Protecting your wealth, managing it across generations and spending it how you wish can be challenging. PCS by Mercer have the right solutions to help and we are committed to helping you through your journey.


In this issue of Vision, we speak to experts in family wealth management, tax, and life protection solutions on wide-ranging topics, including:


  • Funding philanthropy without compromising inheritance;
  • Some implications of the new People’s Republic of China (PRC) Civil Code;
  • Philanthropic structures in Hong Kong, and;
  • Safeguarding your heirs’ inheritance from marital breakdown

In this issue:

Setting up a charity in Hong Kong

PRC Civil Code: Changing implications for debt and asset dispute in divorce and inheritance

Case study: Beyond heirs - Funding everything you care about with a Whole of Life insurance policy

Case study: Keeping it in the family - Using life insurance to insulate generational family wealth from erosion

Setting up a charity in Hong Kong

Tax expert, Doris Ho, from DLA Piper, compares the two most common structures for charitable purposes in Hong Kong.


Philanthropy is a critical element in the society, providing assistance and relief for people in need. High and ultra-high net worth (HNW and UHNW) individuals have the unique capacity to respond – in truly significant ways – to issues inadequately addressed by mainstream services or systems. 


In initiating or participating in philanthropic activities, individuals perform an important role in modern life. Philanthropists become an integral part of society. They might also leave an important legacy by establishing an exemplary tradition for their family to follow. 


Hong Kong has a strong tradition of philanthropy, dating back to the mid-1800s.  In a survey published in 2020, 70 percent of the surveyed Hong Kong family businesses had given money to good causes, and local community.  While there is no specific legislative framework for regulating and monitoring charities, there are two common philanthropic structures in the territory:


1. “Charity with Profits Tax Exempted Status”: Charity qualifying for profit tax exemption status under section 88 of the Inland Revenue Ordinance (IRO), and 


2. “Charitable Trust”: Trust set up with the aim of benefiting different charities and/or service targets. 


To understand more about the two structures and the possible implications of those structures, we speak to DLA Piper tax partner, Doris Ho.


Charity with Profits Tax Exempted Status: Provided that certain conditions are met, you can set up a charity in the form of a company limited by guarantee – the most common structure for charitable purposes in Hong Kong.  You can then request the Inland Revenue Department recognize its tax exemption status accorded by section 88 of the Inland Revenue Ordinance.3


Charitable Trust: Trust set up with the aim of benefiting different charity and/or service targets. This might be achieved by setting up a trust with charities and/or services targets as beneficiaries. 



Charity with Profits Tax Exempted Status

Charitable Trust

Tax Exemption Status


To qualify for tax exemption status, the charity must be established exclusively for charitable purposes or public benefit in accordance with section 88 of the IRO.4


Theoretically, a trust can qualify for tax exemption status if it fulfills the conditions under section 88 of the IRO (Cap. 112). However, for individuals who set up a trust for multiple purposes (E.g., for both family succession as well as charitable purposes), it is unlikely that conditions under section 88 of the IRO will be met.



Most charities in Hong Kong are set up as “company limited by guarantee”. For this type of company, instead of investing capital, the members guarantee to contribute a predetermined sum to the company to cover its liabilities in the event of the company winding up.

There is no minimum for the amount of guarantee, and it will usually be a nominal amount, e.g., HK$1. 00.

Only a nominal amount is required as an initial trust fund, e.g., HK$1. 00.


Assets can be settled into the trust subsequent to the set up.

Stamp Duty



For donors, passing of the beneficial interests in immovable properties or Hong Kong shares by way of gift to charities would not generally be subject to stamp duty.


Generally applicable unless the trust is otherwise qualified under section 88 of the IRO (Cap. 112).


Income Distribution



No distribution of profits, income, dividends, or property etc. to members.


But subject to clauses of the trust deed.

Tax Deduction

for Donor? 


Tax deduction rules vary with individual circumstances. In some circumstances, subject to fulfillment of certain conditions, tax deduction might be available.


Generally inapplicable unless the trust is otherwise qualified under section 88 of the IRO (Cap. 112).

Remuneration for Directors


Directors are generally prohibited from receiving remuneration.


Not applicable as there is no director under a trust. Whether trustee(s) can receive remuneration depends on the provisions under the trust deed.

Return of Asset to Settlor


Once assets are settled into the trust, they become part of the trust assets and no longer belong to the settlor. In general, a settlor could not request the trustee to return the trust assets to him/her as a settlor.

Ongoing Reporting Requirements to the Inland Revenue Department

E.g., Change of address, change in governing instrument, and change in their circumstances. 


Generally, no.

Other Tax Considerations

Charity shall be prepared to submit accounts, annual reports or other documents upon request by the Inland Revenue Department (IRD), since the IRD may perform regular audits on charities to assess their tax exemption status.


To the extent that the settlor, trustee and/or beneficiaries hold foreign citizenships, further tax planning is required.

