Private Wealth 2019

Last Updated August 06, 2019

China

Law and Practice

Authors



MWE China Law Offices currently numbers more than 40 lawyers, with two offices located in Shanghai and Beijing, and a strategic alliance with leading international law firm McDermott Will & Emery, which enables it to leverage a network of more than 1,100 lawyers across 21 offices worldwide. The firm represents high and ultra high net worth individuals and families, with a focus on trust arrangements, tax planning, matrimonial issues, generational wealth transfers, corporate advisory, financial legal guidance, and private charitable foundations, both within and outside of the PRC. The team offers a full spectrum of services, including advising on international, cross-border estate planning and investments to achieve tax savings for high net worth individuals; offering optimised asset management plans by making full use of the preferential trust laws in different jurisdictions; and managing family wealth, including wills, trusts, insurance, and pre- and post-nuptial agreements.

China levies a wide range of taxes related to individual clients and their estates, including the individual income tax, turnover tax (value-added tax), taxes on real estate (eg, land appreciation tax, real estate tax) and other taxes, such as deed tax and stamp duty.

As exceptions, the transfer of certain assets to immediate family members and other qualified individuals could enjoy the relevant tax exemptions for both inter vivos gifts and inheritance. Immediate family members include spouses, parents, children, grandparents, grandchildren and siblings. For example, gifting real estate located in China from the parents to the child will be exempt from individual income tax, value-added tax and the land appreciation tax in China, while taxes for the non-exempted transfer of real estate may include an individual income tax of 20% on the capital gains, a value-added tax of up to 5% on the transfer price, and a land appreciation tax of 30% to 60% on the value appreciation. Certain tax benefits are eligible, depending on the type of real estate. For instance, transfer tax for ordinary residence property is lower than that for non-ordinary residence – eg, villas.

There is no gift tax, estate tax or standalone capital gains tax in China. Gains on the sale of assets are considered as taxable income, subject to the individual income tax.

While China does not currently levy estate tax, the taxes imposed on asset transfers are considered as stable, together with the relevant tax benefits. For example, individuals transferring real estate to immediate family members can be exempt from individual income tax and land appreciation tax for such transfers. 

It is also worth noting that China has taken steps to reform the individual income tax regime, and implemented the seventh amendment to the Individual Income Tax Law, which took effect from 1 January 2019. The new Individual Income Tax Law introduced the general anti-avoidance rules for the first time, by reference to similar concepts currently adopted by the corporate income tax law, such as the arm’s-length requirement on related party transactions and the “controlled foreign corporation” rule. So far, there have not yet been any published cases on tax adjustment for individuals under the new Individual Income Tax Law. However, in recent years, high-income individuals have gradually become the main target of tax collection and administration, as they seem to have become skilled at using overseas structures to avoid taxes. If the overseas structure lacks a reasonable business purpose to support it (eg, setting up pass-through companies in tax havens like the Cayman Islands, which does not have a real business purpose and is only done to avoid taxes, especially China taxes), such structure is likely to be attacked by the new Individual Income Tax Law.

China is a member state of the Common Reporting Standard and has participated the first automatic exchange of tax information for financial accounts as of September 2018. 

Also, the new Individual Income Tax Law established the identification number system for tax residents as part of the CRS implementation in China. Regardless of a high net worth individual’s nationality or residence status, so long as the individual is considered a Chinese tax resident by domicile or by duration of stay in China, the information about the individual’s financial accounts located abroad would be exchanged with the Chinese tax authority. 

Some local tax authorities in China (eg, provincial or municipal tax authorities, based on the information exchanged into China) have already launched tax inquiries into wealthy individuals holding assets abroad, about the sources of their offshore income and the relevant tax positions and compliance status. Combined with the introduction of anti-avoidance rules, high net worth individuals could find the global tax environment becoming more transparent, which makes it increasingly difficult to conceal overseas assets, and the compliance risks thus caused are unlikely to be avoided.

It is a tradition in China for the older generation to pass their wealth to the younger generation. Donation to charity funds has not yet become popular. Additionally, since the 1970s, China has gradually implemented the public policy of “Family Planning”, which means each couple can only have one child. As there is only one child per family, inheritance disputes have not become a common property concern. 

