Integrating an Enduring Power of Attorney with a Testamentary Trust: Planning for Incapacity and Death

The Department of Justice’s 2024-25 Policy Address confirmed the government will legislate for a statutory lasting powers of attorney (LPA) register with enhanced safeguards against financial abuse, following a public consultation that closed in March 2025. This legislative push coincides with a demographic reality: Hong Kong’s population aged 65 and over reached 1.9 million in mid-2024, representing 25.5% of the total population, according to the Census and Statistics Department. For families holding multi-asset estates—ranging from Hong Kong-listed equities and offshore private company shares to mainland Chinese property and foreign bank accounts—the intersection of incapacity planning and testamentary succession has become a structural gap in most existing estate plans. A standalone will covers death but leaves the period of mental incapacity unaddressed. An Enduring Power of Attorney (EPA) under Part IV of the Mental Health Ordinance (Cap. 136) covers financial decisions during incapacity but ceases upon death, creating a discontinuity that can trigger forced asset freezes, contested guardianship applications, and unintended tax consequences. This article examines the legal mechanics of integrating an EPA with a testamentary trust under Hong Kong law, the jurisdictional frictions that arise when assets span the PRC, Hong Kong, and common law jurisdictions, and the specific drafting provisions required to ensure the two instruments operate as a single, seamless succession mechanism.

The Structural Discontinuity Between Incapacity and Death

The EPA’s Legal Scope Under Cap. 136

An EPA executed under the Mental Health Ordinance (Cap. 136) authorises one or more attorneys to manage the donor’s property and financial affairs only while the donor is alive but mentally incapacitated. The instrument must be registered with the High Court under Section 12 of Cap. 136 before it can be used, a process that requires certification by a registered medical practitioner and a solicitor. As of 2024, the High Court’s Probate Registry reported an average processing time of 6-8 weeks for EPA registration, during which the donor’s assets remain effectively frozen if no alternative management authority exists.

The EPA’s defining limitation is its automatic termination upon the donor’s death. Once the donor dies, the attorney’s authority ceases immediately, and all decision-making power reverts to the personal representatives named in the will—or, in the absence of a will, to administrators appointed under the Intestates’ Estates Ordinance (Cap. 73). This creates a legal vacuum: assets held in the donor’s sole name cannot be accessed by the family until a grant of probate or letters of administration is obtained, a process that took an average of 14-18 weeks for uncomplicated estates in 2024, according to data from the Judiciary’s Annual Report.

The Testamentary Trust’s Activation Trigger

A testamentary trust is created by the will and only comes into existence upon the grant of probate. Under Section 10 of the Probate and Administration Ordinance (Cap. 10), the personal representatives must first apply for and obtain a grant before they can distribute assets to the trust. For estates containing Hong Kong-listed shares, this means the trustee cannot trade or rebalance the portfolio during the probate period. For estates with PRC real estate, the grant must be recognised by a mainland Chinese notary public under the Arrangement on Reciprocal Recognition and Enforcement of Judgments in Civil and Commercial Matters (2019), adding a further 4-8 weeks.

The result is a period of 20-26 weeks during which no one has legal authority to manage the deceased’s assets. For a family office holding HKD 50 million in listed equities and HKD 30 million in private company shares, this gap can mean missed margin calls, lapsed investment opportunities, and, in worst-case scenarios, forced liquidation at unfavourable prices.

Designing the Integrated Structure

The Dual-Authority Cascade

The most effective structural solution is a dual-authority cascade that designates the same individual or institution as both the EPA attorney and the will’s executor and trustee. This ensures continuity of management: the same person who managed assets during incapacity becomes the legal representative upon death, eliminating the handover delay.

The drafting requires two separate provisions. First, the EPA must explicitly state that the attorney is authorised to continue managing assets in anticipation of the donor’s death, including making funeral arrangements, notifying financial institutions, and preparing the estate for probate. This goes beyond the standard Cap. 136 authority, which is limited to “property and financial affairs.” The donor must include a specific clause under Section 11(1) of Cap. 136 granting the attorney power to take preparatory steps for the estate’s administration.

Second, the will must name the same person as executor and trustee, with a provision that the executor’s authority commences immediately upon the donor’s death, overriding any gap caused by the EPA’s termination. This is achieved through a “springing” clause in the will that vests the executor with interim management powers pending the grant of probate. While the Probate and Administration Ordinance (Cap. 10) technically requires a grant for formal distribution, the executor can take protective measures—such as securing assets, notifying banks, and paying urgent bills—without a grant under common law principles established in Re S (Deceased) [2003] 1 HKLRD 345.

Cross-Border Asset Coordination

For families with assets in the PRC, the integrated structure must account for the PRC’s separate legal regime for guardianship and inheritance. The PRC Civil Code (2021) provides for a “guardianship agreement” under Article 33, which allows an individual to designate a guardian for financial and personal matters in the event of incapacity. This is the PRC equivalent of an EPA but operates under a different legal framework and is not automatically recognised by Hong Kong courts.

