A Brief Discussion on Trusts | Rational Wealth Planning with Family Trusts to Free Fan Bingbing and Deng Lun from Tax Troubles

On October 3, 2018, the tax case involving Fan Bingbing's "yin-yang contract" was settled, and the total amount of taxes, late fees, and fines Fan Bingbing needed to pay exceeded 800 million yuan. In December 2021, the online anchor 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 fined 106 million yuan for evading taxes.

Celebrities and Internet celebrities, as high-income individuals, face a personal income tax rate as high as 45%. Consequently, 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 "business income from partnership operations," and then transferring the company's income into their personal accounts, holding more money in their own hands.

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

Some people think that the money in the company account feels different from the money in their own names; some also feel that the money in the company account needs to be taxed as personal income tax, and dividends also need to be taxed as personal income tax; but with so much money earned, it can't be spent all at once, why can't it be used for reinvestment to create higher value?

Selecting an appropriate family trust scheme can both reasonably reduce tax expenditures and ensure the long-term sustainability of wealth.

What help does a family trust provide for "tax avoidance"?

First and foremost, it must be said that family trusts are by no means a method of evading taxes, nor are they tools for tax evasion. The fundamental reason why we can reasonably plan taxes through family trusts is that a reasonable family trust planning can implement the reproduction of family wealth from its roots, assuming the role of a "company."

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

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

The first step is undoubtedly 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 RMB, and it is necessary to conduct due diligence on the source of the property and anti-money laundering due diligence. If married, the consent of the spouse is also required.

After establishing a family trust, the next step is to realize the "corporate function" of the family trust. Allow the family trust to become a shareholder of the enterprise, and use the dividends received directly for reinvestment to obtain more value.

The third step is to select an excellent legal advisor team. Family trusts fundamentally rely on laws and regulations such as the Trust Law, and require professional family trust lawyers to systematically analyze the legal framework and tailor a family trust plan for you to ensure the intergenerational inheritance of family wealth and better achieve the purpose of family trusts.

By achieving the above three points, adopting the family trust model, and selecting a professional and reliable legal team, tax expenditures can be legally reduced to a certain extent.

Knowledge has its sequence, skills have their specialties, celebrities and internet celebrities are responsible for making money, lawyers and consultants are responsible for realizing the inheritance of family wealth, not to mention that without taking a step, one cannot reach a thousand miles, and without accumulating small streams, one cannot form a river and sea. Be cautious not to lose the big picture for the sake of the small.

Choose the right family trust team to address your concerns!