A few days ago, the Industrial Bank (IB) Private Banking Family Wealth Inheritance Forum was held in Shanghai and attended by a handful of experts, scholars, lawyers in family wealth management sector as well as private banking clients to exchange the permanent way of managing family wealth in Chinese families. In the forum, IB announced the 100th order for IB family trust business, a vital tool for inheriting family wealth.
As an important tool for inheriting and protecting wealth, the family trust has attracted attention from high net worth individuals in recent years. As shown in the Comprehensive Development Report of China's Private Banking jointly released by IB and BCG, when choosing a tool for wealth management, China's high net worth individuals take "safety" as the first priority, followed by "inheritance", both of which are the key advantages of family trust. "By combining with banking services, the family trust can satisfy the wealth management goals of high net worth individuals and provide them with dual-safety in wealth inheritance and risk isolation," introduced by Xue Ruifeng, general manager of Department of Private Banking of IB.
Among all the attendees there was an old couple both of whom were more than 70 years old. They have run a breeding enterprise for decades and accumulated tens of million of wealth. However, their only son does not want to inherit his family property and is also addicted to gambling. Having a grandson who is at the age of primary school, they worry that their son might lose out all their money, leaving no economic security at all for their young grandson. "IB recommended family trust to us, which relieved our concerns," Mr. Wang told the reporter. According to the scheme designed by IB, Mr. Wang would set a family trust based on his properties and appoint his grandson as the only beneficiary, providing financial preparation for his future life and education. "What clients really need is not investment appreciation of family wealth, but inheritance and protection." As introduced by Xue Ruifeng, the family trust allows the client to allocate his/her properties to anyone designated as the beneficiary by free will. Featuring strong protection and flexible arrangement, this product is perfectly suitable for protecting heritage.
In the forum, Rui Meng, the joint director of China Europe Family Inheritance Study Center and the program director and chief architect of China Europe Family Office said, the private banking business of China mainly serves private entrepreneurs, most of whom run family businesses and want to protect and pass down their wealth. Company is the foreyard and family is the backyard. The risk of wealth management lies in the lack of a firewall between the company and the family. Once a risk is incurred in the company, it always spreads to the family and affects family life. She expressed that family trust is an effective countermeasure to protect the backyard from a fire in the foreyard.
Mrs. Fang, an entrepreneur from Shenzhen, once worried about how to isolate company risks and family risks. Mrs. Fang and her husband run a metal manufacturing company which shows a good developmental momentum. In order to expand the production, her husband desired for re-financing for the company. But the financing party requested that the couple, as the major shareholders of the company, had to bear unlimited joint and several liability. Mrs. Fang worried that the creditor would claim a recourse with his families if the expansion of production is not as successful as expected. Following the recommendation from the investment advisor of IB private banking, Mrs. Fang entrusted all her funds that had been accumulated for years to IB and set up a family trust, so as to avoid any influence on family wealth caused by poor operation. "The isolation function of family trust provides safeguard for family wealth and my husband can now run the company with no worry," said by Mrs. Fang.
Gong Lefan, the dean of Zhonglun Research Institute, a senior partner and a professional lawyer of family trust, stressed when communicating with other guests that, Most Chinese entrepreneurs do not have enough awareness of risks. They emphasize on wealth but do not actually know how to manage them. When we are encountered with the Black Swan event, the results may be totally different with or without a risk hedging mechanism.
The view of Gong Lefan was agreed on by Mrs. Li, the general manager of a real estate company in Shanghai who has served the real estate industry for many years. Her "Black Swan" event has nothing to do with the market but is related to her marriage. Her unhappy marriage with her husband came to an end two years ago. Despite of exhaustion in her marriage, it is fortunate that she set up a family trust before marriage, which isolated and protected her pre-marriage properties. "I'm lucky to have family trust, or I might have lost my money and my husband," said by Mrs. Li.
Gong Lefan also said that even the CRS global taxation, which causes anxiety among high net worth individuals, can be properly addressed if we plan a solution in advance. "If we bind immigration, taxation and company structure together, put them under the protection of family trust for inheritance and let a professional organization run them, we can form a legal, conforming solution combo against CRS risks."
Now family trust has become a "standard product" necessary for inheriting and protecting family wealth. Many financial institutions have begun to lay out family trust business. Since the first family trust order was placed in 2015, IB has accumulatively signed 100 family trust orders with the trust period ranging from 10 years to 50 years mostly. Relying on the "1+1+N" professional service system, service team of private banking as well as a variety of external expert resources, the IB family trust effectively protects the inheritance of clients' family wealth, making it a major player in China's family trust market.