Conflict of law is the primary concern in international planning. Under the PRC conflict of law rules, if the decedent dies intestate, then the statutory succession rules will govern, and the laws of the habitual residence of the decedent at the time of death shall apply; however, for the statutory inheritance of immovable assets, the laws where the immovable assets are located shall apply. 

If the decedent dies with a will, then, for the essential validity of the will, the law of the testator’s nationality or the law of the testator’s habitual residence at the time of death shall apply. For the format of wills, a will shall be valid if it is in compliance with any of the following laws:

  • the law of the habitual residence at the time of the testator’s death or at the time the will is made;
  • the law of the testator’s nationality at the time of testator’s death or at the time the will is made; or
  • the law of the place where the will is made.

Although China respects testamentary freedom, there are also provisions regarding forced heirship laws in the existing Succession Laws – ie, a necessary portion of an estate shall be reserved in a will for a successor who cannot work and does not have a source of income. 

China’s marital property regimes rely mainly on a legal property system supplemented by a contractual property system. As a default, marital property will be jointly owned by the spouses. A couple may opt out of the matrimonial property regime with a pre- or post-nuptial agreement, which must respect social moral principles and not harm the common interests of society or disturb social economic order. Where an agreement does not cover assets or income, the default rules of marital assets will apply.

One spouse is entitled to dispose of the marital assets based on the needs of daily life; however, for the needs that go beyond daily life, one spouse should not transfer marital property without the consent of the other. 

Also, if at the time of divorce a spouse conceals, transfers, sells off or destroys the marital property, or forges debts in an attempt to encroach upon the marital property, the breaching party may get less or no property when the marital property is partitioned. After the divorce, if the aggrieved party discovers the above breaching, it may bring a lawsuit in the court to demand re-partition of the marital property.

Upon the transfer of property, the transferee’s tax basis of the property usually steps up to the transfer price, which is required to be at the fair market value. 

However, under the inter vivos gifts or inheritance of real property to immediate family members, the transferee will be entitled to the original tax basis of the transferor for acquiring such real property. When the transferee further disposes of the real property, such original cost for acquiring the real property could still be deducted when calculating the taxable income of the transferee.

The transfer of assets to younger generations that are immediate family members of the transferor would usually be exempt from the main taxes in China. Currently, China does not levy gift tax or estate tax, so there is no special tax planning for passing assets to younger generations.

Digital assets are any items of text or media that have been formatted into a binary source that includes the right to use it. According to this definition, digital assets can be roughly divided into the following categories:

  • online accounts;
  • virtual currency with a certain monetary value; and
  • digital documents, audible contents, motion pictures, and other relevant digital data that are currently in circulation. 

There are no specific rules on the inheritance of digital assets in China. Digital assets are considered as intangible assets, where general laws such as the General Rules of the Civil Law and Succession Law should apply.

In China, charitable funds and family trusts are more likely to be used for estate planning purposes. Since the promulgation of the Trust Law of the People’s Republic of China (“Trust Law”) in 2001, the trust industry has made substantial developments in China. However, domestic family trusts are still in their early stages and their development is limited by trust registration problems, high tax, and other issues in the legal culture. In most cases, investment products were structured in the form of a trust by banks or investment companies. 

On 17 August 2018, the Trust Supervision and Administration Department of the China Banking and Insurance Regulatory Commission issued the Notice of the Trust Department on Strengthening Trust Supervision during the Transitional Period for Regulation of Asset Management Business (Xintuohan [2018] No. 37), which defines the basic concept of the family trust business for the first time: “A family trust means that a trust company accepts an entrustment from an individual or household to provide customized affair management and financial services, such as property planning, risk isolation, asset allocation, child education, family governance and public welfare (charity) undertakings, for the main purposes of protection, inheritance and management of family wealth. The amount or value of family trust property shall not be less than RMB10 million, and beneficiaries shall include family members including settlors, but settlors shall not be the only beneficiaries. A trust business that merely pursues preservation and the increase of value of the trust property as its main purpose of the trust and has the nature of special-account wealth management and asset management is not considered within family trusts.

Trusts are recognised and respected by the Trust Law of the People's Republic of China, where the term “trust” refers to a settlor entrusting property to a trustee based on confidence in that trustee, who carries out administration or disposition of such property in his/her own name in accordance with the wishes of the settlor for the benefit of the beneficiaries or for a specific purpose. 

A fiduciary of a foreign trust, foundation or similar entity, if a Chinese citizen, will be subject to the Chinese individual income tax on income from the foreign entity for rendering trust property management services. 

