A private trust company for a multi-generational family

When a family's wealth spans two continents and three generations, a bare-trustee arrangement usually starts to show its limits before the principal notices. The first warning sign is often not a legal failure. It is a governance failure: a trustee who cannot vote shares at a board meeting without first seeking direction, an adviser who cannot access the trust file without a formal request, a successor generation that has never once read the trust deed. The structure still works, technically. But it is not built for what the family is becoming.

A private trust company (a company incorporated to act as trustee exclusively for the trusts of one family group) solves this by placing trustee decisions inside a board the family controls. The governing instrument is the Trustee Ordinance (Cap. 29), as substantially reformed with effect from 1 December 2013. For families with a principal in Asia, Hong Kong is the seat of choice: common-law system, no forced-heirship regime, and a statutory firewall against foreign forced-heirship claims that has been tested across the jurisdictions from which our clients routinely come.

This page sets out when a private trust company is the right structure, how we build the engagement, where locally licensed Hong Kong firms join the work, and what the client must own personally throughout the process.

When does a multi-generational family need a private trust company?

The need usually crystallises at one of three moments. A founder reaches the age at which succession becomes a live conversation. A second generation discovers that the existing trustee cannot make a commercial decision on a timescale the business requires. Or a family member in a forced-heirship jurisdiction – France, Germany, a Gulf state with Sharia inheritance rules – marries, divorces, or dies, and the principal suddenly sees the structural exposure that had always been there.

In our cross-border practice, the trigger that most often brings a private trust company instruction is the intersection of residence change and succession. A founder who has spent three decades in one jurisdiction relocates to Hong Kong or another common-law centre. The existing trust was designed around the old residence. The trustees are accustomed to one system. The assets now sit in a different place, governed by different rules, with different tax consequences for distributions. The old structure is not necessarily wrong. It is simply not optimised for where the family is now.

A private trust company allows the family to place trustee discretion inside a board they govern. That board can include family members, independent directors, and advisers. Decisions can be made at pace. Conflicts can be managed structurally – by excluding interested family members from relevant board resolutions – rather than ad hoc. And the private trust company can hold the trustee role across multiple trusts, bringing the family's wealth into a coherent governance structure for the first time.

The structural question is whether the private trust company sits in Hong Kong or in an offshore centre. Our desk sees both routes. Where the family has a meaningful connection to Hong Kong – residence, operating businesses, family office – Hong Kong incorporation makes administrative and governance sense. Where the assets are primarily offshore and the family has no particular Hong Kong footprint, a BVI or Cayman private trust company with Hong Kong-based administration is the more common configuration. The choice is not binary and should be made on the family's actual facts, not on a preferred template.

The governing instruments: what law does this sit under?

The Trustee Ordinance (Cap. 29) is the principal Hong Kong trust statute. The 1 December 2013 reforms matter for multi-generational planning in four specific ways.

First, the rule against perpetuities and the rule against excessive accumulations were abolished for Hong Kong-law trusts. A family can establish a trust that runs in perpetuity without the traditional constraint of a maximum accumulation period. For a family thinking across three or four generations, this is structurally significant.

Second, the reforms gave statutory recognition to a settlor's power to reserve certain powers over the trust without invalidating the trust itself. This addresses a concern that arises frequently when a founder is asked to relinquish control: the Ordinance now provides clear statutory footing for reserved powers, within limits that locally licensed counsel will define precisely.

Third, the 2013 reform strengthened Hong Kong's firewall against foreign forced-heirship claims. Where a family member in a civil-law or religious-law jurisdiction would otherwise have a legal entitlement to a share of the family's assets, a properly constructed Hong Kong-law trust can ring-fence those assets behind a firewall that the courts of Hong Kong will recognise. This does not eliminate the exposure entirely – the claimant may still pursue assets in their own jurisdiction – but it removes Hong Kong-sited assets and Hong Kong-governed trust interests from the perimeter of the claim.

Fourth, Hong Kong has no forced-heirship regime of its own. There is no mandatory share for children, spouses, or other dependants under trust law. The settlor's intentions, expressed in the trust deed and the letter of wishes, govern how benefits pass between generations.

The corporate documents for the private trust company itself sit under the Companies Ordinance (Cap. 622). The Significant Controllers Register requirement – in force since 1 March 2018 – applies to Hong Kong-incorporated companies, including a private trust company. Locally licensed counsel manage this obligation as part of the incorporation and ongoing compliance work.

