In January 2022, the Macau Legislative Assembly approved the Region’s first legal framework for trusts (the ‘Trust Law’).
Unlike in common law jurisdictions, where they have played a significant role in society and business for centuries, trusts have been essentially overlooked and underplayed in Macau by individuals and corporations. There has been a wariness to establish a legal arrangement that, although provided for in the Civil Code, had little to no regulation.
However, the rapid increase in Macau’s economic output and the recent push for economic diversification, particularly with regard to the financial sector, mean that there is an ever-increasing demand for well-regulated and flexible wealth management and business planning services, particularly trusts.
The Trust Law follows an exercise in comparative law which resulted in 38 articles that set out to govern trusts, as well as the rights and obligations of all involved parties, from inception to termination. Trusts are, first and foremost, defined as a legal relationship in which a trustor transfers their property rights over certain assets to a trustee, who is in charge of managing or disposing of the fiduciary estate as if it was their own, in the interest of a beneficiary or in pursuit of a specific goal.
Who can act as a trustee?
In line with the provisions of the Civil Code, testamentary trusts are provided for alongside a broader category of so-called contractual trusts, although it is only when reading the provisions concerning trustees that the true nature of the Trust Law can be understood. This is because the law only allows certain licensed entities to step into that role, namely:
Credit institutions;
Financial companies;
Wealth management companies;
Investment fund management companies;
Insurance companies;
Pension fund management companies; and
Other entities authorised under a future, specially approved law.
Professionals traditionally associated with the role, such as lawyers and accountants, being natural persons, will not be able to act as trustees pursuant to the relevant provisions of the approved framework. This has been interpreted as a sign that the Trust Law is more orientated towards commercial purposes, in line with a succession of measures that have been aimed at the development of a robust financial sector over the past two years.
Duties and obligations
When acting as trustees (or as co-trustees), licensed entities are subject to several duties and obligations, such as diligence, loyalty, impartiality, secrecy, and record-keeping. Failure to comply with these duties and obligations may result in their removal by a court of law at the request of the trustor or of the beneficiary and in the trustee’s personal liability for any losses or damages incurred by the fiduciary estate or by the beneficiary as a result of that breach.
Trustors and beneficiaries are able to hold trustees liable for their mismanagement through the pursuit of litigation under the general provisions of civil law. Beneficiaries are further granted the right to demand the delivery of the fiduciary estate and to dispose of their fiduciary rights, among others, which will be inherited by their legal successors unless not expressly allowed in the trust document.
Liability and compliance
One of the more consequential provisions of the Trust Law is Article 11, where it is stated that the fiduciary estate is autonomous from other assets held by the trustor, the trustee, and the beneficiary, and therefore cannot be held liable for the debts of those estates.
It must also be highlighted that the Trust Law does not include any provisions concerning taxation (which also cannot be found in general tax laws). It also lacks transitional provisions: trusts may be rare, but some do exist.
Should an existing trust in any way breach the provisions of the Trust Law, no practical solution has been provided for, and how individuals, businesses, and courts will deal with compliance matters remains to be seen.
