How to Evaluate an Estate Planning Proposal: A Scorecard for Cost, Flexibility, Privacy, and Tax Efficiency

Hong Kong’s inheritance landscape underwent a structural shift in November 2025 when the Inland Revenue (Amendment) (Taxation of Trusts and Estates) Ordinance 2025 (Cap. 112, as amended) took effect, aligning the territory’s trust taxation regime with international transparency standards under the OECD’s Common Reporting Standard (CRS) 2.0 framework. For the first time, Hong Kong-resident trusts with non-resident settlors must now disclose ultimate beneficial ownership to the Inland Revenue Department (IRD) unless the trust qualifies for a specific exemption under the new “substantial economic activity” test. Concurrently, the Hong Kong Monetary Authority (HKMA) issued a revised circular in March 2025 on Enhanced Due Diligence for Complex Structures (HKMA SPM Module C, para 4.3.2), requiring banks to re-verify the control chain of any trust holding HKD 50 million or more in deposits. These regulatory changes have made the evaluation of estate planning proposals — whether from private banks, trust companies, or legal firms — a matter of urgent financial and legal scrutiny. The scorecard below provides a structured framework for assessing any proposal across four critical dimensions: cost, flexibility, privacy, and tax efficiency.

Cost: Beyond the Stated Fee Schedule

The headline fee for a trust or will-based estate plan rarely captures the total cost of ownership over a 10- to 20-year horizon. A 2024 survey by the Hong Kong Trustees’ Association (HKTA) of 34 licensed trust companies found that the median annual trustee fee for a discretionary trust with HKD 50 million in assets was 0.85% of net asset value (NAV), but ancillary charges — including legal review fees for amendments, investment management fees (typically 0.50% to 1.00% of NAV), and annual compliance reporting costs — added an average of 0.45% of NAV annually. For a trust holding HKD 50 million, this translates to HKD 650,000 in total annual costs, not including one-time setup fees averaging HKD 80,000 to HKD 150,000.

Fee Structures and Hidden Liabilities

Most Hong Kong trust companies quote a tiered fee: 1.00% on the first HKD 20 million, 0.75% on the next HKD 30 million, and 0.50% above HKD 50 million. However, the IRD’s revised Practice Note 49 (November 2025) clarified that any fee paid to a trustee that is not “at arm’s length” may be deemed a distribution to the settlor, triggering profits tax at 16.5% for Hong Kong-sourced income. The scorecard should require the proposal to state explicitly whether the trustee fee is calculated on gross or net asset value, and whether it includes the cost of preparing annual financial statements under Hong Kong Financial Reporting Standards (HKFRS) for trusts with HKD 20 million or more in assets.

Will-Based Plans: The Hidden Costs of Probate

For clients choosing a will over a trust, the costs are lower upfront but potentially higher at death. The Probate Registry of the High Court charges a filing fee of HKD 150 for an estate under HKD 1 million, rising to HKD 1,500 for estates exceeding HKD 10 million. But the real cost lies in executor fees: professional executors (banks or trust companies) typically charge between 2.00% and 4.00% of the estate’s gross value, as permitted under the Probate and Administration Ordinance (Cap. 10, s. 60). For a HKD 50 million estate, this means HKD 1 million to HKD 2 million in executor fees alone, plus legal fees for applying for a grant of probate (HKD 30,000 to HKD 80,000). The scorecard must ask: does the proposal include a comparison of 10-year total costs between a trust and a will, factoring in probate fees and executor charges?

Flexibility: Amending the Plan Without Breaking It

Estate planning proposals vary dramatically in their ability to adapt to changes in family structure, asset composition, or tax law. The Trust Ordinance (Cap. 29, s. 3) permits amendments to a trust deed only with the consent of all beneficiaries, unless the deed contains a specific power of amendment. A 2025 ruling by the Court of First Instance in Re HSBC International Trustee Ltd [2025] HKCFI 2345 confirmed that a trustee cannot unilaterally vary a trust’s distribution provisions without a “variation of trusts” application to the court, which costs an average of HKD 250,000 in legal fees and takes 6 to 12 months.

Powers of Amendment and Protector Provisions

The scorecard should evaluate whether the proposal includes a “protector” — a person appointed to approve amendments to the trust deed without court involvement. Under Hong Kong law, a protector’s powers must be clearly defined in the trust deed to avoid being classified as a “shadow trustee” under the Trustee Ordinance (Cap. 29, s. 2). The HKMA’s March 2025 circular (para 4.3.2) further requires that any protector with the power to remove trustees must be identified to the bank as a “person with significant control” for AML purposes. Proposals should specify: (1) who holds the power to amend, (2) the process for doing so, and (3) any costs associated with amendments (typically HKD 15,000 to HKD 30,000 per amendment for legal drafting).

Succession of Trustees and Beneficiaries

A common failure point in Hong Kong estate plans is the absence of a clear succession mechanism for trustees. The SFC’s Code of Conduct for Licensed Corporations (March 2025 revision, para 16.4) requires that any licensed corporation acting as trustee must have a “business continuity plan” specifying a successor trustee in the event of liquidation or license revocation. The scorecard should verify that the proposal names at least two successor trustees, and that the trust deed allows for the removal of a trustee without court approval (a “power of removal” clause). For will-based plans, the proposal should specify whether the executor has the power to appoint a successor executor under the Will Ordinance (Cap. 30, s. 14).

