Asset protection for a principal with the CIS exposure

A principal whose wealth originates in the Commonwealth of Independent States – the post-Soviet grouping of states across Eurasia – faces a structural problem that most private wealth jurisdictions were not designed to solve. The assets are real. The risk is real. And the path to durable protection runs through a carefully sequenced set of instruments, beginning with the choice of holding and trust jurisdiction, and ending with a cross-border structure that can withstand challenge from courts whose rules were written by a different sovereign.

Hong Kong sits at a useful intersection for this client type. It is a common-law system with no forced-heirship regime, no capital gains tax, and a reformed trust statute that provides strong firewall protection against foreign succession claims. For a principal whose wealth crosses multiple CIS states, whose family may now be resident across different countries, and whose underlying assets include operating businesses, real property and liquid capital in several currencies, that combination matters.

This page sets out the structure of what we do, in sequence, from the initial position assessment through to the documented and maintained holding architecture. It is written for the principal, the family office principal, or the general counsel who already understands the exposure and is looking for a clear account of the route.

When does a CIS principal need this, and what brings it to a head?

The trigger is rarely a single event. More often, it is the accumulation of structural risk that becomes undeniable at a particular moment. Asset protection planning for a CIS-origin principal typically becomes urgent at one of four inflection points: a change in residence or tax status; the death or incapacitation of a co-owner or senior family member; an enforcement action or dispute in one of the CIS jurisdictions; or a decision to bring the next generation into ownership of family assets.

The underlying exposure is, in most cases, a legacy structure: an operating business held through a BVI or Cayman holding entity, with real property in one or more jurisdictions, liquid assets in a private bank, and no documented succession plan that would survive a contested probate or a forced-heirship claim under the law of any of the relevant countries. CIS civil law jurisdictions impose mandatory heirship entitlements – rights that certain family members can assert against the estate regardless of a will. Where the principal has children, a spouse, or parents who fall within those protected categories under any of the applicable national laws, the question is not whether the claim will arise but whether the structure can withstand it.

A secondary trigger is enforcement risk. A judgment or administrative order made in a CIS jurisdiction can, in certain circumstances, reach assets held offshore if the holding structure has not been properly segregated and documented. The route from a CIS court order to an asset held through a BVI company is longer and harder than many enforcement creditors expect – but it is not impossible, and the quality of the original structure determines whether the protection holds.

In our cross-border practice, we see a third trigger that is sometimes overlooked: the principal's own change of residence. Moving from a CIS state to a common-law jurisdiction changes which succession and matrimonial regimes apply to the estate. Without a corresponding review of the holding structure and the trust documentation, the new residence may actually create new exposure rather than eliminating old risk.

How does Hong Kong law protect a trust against CIS forced-heirship claims?

Hong Kong trusts are governed by the Trustee Ordinance (Cap. 29), which was substantially reformed with effect from 1 December 2013. That reform introduced provisions that are directly relevant to the CIS principal. Three of them are foundational.

First, Hong Kong abolished the rule against perpetuities and excessive accumulations for trusts governed by Hong Kong law. A trust can now run indefinitely without triggering the old common-law rule that would have limited its duration. For multigenerational planning, that removal of a structural constraint matters.

Second, the reformed statute codified and strengthened firewall protection. Where a trust is governed by Hong Kong law, a foreign court's attempt to apply a different law to questions of the trust's validity, constitution or operation – including a forced-heirship claim under a CIS civil code – will not be recognised by the Hong Kong courts as defeating the trust. The firewallprovision is not absolute; it is a Hong Kong law rule and it operates within Hong Kong courts. But for a structure in which the trustee is in Hong Kong and the trust deed selects Hong Kong law, the protection is meaningful and tested.

Third, the 2013 reform gave statutory protection to settlor-reserved powers. A principal who wants to retain influence over investment decisions, the addition of beneficiaries, or the power to change the governing law does not, under Hong Kong trust law, automatically invalidate the trust by reserving those powers. That matters for a CIS-origin principal whose engagement with the family structure is often close and whose willingness to transfer control to an external trustee is, initially at least, limited.

Hong Kong also has no forced-heirship regime of its own. Assets settled into a Hong Kong trust are not subject to any domestic compulsory share. That is the first reason the jurisdiction appears on the map for this client type.

The question of which jurisdiction's law ultimately governs a particular asset or succession claim depends on the facts – the location of the asset, the domicile and residence of the principal, and the terms of any applicable treaty. Those facts differ between CIS states. A structure designed for a Kazakhstani principal with Russian and Uzbek assets alongside a Cypriot operating holding looks different from one designed for a Ukrainian principal with UK real property. The starting point is the same; the implementation is fact-specific.

The cross-border interface: Hong Kong and the CIS jurisdictions

This is the section that foreign advisers most often underestimate. Hong Kong and the CIS states do not share a mutual enforcement or succession-recognition treaty. That absence has structural consequences in both directions.