A brief look at charities in China 


The PRC charity law was established in 2016. And while the charity sector is still in its infancy in the country, as of July 2021, there are now more than 10,000 charitable organizations officially registered with the Civil Affairs Department. In addition, more than 500 charitable trusts have been established and filed with the PRC government. 


As yet, there is no specific standalone tax regulation in relation to charities and charitable trusts, but there are conditions that must be satisfied for entities to register as a foundation, or social service entity. 


Doris Ho is a Partner at DLA Piper. She is based in Hong Kong and has expertise in cross-border structuring, China investment and taxation matters as well as estate tax, and trust planning projects for private and corporate clients. She has advised numerous HNW individuals and trustees on estate planning and private wealth management.


This edited excerpt reflects her views and available data on 14th July 2021. This article is general in nature, not comprehensive for legal purposes, and not intended as advice; it might not be appropriate to you.




3 By tax exemption, it means the charity will be exempt from profit tax for profits derived from the trade of business provided that (a) such profits are applied solely for charitable purpose and (b) are not expended substantially outside Hong Kong and (i) either the trade or business is exercised in the course of the actual carrying out of the expressed objects of the charity; or (c) the work in connection with the trade or business is mainly carried on by persons for whose benefit such charity is established.


PRC Civil Code: Changing implications for debt and asset dispute in divorce and inheritance

The PRC Civil Code came into effect on 1 January 2021, introducing significant changes to the existing civil legislation. As part of the process, the Supreme Court has systematically revised the judicial interpretation and documents related to marriage, family affairs and inheritance. 


The changes have far-reaching implications, including for asset settlement and dispute resolution in marriage, family affairs and inheritance. In this article, PCS by Mercer spoke to Wang Hui*, a Partner at King & Wood Mallesons Beijing, who outlines some of the implications. 


Can a divorce isolate debt?

Most people think once a Divorce Settlement Agreement (DSA) – which includes arrangement for handling debts – is signed by both parties, debts will be entirely repaid by the party stipulated in the DSA. 


Unfortunately, however, things are far more complicated. The judgement and execution of debt isolation is actually associated with multiple factors beyond the DSA. The nature of the debt (for instance, joint debt or one spouse’s separate debt), whether there is any agreement during the marriage, and whether the creditor has been informed of the existence of the marital agreement all influence debt isolation. Therefore, there is no single right answer. A further complication is that “joint debt” has not been clearly defined by the Civil Code. 


Judgements will be made on a case-by-case basis following comprehensive analysis. The analysis taking into account many factors, including, property and assets covered, content and expression, form of agreement, signing procedure, burden of proof, etc.


Who owns the house? 

The family home is one of the critical assets in a marital relationship. Traditionally in the PRC, it is common practice for parents to partly or wholly purchase housing property for their married children. 


Confusion and dispute over the family home frequently happen in divorce because parents rarely explicitly express – at the time of purchase – how the house purchase should be viewed. It’s often unclear whether it is a gift or a loan, and in the case of a gift, whether it is exclusively for their grown children or for the married couples. The opportunity for dispute is further multiplied by factors such as residence registration, the house purchase quota policy, other assets under dispute, family problems and the number of people involved, which is often multiple people from two or more generations.   


According to the most recent judicial interpretation of the Marriage and Family Law in line with the Civil Code, “…Housing property that is purchased partly or wholly by the parents for the married couple prior to marriage… shall be deemed as a gift for their grown child, unless the parents have expressly stated that the gift is for both their grown child and future son (or daughter) -in-law. 


On the other hand, if a house is purchased partly or wholly by the parents for the child after marriage – without a clear agreement in place – the property will be treated as a gift for the married couple without taking into account the Marriage Law’s special provision specific to the partition of housing. 


Even though real-world situations are usually more complex, the Civil Code item demands a new perspective on both risk prevention and dispute resolution regarding housing property in marriage. 


It’s important to note that judicial opinions still hold that the partition of housing property at the time of divorce should be based on a comprehensive consideration of factors such as the length of marriage, the purpose of the house purchased, and percentage of contribution by parents on both sides.     


Are inheritance disputes “arithmetic challenges” or “word challenges”?

When viewed from the perspective of wealth inheritance, the revisions of the inheritance chapter in the Civil Code provide a broader range of more flexible inheritance tools. However, if inheritance matters are not properly managed and well-planned in advance, they may easily lead to disputes after death. 


The growing complexity of modern family structures, global mobility and the rapid growth of personal wealth have introduced hitherto unseen complications to inheritance. Inheritance disputes can no longer be simply classified as statutory succession, succession under a will, and bequest – all of which could be resolved using numbers and percentages. More frequently, due to the complexity of identities and relationships, inheritance disputes are now managed through consideration of factors, including the burden of proof and applicability of exclusion. To put it more succinctly, the question of inheritance has become a series of word challenges. 