How does the cross-border interface shape the structure?

No multi-generational family has its exposure in a single jurisdiction. The family map typically shows a founder generation in Asia, a second generation partly educated and partly resident in Europe or North America, operating businesses that sit in one or more Mainland China structures, and holding entities in the BVI or Cayman Islands above the opcos. Trust assets may include real property in the United Kingdom, listed securities held through a Hong Kong custodian, and private company shares governed by the law of several different places.

Each jurisdiction brings a different question to the table. The Mainland China assets sit inside structures that are governed by PRC law, and beneficial ownership above the Mainland opco is typically held through a Hong Kong holdco or an offshore vehicle. Any change in the trust structure that touches that chain requires attention to the PRC foreign investment rules and to the tax consequences of any restructuring step on the Mainland side. Our desk coordinates this analysis, with locally licensed Mainland counsel engaged for the PRC-law elements.

The BVI or Cayman holding layer raises the economic-substance question (the requirement, under each offshore jurisdiction's substance regime, that entities with certain income types demonstrate genuine activity in the relevant jurisdiction). A private trust company holding BVI or Cayman companies must be designed so that the holding and governance functions of each layer are clearly located in the right place. Substance analysis is a standard part of any offshore-linked private trust company mandate.

United Kingdom-sited assets – residential or commercial real estate, or interests in UK companies – bring the UK's trust-taxation regime into the picture. Distributions and additions to settlement are events with UK tax consequences for certain beneficiaries. This does not preclude a Hong Kong-law trust holding UK assets; it requires the trust deed and the letter of wishes to be drafted with UK counsel's input, and it requires the trustee board to receive advice before each relevant decision.

For families with a member in a forced-heirship jurisdiction, the cross-border interface is most acute at death. The question is whether the claimant's local court will reach the trust assets through conflict-of-laws rules. Hong Kong's firewall provisions under the 2013 reform are the principal protection on the Hong Kong side, but they operate in concert with the governing law of the trust – which should be Hong Kong law – and with the structural segregation of assets between what sits inside the trust and what sits outside it. Where a family member holds personal assets in a forced-heirship jurisdiction, those assets will generally be governed by local law regardless of what the trust says. The private trust company does not resolve that exposure; it ringfences what is inside the trust.

The sequence across jurisdictions matters. Changes to the trust's governing law, changes to the trustee, and changes to the beneficial class are all steps with cross-border consequences. A poorly sequenced restructuring – for example, adding a forced-heirship-jurisdiction beneficiary to the beneficial class while that person is resident in the relevant jurisdiction – can bring assets inside the trust into the perimeter of a future claim. Our practice reviews the family map before any structural step is taken.

What is the engagement route, step by step?

An instruction of this kind begins with a structured briefing meeting. We ask the family – usually the principal and at least one representative of the second generation – to walk us through the family map: jurisdictions of residence for each family member, the asset map (types, locations, governing law), the existing structure if one exists, and the family's succession intentions at a broad level. This meeting is not a document-gathering exercise. It is an analysis exercise. The documents follow the analysis.

The first deliverable is a structuring memorandum (a written analysis of the family's cross-border position, the structural options available, and our recommendation). This memorandum covers: the choice of jurisdiction for the private trust company, the governing law of the trusts, the design of the trustee board, the reserved powers position, the interaction with forced-heirship risks across the family map, and the sequence of implementation steps. It is the document the principal takes to their board, their family office, and their accountants.

On receipt of approval, locally licensed Hong Kong counsel join the work for the incorporation of the private trust company and the preparation of the constitutional documents. We coordinate that engagement, brief the local team on the structuring conclusions, and review the documents they produce against the structuring memorandum. The client deals with us, not with multiple separate teams.

The trust deeds and letters of wishes are the centrepiece documents. For a private trust company instruction, there will typically be more than one trust deed: a principal dynasty trust for the main asset pool, and potentially one or more sub-trusts or segregated funds for specific asset classes or specific branches of the family. Each deed must be consistent in its reserved powers provisions, its governing law clause, its trustee-succession mechanism, and its distribution provisions. We prepare these documents or review them against the structuring memorandum, depending on the instruction.

