Four common misconceptions about family trust cognition
In recent years, with the growth and accumulation of family wealth of high-net-worth individuals, the generation has also reached the stage where they can arrange retirement. As an effective tool for wealth inheritance, family trust has gradually attracted the attention of high-net-worth individuals in recent years. However, due to the late start of this business in China, many high-net-worth clients still have some misunderstandings about family trusts, combined with specific business practices, we have also reviewed the following four common misunderstandings about family trust business:
Myth 1: Family trust is a kind of wealth management product
Family trust is not just a wealth management product, its essence is closer to a wealth management and inheritance solution
Wealth management is more than just investments: While family trusts do involve investment decisions, their core goal is to ensure the long-term management and succession of family wealth, rather than just pursuing high returns.
The legal structure is different from that of ordinary wealth management products: family trusts usually adopt a special legal structure to ensure their asset segregation and protection functions. This is significantly different from the legal structure of ordinary wealth management products.
Customized services: Family trusts can be customized according to the needs and preferences of the family to provide personalized and comprehensive wealth management solutions. Whereas, ordinary wealth management products usually offer standardized investment portfolios.
Long-term perspective: Family trusts typically focus on long-term wealth management and succession, rather than just short-term investment returns. This requires strategies to be developed with the needs and interests of multiple generations in mind.
Legal and tax issues: Family trusts are unique in dealing with legal and tax issues and require the support of professional legal and tax advisors. This makes it more than just a simple financial product.
Asset protection and risk isolation: Family trusts help protect family assets from external risks, such as bankruptcy and recourse. This kind of risk isolation function is usually not available in ordinary wealth management products.
Therefore, while it is true that family trusts involve investment decisions, their purpose, structure and function go far beyond the scope of ordinary wealth management products. It is an integrated wealth management and succession solution designed to ensure the long-term growth and smooth succession of family wealth.
Myth 2: If you want to inherit wealth, it is more convenient, simple and effective to set up a will, and there is no need to set up a family trust
The establishment of a family trust and the establishment of a will are both effective ways to inherit wealth, each with its own advantages and applicable scenarios
Limitations of Wills:
A will can only deal with the distribution of property, not complex family affairs and wealth management issues.
During the execution of a will, it may be subject to legal procedures and time constraints, which can lead to difficulties in enforcement.
Wills lack flexibility, and once made, it can be difficult to adjust them to changes in family circumstances.
Advantages of a family trust:
Family trusts can provide more comprehensive wealth management functions, including investment decision-making, risk management, tax planning, etc.
Family trusts can provide asset segregation and protection, ensuring that family assets are protected from external risks.
Family trusts can be customized to meet the needs and interests of different generations.
Family trusts can provide a longer-term perspective to ensure the long-term growth and smooth transmission of wealth.
Complementarity of wills and family trusts:
In some cases, wills and family trusts can complement each other. For example, a family trust can be specified in a will as the method of distribution of the estate.
Through proper planning and design, wills and family trusts can be combined to achieve comprehensive management and inheritance of wealth.
Therefore, the establishment of a family trust and the creation of a will are not antagonistic. When it comes to wealth inheritance, they can complement each other to provide a more comprehensive and effective solution.
Myth 3: At present, the family assets are in good condition, and there is no need to consider setting up a family trust
Some high-net-worth clients currently have stable careers, harmonious families, good health, and a certain number of years before retirement, so there is no risk for the time being, and they feel that it is not necessary to set up a family trust, let alone consider risk isolation and wealth inheritance too early.
In fact, for high-net-worth individuals, in the future, due to the impact of macro policy environment, there will be problems such as business crisis, debt risk, or marital change, personal accident and other crises, if most of the family's assets are in the name of the individual, it is a very large potential risk. If a high-net-worth client establishes a family trust for legal personal and family property during the normal operation of the enterprise, when the business has difficulties, debt disputes or other changes in the future, the family trust can establish a firewall between the corporate debt and the family property, which not only preserves part of the family wealth and allows family members to continue to enjoy a stable life, but also gives the entrepreneur the possibility of making a comeback.
Myth 4: After setting up a family trust, you will lose control over the trust property
At present, family trusts usually design contractual clauses that can negotiate the termination of the trust, so it is not irrevocable after the establishment of a family trust, unless the settlor has established irrevocable contractual clauses on his own.
After the establishment of a family trust, the settlor may change some of the terms of the family trust contract according to the provisions of the trust contract under specific circumstances, including the arrangement of the trust beneficiary, the distribution method of funds, the type of investment of the trust assets, etc. If there is a special need or an emergency, and the settlor needs to withdraw part or all of the property in the family trust, the settlor can make specific distributions by applying for a change in the beneficiary and distribution method in accordance with the provisions of the trust contract.
Under normal circumstances, if there are cash assets in the special trust account, they can be distributed to the beneficiaries quickly, and if there are no cash assets, they can be distributed to the beneficiaries after the income distribution or maturity of the investment products, but the relevant provisions of the trust contract on the rules for the realization of trust property must be followed.