Chinese Families & Wealth – Overcoming Key Governance & Estate Planning Challenges
Dec 9, 2020
The connection between family and family business wealth in China is as deep as ever. By some estimates, family businesses in China are the most significant sector and contribute 70% of national GDP, employing around 75% of the nation’s workforce. It is therefore of vital importance to them and to the nation at large how they deal with intergenerational wealth transfer and business succession. And it is just as essential to understanding how they are going global and building global enterprises that to some extent match the globalisation of their family wealth and lifestyles. In light of this and with a backdrop of new tax rules since January 2019 in the PRC and far greater global regulation and supervision, are HNW and ultra-HNW Chinese families from the Mainland adopting the appropriate strategies to enhance their business and family governance, to organise more structured and professional wealth planning and then to organise more effective estate and legacy transition? These issues, and many others, were debated by our panel of experts in a fascinating and detailed digital discussion on December 3.
Sponsors: IQEQ, PraxisIFM, Quilter International, ZEDRA
Mainland Chinese families have today diversified their businesses and their wealth, even their residences and their lifestyles, well beyond their home bases in China. So many of such wealthy and ultra-rich families have opened businesses in the US or expanded their assets there, or in Europe. So many of them have family members working in those jurisdictions, or permanently resident there and building their own families. All these developments mean that the right structures must be devised and continually refined in order to ensure that these families can operate and live and transfer wealth in a globally compliant manner.
Understanding the key issues faced by wealthy Chinese families in their estate and legacy planning is a complex matter. How is the traditional Chinese family reconciling its traditions and culture with the demands of global compliance and concepts of business and family wealth governance? How are the dynamics of multi-generational inclusion playing out, or are these families failing in this regard? What are the popular structures and jurisdictions that Mainland Chinese families are working towards and through, and why? What roles do Hong Kong and Singapore play in the region for Chinese family wealth, and for the consolidation of family wealth and estate planning through single-family offices? Who is doing best at winning these clients’ trust and confidence, the private banks, the independent wealth management firms, the lawyers, or other specialist firms? And what are the vital ingredients of success with such clients?
In light of the immense private wealth in China, and the rapid expansion of that wealth, the wealth and advisory industry has been making great and increasing efforts to work with these families to help advise them of the family constitution, the family council, on family and business governance, and to help them see the connections and to assist them in building their family legacy, potentially their family dynasties. And to reach out to the younger self-made wealthy and to the younger and often highly educated generations that will either make, or are making or will inherit so much of China’s truly vast private wealth.
Setting the scene – continuing growth
To set the scene for the discussion, an expert opened with a comment that it is very important to understand the dynamics that within Chinese families in their businesses at the moment. “On the one hand, we continue to see the growth of the private or family business in China contributing to over 70% of national GDP and employing over 75% of the nation's workforce and fuelling significant growth, of course, in the number of new UHNW and HNW families and entrepreneurs in China, which is now home to billionaires only second in number to the US. At the same time, and just recently, I was reading this week that China remains resilient, and is expected to come out of the pandemic earlier than most other markets, experiencing over 4.9% GDP growth in the last quarter of 2020.”
Expert Opinion - Tim George, Partners, Withers: “Chinese families are still grappling with the inherent conflict between wanting effective succession and asset protection structures while remaining reluctant to surrender control to the extent necessary. Advisors need to be able to offer a full spectrum of structures, not just trusts, but also funds, partnerships and cell companies, to meet such diverse needs.”
Additionally, he noted that over 85% of Chinese billionaires are still the founders of these family businesses, still the first-generation wealth creators. “With the average age of these patriarchs mostly over 65, I believe we are at a tipping point, with Chinese families on the cusp of one of the most significant intergenerational wealth transfers. And we see that in the next 5 to 10 years, there will be an estimated 2000 immensely wealthy Asian families in transition from first to second generations, with Asia, importantly, enjoying the highest average value being transferred at over USD580 million per family unit, according to research from Wealth-X. This all represents an immense opportunity.”