The private trust company requires a board. The composition of that board is a decision the family must own. We advise on the structural implications of different board configurations – family members only, mixed family and independent, independent majority – but the choice is the principal's. Where independent directors are required, we can describe the characteristics of an appropriate independent director and the process for their appointment, but we do not supply directors ourselves.

The implementation sequence then runs: private trust company incorporated, constitutional documents settled, trustee board constituted, trust deeds executed, assets transferred into the trust structure. Each step has cross-border dimensions if assets sit across multiple jurisdictions. The transfer of shares in a BVI or Cayman holdco into the trust requires the relevant register to be updated. Real property transfers require local legal action in the jurisdiction where the property sits. We map these steps in advance and coordinate the parallel workstreams.

Ongoing, the private trust company board requires administrative support: board minutes, trustee resolutions, periodic review of the letter of wishes, and compliance with the Significant Controllers Register requirement. We advise on the governance standards that keep the trustee function clean and the structure defensible. Locally licensed counsel handle the ongoing filing and Companies Registry obligations.

The sequence above describes the standard position. Your matter turns on the family's actual map, the documents already in place, and the sequence of decisions – which is where the structure is won or lost in practice.

For a structured assessment of your family's position across the relevant jurisdictions, write to us at info@lockhartyip.com.

What documents and decisions does the client personally own?

This is a question we address directly at the start of every private trust company instruction, because it is the question that most foreign principals have not been asked before. The legal documents can be prepared by advisers. The decisions that give those documents meaning belong to the principal.

The first is the letter of wishes (a non-binding expression of the settlor's intentions, addressed to the trustee board, which guides how the trustee exercises its discretion). A letter of wishes is not a will. It does not bind the trustees. But it is the document that translates the principal's intentions into guidance that the trustee board can follow across a generation. A thoughtfully prepared letter of wishes is more important to the long-term success of the structure than any single clause in the trust deed. We facilitate the preparation of the letter of wishes, but the content must come from the principal.

The second is the family governance document. Not every family has one, and it is not a legal document in the conventional sense. But for a multi-generational structure, a family charter or governance protocol – setting out how decisions are made, how disputes are resolved, how the next generation is involved, and how the family's values are articulated – is the document that determines whether the private trust company remains a living governance structure or becomes a filing cabinet. We advise on the content and structure of a family governance document; the family writes it.

The third is the beneficiary map. Who is within the beneficial class? Who may be added in future? What happens at death, at divorce, at the birth of a new generation? The trust deed sets out the legal perimeter, but the principal must have thought through the human question before the deed is drafted. A deed that includes an overly broad beneficial class – including, for example, future spouses of beneficiaries in forced-heirship jurisdictions – can create structural exposure that is difficult to unwind. We present the options; the principal makes the choice.

The fourth is the reserved powers position. The 2013 reform to the Trustee Ordinance provides statutory protection for a settlor who reserves certain powers over the trust. But the specific powers that are reserved – investment direction, power to add or remove beneficiaries, power to change the governing law – each carry implications for how the trust will be treated in other jurisdictions, including for tax purposes and for forced-heirship analysis. The decision about which powers to reserve is not a legal default. It is a strategic choice that the principal must own, with full understanding of the cross-border consequences.

What do foreign principals commonly get wrong at this stage?

The most common structural error we see is sequencing. A principal incorporates the private trust company before the structuring analysis is complete. The board is constituted before the trust deeds are drafted. The first trustee resolution is passed before anyone has reviewed the interaction between the trust structure and the principal's tax residence. Each of these steps, taken in isolation, is legally valid. Taken out of sequence, they can create a position that is difficult to correct without triggering tax events or creating a record that weakens the trust's defensibility.

The second error is treating the letter of wishes as a formality. Advisers who prepare a template letter of wishes and ask the principal to sign it are not serving the principal's succession intentions. A letter of wishes prepared that way will guide no one. Trustees faced with a family dispute will find it unhelpful. A court asked to assess whether the trustees exercised their discretion properly will find it ambiguous.

The third error is assuming that a Hong Kong-law trust automatically resolves the forced-heirship exposure in every jurisdiction where a family member lives. It does not. The firewall provisions in the 2013 reform are strong. They protect Hong Kong-sited assets and Hong Kong-governed trust interests from foreign forced-heirship claims brought before the Hong Kong courts. They do not prevent a family member's local court from applying local law to local assets. The private trust company is part of a broader succession plan, not a substitute for one.

