Setting up a Family Trust

Timothy Loh Corporate Services guides its clients through the process of setting up a family trust. Working in conjunction with our affiliated law firm, Timothy Loh LLP, as well as tax and legal advisers in jurisdictions, we offer the following services:

We help high net worth individuals and their families to understand whether a family trust is right for them
We work hand in hand with clients throughout the process of setting up a family trust, advising on options to minimize taxes, to plan for the orderly distribution of wealth to future generations and to protect family wealth from creditors as well as matrimonial disputes and other conflicts within the family
We provide advice on techniques for family leaders to maintain control and influence over the assets placed into trust, including the identity of the trustee. We can act as the trustee, help family members or friends who are selected to act as trustees to meet their obligations under the law or help clients to set up a Hong Kong private trust company as a captive trustee for the family trust.

How We Help with Setting Up a Family Trust
What is a Trust
What is a Family Trust
Why Set up a Family Trust
How to Set up a Family Trust

How We Help with Setting Up a Family Trust

In setting up a family trust, we offer the following services:

We help the client to understand their concerns and to identify their needs. We undertake a comprehensive review of the client’s individual circumstances to understand their objectives. Often, the overriding objective is to devise an estate plan which allows for the proper distribution of wealth over time with as little tax as possible but other areas may arise. For example, the client may be keen to protect family wealth from falling into the hands of a spouse or to ensure that dependants will be provided for in the event of a failure in the client’s business.
We help to identify a trustee. We can act as a trustee, we can help the client to establish a private trust company to act as the trustee or we can guide the client on the selection of a family member or friend to serve as the trustee. Where necessary, we help the selected trustee to navigate the complex range of fiduciary duties and duties of care which the law imposes on them as trustees.
We work with our affiliate law firm, Timothy Loh LLP, and, if necessary, legal and tax advisers in the jurisdictions where assets or family members are located, to design strategies to address the client’s concerns, whether those be to minimize taxes, to protect assets or otherwise. We prepare a plan to place assets into the trust in a manner which will limit taxes and other transactions costs and we prepare the trust deed.

What is a Trust

A trust is an arrangement established by a settlor which divides the legal and beneficial title to property between one or more trustees and one or more beneficiaries. The trustee holds legal title to the property held in trust subject to fiduciary duties to act in the best interests of the beneficiaries and to any other duties prescribed in the trust deed by which the trust is declared

What is a trust settlor

The person setting up the trust is known as the settlor. It is the settlor who transfers the initial assets into the trust in a legal process known as settling the trust. In some cases, the settlor will play the role of the protector of the trust. This is an ongoing role in the administration of the trust to ensure that the trustee is performing its obligations as the settlor contemplated.

Who are trust beneficiaries

The persons who benefit under a trust are known as beneficiaries. Beneficiaries may be identified individually or as a member of a class of persons. Beneficiaries may receive income from the trust or capital from the trust, possibly in the form of a transfer of title to specific assets of the trust.

What is a trust deed

A trust deed is the legal document by which the trustee declares that he is holding property in trust subject to the terms and conditions of the trust deed. The trust deed will normally define who the beneficiaries of the trust are or will be or, in the alternative, give the trustee powers to determine the identity of the beneficiaries.

What is a trust fund

A trust fund is the property which is held by the trustee in trust. It comprises the assets available for distribution to beneficiaries under the trust deed.

What is a Family Trust

A family trust is a type of trust in which a family member, usually a high net worth individual, settles a trust in favour of certain other family members as beneficiaries. Often, these beneficiaries are his or her dependants, such as a spouse, children or grandchildren, but these beneficiaries may include non-family members.

Why Setup a Family Trust

A family trust may be set up for a number of different purposes including estate planning, asset protection and tax planning.

Estate Planning

A family trust may be set up as an estate planning trust, the purpose of which is to provide for the orderly and controlled distribution of family wealth to successive generations of the family. Once assets are placed into trust, the trustee can distribute the assets in accordance with the trust deed. The trust deed may call for the distribution of assets upon a certain future event (e.g. a child reaching a particular age) and may define the class of beneficiaries to whom distributions will be made (e.g. all the grandchildren of the settlor) even if the specific identities of those individual beneficiaries is not yet known at the time the trust was settled.

Where the settlor passes away after setting up a family trust, no probate is required. The assets placed by the settlor in the trust before his or her death will pass to the beneficiaries of the trust in accordance with the trust deed without the need to complete probate procedures.

Asset Protection

A family trust may be set up as an asset protection trust asset protection trust (also known as a property protection trust) to protect family assets from being seized by future creditors and potential future hostile family members. Because the assets held in trust no longer belong to the settlor and do not yet legally belong to the beneficiaries, creditors of the settlor and the beneficiaries are more limited in their ability to seize those assets. So, for example, a family may set up a trust for the benefit of a child with the expectation that in the event of a split in the child’s marriage, the child’s spouse will be restricted from seizing the assets placed into the trust. Equally, for example, a family may set up a trust so as to establish a fund of assets which can provide for the family including future generations even if the family business were to go bankrupt and creditors of the business were to try to seize the family’s assets.

Tax Planning

A family trust may offer tax advantages to the settlor as well as to beneficiaries. A family trust can be structured so that assets placed into the trust belong neither to the settlor nor the beneficiaries. This means that potentially neither the settlor nor the beneficiaries may be liable for taxes on those assets or taxes on income arising from those assets Hong Kong trusts, in particular, can offer substantial tax advantages. These advantages include no taxes on profits arising in or derived from a place outside Hong Kong, no capital gains taxes, no taxes on dividends and no inheritance taxes.

Flexibility

A family trust is highly flexible and can be customized to meet each individual family's specific needs. It can meet requirements for estate planning, tax planning and asset protection at the same time and in an infinite variety of ways subject to an infinite number of conditions and contingencies.

Settlor May be Beneficiary

A family trust can be setup so that the settlor is a beneficiary of the trust. This means that a settlor who transfers his or her wealth into a family trust can provide not just for his or her spouse, children and other dependants but also for himself or herself.

Duration and Continuity

A Hong Kong family trust can make arrangements for the holding and distribution of assets for an indefinite period of time. This means that as long as the trust deed so provides, it is possible for a settlor to make provisions for the distribution of wealth for every generation that follows.

Confidentiality

A family trust can offer a high degree of confidentiality. Beneficiaries of a family trust are often not privy to the terms of the trust deed. In contrast, the beneficiaries of a will normally have sight of the will and are thus afforded a greater opportunity to challenge the will. At the same time, members of the public dealing with a family trust will only see the trustee and will not, without the consent of the trustee, see the identity of the beneficiaries.

In settling a Hong Kong family trust, the settlor may reserve investment management powers and for this purpose, may establish a family office controlled by the settlor or his family or appoint one or more third parties to manage or advise on investment decisions.

Investment Management Control

Formalities of Setting up a Family Trust

A trust has a number of features under Hong Kong law.

No minimum value of trust property

There is no minimum value of property which must be settled into a trust to set up a family trust. Often, the settlor will settle a nominal amount of money into the trust to set up the family trust. Once the trust has been set up, the settlor will then transfer further assets into the trust.

No Hong Kong residency requirements

There are no requirements as to the residency of the settlor or the beneficiaries of the family trust. The settlor and the beneficiaries may be resident inside or outside Hong Kong. Beneficiaries outside Hong Kong will be subject to the laws of the jurisdiction in which they reside.

No Hong Kong registration requirements

There are no requirements for a family trust to be registered in Hong Kong.

No publicity

There are no requirements for public disclosure of the family trust, the beneficiaries or the trust property.