Expert Opinion - Michael Olesnicky, Senior Consultant, Tax & Wealth Management, Baker McKenzie: “In some ways, private bankers and trustees are being too cautious when it comes to tackling the China wealth market, by waiting for clients to send assets outside China. The fact is that the bulk of China owned assets are in China, and the domestic market is where huge growth potential lies. Market participants should be thinking about how to expand their activities into China domestically, improving the range of products available domestically, and offering asset holding and succession solutions involving tools available within China, such as China domestic trusts. Those who seize the initiative and, for example, invest in China trust companies will secure a foothold and competitive advantage over others who stay outside China.”
Expert Opinion - Fred Wong, Head of HNW Solutions Hong Kong & NE Asia, Quilter International: “As to who is winning these [Mainland Chinese] clients’ trust and confidence, it is those firms that are willing to collaborate with different technical specialists in providing the solutions that meet the evolving needs of the clients and their generations continue to stand out in the competition. Ultimately, the clients are buying into the trust and competency they have in whom truly demonstrates value.”
Expert Opinion - Jacqueline Shek, Executive Director, Trust Services, ZEDRA: “ZEDRA’s Active Wealth proposition, aimed specifically at families who want, as the name suggests, to take a more personal role in the planning and delivery of their wealth management strategies, sits well in this market . It offers the potential to bring together corporate, fund and private wealth services under one roof to the growing number of young but very wealthy Chinese billionaire entrepreneurs.”
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Adopting new approaches
Moreover, he observed that Chinese families are now becoming a lot more formalised in their approach to managing this transition. “Whether it's setting up a single family or joining a multifamily office, combined with other governance and succession tools like private trust companies and private funds, like the VCC that Singapore has launched, we are seeing fundamental shifts in the attitudes and activities of these families, and in particular, driven by the next generation. We want to be far more involved in the future stewardship of their family wealth and to be part of more flexible operating models to cater for their needs.”
Choose your structures and locations
A fiduciary services provider offered some insights, noting that in their work as a trust service provider they work closely with the tax and legal advisors to provide tailor-made trust services to clients. “Depending on the trust access, also the backgrounds of the client, we will choose the suitable jurisdiction, also the type of structure for the clients, and then work with our in-house lawyer, and other professionals in-house to help the client to overcome the problems.”
Another expert commented that her time is spent mostly almost like a project manager to help evolve solutions for their clients.
Guiding and nurturing
“We guide them through the right way, we help them to identify specific areas of needs, and analyse their global business, assets and family situations. “If the son is studying in the US, then naturally it's a US tax advisor that they need to be looking to meet, or perhaps they might be considering how to mitigate potential divorce issues, so perhaps they are working on a trust governed by Guernsey law, they need to work out how to manage future issues. So, often my role is helping on all these areas, and also on ‘soft’ issues. It often takes some work on our part to find out what really is driving them, what is the purpose of setting up a trust. We also have a lot of Chinese entrepreneurs who are in a pre-IPO stage, they might be restructuring a corporate structure in anticipation of listing, or another situation might be dealing with interesting family situations, such as the founder’s second family appearing, so on and so forth. In short, we leverage our network, our relationships, we help by sharing experience and knowledge with them and directing them towards the best practices.
Expert Opinion - Michael Olesnicky, Senior Consultant, Tax & Wealth Management, Baker McKenzie: “Mainland China clients have been hit with a tsunami of new regulations, ranging from CRS and KYC about source of wealth, to changes in tax laws affecting individuals and the establishment of traditional types of wealth structuring. It’s still early days and these changes haven’t affected clients much yet, but the next few years will be telling.”
A lawyer observed that the key issue now is succession and transition, and the reality is that any successful structure robust through the generations requires some degree of surrendering control. “That's probably the battle that all of us on this panel are facing, and probably a lot of our delegates are facing, because a lot of our Chinese clients, they want their cake and eat it. They want the succession planning, they want the asset protection, they want all the facilities that they've read about various structuring, but they're usually not prepared to budge an inch in terms of control.”
