Family Trust Myth: Only wealthy people can set up family trusts?

The concept of family trusts has been developed in Hong Kong since the colonial period and has a history of more than 100 years. However, when it comes to “family trusts”, many people mistakenly think that this is a legal tool limited to high net worth individuals because trusts are considered to be costly. In fact, this is a wrong concept.

Family trusts are not just for the rich

Regardless of net worth and asset structure, everyone can consider setting up a trust to protect themselves. In Hong Kong, there is no minimum threshold of net asset value for the establishment of a trust. Even if there is only a luxury watch worth 100,000 yuan, a family trust can be established. Of course, although assets worth one dollar can also be set up in a trust, cost-benefit issues still need to be considered. Trusts require establishment fees and administrative fees, but combining a trust with insurance can make it more cost-effective.

Legal admissibility of insurance and trusts

When planning for property inheritance, many people will consider passing their property to the next generation through insurance. In Hong Kong, since there is no official department or government agency to handle records related to wills, relying solely on wills for property distribution carries high legal risks and is prone to disputes. Therefore, many people choose to insure themselves and let the insurance company record the beneficiaries. Similarly, the establishment of a trust will have an official record recognized by law, reducing disputes during inheritance distribution.

Advantages of insurance trusts

The regulation of Hong Kong’s insurance laws means that property inheritance through insurance alone may not fully meet the needs. One of the biggest limitations is that the beneficiary of the insurance must be a living person, and unborn descendants such as grandchildren, great-grandchildren, etc. cannot be designated. On the contrary, trusts do not have such restrictions. As long as the trustee is listed as the beneficiary of the policy when taking out the policy, the assets can be distributed long-term according to the preset terms, which is conducive to long-term asset allocation.

In addition, traditional insurance products usually distribute assets in a one-time manner, while "trust-like" products that have emerged in recent years allow assets to be distributed in stages. However, these products are still less flexible than trusts. For example, someone might want their children to start collecting payments after a certain age to avoid losing the incentive to work. Trusts can design terms according to personal needs, allowing for more flexible inheritance of wealth.

The Leverage Effect of Insurance Trusts

The leverage effect generated by insurance companies through investment activities enables beneficiaries to obtain more total assets. Insurance companies typically charge no management fees based on net asset value while the policyholder is still alive, allowing assets to grow. After the death of the policyholder, the trust's management expenses will not exceed the asset growth brought about by the insurance leverage effect. Therefore, it is not only high net worth individuals who can set up family trusts. The trust itself can be described as a nearly zero-cost legal tool.

Conclusion

In short, family trusts are not just for the rich. Anyone can set up a trust according to their own needs to protect wealth and carry out long-term planning. The combination of trust and insurance can not only improve cost-effectiveness, but also achieve wealth inheritance more flexibly.

If you want to learn more about trust information and applications, you can refer to relevant professional course information.

Disclaimer: The content of this article is for reference only and does not constitute investment advice or an invitation, solicitation or recommendation for any investment product. Readers are advised to make their own judgment and seek professional advice.

The content of this article is purely the author's personal opinion and does not represent the position of 852FIN.

852FIN reminds readers that the content contained in this article mainly comes from online public information and does not constitute any professional advice. Readers should seek professional advice if they have specific questions about the establishment and management of trusts.

852FIN and the author of this article are not responsible for any loss or damage caused by the information contained or omitted in the article.