Marcus Leese of Ogier looks at some of the trends and developments in estate and succession planning in mainland China, including key characteristics of the local market.
Date: Dec 2011
Tags: China, Estate Planning, Succession planning, Trusts, Regulation
There are potentially various reasons for this, he explained. These include a combination of: issues around discussing mortality, a disinclination to consider structures that might involve a loss of control of the assets, and a lack of awareness of the range of solutions available and the ways these can help to avoid problems in the future.
Vehicles for Chinese clients
For those Chinese clients who do estate or succession planning, Leese said that in his experience, the structures they use are no different from the ones used by clients from other jurisdictions, either within Asia or beyond – trusts, companies and, to an extent, foundations.
However, he added, because much of the wealth generation in mainland China has been quite recent, Leese said many clients are still actively involved in their trading businesses, and therefore any wealth planning they do has to take account of the fact that a significant part of their wealth is still actively within their businesses, rather than devoted to financial assets, as is the case in many other parts of the world.
Another important difference, he explained, is the nature of the legal and regulatory environment, and the exchange controls which exist in few other places inevitably have an impact on the nature of any private wealth structures.
In line with this, there is often a striking divergence between the estate planning done for assets held outside China versus those which are within, said Leese.
Dealing with loss of control
According to Leese, clients in mainland China are often concerned about estate planning due to the perception that it will inevitably involve in the loss of ownership or loss of control of assets.
In his experience, however, the reality is that significant and beneficial estate planning can be achieved in such a way as to either avoid the loss of control or, at the very least, to minimise it to an accepted level.
This allows the family to continue to have an important and active decision-making role, he said, explaining that this issue should not be a reason to avoid or to delay making the estate plan.
Evolving frameworks in China
To facilitate a greater take-up of wealth planning in China, the element which Leese said would be helpful and productive in relation to the private wealth industry would partly be either completely free or largely free foreign exchange movement. This would allow a more open or transparent division of assets between onshore China and offshore China.
In addition, a legal environment which clearly recognises and takes account of the sorts of structures which are commonly seen in wealth planning would also be helpful, he added, for example foundations and trusts.
Another helpful factor would be a regulatory regime which provides a suitable level of regulation of financial services, said Leese, including entities such as trust companies, consistent with the international approach for such regulation.