On the asset protection side, it means that a Hong Kong trust holding an offshore entity – a BVI or Cayman company, for instance – which in turn holds operating assets or real property in a CIS state, will be analysed by a CIS court according to that court's own conflict-of-laws rules when a succession or enforcement claim is brought. Those rules vary. Russia applies the law of the deceased's last permanent residence to moveable estate succession. Kazakhstan follows a similar rule for moveables and applies the lex situs (the law of the place where the asset is located) to immoveable property. Ukraine has its own regime. The structure must be designed with knowledge of how each of those rules operates, because the CIS court's analysis of the offshore holding entity will determine whether the claim reaches through to the underlying asset.

On the enforcement side, a judgment obtained in a CIS jurisdiction against the principal personally does not automatically convert into an enforceable claim against trust assets in Hong Kong. The trust's separate legal personality, the trustee's title to the trust property, and the absence of a mutual enforcement treaty all operate as barriers. They are not impenetrable barriers – a creditor who can establish that the trust was constituted as a sham or as a transaction to defraud creditors may have grounds to challenge – but a properly structured, properly documented, and properly administered trust presents a substantially stronger position than a nominee shareholding or an undocumented family arrangement.

What this means in practice is that the cross-border design of the structure must account for the civil-law succession rules of each CIS state in which the principal has assets or connections, must position the offshore holding layer in a jurisdiction whose treatment of the trust as a legal form is understood by CIS courts, and must document the settlement and the trustee's administration in a way that is demonstrably inconsistent with a sham or a fraud. Those requirements are not aspirational. They are the baseline for a structure that will hold under challenge.

Our desk regularly advises on the Hong Kong end of this architecture and coordinates with allied counsel in the relevant CIS jurisdictions on the civil-law analysis. The combination – Hong Kong trust law plus informed CIS civil-law input – is the minimum working unit for this client type.

What does the route we run look like, step by step?

The engagement has five stages, each with defined outputs and decision points. The stages are sequential; skipping one creates a gap that typically shows up at the worst moment.

Stage one: position mapping. We begin with a structured review of the existing holding architecture, the principal's current and historical tax residences, the jurisdictions in which assets are located, and the family members who may have succession or matrimonial claims under any of the applicable laws. This produces a written position note – not a memorandum of advice, but a map – that identifies the principal structural risks and the priority order for addressing them.

The position note is the document the principal and the family office use to sequence the work. It is also the document that determines which locally licensed firms need to be brought in at which stage. Hong Kong trust law is our discipline; CIS civil law is handled by allied counsel admitted in those jurisdictions; offshore company law is handled by counsel in the relevant offshore centre.

Stage two: structure design. Once the position is mapped, we design the holding architecture. For most CIS principals, this involves a layered structure: a Hong Kong-law trust at the apex, a BVI or Cayman holding company in the intermediate layer, and the operating entities and real property holdings at the base. The design must account for the forced-heirship exposure in each CIS jurisdiction, the economic-substance requirements of the offshore holding centre, and the tax residence of the principal and the beneficiaries.

The structure design stage produces a term sheet – a short document setting out the proposed trust jurisdiction and governing law, the trustee structure, the classes of beneficiaries, the reserved powers to be retained by the settlor, and the proposed holding company configuration. The principal reviews and approves the term sheet before any documents are drafted.

Stage three: document preparation. The trust deed is the central document. It must be drafted with the CIS forced-heirship exposure in mind, with appropriate firewall and governing-law provisions, and with the settlor's reserved powers clearly defined. The letter of wishes – a separate, non-binding document that guides the trustee on distributions and administration – is prepared at the same time. Neither document names specific assets; the trust holds shares in the holding company, which holds the assets.

Ancillary documents at this stage include the constitutional documents of the holding company, any shareholder or foundation instruments, and the account-opening and beneficial-ownership documentation required by the trustee and the banking institutions.

Stage four: implementation and transfer. The actual transfer of assets into the structure – the settlement of the trust and the contribution of assets into the holding company – must be sequenced carefully. A transfer made when the principal is already subject to a claim or enforcement action in a CIS jurisdiction will be scrutinised as a transaction to defraud creditors. Timing matters. The sequence of steps – which asset is transferred first, in which order the entities are established, what consideration if any passes – is documented contemporaneously.

Locally licensed Hong Kong firms join the matter at the implementation stage where the transfer requires registration, filing, or execution before a Hong Kong authority. For offshore holding companies, the allied counsel in the BVI or Cayman Islands manage the company formation and share transfer documentation.

Stage five: maintenance and review. A trust that is settled and then left unattended deteriorates. The trustee must administer actively; the letter of wishes must be updated as the family's circumstances change; the underlying holding structure must reflect any changes in asset ownership or residence. We build a maintenance schedule into the engagement from the outset, with periodic reviews tied to trigger events – a change in the principal's residence, a change in applicable law, or a material change in the family structure.

