What is trust?
A trust is not a legal entity, it is a legal arrangement created whereby assets are transferred from a person (the settlor) to another person (the trustee) who holds the property for the benefits of a specified list or class of persons (the beneficiaries) or for specified purposes.
Functions of trust
Estate Planning
- Family succession
- A settlor can create a trust for the benefits of his/her family members. Incomes or benefits generated by the trust assets and the trust assets themselves will be distributed to the beneficiaries or handled based on the trust deed. A trust may also be used to protect financially unsophisticated beneficiaries and to make financial arrangements for the improvident.
- Avoidance of probate
- By holding assets in a trust, the need for time and costs in obtaining probate (with a will) or letters of administration (without a will) can be avoided upon the death of the settlor.
- Asset protection
- A settlor can protect their assets against claims of creditors and of predatory spouse if his/her assets are held by a trust.
- Anti-forced heirship
- Moveable assets transferred to a trust will be protected against claims based on foreign succession rules.
- Business succession
- Trusts can be used for passing on of control and management of business. Trusts may also be used to preserve an intact ownership of a business. By settling the shares of a company on trust, the fragmentation of ownership amongst a large number of beneficiaries can be avoided. As the shares are vested in the trustee, the ownership of the business will not leak outside the family upon the death of the beneficiaries.
Investment
- Investment framework can be set up in a trust to ensure the trust assets would be invested systematically and handled by proper professionals.
Employee Benefits
- In order to attract, incentivize and reward employees, a trust can be established to acquire and hold a company's shares or other assets for the benefits of its employees.
Tax Planning
- By using a properly structured trust and transferring assets to the trust at the right time, various taxes such as estate tax, inheritance tax and stamp duty could be minimized.
Common Types of Trust
Private Trust
- A Private Trust is a trust where the beneficiaries (the nominated persons or entities to receive the trust assets distributions) are private and non-charitable. Private trust is created principally for the purposes of family succession, asset protection and avoidance of probate.
Pre-IPO Founder Share Trust
- Pre-IPO Founder Share Trust reduces the IPO risks of a company. The shares held in trust can benefit different family members and multiple generations. The trust provides advantages such as probate avoidance, asset protection, succession planning and confidentiality of share ownership.
Charitable Trust
- Charitable Trust is a form of trust dedicated to charitable purposes and public benefits. Charitable purposes normally include trusts for the relief of poverty, trusts for the promotion of education, trusts for the promotion of religion, and trusts for other purposes beneficial to the community.
Employee Benefit Trust
- An Employment Benefit Trust (EBT) is a trust established to acquire and hold assets for the benefit of the employees of a company. As the trust assets will be ring-fenced from settlor’s creditors and the trustee is independent from the company, an EBT provides sense of security to the employees. The purpose of the EBT is to attract, incentivize and reward qualified employees of a company.
Standby Trust
- A Standby Trust is a trust created during the lifetime of a settlor, with the asset injection plan, list of beneficiaries and distribution plan all preset. However, the trust will stay at “standby” mode until the happening of certain specified events, such as death or mental incapacity of the settlor, which will trigger the injection of settlor's assets into the trust.
Insurance Trust
- A settlor can set up a trust and assign the trust as the policy holder and beneficiary of his/her insurance policies. Upon the happening of triggering events for claims the trust will receive the payouts from insurance companies. The trustee will then manage and distribute the trust assets pursuant to the trust deed.
Advantages of Hong Kong Trust
- 01
- Perpetual trusts permitted – Hong Kong trusts can continue perpetually, or settlors can choose to specify a fixed period. This is a feature that not many other jurisdictions can offer.
- 02
- Forced Heirship Protection – Hong Kong Trustee Ordinance contains provisions for the protection of movable assets transferred to a Hong Kong trust by the settlors during their lifetime against claims based on foreign succession rules.
- 03
- Reserved Powers to the Settlor – Settlors of Hong Kong trusts will be able to reserve the power of investment and management of the trust assets to themselves, so they can manage the trust assets in the manner they want.
Talk to us
The management team of WeTrust has in total over 50 years of experience in trust, banking, direct investment, insurance, asset valuation, private equity fund, wealth management and corporate advisory. Contact us now for more information.
WETRUST INTERNATIONAL LIMITED
- Email:
- info@wetrust-intl.com
- Telephone:
- (852) 2258 7068
- Address:
- Room 804, 8/F., Far East Consortium Building, 121 Des Voeux Road Central, Hong Kong