross-border families?

Three points carry across from this matter to most comparable engagements.

First, the cross-border asset map precedes the instrument. A trust deed is a legal mechanism, not a planning exercise. The planning exercise is establishing which assets can be settled, under what conditions, in what order, and with what Mainland-side steps running in parallel. Skipping the map and going straight to the instrument produces a trust that looks complete on paper and is partial in practice.

Second, the anti-forced-heirship protection in the Trustee Ordinance is real, and it is strong – but it applies to assets within the trust. It cannot protect an asset that was never validly settled. Families with Mainland-situated assets who rely on a trust deed as a global solution, without checking which assets are actually in the trust, are exposed precisely where they believe themselves to be protected.

Third, the European forced-heirship question in this matter is not unusual. Our private wealth desk regularly advises on families where at least one generation has established residence in a civil-law jurisdiction with mandatory inheritance rules. The answer in each case depends on the private international law of that jurisdiction, the governing law of the trust, and the quality of the documentary record. Getting that record right at the outset is cheaper and faster than defending it after a claim is made.

For a broader discussion of the private wealth practice and the range of structures our desk advises on, visit the private wealth practice page.

If an earlier structure has produced a gap – assets purportedly in a trust that are not in fact settled, or a succession document that does not account for the Mainland side – a review can identify what is exposed and the steps still available.

To discuss the position for your family across the relevant jurisdictions, write to info@lockhartyip.com.

Related practices

Holding Structures – offshore and Hong Kong holding entity design for cross-border groups
Tax Positions – residence, source, and treaty structuring for principals and family offices

Frequently asked questions

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

A cross-border trust for a family with Mainland China assets operates across at least two legal systems simultaneously. Hong Kong law governs the trust instrument and provides the anti-forced-heirship protection under the Trustee Ordinance. Mainland law governs the registration, transfer, and succession of Mainland-situated assets. Those two systems do not automatically align: assets that cannot be validly assigned to an offshore trustee under Mainland rules sit outside the trust regardless of what the trust deed says. The practical consequence is that the structure must be built around the actual cross-border asset map, with Mainland-side steps coordinated in parallel. Parties should verify the current position before acting, as Mainland rules on foreign-ownership structures and property transfer continue to develop.

Do I need a Hong Kong adviser for a private trust for a family with assets in Mainland China?

Where the trust is governed by Hong Kong law – which is the common choice for cross-border families seeking the protections of the Trustee Ordinance, including the anti-forced-heirship firewall and the abolished rule against perpetuities – international counsel with cross-border expertise in the Hong Kong–Mainland interface is essential. The trust instrument, the choice-of-law clause, and the beneficiary arrangements are all governed by the trust's applicable law. For the Mainland-side formalities, locally licensed Mainland counsel must act. The two engagements run in parallel, and the coordination between them is where the structure is either properly built or left with gaps.

What documents are needed for a private trust for a family with assets in Mainland China?

The core document is the trust deed itself, setting out the trust's governing law, the trustee's powers, the beneficiary class, and any letter of wishes from the settlor. Where an offshore holding entity – such as a BVI or Cayman vehicle – sits within the trust structure, updated constitutional documents for that entity and a share transfer or subscription agreement are also required. For Mainland-situated assets, the relevant Mainland inheritance, property-registration, or equity-transfer documentation must be prepared under Mainland law and coordinated with the offshore structure. Source-of-funds documentation for the settled assets and any required tax filings in the relevant jurisdictions complete the standard file. Each matter varies; the precise document set depends on the asset mix and the jurisdictions engaged.

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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: a private trust for a family with assets in Mainland China