What documents and decisions must the client own?

Asset protection planning of this kind produces a set of documents and requires a sequence of decisions that cannot be delegated to advisers. The principal must understand and own each of them.

The foundational decisions are: which jurisdiction's law will govern the trust; who will serve as trustee and in what capacity; which family members will be beneficiaries and in what class; what powers will the settlor retain; and how will the letter of wishes be framed so that the trustee understands the principal's intentions without those intentions becoming enforceable obligations.

Each of those decisions has structural consequences. The choice of governing law determines which firewall applies and how it operates against CIS claims. The choice of trustee determines the administrative standard that will be applied to the trust assets and the quality of documentation that will be available if the trust is challenged. The definition of beneficiaries determines who has a legitimate interest to be protected and who does not. The reserved powers define the boundary between a properly constituted trust and a structure that a court might characterise as illusory.

The documents the client must own – meaning review personally, understand, and approve – are: the trust deed, the letter of wishes, the term sheet from which both were drafted, and the implementation schedule. These are not formalities. They are the structure.

On the question of source of funds: the trustee, the offshore bank, and any financial institution holding assets within the structure will require documented evidence of the origin of the assets being settled. For a CIS principal, that documentation exercise is frequently the most time-consuming part of the engagement. It is not optional, and it cannot be shortened. The Anti-Money Laundering and Counter-Terrorist Financing Ordinance imposes customer due diligence obligations on Hong Kong financial institutions, and the equivalent regimes in offshore holding centres impose comparable requirements. The principal should expect to produce corporate records, transaction histories, and in some cases audited accounts for the underlying businesses.

What changes the outcome at this stage, in our experience, is preparation. Principals who arrive at the trustee's due diligence process with organised records – a documented ownership history of the underlying businesses, a clear account of the transfer of wealth from operating profits to personal assets, and a timeline that can be cross-referenced against publicly available records – move through the process materially faster than those who do not.

Common points where the structure fails or stalls

There are four points at which this kind of structure most often fails, or produces a result that does not hold under challenge. Each of them is avoidable with the right sequencing.

The first is timing. A structure settled after a claim has arisen, or after an enforcement action has been commenced, is vulnerable to challenge as a transaction at an undervalue or as a fraud on creditors. The protection that a trust provides depends on its being constituted at a time when the principal was not, and could not reasonably have anticipated being, subject to the relevant claim. Counsel on our desk regularly advise principals who have left this step too late; the honest answer in those circumstances is that the available options are narrower than they would have been.

The second is the sham trust. A trust in which the trustee does not actually exercise independent discretion – in which the principal continues to treat the trust assets as personal assets, instructs the trustee how to act in every situation, and uses trust assets for personal expenditure without proper documentation – is vulnerable to being set aside by a court as a sham. The reserved-powers protection under the Trustee Ordinance (Cap. 29) is real, but it is not a licence for the settlor to treat the trust as their own property. The line between retained influence and retained control is the line between a protected trust and a sham, and it must be maintained through the trustee's documented decision-making.

The third is the undocumented interim period. Assets transferred from the principal to the holding company during a period when the documentation is incomplete or inconsistent are in a legally ambiguous position. That ambiguity is used by enforcement creditors and by claimants in succession disputes. The implementation schedule must be complete before assets move.

The fourth – and this is the point that foreign advisers most frequently miss – is the failure to account for CIS civil-law rules on the forced-heirship claims over immoveable property. A Hong Kong trust can provide strong protection for moveable assets and for shares in an offshore holding company. But if the principal holds immoveable property in a CIS state in their own name, or through an entity that a CIS court would characterise as a transparent vehicle, the forced-heirship regime of that state may reach the property directly. The solution is either to transfer the immoveable property into a structure that the CIS court will treat as legally separate from the principal's estate – which requires CIS-law advice on the available options – or to accept that the CIS forced-heirship rules will apply and plan the succession accordingly.

The sequence above describes the standard position. Your matter turns on the specific CIS jurisdictions engaged, the nature and location of the assets, the family's current residence map, and the order of steps – which is where the route is secured or lost.

To discuss the structure of your cross-border position across Hong Kong and the relevant CIS jurisdictions, write to us at info@lockhartyip.com.

How does this interact with tax residence and the FSIE regime?

For a CIS principal relocating to Hong Kong or using Hong Kong as the apex of a holding structure, tax is a separate but related question. Hong Kong taxes profits on a territorial basis: only profits arising in or derived from Hong Kong are subject to profits tax. There is no capital gains tax and no withholding tax on dividends paid to offshore shareholders under the general position.

