Life Interest in Hong Kong Estate Planning: Rights, Trustees, and Control

A life interest gives a beneficiary the right to hold and enjoy property for life, not absolute ownership. CLIC notes that a testator may give a spouse an absolute gift or a life interest. It is implemented through a trust; the will should identify the gift.

Trust terms and certainty

Under the Hong Kong Trustees’ Association’s guidance, a trust is an arrangement, not a legal entity: a settlor transfers property to a trustee for beneficiaries or permitted purposes. It is usually in writing. Hong Kong law does not currently recognise non-charitable purpose trusts.

The terms must meet the three certainties: clear evidence of an intention to create a trust rather than a gift; certainty of the property; and certainty of the beneficiaries, or “objects”. Put these matters, trustee powers and control limits in writing. Trustees are personally liable; multiple trustees are jointly and severally liable. Many are limited companies for this reason.

Control

If a settlor who is not the trustee retains too much control, there may be a nominee arrangement: the trustee could be said to hold assets for the settlor absolutely, not on a substantive trust.

In Rahman v Chase Bank [1991] JLR 103, the settlor had a life interest and substantial de jure control. Significant trustee powers required the settlor’s consent; trustees could transfer capital to him while considering only his interest. The court held there was never an intention really to create a trust.

Personal representatives

Section 25 of the Probate and Administration Ordinance (Cap.10) provides that probate or administration shall not be granted to more than four persons for the same property. If a minority or life interest arises under a will or intestacy, administration must go to a trust corporation, with or without an individual, or to not fewer than two individuals. On prima facie evidence from the applicant or another person, the court may act under probate rules and orders.

If the sole personal representative is not a trust corporation, the court may appoint additional representatives during a beneficiary’s minority or the life interest’s subsistence, and until the estate is fully administered. Section 25(3) applies to grants after 7 October 1971, whether the testator or intestate died before or after commencement.