He maintained that faced with this environment, the challenge is both of education, but also a challenge of accommodation. “Rather than sort of force the structures that perhaps have been popular in the US, the UK and Europe upon these Chinese families, so we need to be a bit more malleable.”
Think outside the box, adapt and be agile
Accordingly, he advised not simply to churn out the idea of reserve powers, trusts and so forth, but to think about using partnerships, think about using shareholding structures, think about being a bit more imaginative in the structures to protect the assets to allow for succession, but to also give clients the control that they simply want and need. “I think that the juxtaposition between succession and control is the biggest challenge we face in this endeavour,” he said.
To help move clients along this journey, he advised a gradual process. “Quite a lot of families will start with something that they have a high level of control over, for example, a complete reserve powers trust, and then you can gradually move towards maybe surrendering some of those powers, maybe introducing a family council, maybe introducing a family committee, and so forth. In short, you will tend not to go in with the perfect structure from day one, it tends to be a much more gradual process.”
Working within the local culture
He added that for such Chinese clients, his firm tends to approach it more from a structuring perspective than from a family governance perspective. “What I mean by that is, many of my colleagues in the US and the UK, will sit down with a family, have individual meetings with lots of different family members, learn about their hopes and dreams and aspirations and where they want to be with regard to the family business. But in this market, if you approach it like that, and it's a huge generalisation, obviously, it's going to fall rather on deaf ears. So, you're better off approaching it from a structuring perspective, looking at who's calling the shots, who's pulling the strings, who your controlling people are from a succession perspective. And once you've got that in place, you can then start thinking about family constitutions, family creeds, letters of wishes, all the nice stuff that we love talking about. But I think almost we have to sort of reverse our order of thinking.” And he summarised this by saying that he is hopeful that progress is being achieved on this journey, but also realistic, possibly sceptical.
Insurance solutions and their value
A guest highlighted the importance of life insurance in solving some of the key issues. “We are actually helping clients to structure in a way where collaborating among trust companies or offshore corporate structures, we want to build a future fit for this client, so that they can mitigate some of the increased tax concerns and achieve greater transparency. We want to help clients to have comfort and to fully appreciate the kinds of [life insurance] solutions available in the market.”
Expert Opinion - Fred Wong, Head of HNW Solutions Hong Kong & NE Asia, Quilter International: “Regarding the popular structures and jurisdictions that Mainland Chinese families are working towards and through, and why, PPLI is getting more traction because it is a popular estate and legacy planning tool which helps clients achieve simplification yet without losing sophistication and control. PPLI is also being recognised as an integral part of any “future fit” structure in this complex world.”
He explained that PPLI was gaining in visibility and interest as part of the integral solution for clients broadly in Asia, and especially for Chinese families. “It really simplifies matters for the family and also they can retain certain control on these policies. We see PPLI as a very good tool as a stepping-stone for clients as a first step of planning.”
He added that with regard to the new in 2020 Singapore VCC, this could be the underlying asset of the PPLI structure, which itself will be held under a trustee. “We therefore see that PPLI can be a very good integral element helping the trustee or helping the professionals here on the panel to simplify the reporting for the clients.”
He also observed that Variable Universal Life (VUL) is also a very good tool for use alongside single family office structures, for example if a key member of the family had passed away, providing extra liquidity for the family office In short, we can see there are a lot of things that we can do together in a collaboration due to various needs of the family, whether through PPLI or VUL. Insurance is a very good tool to be used among these structures we are discussion today.”
Hong Kong – robust role remains
The discussion turned to what role Hong Kong and the institutions and structures there can play in advancing the science regarding tax planning. A lawyer commented that reforms to tax laws effective from January 2019 regarding worldwide taxation of domiciled taxpayers and as enforced by China's State Tax Bureau, or other bodies means that China is comparatively a higher tax jurisdiction compared with Hong Kong and Singapore. “And with China's advancement into the anti-avoidance network through CRS and other double taxation agreements, the first thing that as an advisor that we share with the high-net-worth individuals and families is the need for legitimate tax compliance to start with.”
