If You Are A HNWI, How to Use Trusts To Structure Your Family Assets

In 2020, if you are a High Net Worth Individual or own a large family business, one of the best ways to structure your wealth into a family trust is via the Hong Kong Occupational Retirement Scheme (ORS). Here are some key points on the use of the ORS

 

Hong Kong Occupational Retirement Scheme (ORS):

• Available to all companies and individual company owner/Directors regardless of location or nationality

• There is currently no limit on contributions to ORS in Hong Kong

• Contributions can either be made by the employer or by the employee

• Contributions can be made based on previously earned income and can include assets such as commercial property, cash, company shares, fine art, jewellery etc.

• There is no limit to the amount of income that can be taken from a Hong Kong ORS in retirement

• Retirement defined as leaving the employment of the sponsoring employer

• No minimum retirement age

• No tax payable on income from Hong Kong ORS in countries with a DTA with Hong Kong that assigns the taxing rights to Hong Kong (Currently 35 countries)

• No capital gains tax in Hong Kong

• No inheritance tax on company contributions

• All Hong Kong ORS are regulated an overseen by the Mandatory Provident Fund Schemes Authority (MPFA)

• The Hong Kong Occupational Retirement Schemes Ordinance (ORSO) provides privacy and anonymity for members

• ORS schemes can either be registered or exempt

 

Hong Kong Trust Structures:

• Hong Kong trusts are perpetual, which allows for multi-generational tax planning

• Non-Vested discretionary trusts allow the settlor to avoid reporting under CRS as the asset’s beneficial owner is the trustee, not the individual.

• Trustee is governed by the Hong Kong Trustee Ordinance

• Trust provides certainty of destination of assets and can avoid dissident shareholder/family member complications

• Avoids probable on death of the settlor

• Assets are always held by the trustee for the benefit of the beneficiaries of the trust, which can include the settlor

 

Clearly, with all the advantages of the above, the combination of an ORS using a trust to hold its assets provides some significant opportunities for HNW and UHNW clients to manage their affairs advantageously.

Here are some case studies on how to utilise the Hong Kong ORS and Discretionary Trust structures for both corporate and HNW individuals.

 

Case Study 1

Malaysian Malay family comprising Father (age 57), Mother (age 54), 2 daughters (aged 16 & 14) and 1 son (age 17). 

Primary concerns:

1. Preserving wealth for future generations
2. Finding a safe place for their overseas assets
3. Reducing income tax payable on retirement income

Solution:

Father’s company establishes a Hong Kong ORS and settles his assets into the pension, as a personal contribution. The assets in the ORS are held in a Hong Kong perpetual, non-vested, discretionary trust and the father names his wife and children as potential beneficiaries of the trust in his expression of wishes.

Benefits:

1. Assets are reported as zero value under CRS

2. Assets are not exposed to any Sharia Law challenge on the death of the settlor (father) as the death does not create forced heirship in a perpetual Hong Kong trust, meaning that the assets can be passed to the beneficiaries as intended without interference

3. Father remains “in control”of his assets (he can instruct the trustee to do as he wishes, within reason and subject to the trustee’s agreement)

4. Assets are 100% creditor proof, even under bankruptcy or divorce

5. Income from the ORS in retirement can be taken tax free in Malaysia or any other country with which Hong Kong has a DTA

6. Trustee can appoint Point Hope Group as the investment manager for the trust for Point Hope to manage and grow its assets. Any fees will be deducted from the client’s cash in the trust.

7. For Chinese persons with a HK ID card, then there is no CRS reporting required at all.

8. Scheme is FATCA exempt for non US citizens

 

 

Case Study 2

Chinese businessman (age 36), wife (age 34) with 2 children (daughter age 11, son age 9)

Primary Concerns:

1. Businessman is worried that his wife could be considering divorce proceedings and wishes to protect some of his accumulated assets from being included in any joint property assessment in the event that she files for divorce

2. Businessman wishes to secure the assets that are currently held overseas in Hong Kong and Singaporean bank accounts, which his wife is not aware of.

3. Businessman wishes to ensure that he can pay for the education of his two children

4. Businessman is concerned about reporting under CRS of his bank accounts on Hong Kong and Singapore

Solution:

Businessman’s company establishes an ORS in Hong Kong and transfers the cash from his Hong Kong and Singaporean bank accounts to the ORS as a personal contribution to the pension.

Benefits:

1. Cash in the ORS is now not reportable under any financial property assessment in the event of divorce

2. Assets in the ORS are reported atnil value under CRS due to the non-vested trust structure holding the assets

3. Businessman can arrange for the trustee to pay his children’s education costs

4. Trustee can appoint Point Hope as the investment manager for the trust and Point Hope can invest and grow the trust's capital based on the businessman's risk profile. Any fees will be deducted from the client’s cash in the trust.

5. Assets enjoy 100% protection from creditors, even in the event of Bankruptcy or Divorce

6. If the Chinese person has an HK ID card, then there is no CRS reporting required at all.

7. Scheme is FATCA exempt for non US citizens

 

Case Study 3

Chinese family with a family owned business. Family members involved in running the business: Father aged 78, Sons aged 46, 44 & 41, Grandchildren Females aged 21 & 26, Males aged 33, 30, 29 & 27

 

Primary concerns:

1. Preserving, growing and protecting the business for future generations

2. Confidentiality and security

3. Preservation of wealth

4. Keeping the assets in the family for future generations

5. Protection from creditors and dissident shareholder

 

Solution:

Company sets up a Hong Kong ORS to provide pension benefits for all family members that are employees and the shares of the company are transferred to the ORS and placed into the non-vested, perpetual, discretionary trust. Preferably to achieve this with smooth running and lower maintenance costs, the shares of the trading company should be held by an offshore holding company, such as a Seychelles IBC, (International Business Company) and it would be the IBC shares transferred to the Trust, leaving the Family to run the trading company.

 

Benefits:

1. Company can operate its business as normal, whilst the company’s shares are held in the Hong Kong trust

2. 100% creditor protection

3. Security of assets over many generations

4. Reduction in estate duties/Inheritance Tax

5. No Capital Gains Tax within the trust

6. Tax free income in retirement to all members living in Singapore, Malaysia or any country with a DTA with Hong Kong

7. Company protected from dissident shareholders or competitor take-over attempts

8. Assets of the ORS reported as zero value for CRS purposes

9. Trustee can appoint Point Hope as the investment manager for the trust and Point Hope can charge a management fee to the trust for this service. Fees will be deducted from the client’s cash in the trust.

10. If the Chinese person has an HK ID card, then there is no CRS reporting required at all.

11. Scheme is FATCA exempt for non US citizens

 

The above are just three examples of what can be achieved through the prudent use of Hong Kong ORS/Trust arrangements. We work together with Annum Consulting on setting up these trusts.

 

 

 

The team at Point Hope Group have been active in investment management since 1997