A fourth point concerns the Mainland China interface specifically. Where operating businesses are held through a Mainland structure, and the ultimate beneficial ownership of that structure sits above a Hong Kong or offshore vehicle, any restructuring that changes the beneficial ownership chain – including placing a holding company into a trust – requires analysis under the relevant PRC foreign investment and tax rules. We see instructions where this step was missed entirely at the time of the original structuring, and the correction is more expensive than the original compliance would have been.

If an earlier structure or filing produced an adverse or stalled result, a second read can identify the strategic error and the routes still open.

To discuss how the Trustee Ordinance and the private trust company structure apply to your family's cross-border position, contact info@lockhartyip.com.

How does succession and residence interact across the family's map?

Residence is the variable that most often disrupts a well-designed succession plan. A principal who is tax-resident in one jurisdiction at the time the trust is established may be resident in a different jurisdiction by the time the first major distribution is made. A beneficiary who was resident in a common-law jurisdiction when they were named in the letter of wishes may have moved to a forced-heirship jurisdiction. The trustee board, unless it is actively reviewing the family map, may not know.

For families with a significant relationship to the Greater Bay Area – Guangdong province, Hong Kong, and Macao – the residence question is particularly live. A principal who spends time in both Hong Kong and the Mainland may have residence consequences in both jurisdictions, with different implications for the tax treatment of distributions and for the analysis of whether certain trust assets fall within the taxing reach of the Mainland system. This is an area where the interaction between Hong Kong's territorial tax basis and the Mainland's residence-based approach requires close attention at the individual family member level.

The private trust company's board should include a process for regular review of the family's residence map. This is not a one-time exercise. Families move. Children study and then work abroad. Business connections change. A governance protocol that requires the trustee board to review the family's residence position annually – or whenever a family member changes their primary residence – is a standard practice recommendation we make in every instruction of this kind.

At death, the interaction between the trust structure and the applicable succession law in each relevant jurisdiction is the most consequential cross-border point. Where assets are held inside the trust, the trust's governing law – Hong Kong law – determines how they are dealt with on the death of the settlor. Where assets sit outside the trust, the applicable succession law is typically the law of the jurisdiction where the assets are located, or (for moveable assets) the law of the deceased's domicile. A private trust company structure that is coordinated with a broader succession plan – covering the principal's will, the letter of wishes, and the family governance document – produces a coherent outcome. A private trust company that sits in isolation from the rest of the principal's estate plan produces a more complicated one.

For further background on succession planning across jurisdictions, including the approach to BVI-held assets, we have published an introductory guide at will and estate planning for BVI-held assets, and a case-based analysis of cross-border succession across Hong Kong and the United Kingdom at succession planning across Hong Kong and the United Kingdom. Our full private wealth practice page is at Lockhart & Yip: Private Wealth.

A self-assessment checklist for the principal and their advisers

Before a private trust company instruction begins in earnest, the principal and their advisers should be able to answer the following questions. Where the answer is unclear, that is the starting point for the structuring conversation.

Does the family have a current asset map, showing the type, location, and governing law of each material asset? Is there an existing trust structure, and if so, what is its governing law, who are the trustees, and when was it last reviewed? Has the family identified which family members are in forced-heirship jurisdictions, and what assets those members could potentially claim against?

Has the residence position of the principal and each material beneficiary been reviewed in the last twelve months? Is there a letter of wishes in place? If so, does it reflect the principal's current intentions, including the current family membership and the current asset map?

Is there a family governance document? If not, is there a process for making trustee decisions that is understood by the trustee board and the family? Has the interaction between the trust structure and the principal's will been reviewed by the same advisory team, or have they been prepared in isolation?

For families with Mainland China assets: has the interaction between the offshore holding structure and the Mainland foreign investment rules been reviewed? Is there a clear record of the beneficial ownership chain above each Mainland entity, and does that record reflect the current ownership position?

These are not abstract compliance questions. They are the questions a trustee board – or a court – will ask when the structure is first tested.

Related practices

• Private Wealth – succession, trust structures, family office and asset-protection planning across jurisdictions
• Holding Structures – offshore and Hong Kong holding-entity design for multi-jurisdictional asset pools

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