He added that Chinese individuals and families in terms of their overall wealth succession, asset protection, or legitimate tax planning needs in relation to their family members, their global asset allocation is not much different from the rest of the world.
Understand the need for compliance
“And amidst all this, the first step is to ensure they understand the need for compliance. In terms of the actual tax course, of course, they always like to minimise it, if they can, so then there are certain structures that other panellists have already shared, trust structures and so forth, and it is worth noting that China has not yet implemented its inheritance and gift tax regime, so we have no firm date yet as to when this inheritance tax and gift tax will come in. But personally, I firmly believe that it will come in later on, given the increasing wealth of Mainland Chinese clients. There are certain ways of dealing with onshore asset, and dealing separately with their offshore assets, whether perhaps they invest in a US real estate, or UK commercial property, or even a piece of land elsewhere, or even different private funds. The advisor therefore needs to be able to advise these clients from a global tax regime perspective.
In summary, he said, educate the clients, make sure they fully understand they need to be compliant, especially with areas like CRS, or even more stringent enforcement of the PRC tax authorities on recouping or recovering global tax. And also, they need to understand the links and ramifications for global asset allocation and nationality or tax residency, and in fact techniques such as allocating different nationalities and tax residencies for different family members would be a growing trend.
A slightly different perspective came from another lawyer who commented that there are several key Chinese domestic tax law changes, including anti-avoidance provisions, for example, the residency rules and on top of that, there is the whole global overlay of regulation and intensified supervision, including CRS which is providing the Chinese tax authorities all the information about bank accounts and securities accounts and certain types of insurance policies that are held by Chinese residents outside of China, and soon there will be exchange of information about real estate holdings.
Good news and bad news
“The good news,” he said, “is that I sense China is getting all this information under CRS, but I haven't yet heard of this actually being used to conduct tax audits or investigations so far. I suppose that will occur over time, and I am a little bit concerned that if we don't see any action, there will be a certain complacency that will develop. Therefore, we really have to keep pressing on our clients that they can't just continue to hide their assets offshore.”
But a key concern, he added, is how clients actually regularise if they haven't been compliant. “Where do you in fact start?” he pondered, “because China has not introduced any type of tax amnesty programme. In fact, we have asked for a tax amnesty, but so far, we have simply been ignored, so I cannot see an amnesty ahead, it seems too politically sensitive.”
Tricky issues for advisors to navigate
“The other issue that we have with new clients,” he added, “is if people haven't been compliant, but even if they're compliant now, all of us have to do an AML procedure, we have to do a KYC process, we have to look at the source of funds, and we have to satisfy ourselves that the clients’ funds are legal. And if those funds are in fact the product of tax evasion, then we have an issue from a money laundering viewpoint. It does raise some really big issues.”
He explained that he has some clients who he is confident of having been tax compliant in the past, but who can't prove that to be the case. “The result of that is troublesome, so how do they actually deal with professionals, with trustees, with private or regular bankers, if they can’t actually prove what the source of their funds is? This is one of the really big issues that we have in onboarding many, many clients.”
Further commentary on this topic came from another expert who noted that regarding the newly promulgated individual income tax rule effective January 1, 2019, there is a provision that anyone who relinquish their citizenship must report worldwide income in that year, so the tax authorities can go back to see whether any other income is unpaid or undeclared.
Looking for an amnesty?
“But apart from this, technically speaking under the PRC rules, there's the assumption that one should report the entire income, reporting PRC domestic and global income, which is now available for declaration by the new app. Additionally, we would really like to see some rules hopefully in the future that for people to help them more easily really become compliant.”
Drifting away from exotic offshore
Another panellist pointed to the newer structures available such as the Singapore VCC and Hong Kong’s limited partnership or open-ended fund company. “This means a further drift away from where they may have gone as a default jurisdiction before, the Caymans or the BVI, which are also less amenable now with economic substance and other changes taking place. So now the drift is back closer to China, whether that's setting up the structures in Singapore or Hong Kong.”
