Advantages of family trusts: cases of wealth inheritance and asset protection (3)

According to the "2021 China Private Wealth Report", in China, the total demand of high-net-worth individuals for wealth security, wealth inheritance and children's education is 50%. In today's ever-changing environment, where interpersonal relationships are also ever-changing, more and more high-net-worth individuals are beginning to pay attention to family trusts to protect their wealth.

What is a family trust

According to the English common law description of a trust, a trust is an agreement (trust deed) between the settlor and the trustee to transfer the legal ownership of assets to the trustee, who holds and manages them for the benefit of a third party (the beneficiary). assets. The trustee manages and distributes assets in accordance with the wishes of the trustor and in the interests of the beneficiaries. The settlor may also appoint a protector to oversee the trustee to protect the interests of the beneficiaries.

Under the family trust structure, the four roles and functions of the family trust are as follows:

• client: Transfers ownership of assets in one's name to a trustee, who holds the assets for the benefit of the beneficiary.
• trustee: Have the legal title to the trust property, manage the trust assets according to the trust deed, and distribute assets or income to the beneficiaries.
• beneficiary: Designated by the trustor, enjoys the beneficial ownership of the trust assets and usually enjoys the interests of the trust assets.
• protector: Usually has the power to supervise the trustee, such as replacing the trustee or requiring notification to the protector before the trustee exercises certain powers.

Benefits of setting up a family trust

By setting up a well-structured and properly managed family trust, you can realize the following five benefits:

1. family inheritance: Arrange the distribution of family wealth in advance, and have a suitable trustee carefully manage, operate and distribute trust assets to avoid complicated and time-consuming probate and reduce the risk of estate disputes.
2. Corporate inheritance: Maintain a stable equity structure, avoid equity dilution and changes, and ensure control of the enterprise.
3. Asset protection: With a properly structured trust, assets placed in the trust can be protected from creditor claims and testamentary claims, while undistributed trust assets can also be protected from creditor claims and marital property claims by beneficiaries.
4. wealth planning: Based on the situation and background of the trust creator and beneficiaries, the trust company can provide a reasonable structure based on the professional opinions of relevant expert consultants to achieve wealth planning and asset integration.
5. Highly confidential: Under the premise of legal compliance, the identities and interests of trust-related persons shall be kept confidential.

Next, we will analyze a common case to visually demonstrate the benefits brought by family trusts, allowing you to understand why more and more high-net-worth individuals choose family trusts.

Case 3: Non-Americans with American family members

Case background

Mr. Wang successfully started his own business in his early years, holds a large amount of financial assets, resides in Singapore, and is a non-US tax resident. His two children, aged 19 and 21 respectively, have obtained U.S. green cards, are studying and working in the United States, and may stay in the United States for a long time in the future. Mr. Wang began to consider the inheritance and inheritance of family wealth, hoping to continue to have the investment power of assets during his lifetime. After consultation, Mr. Wang established a retained power trust in the form of a non-U.S. settlor with American children as beneficiaries.

Case study

If properly planned, this type of trust can be expected to provide the following benefits:

1. Mr. Wang can retain the investment rights of the trust assets during his lifetime.
2. During Mr. Wang’s lifetime, as long as there is no U.S.-source income in the trust, the income or gains from the trust assets will not create U.S. tax or reporting liabilities, and any distributions provided by the trust to his U.S.-citizen children will not be subject to U.S. tax.
3. Trust assets are exempt from U.S. estate and gift taxes, saving up to 40% in U.S. federal taxes.
4. The trust can distribute assets to children and descendants in batches to prevent children from squandering it all; undistributed assets can be protected from claims by children's creditors, protecting wealth from being lost due to marital disputes or business failure.
5. During Mr. Wang's lifetime, he can change the letter of wishes of the trust from time to time based on his own ideas and family circumstances, and inform the trustee how to manage and distribute the trust assets.

About Non-U.S. Grantor Form Trusts (FGT)

If the trust settlor is a non-U.S. tax resident and there are one or more U.S. citizens among the trust beneficiaries, the non-U.S. settlor’s trust can be constructed to plan for wealth and inheritance, helping the U.S. beneficiaries to reasonably plan for wealth inheritance. Facing U.S. gift and estate taxes. The establishment of this type of trust requires tax advice from a U.S. tax attorney, who will change the terms of the trust deed to make it comply with FGT and confirm it as FGT.

Building a family trust is an important way for high-net-worth individuals to achieve wealth management and inheritance. The whole process involves many links, including bank account opening, trust structure establishment, company secretarial services, etc. It is a systematic task that requires the cooperation of multiple professionals and reliable people. Collaborate with partners to complete. Professional trust service institutions can provide customers with comprehensive solutions to help high-net-worth individuals achieve long-term preservation and appreciation of family wealth.

Conclusion

In an increasingly complex global economic environment, family trusts, as an effective wealth management tool, are increasingly favored by high-net-worth individuals. It can not only realize the effective inheritance of wealth, but also provide strong asset protection. Whether faced with debt recourse or the complexities of wealth distribution, family trusts can provide a stable, secure and flexible solution.

Through these cases, we can see the application of family trust in different situations and the practical benefits it brings. Whether it is protecting assets from recourse, ensuring the smooth inheritance of wealth, or dealing with cross-border tax challenges, family trusts can play a unique role.

For high-net-worth individuals who intend to set up a family trust, it is crucial to seek assistance from professional institutions. Not only do these agencies have a wealth of experience, they can also provide tailor-made solutions to ensure that each family's unique needs are met. By cooperating with professional institutions, high-net-worth individuals can better achieve their wealth management and inheritance goals and safeguard the future of their families.

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.