The foreign-sourced income exemption (FSIE) regime – in force from 1 January 2023 and subsequently amended – is relevant to a holding entity in Hong Kong that receives passive income from foreign sources, including dividends from an offshore subsidiary. Under the FSIE regime, certain categories of foreign-sourced income are exempt from Hong Kong profits tax only if economic-substance conditions are met. For a family holding entity in Hong Kong, the substance analysis – what functions are performed, what staff are present, and what operational decisions are made in Hong Kong – is an integral part of the structure design, not an afterthought.

The minimum top-up tax applicable to in-scope multinational enterprise groups with consolidated revenue of EUR 750 million or more – applicable for fiscal years beginning on or after 1 January 2025 – is not typically engaged by a family holding structure, but it is relevant for principals whose underlying businesses form part of a larger corporate group. The boundary between a family holding structure and a multinational enterprise group depends on the facts and should be verified before the structure is finalised.

CIS states impose their own tax rules on residents and on the repatriation of profits from offshore structures. The interaction between Hong Kong's territorial system, the FSIE substance requirements, and the tax rules of each CIS state in which the principal has connections requires a coordinated analysis. We handle the Hong Kong and international tax dimensions of this question; allied counsel in the relevant CIS jurisdictions advise on the local tax treatment.

For further analysis of tax structuring through Hong Kong and the interaction between the FSIE regime and offshore holding entities, see our practice at private wealth.

A practical illustration: re-mapping an existing structure

Consider the position of a manufacturing group principal with operating businesses across two CIS states, a BVI holding company established a decade ago, real property in a third country, and two adult children now resident in separate European jurisdictions. The existing structure was designed for operational efficiency, not succession. The BVI company holds the group shares. The real property is held in the principal's personal name. There is a will, drafted in one of the CIS states, that purports to dispose of all the assets – but the will has no force over the BVI shares (which pass according to the BVI company's constitutional documents and applicable law, not the will) and may not override the forced-heirship entitlements of the children under the civil law of the CIS states.

The practical problem is that the existing structure produces three parallel succession processes on the principal's death: the BVI share register, the CIS probate proceedings for the operating assets, and the property succession in the third country. Each process is governed by a different law. The outcomes are not consistent with each other. The children's entitlements under two CIS laws are not the same as each other or as the principal's testamentary wishes.

We have been retained on matters of this structure type – re-mapping an inherited architecture into a coherent succession plan anchored in a Hong Kong trust with a properly documented offshore holding layer. The work involves: confirming the current ownership position across all jurisdictions; identifying the succession exposure in each CIS state; designing the holding architecture that re-positions the BVI company under a Hong Kong trust; coordinating the source-of-funds documentation for the trustee; and producing a letter of wishes that reflects the principal's intentions for each class of beneficiary. The timeline for a matter of this complexity – from initial position note to settled trust – is measured in months, not weeks. The documentation phase alone, including the trustee's due diligence on the CIS businesses, is the longest single component.

If a prior engagement, a stalled restructuring, or an adverse development in a CIS jurisdiction has produced a position that is no longer workable, a second assessment can identify the routes still open and the order in which to take them.

To discuss the specific structure of your matter, email info@lockhartyip.com.

The self-assessment checklist: where does your structure sit?

The following questions are the ones we ask at the start of every engagement of this kind. If the answer to more than two of them is "uncertain" or "no", the structure warrants a review.

• Does a Hong Kong-law trust sit at the apex of your holding structure, with a professional trustee exercising documented independent discretion?
• Are your offshore holding entities properly constituted and compliant with the economic-substance requirements of their registration jurisdiction?
• Have the forced-heirship rules of each CIS state in which you have assets or family connections been mapped and addressed in the structure design?
• Is the immoveable property in your CIS jurisdictions held in a form that does not expose it directly to forced-heirship claims under local civil law?
• Is there a current, documented letter of wishes, reviewed within the last three years, that reflects the family's current circumstances?
• Have the trustees completed their due diligence on the source of funds for all assets in the structure?
• Has the FSIE substance position for any Hong Kong or offshore holding entity been reviewed in light of the current regime?
• Is there a documented maintenance schedule for the structure, with trigger-event reviews built in?

A principal whose structure satisfies all eight of these criteria is in a substantially better position than one whose structure satisfies three. The gap between the two positions is closed through structured legal work, not through administrative formalities.

For a further discussion of reserved powers and the trustee's relationship with a founder-controlled business, see our analysis at reserved powers trust founder controlled business. For the succession planning dimension of cross-border structures, see our analysis at succession planning across Hong Kong and Mainland China.

Related practices

• Tax Positions – structuring FSIE substance and treaty positions for holding entities
• Holding Structures – designing and implementing offshore and Hong Kong holding architectures

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Related

• Private Wealth
• Succession Planning Across Hong Kong Mainland China Mainland 4
• Reserved Powers Trust Founder Controlled Business Analysis 2

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