【Trust Funds】An overview of Hong Kong trust fund thresholds, types and fee structures.

When watching films, we sometimes hear about second-generation heirs having a (Trust Fund), leading many people to believe that trusts are exclusively for the wealthy. In fact, a trust is an effective tool for asset management and wealth succession. With proper planning, it can not only safeguard assets but also help meet the needs of family members. How high is the threshold for setting up a trust fund? What are the fee standards? This article introduces the basic principles, common types, suitable candidates and establishment costs of trust funds, helping readers assess whether a trust meets their personal needs.

A trust fund is a legally binding asset arrangement under which the settlor (Settlor) transfers assets such as cash, shares and property to the trustee (Trustee) for management, who holds and distributes the assets for the beneficiary (Beneficiary) in accordance with the terms of the trust deed.

In Hong Kong, trust funds have become a common wealth management tool. Combining flexibility with legal protection, they are often used for asset protection, succession planning and tax planning. Through clearly defined terms, assets can be distributed conditionally or in stages according to the needs of family members, while preserving privacy and reducing legal risks. With careful planning, a trust can flexibly accommodate individual and family needs and achieve multiple asset management objectives.

Common purposes for setting up a trust include:

• Wealth succession: Ensuring that assets are passed on to the next generation according to the individual’s wishes, reducing disputes over the estate.
• Asset protection: Separating assets from property held in the individual’s name, reducing the risks of debt recovery or legal proceedings.
• Special care: Providing long-term financial support for minor children, family members with disabilities or those with special needs.
• Tax planning: Certain trust structures may help reduce estate tax or other taxes.
• Privacy protection: Trust arrangements do not need to be made public and can effectively protect family financial information.
• Cross-border asset management: Suitable for individuals holding overseas assets, facilitating the unified management and succession of property in different jurisdictions.

Three core roles: Settlor, Trustee and Beneficiary

A trust operates according to the terms established by the Settlor, with three key roles at its core: the Settlor, Trustee and Beneficiary

• Settlor (Settlor): The person who establishes the trust, responsible for providing assets (such as cash, property and shares) and drawing up the trust deed. The deed sets out the purpose of the trust, the identities of the beneficiaries, and how the Trustee should manage and distribute the assets.
• Trustee (Trustee): Responsible for carrying out the trust deed and managing the assets held in the trust. The Trustee may be an individual (such as a relative or friend) or a professional institution (such as a bank or trust company), and must distribute assets or income to the beneficiaries at the specified time or when the specified conditions are met, in accordance with the terms of the deed.
• Beneficiary (Beneficiary): The person who ultimately receives the trust assets. This may be one or more individuals, family members or even charitable organisations. Their interests will be protected and distributions made in accordance with the arrangements set out in the deed.

The 4 steps in how a trust operates

1. Signing the trust deed
   The Settlor and Trustee enter into a trust deed, clearly setting out the purpose of the assets, the management arrangements, the beneficiaries and the distribution conditions. This forms the legal basis of the entire trust structure.
2. Transferring assets into the trust
   The Settlor formally transfers the specified assets (such as cash, property and shares) into the trust, where they are managed by the Trustee.
3. Asset management and distribution
   The Trustee is responsible for investing and managing the assets in accordance with the trust terms, and regularly distributes assets or income to the beneficiaries as instructed. Conditions such as age and educational attainment may be imposed.
4. Termination of the trust and distribution of assets
   When the trust term expires or the conditions for termination are met, the Trustee will return the remaining assets to the Settlor or distribute them to the beneficiaries in accordance with the deed.

Trusts can be divided into various types according to their purpose and the nature of their assets. Common types include:

• Personal trust fund: Used for managing and safeguarding assets in daily life, helping the settlor separate assets from their personal property and reduce risks arising from accidents or bankruptcy.
• Family trust fund: Suitable for passing on family wealth and arranging asset distribution ratios flexibly, thereby avoiding disputes over inheritance in the future.
• Charitable trust fund: Assets are used to support charitable activities. In some circumstances, tax benefits may be available, making this suitable for those who intend to make charitable donations.
• Testamentary trust fund: Takes effect after the settlor’s death and helps manage the estate over the long term, avoiding the waste or risks that may result from distributing assets all at once.
• Insurance trust fund: Primarily handles life insurance proceeds, ensuring that beneficiaries can receive payments in stages in accordance with the terms of the trust.
• Real estate trust fund: Specifically established for managing properties, it can distribute rental income regularly or transfer assets as required.

Asset Protection

Assets held in a trust are managed separately from the settlor’s other personal assets. When the settlor faces debt disputes, legal proceedings or matrimonial disputes, the assets in the trust may receive a certain degree of protection and are less likely to be subject to claims, effectively safeguarding the family’s core wealth.

Wealth Succession

A trust can set clear conditions for the distribution of assets according to the settlor’s wishes, such as age restrictions or requiring beneficiaries to complete their education before they can receive the assets. This helps to avoid the waste that may result from a one-off inheritance and reduces disputes arising from the distribution of an estate, allowing assets to be passed on to the next generation in an orderly manner.

Tax Planning

Although Hong Kong does not impose estate tax, tax planning remains important for families with cross-border assets. Certain jurisdictions, such as the United States, the United Kingdom, Australia and Singapore, impose taxes on estates, capital gains or asset transfers. Through a trust, asset ownership and beneficial interests can be effectively separated, reducing or deferring tax liabilities. At the same time, assets in different jurisdictions can be managed centrally, simplifying the transfer process and reducing future disputes through clear provisions, thereby ensuring that wealth is passed on according to plan.

