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As the “pearl” in the crown of wealth management, family trusts are favored by high-net-worth individuals because of their powerful functions such as risk isolation, asset preservation, and wealth inheritance. In recent years, with the development of the economy and the wealth accumulation of residents, the wealth management needs of my country’s high-net-worth individuals have continued to grow, and the family trust business has also ushered in a good era.
However, the recent news that the offshore family trust entrusted by Zhang Lan was broken down has pushed this “pearl” to the forefront. How can the settlor truly rely on the family trust to achieve risk isolation or wealth preservation? Should family trusts be used only as a tool for high-net-worth clients to isolate risks? With the rapid rise of family trusts, the lessons and revelations brought about by the breakdown of Zhang Lan’s family trust are worth paying attention to.
Investor education needs to be strengthened
Choose “Control” or “Security”? This is a problem for many high net worth individuals who set up family trusts.
The family trust entrusted by Zhang Lan was broken down. In the eyes of many professionals, one of the main reasons is that it retained too much control over the relevant trust assets.
According to the analysis of a professor at the Shanghai Advanced Institute of Finance of Shanghai Jiao Tong University, the incident has three revelations for high-net-worth individuals:
① The purpose and function of the family trust need to be understood and matched with one’s own demands, rather than chasing after others or fancy functions;
②High-net-worth individuals should raise their awareness of family trusts, which are characterized by the separation of ownership, beneficiary rights and control rights, and it is difficult to achieve risk isolation or inheritance functions when all rights are packaged together;
③ It is necessary to accept a concept that the ownership of relevant assets will be transferred after the establishment of a family trust, and the relevant terms and purposes must be unified.
In the case of Zhang Lan’s family trust being broken down, investor education is also absent. A number of industry insiders revealed to the Shanghai Securities News reporter that due to the relatively short development time of the domestic family trust business, high-net-worth individuals have relatively limited understanding of such financial products and the differences between domestic and foreign family trusts. Subsequent trust companies should strengthen investor education and improve Service Level.
According to experts, the use of family trusts in wealth management has incomparable advantages over other investment and inheritance tools, but how to use this tool correctly and well is the issue that should be paid more attention to and considered. “From the perspective of the settlor, we should pay more attention to the purpose of setting up the trust, the choice of the place of establishment, and the design of the structure. Opinions, take advantage of the institutional advantages of trust, improve and give full play to professional capabilities, help customers solve problems, so that customers can rest assured that professional things will be done by truly professional people. Only in this way can the entire industry develop healthily.”
Be wary of offshore trust risks
Based on the analysis of many industry insiders, it can be found that the risks of offshore family trusts mainly lie in the following aspects:
One is,The establishment of an offshore family trust must be premised on legal compliance. In the family trust structure established overseas, there are also strict legal and compliance requirements for the source of assets. Offshore family trusts established for malicious purposes such as debt evasion and debt avoidance may be judged as invalid or false trusts in many offshore places.
two is,Cross-border tax planning is an important factor for the popularity of offshore family trusts, but in the context of global tax information transparency and domestic individual tax reforms, Chinese residents have domestic tax compliance responsibilities; especially the implementation of “CRS” in China (Common Tax Reporting Standards), offshore trusts are also included in the scope of information exchange, and the actual beneficiaries of some trusts can be identified through penetration, and the tax optimization function of overseas trusts will be affected.
The third is,When a dispute arises in an offshore family trust, due to the different legal relationships involved in the place where the trust is established and where the property is located, the litigation is more complicated, and it faces the problems of long time and high cost.
Four is,Overseas family trusts have different requirements on the legality and compliance of asset sources than those in China. Trusts entrusted by the settlor without understanding the relevant rules are easily identified as “false trusts”, and asset security is also at risk. This also means that high-net-worth individuals need to pay attention to the different legal backgrounds applicable to the establishment of family trusts in different regions. Therefore, they should “do as the Romans do”, fully understand and strictly abide by the laws of the place where the trust is established to establish a family trust.
Focus on domestic familiesthe trust
Diversified functions
In addition to risk isolation, the functions of family trust wealth inheritance and family governance seem to be often overlooked. However, many industry insiders revealed that in the process of continuous wealth accumulation of domestic residents, the reason why family trusts are favored by high-net-worth individuals is no longer Stop at “wealth preservation”.
A person from a trust company said frankly: “Currently, high-net-worth individuals’ awareness of family trusts lies more in asset value preservation and appreciation and risk isolation. In these aspects, overseas trusts are obviously more mature. But in fact, compared with offshore family trusts, domestic family trusts The functions of the trust are more diversified, and are closer to the family concept and individual needs of the Chinese. For example, some customers request that their parents be set as the beneficiaries of the family trust, which reflects the filial piety of the Chinese people to repay their parents for their upbringing. It can also provide children’s education and life planning, complex family overall planning, quality pension planning, etc.”
People in the industry also believe that the main value of a family trust lies in realizing the controllable, reasonable and harmonious transfer of property behind the settlor, and guided by the inheritance of property, inheriting the family tradition and spirit of the family, adjusting the relationship between family members, and promoting the trust of the family. Harmony, and ultimately achieve the goal of everlasting family business.Therefore, in addition to risk isolation, the family trust’s family affairs management (such as life security, education support, marriage support, entrepreneurship support, pension support, medical support) and family inheritance (such as second-generation training, family charter and family governance) are two major Class functionality is also worth looking at.
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