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Five Ways Family Trusts Help Entrepreneurs Secure Wealth Inheritance
1. Establishing a “firewall” between a family and an enterprise to ensure the better standard of living for families As a kind of risk isolation tool, Family Trust can provide a protective barrier that can safeguard family wealth from various risks. When setting up a Trust in stable operation of business, family financial assets can be placed in the Trust, which can be independent of enterprises’ own assets, so as to effectively prevent from family assets from risks of enforcement due to their debt problems. 2. Avoid equity dispersion caused by marriage, inheritance and debt risks Without setting up a Family Trust, equity is prone to be divided due to divorce, death or debt risks, which may lead to the decentralization or even loss of corporate control, thus resulting in chaos and turbulence in business operations. Upon placing it into a Family Trust, equity can be transferred into the name of trustee, and then SPV (Special Purpose Vehicle) is structured effectively to ensure smooth operations and decision-making rights of enterprise leaders, so as to secure sustainability of family businesses and inheritance across generations. 3. Cross-border asset distribution and tax planning When a Family Trust is set up during the grantor’s lifetime, the Trust property doesn’t belong to the grantor’s personal property due to its judicial independence. Upon the death of the grantor, property held in the Trust is usually not subject to the estate probate process and therefore is not subject to estate tax. Frederick Christ Trump, Donald Trump’s father, leveraged this features of Trust to avoid nearly USD500 million in estate taxes by setting up a GRAT Trust (Grantor-Retained Annuity Trust). 4. Tax planning on distribution of dividends and bonus share According to the relevant laws of Chinese Mainland, when a limited partnership distributes dividends to a Family Trust. As a kind of legal structure, Family Trust does not belong to enterprise legal entity nor other organisations. Therefore, the dividends obtained from the limited partnership enterprise are not required to be declared nor subject to income tax. When the Family Trust distributes benefits to the beneficiaries, until now, the Chinese Mainland has not issued specific tax regulations on the incomes from Trusts. Currently, they are not subject to taxation, thereby achieving tax efficiency. 5. Withoutsuitable successors, long-term planning for family wealth is much needed If entrepreneurs settle these financial assets into a Family Trust, these assets can not only ensure that family members maintain a decent life, but also can embed a ‘milestone’ behavioural guidance mechanism in the Trust benefit arrangements, while offering necessary financial support in terms of school enrolment, graduation, employment, marriage, childbearing, and startup. This approach can motivate and inspire family members to succeed. As the Chinese saying goes, “preparedness ensures success, while unpreparedness lends to failure”. Family Trust is like a complex wealth project that requires careful planning, in which a solid one will be built for passing down through multiple generations after a dilapidated building is dismantled. This requires a joint effort that involves chief designers, architects, and property managers working together. Given that, high-net-worth individuals and ultra-high-net-worth individuals should make planning for setting up Trust as early as possible.
Hong Kong’s Waves of IPOs Show It’s Ambition!
In the recent appearance, Bonnie Y Chan, the CEO of Hong Kong Exchanges and Clearing Limited(HKEX), pointed out that 100 companies are currently applying for listing on the HKEX, and that big IPOs are expected to rebound. All these underlying motivations behind it show Hong Hong Kong’s ambition to consolidate its position as Asia’s leading financial centre. 1. Companies queue for listings in Hong Kong Entering 2024, listing applications have surged in HKEX. Since the beginning of last month, HKEX has received about 100 new listing applications, with Mainland companies accounting for the majority of them. Particularly since 19 April, there are enterprises submitting listing applications on almost every working day. Under waves of different types of companies going global, listing Chinese companies in Hong Kong has become the epitome trend. 2. Plummeting stock prices on consecutive 10 trading days Apart from the wave of listings, the low valuation of stocks in the Hong Kong market is also one of the key factors attracting funds. Before this rally, the valuation of the Hong Kong stock market was the lowest level of the world’s major stock markets. Under multiple favourable factors, the global capital is rushing to the Hong Kong stock market, thus making the Hong Kong stock market show a major upward trend. 3. Seizing the golden opportunity and embarking on a journey towards building wealth According to Global Wealth Report 2023 released by the Boston Consulting Group (BCG): Hong Kong’s fund management industry will overtake Switzerland to as the world’s largest hub for cross-border private wealth management by 2027. According to the data, Hong Kong has about 2,000 licensed asset management companies in 2023, (compared to 1,194 in Singapore). Assets under management in Hong Kong amount to about US$2.2 trillion (US$1.5 trillion in Singapore). It should be noted that in the end of February, the Hong Kong Government announced cancellation of all tightening measures related to additional stamp duty. Meanwhile, Hong Kong’s monetary authority has relaxed the city’s decade-old lending curbs in the real estate market. In Conclusion The Hong Kong Government has adopted a mix of measures to boost its real estate market, such as “Investment Immigration”, “Stringent Market Cooling Tactics”, “New Plan to Boost Hong Kong IPOs”, etc. All these efforts show Hong Kong’s “ambition”. Globally, Hong Kong showcases golden investment opportunities to attract high-net-worth individuals.