In a recent case involving foreign succession, the inheritance dispute concerned a party with U.S. citizenship, who acquired properties and assets as a Chinese citizen before immigration, with children from the first marriage, as well as properties and assets and children during the second marriage overseas. In the absence of a valid will, disputes had arisen from multiple potential successors (some with unverified identity) over a wide variety of properties, across different jurisdictions. The complexity was significant and beyond the traditional numerical solution. Taking a word-solution approach however, we spent a lot of time carefully identifying, validating, determining the applicable law, and coordinating across jurisdictions; slowing unravelling the knot of competing claims and eventually successfully resolved the disputes.  



*Wang Hui is a Partner at King & Wood Mallesons Beijing. She has many years of experience and specializes in Family Wealth Management. This article is written from a China perspective.


PCS by Mercer spoke to Wang Hui on 16 June 2021, and this article is reflective of her general views on that date. It is not intended as advice

Case study: Beyond heirs - Funding everything you care about with a Whole of Life insurance policy


We help our client secure future funding for her significant philanthropic endeavors.




Client is a mother with two adult children, who are both married, and each has a young child. Exceptionally organized, our client has already planned sufficient inheritance for her children and grandchildren in the event of her passing. 


The client is a passionate philanthropic individual, who regularly donates cash and goods-in-kind to her adopted charities and foundations in her country of residence; organizations that look after thousands of children from low-income families, as well as orphans and abandoned kids.


She was looking for a life protection solution that would work with her charitable trust to ensure that even after her passing, the charities and foundations will be well-funded into the future.




  • Whole of Life policy with a premium of US$3.5m funded by a US$2.5m loan, and US$1m cash paid by the client 
  • A guaranteed death benefit payout of US$10m – less the US$2.5m loan – means US$7.5m goes straight to the charities through the client’s trust. There are bonus components* in the chosen policy, so the payout amount is even bigger    
  • The expected bonus amount for the client’s policy is about US$3m, which will also be paid to her named charities and foundations, amplifying her legacy


Key takeaways


Life Insurance is a low-risk financial instrument, which can amplify wealth. With a whole of life solution that includes a guaranteed benefit, the sum assured is amplified x 10 over cash outlay. The cash outlay can be kept to around 30% of premiums with financing. 


Whole of Life solutions are highly beneficial. There is a guaranteed death benefit, and the bonus components help to increase the total planned sum assured.


* The bonus is a projected, non-guaranteed component, declared annually by the insurer.



Pornlert Pravichphibul 

Senior Vice President

Private Client Services by Mercer Pte. Ltd.


Case study: Keeping it in the family - Using life insurance to insulate generational family wealth from erosion


We helped our client distribute his wealth across generations while safeguarding his children’s inherited assets against circumstantial changes such as marital breakdown.




Client is a businessman and the sole bread winner of his family. He wanted to set up a legacy planning portfolio, focusing on:


  1. Providing a dependable and consistent source of income for his heirs
  2. Protecting his heirs’ inherited assets from potential future claims in the event of a marital separation/breakdown. He wanted definitive asset segregation at the point of benefit allocation*

He recently expanded his business into a new industry, so asked for cash flow to be a key consideration factor in the design of the policy. 





  • .Client bought a Whole of Life policy with coverage of Chinese Yuan 200m (US$31m)
  • Total premium Chinese Yuan 125m (US$19m) paid in a lump sum with a policy loan of Chinese Yuan 60m (US$9m). The loan’s purpose is to maximize and facilitate the cash flow needed for planned business expansion 
  • Set up a life insurance-linked trust. As the named beneficiary, the trust will allocate the death proceeds according to settlor’s wishes. The stated aim of the trust is to provide consistent cash flow only to the client’s children, even in the event of marriages – with legal protection against any wealth division and future uncertainty.


Key takeaways


Life protection is a highly flexible wealth management tool that can be used in a wide variety of ways, including ensuring wealth stays within your family – unaffected by marital status. 


PCS by Mercer solutions are consistently client-led. Before tailoring products, we always work to understand our clients’ specific needs and evaluate the entire spectrum of challenges they might face. Our comprehensive processes work to provide the best, most suitable and most economical solutions for our clients.


*Life insurance is a useful tool for safeguarding family wealth in the context of inheritance, because the death claim itself has a high degree of personal specificity – the claim belongs to the named beneficiary's personal property, unless otherwise agreed between the beneficiary (heir) and their spouse.  


However, whether the assets remain the heir’s personal property will depend on the heirs’ own wealth management ability.


For instance, if an heir inherits a house as personal property, but insists on adding their spouse as a joint owner, the real estate changes into being the joint property of the couple. 


Similarly, if an heir inherits cash, but does not deposit it in a specified account, instead, mixing it with other income after marriage, then the cash might be recognized as joint property because of the mixing.

Life insurance can be very useful to avoid such – potentially irrevocable – asset “mixing” by spreading the risk potential over time rather than in one instance. Via an insurance-linked trust, death benefits can be distributed gradually, over a time span, rather than in a lump sum. Multiple distributions can prevent children from forming extravagant spending habits, while reducing the risk of mixing personal property into the common property of a marriage. 



Helen Yang 

Vice President

Private Client Services by Mercer China Ltd.