Why Do We Set Up "Family Trust"?

Trusts, as a new wealth management and inheritance system integrating legal and financial institutions, have characteristics such as stability, security, integration, and flexibility. They originated as a system in the common law system of England and America to circumvent the negative property transfer system, primarily taking the form of living trusts and testamentary trusts.

In China, the legal basis for family trusts is the "Trust Law of the People's Republic of China," which is a genuine legal tool. With the globalization of the world and the development of the economy, there are increasingly more large families and high-net-worth individuals in China. For such individuals, the inheritance of the family and the longevity of the family business are the most widespread visions. Therefore, family trusts have become their first choice for wealth inheritance.

So, what is a family trust?

A family trust is a form of property management in which a trust institution, acting on behalf of an individual or family, manages and disposes of family assets to achieve the wealth planning and inheritance goals of the wealthy. In a family trust, the ownership and income rights of the assets are separated. Once the wealthy entrust their assets to a trust company, the ownership of those assets no longer belongs to them, but the corresponding income is still collected and distributed according to their wishes. If the wealthy divorce, die unexpectedly, or are pursued by creditors, this money will remain independent and unaffected.  （From百度百科。）

Why establish a family trust?

The problems generally encountered by family businesses in their development can be summarized into the following three situations:

（1）Under the background of the ever-changing market economy, family businesses do not adequately assess market mechanisms and can only dispose of equity or other economic interests through means such as sales in inheritance, leading to a reduction in wealth and the loss of value-added space;

（2）Heirs of the second or third generation, or others, are not interested in or do not have the ability to take over, leading to the inheritance of family wealth being无人继承, and the efforts of the family are wasted;

（3）Due to sudden circumstances, there is an urgent need to pass on the family business, but the successor is too young to take over the business immediately.

In such cases, family trust products can allocate family assets according to the wishes of the trustee. The rational use of family trusts can tightly lock family wealth, stabilize the equity structure. Flexible profit distribution and flexible investment management methods can effectively prevent the decline of family businesses, stabilize the structure of family businesses, and ensure that family businesses continue to thrive.

Choosing a suitable trust structure, within the principles of legal regulations, can avoid the risk of forced collection of family wealth, and a well-designed family trust can reduce inheritance tax rates to a certain extent, as much as possible to pass on family wealth.

In addition, compared to signing a pre-marital agreement, setting up a pre-marital trust does not require the signature of the future spouse, nor does it need the other party to be aware of it, and it does not need to list property like a pre-marital agreement. This can better avoid the confusion of pre-marital personal property with post-marital joint property, protecting the property privacy of the parties involved and not harming the feelings of the couple.

What should be paid attention to when establishing a family trust?

As mentioned earlier, a trust is a legal tool. Family trusts involve the inheritance and protection of the entire family's wealth, and the Trust Law on which family trusts depend is closely related to other laws and regulations. Therefore, before establishing a family trust, it is necessary to discuss with professional lawyers carefully to understand the advantages, disadvantages, and disputes involved, and to confirm each term in the agreement before choosing trust services.

At the same time, family trusts are not only about the inheritance of family wealth but also a diversified and multifunctional service system based on family needs. How to combine the legal system with financial tools, how to choose the most suitable trust structure, and how to connect the real wealth with the intangible trust structure, this requires designing a professional and systematic family wealth and management plan.