In these uncertain times, new challenges are emerging and old certainties are under pressure. Karen Choy, Director – Private Client Services from the Equiom Hong Kong trust team, knows this better than anyone. Being a qualified wealth planning lawyer and head of a professional team that offers wealth protection and succession planning advice to high net worth families (HNWFs), Karen shares her insights to explain why many Chinese HNWFs are opting for offshore family trusts as their wealth succession tools nowadays.
What are the main challenges that the Chinese HNWFs are now facing and why are they seeking the services of Equiom Hong Kong’s trust team?
There are three main challenges: globalisation and mobility of people and assets of these Chinese HNWFs, the increasing generation gaps in families and the rapidly changing external environment.
A lot of our clients are the first generation of Chinese HNWFs who have assets spread across the globe and full control over their capital assets and businesses. As the children and grandchildren of these HNWFs often reside in high-tax countries like the UK and US, the clients want to ensure their future generations are receiving favourable tax treatment. Meanwhile, these wealthy parents are greatly concerned about succession, and they are keen to see their dynastic wealth continue and steward their descendants away from any financial pitfalls.
An offshore trust is an effective and tax-efficient asset protection and succession planning vehicle because foreign assets and investments comprised within the trust, properly structured with the aid of legal and tax professionals, may help to mitigate estate tax and income tax. Since the trust period could be perpetual, it protects the family assets and brings substantial advantages, for instance, strengthening the family wealth structure, safeguarding family prosperity, and ensuring family harmony and privacy.
For Chinese HNWFs with significant fortunes, it is all about preserving the family business and the sustainable wealth accumulated over the generations. A family trust, offshore or not, is an ideal tool to mitigate potential risks be they external (unstable economic and political environments) or internal (poor wealth management and intergenerational transfer) in the future. A trust structure would provide greater certainties as the settlor can place constraints and incentives on the beneficiaries for receiving the distribution, so the family wealth will not pass on to the descendants until they have fulfilled certain requirements.
In short, not only can set up a family trust reinforce the security of the wealth and prolong the intergenerational interests of the family, assuring each generation risk-free futures, it also grants them the flexibility to adapt to the changing environment and the ability to pivot to the way that works best for the family.
How has the current health, political and economic situation impacted the needs and focuses of your clients?
We have clients whose families are internationally mobile with assets located in different countries and a much greater sense of urgency for succession planning and asset protection in uncertain times as we have at present. It is no longer something to be put on hold and thought about later, as a result, we have received a surging number of enquiries from these families seeking assured succession and favourable tax treatment.
Do you have any advice for those who are interested in setting up a family trust?
There is no perfect trust. Any time is a good time to start with the trust set up as there are a lot of elements to take into consideration – the purpose of the trust, choice of trustees and beneficiaries of the trust, efficient tax planning, sanction risk, choice of jurisdiction, asset allocation to name a few. Holistic and pratical planning is important, therefore, having a competent wealth management team will help overcome the hurdles.
With qualified professionals possessing over 10 years of experience serving Chinese HNWFs in the design, implementation and administration of family trust structures, wills and estates, Equiom’s trust team in Hong Kong is capable of providing clients with guidance and time to determine their priorities throughout different stages in life, helping them to develop and implement the most practical and holistic succession planning.
For more information on this topic, please contact Karen Choy to find out how we can assist you.
This article has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The article cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact Equiom to discuss these matters in the context of your particular circumstance. Equiom Group is not a legal or tax advisor. Equiom Group, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this article or for any decision based on it.