Highly Flexible

The terms of a trust can be tailored to different family circumstances, types of assets and objectives. It supports various forms of distribution, such as instalments and performance-based distributions, offering greater flexibility and control than a standard will or insurance policy.

Higher Establishment and Management Costs

When establishing a trust, advisory and establishment fees are payable, followed by annual management fees, account audit fees and other charges. If the asset value is not substantial, these fees may account for a considerable proportion of the assets, affecting overall cost-effectiveness.

Lower Liquidity

Once assets are transferred into a trust, withdrawals or changes in purpose must be handled in accordance with the trust deed. The process is more complicated, unlike personal assets, which can be used flexibly at any time. Therefore, trusts may not be suitable for those with short-term liquidity needs.

Complex Legal Structure

The legal provisions and tax arrangements involved in trusts are relatively technical, and professional assistance from solicitors, accountants or trust companies is required during the design and management process. If not properly structured, difficulties in implementation or tax risks may arise.

Not Suitable for Those with Insufficient Assets

Trust funds have certain minimum requirements. For those with relatively limited assets, management costs may be too high and the expected benefits may not be realised. It is advisable to assess the total value of the assets before making a decision.

Trust funds are not exclusively for the wealthy. Anyone with asset management, succession or asset protection needs may consider setting up a trust. The following people may be particularly suited:

• People with long-term asset protection and succession needs
  • A trust can flexibly arrange the distribution of assets according to personal wishes, with provisions such as instalment payments and conditional distributions to ensure the secure transfer of assets and avoid disputes over inheritance.
• People with substantial assets who value prudent management
  • If you do not intend to manage your assets frequently and wish to have them managed by a professional institution for long-term, stable growth, a trust is an option worth considering.
• Families with special family structures or care needs
  • If the family includes minor children, family members with disabilities or other members requiring long-term financial support, a trust can be designed with provisions tailored to individual needs, safeguarding their livelihood and future.
• Business owners or high-net-worth individuals
  • A trust can be used to separate personal and corporate assets, reducing risks arising from litigation, debt or changes in marital circumstances.
• People planning specific uses for their assets
  • Whether you plan to establish an education trust, charitable trust or property income trust, a trust can also be used to clearly allocate assets for specific purposes.

Many people believe that setting up a trust has a high entry threshold. In fact, from a legal perspective, Hong Kong does not impose any minimum asset requirement for establishing a trust. In theory, a trust can be established even if the asset size is not substantial. In practice, however, the key considerations are the costs and management fees involved in setting up and administering the trust.

Trust fees generally comprise two parts:

• Set-up fees: These are paid as a one-off charge when the trust is established and usually include the costs of drafting legal documents, transferring assets and making administrative arrangements.
• Annual management fees: These are charged by the trustee annually for asset management, statement processing and regulatory compliance matters. Some professional trustees also provide investment advice.

Generally speaking, the annual management fee for a family trust is approximately 1% to 2% of the total value of the trust assets. Some trust companies impose a minimum asset requirement or a fixed fee structure. It is generally recommended that the assets reach a seven- to eight-figure value for the arrangement to be more suitable; otherwise, the proportion of costs may be too high to be cost-effective. The services and fee structures of different banks and trust companies vary. It is advisable to consult the relevant institutions or a licensed adviser first to determine whether a trust is suitable for your needs. 

It is also worth noting that, under the 2013 Trust Law (Amendment) Ordinance, Hong Kong has abolished the time limit on the duration of trusts. Trusts established locally may therefore remain in effect indefinitely, making them more suitable for long-term wealth planning and intergenerational succession.

Choose the Appropriate Type According to Your Needs

Trusts can be used for different purposes. When making a selection, you should first clarify your own needs, such as asset protection, succession planning or charitable purposes. A personal trust is suitable for those who wish to ring-fence their assets and reduce legal or financial risks; a family trust can facilitate the flexible distribution of assets and protect family members. If you have plans to make donations, you may consider a charitable trust; where life insurance policies or property are involved, an insurance trust or a real estate trust may be appropriate. Different types of trusts serve different functions, so it is advisable to select a suitable solution based on the nature of the assets and the distribution arrangements. 

Understand Trust Companies and Products

The product designs, investment strategies and management approaches offered by each trust company vary. Before making a selection, you should understand its professional background, whether it is licensed, its track record and fee structure, while also paying attention to the transparency of asset reports and the quality of customer service. This helps ensure that your assets are properly managed after being entrusted, reducing future disputes or difficulties.

Seek Professional Advice

Trust structures often involve areas such as taxation, law and asset allocation. The choice of the jurisdiction governing the trust, such as Hong Kong, Singapore or the Cayman Islands, is also an important consideration. If you are unfamiliar with the relevant terms or risks, it is advisable to seek advice from a financial adviser or trust specialist. Based on your personal circumstances, they can provide suitable product recommendations and structuring solutions, enabling the trust to fulfil its intended functions.

References:

Hong Kong’s Trustee Ordinance, Cap. 29

Hong Kong Economic Journal.What are the benefits of setting up a family trust for wealthy individuals? How are the fees calculated?

Last updated: 9 September 2025

This English version of this article has been generated by machine translation powered by AI. It is provided solely for reference purposes. In the event of any discrepancy or inconsistency between this translation and the original Chinese version, the Chinese version shall prevail.