An expert agreed, adding that in terms of the types of open-ended partnership structures or the VCC in Singapore, his firm has seen increasing use of these vehicles in a private client context, but that regarding Hong Kong structures, these had not really been configured with the private client in mind and tend to be what he called ‘a bit clunky’.
Hubbis asked delegates who attended the event for their expert views on the development of the Mainland China wealth management market, relating to wealth and estate planning for the growing numbers of HNW and UHNW families.
Hubbis: Are HNW and ultra-HNW Mainland Chinese families embracing the latest concepts in business and family governance and estate/succession planning? Why or why not?
- “Yes. While almost all Chinese clients made bulk of their fortune in China, many have also been educated on the importance of business & family governance and estate/succession planning well beyond their shores. Many of the new rich are more educated and thus are more informed about the pro and cons of the traditional Chinese way of doing things; they reckon and comprehend the latest concepts in [the global approach] to business & family governance and estate/succession planning.”
- “We see this as becoming more popular for concepts on corporate and family governance, but yet to be fully implemented, while there is a more thorough consideration and implementation around estate/succession planning, using a variety of tools and structures and with considerable experience being accumulated.”
- “There's definitely more interest these days, especially after the pandemic.”
- “Yes. I believe trusts and family offices are more at the forefront of Chinese clients minds these days, especially if they have friends who have a trust, for example. We are seeing quite a few standby trusts being set up.”
- “Yes, in order to mitigate tax in China.”
- “Not really as we see things. There remains low awareness and these clients are too self-sufficient.”
- “There will be a gradual switch as the kin will soon take over the families wealth and also the changes and updates on rules to wealth management; legal staff; taxation; etc - there is a need to adapt.”
- “Not really. In my opinion, it is a slow adoption taking place, as many traditional patriarchs are reluctant to share too much information on themselves and their wealth and businesses.”
- “Yes, they are, and quite sophisticated. In other markets, traditionally, clients are very hush-hush about setting up trusts and their estate planning; they don’t want anybody to know about it, not their friends, not their family. However, other than the geopolitical uncertainties, a key driver is the social aspect of the Chinese market - Chinese clients are very open to sharing their personal plans and often when they set up a trust, they tell all their friends about it, and even invite their friends to join in the conversation. So, when they start hearing more of their peers taking action to estate/succession planning, they tend to do the same.”
- “It depends. I'd say generally so, with the right advice and if they have people in the family or family office who are embracing such concepts.”
- “Yes. They are more sophisticated with new methods due to globalisation of their assets and
- relationships with international banks and advisors.”
- “Yes, considerably because the children are more educated.”
- “Yes, increasingly so, at least with respect to tax structuring. More sophisticated advisors, and the evolving PRC tax laws are changing the mindsets of HNW and UHNW PRC families.”
- “Yes, they are, although a lot of education and patience is required when sharing information on structures. They understand the concept and importance of estate and succession planning and are slowly coming to terms that there has to be some compromise when it comes to control and risks.”
- “Yes, however, most of them are at their very early stages in taking steps towards this planning. To a certain extent, it is either due to the lack of accurate knowledge or they are reluctant to part with the control of their assets. The latter poses as a major problem in the process.”
- “Yes, they are just starting to embrace the ideas around estate & succession planning, driven by the second generation who are aware that current planning is far from sufficient and a longer term plan is required. Their second generations are well educated to accept new concept in business. It is time for the first generation to pass on the business and wealth to their heirs.”
- “They are learning it through from different professionals and advisors same as wealth planner like us. It would be thoughtful the advisor could share some successful structure and how they meet the objective of the clients. Such that we could sell the plan and structure for them to refer more business to each other.”
- “Yes. They fully recognise that they cannot rely on the Chinese state to guarantee or provide the security of assets/property. This leaves the only option to be to transfer wealth out of China which means complying with the laws and regulatory requirements and all that entails of the particular jurisdiction where the assets are held.”
- “The newer generation of entrepreneurs, yes. Traditional industry and much older owners may not if they can’t see the threat.”
Hubbis: In your experience, are these families then willing to pay for the right advice and adopt the right structures to professionalise their estate and legacy planning?
