Briefly Discuss Trust | Rational Wealth Planning with Family Trusts, So That Fan Bingbing and Deng Lun No Longer Worry About Tax Issues

On October 3, 2018, the tax case involving Fan Bingbing's "yin-yang contract" was finally settled. The total amount of taxes, late fees, and fines Fan Bingbing needed to pay exceeded eight billion yuan. In December 2021, the online influencer Wei Ya evaded 6.49 billion yuan in taxes, with the total amount of recovery, late fees, and fines reaching 13.41 billion yuan. In 2022, the celebrity Deng Lun was penalized 1.06 billion yuan for evading taxes.

Celebrities and online influencers, as high-income individuals, are subject to a personal income tax rate as high as 45%. Therefore, after earning high incomes, they are inevitably motivated to reduce taxes through illegal means. According to past cases, their methods of evading taxes often involve "transforming personal income" into "partnership business income," and then transferring the company's income into their personal accounts, holding more money in their own hands.

In my opinion, this is somewhat unnecessary. Why directly transfer money from the company's account to personal names? After all, it can't be spent all at once. What's the difference between money in the company's account and money in personal accounts? Can't we just pay the "corporate income tax" honestly?

Some people think that money in the company's account feels quite different from money in personal names; others believe that money in the company's account is subject to personal income tax, and dividends are also subject to personal income tax; however, with so much money earned, it can't be spent all at once. Why can't it be reinvested to create more value?

Choosing the right family trust scheme can both reasonably reduce tax expenses and ensure the long-term prosperity of wealth.

So, what help does a family trust provide for tax avoidance?

Firstly, it must be said that a family trust itself is not a method of evading taxes, nor is it a tool for evading taxes. The fundamental reason why we can reasonably plan taxes through a family trust is that a reasonable family trust plan can implement the reproduction of family wealth from its roots, assuming the role of a "company."

To illustrate, the profit income generated from A Company's investment in B Company does not need to pay "corporate income tax" when dividends are distributed. Our family trust assumes the role of A Company. A family trust is a legal holding scheme designed by wealthy families to continue family wealth, using family trust investments to produce wealth, which is equivalent to the dividends received from A Company's investment in B Company, and can reasonably avoid paying "corporate income tax."

How can high-net-worth individuals better utilize family trusts?

The first step is to establish a family trust. A family trust is not just a financial product but a genuine legal tool. The starting point for domestic family trusts is 10 million yuan, and it is necessary to conduct source verification and anti-money laundering verification for the property to be established. If married, the consent of the spouse is also required.

After establishing a family trust, the second step is to realize the "corporate function" of the family trust. Let the family trust become a shareholder of the enterprise, and use the dividends received for reinvestment to achieve more value.

The third step is to choose an excellent legal advisor team. A family trust relies on laws and regulations such as the Trust Law, and requires professional family trust lawyers to systematically analyze the legal framework and tailor a family trust scheme for you to ensure the intergenerational inheritance of family wealth and better achieve the purpose of the family trust.

By doing the above three things, adopting the model of family trust, and choosing a professional and reliable legal team, tax expenses can be legally reduced to some extent.

Knowledge has its sequence, and skills have their specialties. Celebrities and online influencers are responsible for earning money, while lawyers and advisors are responsible for the inheritance of family wealth. It is crucial not to lose sight of the big picture for the sake of small gains. Choose the right family trust team to resolve your concerns!