However, the Chinese beneficiary may not be subject to the Chinese individual income tax on the income from the distribution by a trust fund, since the income derived from trust distribution is not clearly categorised as taxable income under the current individual income tax law, and thus may be considered as non-taxable income. 

The above taxation in China will not be affected if a beneficiary or the donor of a trust, foundation or similar entity also serves as a fiduciary. Income received from the foreign trust needs to be classified depending on its nature, and any service income for the fiduciary would still be taxable.

There are no clear distinctions between revocable and irrevocable trusts in the existing trust law system, although the trust under the Trust Law of the People's Republic of China is more similar to the irrevocable trust in Western legal culture. 

According to the existing Trust Law, a settlor cannot change, terminate or revoke a trust optionally. However, where a trustee violates the intent of the trust when disposing of the trust property or causes losses to the trust property through breaching their duties or handling trust affairs in an inappropriate manner, the settlor has the right to apply to the court to revoke the trustee’s disposition. 

Where a trustee violates the intent of the trust when disposing of the trust property or there is gross negligence, the settlor has the right to dismiss the trustee from their position in accordance with the provisions of the trust documentation, or to apply to the court for the dismissal of the trustee.

After a trust has been established, the settlor may change the beneficiary or dispose of the benefits under a trust where one of the following situations has occurred:

  • a beneficiary commits a substantial tortious act against the settlor;
  • a beneficiary commits a substantial tortious act against other joint beneficiaries;
  • prior consent has been given by the beneficiary; or
  • other situations stipulated by the trust document.

Several popular methods and tools are used for asset protection under the PRC laws, as follows: 

  • LLC or LLP – forming a limited liability company or limited liability partnership is one tool used for asset protection. The limited liability of such entities may generally provide protection for the family assets from the creditors of the business. However, in practice, it is necessary to pay attention to the separation of family assets and enterprise assets, so as to avoid commingling business and personal assets (eg, the business operation of the enterprise should not be conducted in the name of its shareholders). 
  • Pre-nuptial/post-nuptial agreement – as a default marital property regime in China, marital property will be jointly owned by the husband and wife. However, a couple may opt out of their marital property regime with pre-nuptial and/or post-nuptial agreements to protect the family business from divorce. 
  • Trust – holding property in a trust is another form of asset protection. There are several variations of trusts; some provide current asset protection while some provide asset protection for the beneficiaries.
  • Gift, will or insurance – with a legally binding gift agreement or a will or an insurance policy, the children’s assets or inheritance can be protected from their future ex-spouses, their future mismanagement of money, or their future creditors.

Both ownership and management of the family business need to be carefully considered for family business succession. Some popular family business succession planning strategies are as follows:

  • ownership and management of the family business are passed on within the family – ie, the family continues to own and manage the business upon succession;
  • the family withdraws from the operation and management of the business, but continues to own the business, leaving the management to professional managers outside of the family;
  • the family continues to manage the business, giving up all or part of the ownership of the business; and
  • the family quits the management and ownership of the business at the same time.

As inter vivos gifts and death bequests to immediate family members and other qualified individuals are likely to enjoy the relevant tax exemptions in China, tax is not currently the main driving force for individual clients’ succession planning. 

Transfers by individuals to other related parties are required to be conducted at arm’s length, unless a non-arm’s length transfer is recognised by the law as being for “legitimate reasons”. According to the relevant rules, an equity transfer by an individual to the immediate family members or other qualified individuals is deemed to have a legitimate reason, and thus could be conducted at lower than the market price. However, an equity transfer to other parties would still need to be conducted at fair market value; if not, a price adjustment would be imposed by the tax authority for tax purposes.

Disputes are arising in relation to the partition of community properties of spouses, particularly those involving real estate in major cities and equity interests in high-growth industries. Also, given that the first generation of wealth makers in China has come to the age of transferring control of their assets to the younger generation, disputes could arise between the heirs, particularly in those families with multiple children.

The mechanism for compensating aggrieved parties is compensation for actual losses, unless a penalty clause is included otherwise in the contracts. 

According to the Trust Law of PRC, a trustee should comply with the provisions of the trust documentation and handle trust affairs for the greatest benefit of the beneficiaries.

In administering the trust property, the trustees must diligently fulfil their duties and carry out their obligation to administer the trust property honestly, faithfully, cautiously and effectively.