- “Despite knowing the benefits of professional planning, many Chinese are still pretty reluctant to pay the fees involved because such fee structures are not common in mainland China. Unless they have consistently been exposed to such ideas and concepts, they typically find such costs too high. That said. the penetration rate for such professional services is definitely improving.”
- “It takes patience to educate and for them to shop for comparison.”
- “In some cases there are no issues with the fees, however in other cases we have had a lot of push back and had to try and accommodate the client but in some cases it was just more sensible to turn down the business.”
- “Yes, especially if they receive the agreeable terms and results. Businesspeople tend to always use business-minded decisions.”
- “Yes, largely guided by their gatekeepers. If their gatekeepers are very cost-sensitive, then they will go for the cheapest and always asking for a discount.”
- “To a certain extent, everyone seems to look for a break on fees, but they tend to forget that you get what you pay for though!”
- “It has been challenging.”
- “There is a growing acceptance that good advice has to be paid for.”
- “Primarily for tax structuring and privacy.”
- “Yes, they are. Once they trust you and understand that you have their best interests at heart, they are willing to pay for good professional advice.”
- “Not at all. It takes times to educate them the importance to getting the proper advice, and as trustee we may be required to have the proper advice before setting up the structure, if we see there are potential risks.”
- “They are open to listen but takes a longer time to come round to deciding what structures, if at all, will be suitable for their family circumstances.”
- “They are cautious and need to find someone they can trust.”
- “Yes but pricing is very competitive nowadays.”
- “Yes, they are willing. However, they will need to be convinced of the benefits and quality of the advice.”
- “They are, but the (current) focus is on price and not on the planning and quality.”
- “They are really not used to pay for such advice and service.”
- “Yes, the younger generations are more prepared to pay.”
Hubbis: Is the single-family office becoming more popular and if so, where are Mainland Chinese families locating these offices, and why?
- “Hong Kong and Singapore. Both jurisdictions provide credible financial conditions and attractive tax policies. There is also an abundance of Mandarin-speaking professionals in these two countries.”
- “Hong Kong and Singapore, but each with its pros and cons. Families have to pick according to their own needs and preferences.”
- “We see more interest in multi-family office as they start to dip their toes into this area without committing to the high upfront fees involved with single family offices.”
- “Yes. mostly in Singapore as the family office there is better developed.”
- “No, they appear unwilling to pay the fees and costs involved.”
- “Yes, more and more Chinese clients were looking for family offices to help manage their wealth.”
- “Singapore is the most popular jurisdiction, as its Single-Family Office playbook addresses issues close to heart for Chinese clients including immigration.”
- “Primarily Singapore, and to a lesser extent Hong Kong, for geopolitical reasons.”
- “Single-Family Offices are being promoted by some intermediaries and wealth advisors, although not all these potential clients fully understand the concept or requirements. However, with time, more inquiries are coming in, especially if these structures enable tax savings, opportunities to grow their wealth in a tax efficient and compliant manner, and finally, if they afford the family members to consider relocation.”
- “In my experience, most of them are tending to multi-family offices, not single-family offices. To be honest, mainland Chinese families will choose Singapore rather than Hong Kong due to the well-known political situation.”
- “Yes, the second generation who are educated overseas see the benefit in putting structures in place in order for a smooth transition of the wealth.”
- “Singapore, as the platform there is very friendly to these families and structures.”
- “SFOs are only for ultra-rich, as clients with less than USD100 million of funds find it too costly to consider, and most private bank or IAMs would suffice.”
- “In the past, there were more SFO from the Mainland Chinese set up in Hong Kong. However, since the second half of 2019, some of them are considering setting up in Singapore or relocating their existing ones to Singapore. Other than the political reason, it is also due to Singapore government's supportive tax policy in the context of VCC and Section 13 schemes.”
- “I think MFOs will lead the way - at least initially. The heavy infrastructure that a SFO needs to create (even trusted advisors) is too heavy.”
- “Mostly in Hong Kong. Holding offshore assets for diversification and de-risking of political risks.