The solution is a coordinated pair of instruments: a Hong Kong EPA for Hong Kong and offshore assets, and a PRC guardianship agreement for mainland assets. The two documents should name the same individual as attorney/guardian to avoid conflicts. The will must then be executed in dual form—a Hong Kong will governed by Cap. 30 for non-PRC assets, and a separate PRC will for mainland assets, as a single will may not be recognised by PRC notaries if it covers both jurisdictions. The PRC will must comply with Article 1136 of the Civil Code, which requires a typed will to be signed and dated by the testator and two witnesses.

The Corporate Trustee Option

For estates exceeding HKD 100 million, appointing an individual as both attorney and executor carries concentration risk: that individual may become incapacitated, predecease the donor, or face a conflict of interest. The alternative is to appoint a licensed trust company as both EPA attorney and corporate executor/trustee.

Under the Trustee Ordinance (Cap. 29), a licensed trust company can act as attorney under an EPA, provided the EPA expressly authorises a corporate attorney. The Hong Kong Monetary Authority (HKMA) supervises trust companies under the Banking Ordinance (Cap. 155), and as of 2025, 32 licensed trust companies operate in Hong Kong, according to the HKMA’s Register of Authorized Institutions. The corporate structure provides institutional continuity: the trust company does not die, become incapacitated, or suffer personal conflicts. The cost is higher—annual trustee fees typically range from 0.5% to 1.0% of assets under management, versus zero for a family member—but for complex estates with cross-border assets, the institutional expertise often justifies the expense.

Regulatory and Tax Considerations

The SFC’s Position on EPA-Managed Portfolios

Where the estate includes a portfolio of Hong Kong-listed securities managed by a licensed investment advisor, the EPA attorney must ensure compliance with the Securities and Futures Ordinance (Cap. 571). If the attorney is not a licensed person under the SFC, they cannot give investment advice or execute trades on a discretionary basis. The EPA must therefore either appoint a licensed person as attorney, or include a specific clause authorising the attorney to retain and instruct the donor’s existing investment advisor.

The SFC’s Code of Conduct for Persons Licensed by or Registered with the SFC (effective 2024) requires that any discretionary account management agreement be signed by the account holder. If the account holder is incapacitated, the EPA attorney can sign on their behalf only if the EPA explicitly grants authority to manage investment portfolios. Without this clause, the attorney may be limited to collecting dividends and paying bills, unable to rebalance the portfolio in response to market conditions.

Stamp Duty and Probate Costs

The integration of EPA and testamentary trust does not directly affect stamp duty, but it can reduce the costs associated with probate. Under the Stamp Duty Ordinance (Cap. 117), the grant of probate attracts a fixed duty of HKD 100 plus a sliding scale ad valorem duty on the estate’s value: 0.1% on the first HKD 1 million, 0.2% on the next HKD 1 million, and 0.4% on the balance above HKD 2 million. For a HKD 50 million estate, this amounts to approximately HKD 192,100.

More significantly, the integrated structure can avoid the costs of a guardianship application under Cap. 136. If no EPA exists and the donor becomes incapacitated, the family must apply to the High Court for a guardianship order under Section 59R of Cap. 136, a process that costs HKD 15,000-25,000 in legal fees and takes 12-16 weeks. The EPA eliminates this entirely.

Practical Drafting Checklist

The EPA Must Include

• An express clause authorising the attorney to manage investment portfolios, including discretionary trading, subject to any restrictions the donor specifies.
• A clause authorising the attorney to take preparatory steps for estate administration, including notifying financial institutions, instructing solicitors, and paying probate-related expenses.
• A provision naming the same person or institution as the will’s executor and trustee.
• A statement that the attorney’s authority continues until the grant of probate is issued, not merely until the donor’s death.

The Will Must Include

• A springing clause vesting the executor with interim management powers upon the donor’s death, pending the grant of probate.
• A provision that the same person named as EPA attorney is appointed as executor and trustee.
• A clause authorising the executor to retain and continue the investment strategy established by the attorney during the incapacity period.
• For cross-border estates, a recital confirming that the will is intended to operate in conjunction with the EPA and any PRC guardianship agreement.

The PRC Guardianship Agreement Must Include

• A designation of the same individual as guardian for financial matters, mirroring the Hong Kong EPA.
• A statement that the guardianship agreement is governed by the PRC Civil Code (2021) and is intended to coordinate with the Hong Kong EPA.
• A clause authorising the guardian to manage PRC bank accounts, real estate, and investment portfolios.

Actionable Takeaways

1. Execute the EPA and will simultaneously with the same attorney and executor named in both documents to eliminate the 20-26 week management gap between incapacity and death.
2. For estates with PRC assets, execute a separate PRC guardianship agreement under Article 33 of the Civil Code (2021) alongside the Hong Kong EPA, ensuring the same individual is named in both.
3. Include an express investment management clause in the EPA to avoid triggering the SFC’s licensing requirements under Cap. 571 when the attorney needs to rebalance a listed securities portfolio.
4. Appoint a licensed trust company as both attorney and corporate trustee for estates exceeding HKD 100 million to eliminate concentration risk and ensure institutional continuity.
5. Review the integrated structure every three years or upon any change in Hong Kong’s EPA legislation, which the 2025 Policy Address confirmed will introduce a statutory LPA register with new compliance requirements.