According to the Company Law of PRC, a shareholder of a company who abuses the independent legal person status of the company and the limited liability of shareholders to evade debts and cause damage to the interests of the creditors of the company should bear joint liability for the company's debt. However, if an employee of a trust company caused losses as a result of performing a work assignment, the trust company as the employer should always bear civil liabilities.

An exoneration or exculpatory clause may have effect, unless it relates to personal injuries sustained by the breaching party or to property losses sustained by the breaching party because of the breaching party's deliberate acts or its gross negligence.

The Trust Law requires a trustee to comply with the provisions of the trust documentation and to handle trust affairs for the greatest benefit of the beneficiaries.

A financial permit must be obtained from the government before the establishment of a trust company.

In the management and disposition of trust property, a trust company may invest, sell, deposit with another trust company, reverse repurchase, lease or loan the trust property, pursuant to provisions under the trust document. A trust company must not use sale and repurchase as a means for managing trust property.

Generally, foreigners who enter China must hold a valid visa, such as a diplomatic visa, a courtesy visa, an official visa or an ordinary visa. However, visas shall not be issued to the following:

  • foreigners who are deported or repatriated from China, if the banned period for disembarkation has not expired;
  • foreigners with severe mental disorders, infectious tuberculosis or any other contagious diseases that may cause significant harm to public health;
  • foreigners who may harm the national security and interests of China, disrupt public order or engage in other illegal criminal activities;
  • foreigners who commit fraud in the visa application process or are unable to secure against the expenses required for their stay in China; or
  • foreigners who are unable to submit the relevant materials required by the visa issuing authorities.

In addition, visas will not be issued if the visa issuing authorities deem that visa issuance is not advisable.

China also has a transit visa option available in certain cities, where a visa can be issued on arrival if the applicant has an outbound ticket to a third country (not the country from which they arrived).

China offers a number of visas for entry to China, including tourism, business, work and family visit. The business visa would be appropriate for attending business conferences, meetings to discuss business deals, visiting factories, discussing potential investments, etc. To work in China, an employment visa would be the proper visa.

In addition, China allows non-Chinese nationals to apply for permanent residence in China through investments or family relationships, or based on special talents or contributions. The requirements differ for each category.

Foreign or stateless people willing to abide by the constitution and laws of China can apply for Chinese nationality if they have Chinese relatives or are settled in China, or for other proper reasons.

China does not recognise dual nationality. 

Opinions on Strengthening the Administration of Permanent Residence Services for Foreigners was released on 18 February 2016 to strengthen the administration of permanent residence services for foreigners, showing a positive attitude to attracting qualified foreigners to be resident in China, even though there is currently no specific programme for expeditious citizenship in China.

China has placed great importance on the protection of minors, with the Law of the People's Republic of China on the Protection of Minors being issued to protect the rights and interests of minors. The Law of the People's Republic of China on the Protection of Disabled Persons protects the legitimate rights of adults with disabilities.

Currently, if a trust is established via a will, then reservation of a necessary portion of an estate shall be made for a minor or a disabled adult who cannot work and does not have a source of income.

A court proceeding is not required when appointing a guardian. Where the parents of a ward act as his guardians, they may appoint the guardians of the ward by will. The guardian of a ward may be decided by agreement between and among persons with guardianship, pursuant to the law. 

In some statutory circumstances, upon the application of an individual or organisation concerned, the people's court may disqualify a guardian, take necessary measures for temporary guardianship, and appoint another guardian under the principle of benefiting the ward to the greatest extent.

China has promulgated the Law on Protection of the Rights and Interests of the Elderly, and has established social security systems such as basic pension insurance and basic medical insurance to protect the rights of the elderly and citizens who need medical assistance. Where an individual participating in basic pension insurance has made cumulative contributions for 15 years when he/she attains statutory retirement age, he/she may collect a basic pension fund on a monthly basis. 

According to the Marriage Law of the People's Republic of China, children born out of wedlock enjoy the same rights as children born in wedlock, including the right to inherit. The biological father or mother who does not directly bring up a child born out of wedlock shall bear his or her portion of the child's living and educational expenses until the child can live independently. 

Lawfully adopted children are protected by the Marriage Law of the People's Republic of China and enjoy the same rights as birth children, including the right to inherit. The rights and obligations in the relationship between an adopted child and his/her natural parents shall terminate with the establishment of his adoption. 

