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What is a Discretionary Trust in Hong Kong laws?

Purposes

In Hong Kong, discretionary trusts are used by families to make long-term financial provision for sons and daughters. It is a form of "family trust". The key point about a discretionary trust is that funds or property put into the trust do not count as assets for the purposes of benefits or in terms of the responsibility of the local authority or health authority to fund care. This is because the funds put into a discretionary trust do not belong to the beneficiaries but to the trust.

Why is it called a Discretionary Trust?

This kind of trust is administered by trustees. The deeds which set up the trust give the trustees discretion as to how the funds are to be used. The intended beneficiaries have no rights to either the income or capital held in trust. To work in terms of financial planning for children an additional characteristic is usually that the trust is set up for the benefit of a group of people, not a single person. This can be a 'class' of beneficiary of whom the son or daughter is a member, for example all people with Downs Syndrome or with an Autism Spectrum Disorder.

Can I put my house into a Discretionary Trust?

Yes. Your home is an asset and can therefore be put into trust. This is commonly done through setting up a trust in the parents' will which makes provision for the property to be put into trust. There are several reasons why this may be a good idea.

  • First, the trustees can undertake the task of managing and maintaining the property. This is particularly important where the disabled person may lack legal capacity and therefore would be unable to manage money and to contract for the maintenance services. 
  • Second, because the property is put into trust it does not belong to the individual and therefore cannot be subject to a legal liability owed by a beneficiary.