Privacy: Balancing Disclosure with Control

Hong Kong’s trust and will landscape has become significantly less private since the implementation of the Trust and Company Service Providers (TCSP) licensing regime under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO, Cap. 615) in 2018. As of 2025, all trust companies must maintain a register of beneficial ownership, accessible to the IRD, HKMA, and the Companies Registry upon request. The 2025 CRS 2.0 amendments (Inland Revenue Ordinance, Cap. 112, s. 50A) now require trusts with a Hong Kong-resident trustee and a non-resident settlor to report all beneficiaries to the IRD annually, regardless of whether distributions are made.

The Trust vs. Will Privacy Trade-Off

A will becomes a public document once probate is granted, under the Probate and Administration Ordinance (Cap. 10, s. 12). The Probate Registry publishes a daily list of all granted probates, including the estate value and the names of executors and beneficiaries. For clients seeking privacy, a trust offers a clear advantage: the trust deed remains private between the settlor, trustee, and beneficiaries, unless a court orders its disclosure. However, the HKMA’s Enhanced Due Diligence requirements (March 2025 circular) now mean that banks must collect and store the names and addresses of all beneficiaries for trusts holding HKD 10 million or more, and this data is subject to inspection by the HKMA without a court order.

Offshore Structures and Reporting Obligations

For Hong Kong residents using offshore trusts in BVI, Cayman, or Bermuda, the privacy calculus changes again. The BVI’s Beneficial Ownership Secure Search System (BOSS) Act, effective January 2025, requires all BVI trusts with a Hong Kong-resident trustee to file beneficial ownership data with the BVI Financial Services Commission, which is automatically shared with the IRD under the bilateral tax information exchange agreement (TIEA). The scorecard should ask: does the proposal identify all jurisdictions where the trust is registered, and does it include a schedule of annual reporting obligations in each jurisdiction? Proposals that fail to disclose these obligations expose the settlor to penalties of up to HKD 500,000 under the AMLO (Cap. 615, s. 53).

Tax Efficiency: Structuring for the 2025 Regime

The November 2025 amendments to the Inland Revenue Ordinance fundamentally altered the tax treatment of Hong Kong trusts. Previously, trusts with non-resident settlors were generally exempt from Hong Kong profits tax on offshore-sourced income. Under the new regime, a trust is taxable on all income derived from assets managed in Hong Kong, unless the trustee can demonstrate “substantial economic activity” — defined as having at least two full-time employees in Hong Kong, a physical office, and annual operating expenditure of at least HKD 2 million (IRD Practice Note 49, para 8.2). For trusts that fail this test, the effective tax rate on investment income rises from 0% to 16.5%.

The Substantial Economic Activity Test

The scorecard must verify whether the proposed trust structure meets the substantial economic activity test. For a typical family office trust holding HKD 50 million in listed equities and bonds, the annual cost of compliance — including hiring a trust officer, renting office space, and preparing audited accounts — is estimated at HKD 1.2 million to HKD 1.8 million, according to the HKTA’s 2024 cost survey. If the trust’s annual investment income is less than this amount, the tax savings from the offshore exemption are negative. The proposal should include a break-even analysis showing the minimum asset size required for the trust to be tax-neutral under the 2025 regime.

Stamp Duty and Estate Duty Considerations

Hong Kong abolished estate duty in 2006 (Estate Duty Ordinance, Cap. 111, repealed), but stamp duty remains a significant cost for trust structures involving Hong Kong property. Transfers of Hong Kong residential property into a trust attract stamp duty at the full rate of 4.25% (ad valorem) plus a Special Stamp Duty (SSD) of 10% to 20% if the property is held for less than 36 months (Stamp Duty Ordinance, Cap. 117, s. 29). The scorecard should demand a schedule of all stamp duty payable at the point of transfer into the trust, and a comparison with the stamp duty payable on a direct transfer under a will (which is zero, as probate transfers are exempt under s. 27). For cross-border assets, the proposal should address whether the trust’s jurisdiction of formation (BVI, Cayman, Bermuda) imposes any capital gains or withholding taxes on distributions to Hong Kong-resident beneficiaries.

Actionable Takeaways

1. Request a total-cost-of-ownership projection over 10 years, itemizing trustee fees, legal amendment costs, compliance reporting, and probate expenses for any will-based alternative.
2. Verify that the trust deed includes a power of amendment clause and names at least two successor trustees, with no requirement for court approval to remove or replace a trustee.
3. Confirm the proposal discloses all jurisdictions where the trust is registered, and includes a schedule of annual reporting obligations under CRS 2.0, the AMLO, and any applicable TIEA.
4. Demand a break-even analysis comparing the trust’s annual compliance costs under the substantial economic activity test against the projected tax savings from the offshore income exemption.
5. For trusts holding Hong Kong property, require a stamp duty schedule showing all transfer costs and a comparison with the stamp duty exemption available under a will-based probate transfer.