According to the Law of Succession of the People's Republic of China, at the time of the partitioning of the estate, reservation shall be made for the share of an unborn child. However, if the baby is stillborn, the share reserved shall be dealt with in accordance with statutory succession. 

China does not recognise surrogacy, but surrogate children’s legitimate rights and interests should be protected by law based on the principle of fairness. 

Same-sex marriages are not protected by the current Marriage Law, according to which freedom of marriage applies to the relationship between a man and a woman. In general, same-sex couples may agree on the ownership of property by signing agreements, such as gift agreements, property sharing agreements, legacy support agreements, etc. In addition, one party with full capacity for civil conduct may determine his/her guardian via a written contract in prior consultation with his/her companion who is willing to act as his/her guardian, which enables one partner to appoint the other partner as the guardian.

Charitable giving by individuals and corporations through qualified charitable social organisations or local governments could be deducted for income tax purposes, subject to the relevant deduction caps. For individuals, the deduction cap is 30% of the total taxable income, while for corporations the cap is 12% of the annual taxable profits. 

Under the current charity legal framework in China, charitable trusts and philanthropic foundations are most commonly used for charitable planning, which is consistent with foreign practice.

A philanthropic foundation is a non-profit legal person established in accordance with the law, for the purposes of engaging in public welfare undertakings using property donated by natural persons, legal persons or other organisations. The philanthropic foundation is good at raising funds, managing and operating charitable projects, and obtaining tax incentives for donors, etc. However, there are limitations to the flexibility of charitable asset management, preservation and appreciation, and asset retention and utilisation. 

A charitable trust refers to the activity whereby a principal, for the purpose of charity, entrusts his/her property to a trustee in accordance with the law, who manages and disposes of the property and carries out charitable activities in their own name, according to the willingness of the principal. As a contrast to the philanthropic foundation, the charitable trust has advantages in terms of charity asset management, value preservation, and great flexibility in the retention and use of assets. However, at the current stage, trust companies are generally considered to lack practical experience in charitable operation.

MWE China Law Offices

28F Jin Mao Building
88 Century Boulevard
Pudong New Area
Shanghai
P.R China
200121

+86 21 6105 0500

+86 21 6105 0501

info@mwechinalaw.com www.mwechinalaw.com
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Trends and Developments


Authors



Dentons China has a Trusts, Estates and Wealth Preservation (TEWP) group of more than 200 lawyers, providing families and high net worth individuals with competitive wealth management legal services, including trust planning, tax planning, top-level structural design, family (enterprise) governance, etc. The team benefits from Dentons' global network, which includes offices in America, Canada and Singapore. It is known for its advanced family wealth management notions and mature legal service model.

In China, legal services in the fields of family (business) and private wealth management (hereinafter referred to as the “family wealth management field”) have received more attention from legal institutions and professionals. The leading law offices have basically all entered the field, and some have already preliminarily completed the market layout. In addition, a certain number of law offices and professional teams focusing on this field have emerged. Legal services in family wealth management have become a new "point".

It is a necessary lesson for legal service institutions to observe and grasp the development trend of family wealth management, including changes in the industry and market, service providers, customers, service technology and tools.

Development Trend of Family Wealth Management Industry and Market

It is an indisputable fact that the family wealth management market has become more and more mature, and has become active at home and abroad at the same time. It is particularly noteworthy that there has been a breakthrough in the domestic market since 2018, when the number of high net worth individuals in China (entrepreneurs are the main body of high net worth individuals in China) reached 1.67 million and the family wealth management market reached RMB39 trillion. It is expected that the number of high net worth individuals in China will reach 2.41 million by 2023, and the family wealth management market will reach RMB82 trillion.

There are more and more active family wealth management institutions, as banks, trust companies, securities companies, insurance companies, family offices and third-party financial institutions have entered the field. For example, the repositioning of the brokerage business of securities companies as wealth management business makes for a remarkable dynamic. There are many examples of securities companies providing family office services based on investment banking business.

The family wealth management service eco systems have become the competitive market subject. Institutions with strong financial or wealth management capability still focus on their advantages of financial services in family wealth management business but are lacking in related capabilities, such as top-level structure design and overall improvement of "family power", which means the power of a family’s sustainable survival, the power of a family’s sustainable development, and the power of the core social value of a family's faith. It can be seen that institutions that build family wealth management service eco systems with a combination of external professional resources and excellent third-party service institutions (law, taxation) can form advantages in the fiercely competitive market. The market is no longer the competition between single institutions but the competition between service eco systems.

Standardised services coexist with customised services. Relying on standardised services, family wealth management institutions have gradually evolved to provide customised services for specific customers according to their service demands, forming two service levels (standardised services and customised services) to meet the service demands of customers at different levels.

The value of legal services (including taxation) in family wealth management has gradually become prominent. In the family wealth management service eco system, as well as in specific wealth management matters, legal services have become an issue of differential competition. Legal service institutions have unprecedented enthusiasm for services in the field, with some positioning wealth management business as new strategic business.

There is a "return" trend in market and industry. There has been product-oriented market logic behind the flourishing development of family wealth management market in the past few years. Simple products and services promoted by practitioners for performance or quick turnover can not only solve the problems of family customers, but can also bring huge risks and losses. With the deterioration of the market environment and frequent risk incidents in 2018, these problems and drawbacks have been exposed more thoroughly. Short-sighted pursuit of interests has seriously overdrawn the trust given by customers, and customer trust is the fundamental foundation for all wealth management practitioners. The whole industry has examined its own conscience, and practitioners have re-recognised the nature of the industry and begun to pay attention to the core issues of family wealth management, such as nature, logic, position and fundamental objectives – for example, the whole industry has paid attention to the "family position".

But there are also some institutions in the market and industry that have crossed the bottom line. Under the banner of "innovation", they design various "traps" in the service with asymmetric information of family customers in the professional field, but with the institutions’ own business interests as the core purpose. They serve as "thieves" rather than guardians of family wealth. How to solve the "conflict of interest" between wealth management practitioners and family customers? On the one hand, everyone in the industry has to adhere to the bottom line; on the other hand, relevant laws and regulations should be promulgated to monitor and correct the behaviour of professional institutions. There is still a long way to go to achieve the goal of healthy and sustainable development of the wealth management industry.

Development Trend of Family Wealth Management Service Providers

With more and more attention paid by various institutions to family wealth management, more and more institutions and professionals are participating in the field. The overall service capacity and level have been greatly improved, but homogeneity is still prominent and how to find the entrance to the differential competition is a more challenging issue.

Service institutions have become more and more professional. Since 2018, service institutions have not only greatly strengthened the training of internal professionals, but also re-positioned services at different levels. For example, some institutions are positioned to serve "family customers at the entrepreneur level" and mobilise all resources within the institution to meet the needs of entrepreneur customers, showing a difference to their peers and maximising customer loyalty; for example, 68 licensed trust companies in China focused on commercial trusts and have basically been transformed to family trust businesses in the new regulatory environment. However, most trust companies lack practical experience and staffing in the family trust field, so many started to set up internal legal, risk control and financial teams for family trust business last year, and have become more and more professional in family trust matters through external professional support and internal training.

The internal service system of wealth management service institutions is becoming more perfect. Leading service providers build different service systems according to different customer sources as well as layered service systems based on different customer levels, as new family office service systems gradually take shape and the business network of wealth management institutions becomes more perfect. For example, the family office of a Chinese private bank has constructed a comprehensive service system to meet the needs of its ultra-high net worth customers (with family assets of more than RMB3 billion), including full-powered portfolio management, family trust at home and abroad, family business governance and legal consultation, real estate management and charity management and tax planning.

The service risks of family wealth management institutions are increasing. Many institutions and professionals rush into business areas they are not specialised in or even familiar with to provide corresponding services, which not only increases the risk to customer wealth management due to their irresponsibility, but also brings huge service risks to themselves. For example, there are huge service risks in the cross-border tax service area. Many family customers have realised a global distribution of assets, business, identity and even structure, while a large number of active professionals only plan for the perspective of their relatively familiar tax-related areas, which will inevitably bring not only additional tax risks to customers but also service risks to themselves due to lack of overall planning.

Development Trend of Family Wealth Management Service Customers

The proportion of customers with a demand for family wealth management has increased significantly, including large families as well as typical middle class families. Against the background of transformation and upgrading, the alteration of generations, ownership changes and comprehensive compliance, especially the global economic slowdown, the collapse of financial markets, the implementation of CRS and the reform of personal tax in 2018, many family customers have shifted from the previous wait-and-see tactic to the implementation of comprehensive wealth management solutions in terms of demand for wealth management. According to a survey, 74% of high net worth individuals regard wealth security and preservation as their primary goal, and nearly half of all high net worth individuals have considered or will consider wealth inheritance within three years.

Family wealth management customers are more inclined to seek overall solutions, including large families and middle class families. Obviously, there is no way out for wealth management services with one single product – even single-objective services need to be considered in the context of overall solutions, and mature customers are selecting family wealth management services with high standards.

In family wealth management, the demand for synchronous planning at home and abroad has been thoroughly stimulated against the background of global comprehensive compliance. For example, the demand for wealth management with "USA-related" elements is very urgent, which poses greater challenges to professional ability and cross-border service ability. The market of "foreign-related" family wealth management needs to be focused on in the future, and the explosive force of the market will be amazing.

The level of demand has increased significantly. Family wealth management has transited from private wealth management to top-level structure design of family enterprises. Many families are paying attention to family power "practically". For example, the demands for family regulations and family constitutions have increased greatly since 2018.

Customers’ ability for selection has been improved. Customers already have the ability to apply family wisdom to select the most professional (rather than well-known) institutions and teams to provide services, which, as a symbol of market maturity, has become an increasingly obvious trend. Professionalism is essential for professional institutions and professionals.

Development Trend of Family Wealth Management Service Techniques and Tools

The ability for the comprehensive use of tools has been improved. With the comprehensive use of structural tools, financial instruments, identity allocation, willingness arrangements and family agreements as a trend, the family wealth management institutions have improved technical capabilities as a whole.

The core value of structural tools has been recognised, with structural tools (family trust, private trust company, family holding company and family limited partnership) attracting more and more attention among family wealth management institutions and customers, and becoming core tools of family wealth management.

Customisation logic is generally accepted. As technology logic for family wealth management develops from simple to perfect, more and more institutions and professionals have accepted "customisation" logic, designing products and provided services accordingly, which is the most noteworthy trend.

Service techniques are becoming more and more difficult. Customisation puts forward new requirements for service techniques, and cross-border services also make techniques more difficult. For example, the current systematic "USA-related" services put forward new requirements and challenges for techniques and capabilities.

Promoted by insurance trusts and charity trusts, family trusts and other tools have been officially recognised in China. However, the authority's understanding of the core value of family trusts (there are negative concerns that wealth can be transferred overseas through family trusts) needs to be further clarified and guided.

Since 2018, family wealth management services in China have developed rapidly, and will be further accelerated due to the development of the industry and the market, the maturity of tools, techniques, methods and logic, and the matching of customer demands and service systems.

Although the legal value in family wealth management has gradually become prominent, how to fully realise the service value of law offices and professionals to better serve the Chinese family still needs to be explored and practised for a long time.

Dentons China

7/F, Building D, Parkview Green FangCaoDi,
No.9 Dongdaqiao Road
Chaoyang District
Beijing
China

+86 10 5813 7799

+86 10 5813 7788

Trusts_Estates_China@dentons.cn www.dentons.com
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Law and Practice

Authors



MWE China Law Offices currently numbers more than 40 lawyers, with two offices located in Shanghai and Beijing, and a strategic alliance with leading international law firm McDermott Will & Emery, which enables it to leverage a network of more than 1,100 lawyers across 21 offices worldwide. The firm represents high and ultra high net worth individuals and families, with a focus on trust arrangements, tax planning, matrimonial issues, generational wealth transfers, corporate advisory, financial legal guidance, and private charitable foundations, both within and outside of the PRC. The team offers a full spectrum of services, including advising on international, cross-border estate planning and investments to achieve tax savings for high net worth individuals; offering optimised asset management plans by making full use of the preferential trust laws in different jurisdictions; and managing family wealth, including wills, trusts, insurance, and pre- and post-nuptial agreements.

Trends and Development

Authors



Dentons China has a Trusts, Estates and Wealth Preservation (TEWP) group of more than 200 lawyers, providing families and high net worth individuals with competitive wealth management legal services, including trust planning, tax planning, top-level structural design, family (enterprise) governance, etc. The team benefits from Dentons' global network, which includes offices in America, Canada and Singapore. It is known for its advanced family wealth management notions and mature legal service model.

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