- “Singapore for understanding of Chinese culture and political stability vs Hong Kong, history and language capability.”
- “Singapore is a popular destination for permanent residence purposes, and the recently introduced VCC structure is a compelling argument.”
- “Hong Kong to some extent but I think Singapore more so, seen as a bit more independent and can keep assets clear of the ‘one-country’.”
- Singapore, partly because of geopolitical reasons, partly because of legal infrastructure and availability of service providers.”
- “Traditionally, Hong Kong but now, growing trend of Chinese clients considering Singapore, and even Malaysia or Thailand. Singapore is still preferred due to the ease of language and reputation of the country as a safe and secure place with good government.”
- “Private trust work goes to Singapore. Pre-IPO work stays in Hong Kong, due to the active capital and secondary market.”
- “Singapore is the major beneficiary. They have the tax incentives for family office set up there. Trust laws and the new VCC structure there are attracting family offices setting up there.”
- “Singapore, due to its independence from China.”
- “Singapore because it is not part of China, has good legal governance and close proximity to China. Having said that, I would expect London, Australia and Canada to also be attractive jurisdictions though not for geographical reasons.”
- “The Singapore government is very proactive and commercial in attracting foreign capital. Asia is the fast-growing region in terms of new wealth creation as well as only region with positive economic growth under pandemic, there is growing demand for tax transparency and regularisation, which in turn leads to shrinking use of low tax offshore jurisdictions and shifts demands to mid shore jurisdictions like Hong Kong and Singapore. Moreover, the change of political environment in Hong Kong as a result of large-scale protests and other events and developments, combined with the proactive government policy of Singapore to attract foreign investors and talent are changing the status quo.”
Offshore to onshore and mid-shore
“And yes, on the choice of jurisdiction, this is a worldwide trend from offshore to onshore, meaning a boost for Singapore, Hong Kong, New Zealand, and the Luxembourg-type jurisdictions,” he noted. “And the huge trust companies now are so global, that actually they can offer so many different jurisdictions and still deal with the people they have in place as trusted advisors. So this is a trend in China, Asia and in Europe and the US, in fact around the world.”
Take the holistic approach
A speaker highlighted the importance of not only approaching these issues from the viewpoint of the structures and solutions, or life insurance structures, trusts, foundations, VCCs and so forth, but taking a holistic approach to wealth, tax and succession planning.
Another guest commented that with no estate duties the issues are not as complex as might at first appear to be the case. “The clients we deal with, the Chinese families that we've met, they actually are very sophisticated, they are mostly younger new wealth owners, they understand structures, they understand the global community, global tax transparency, they understand the need to be compliant. At the same time, they want their privacy to be respected, because as there is still genuine kidnapping taking place, political risk issues and other concerns. In general our view is that there's no need to overcomplicate things, especially as many of these clients do not have years of non-compliance in the past, they are newly-minted wealthy and often sophisticated and willing to learn, and do things right.”
Managing many moving parts
A guest then offered his views on how these clients and their families are supposed to manage all the different parties involved, from private bankers, to lawyers, accountants, trustees and so forth.
“We see many more educated and sophisticated next and younger generation Chinese and we have also seen the rise of the family office, either SFO or MFO, and there is certainly a greater willingness to involve and bring in outside professionals, and this is where frameworks within the PTC, or private trust company, allow for that. We definitely see a greater willingness and certainly appetite to involve and bring in the right professionals, whether it's tax accounting, legal, setting up things like investment committees, or distribution committees, I've seen philanthropic and charitable committees being set up within PTCs for charitable giving, and working out what the legacy is for the families as being a beneficiary of the trust. That willingness, I think, has been turbocharged by the involvement of the next gens who are pushing through for the first time, and we see a greater willingness to involve outside professionals in those committees, and within the vehicles and structures that we've talked about here.”
Expert Opinion - Fred Wong, Head of HNW Solutions Hong Kong & NE Asia, Quilter International: “On understanding the key issues faced by wealthy Chinese families in their estate and legacy planning, although the wealthy Chinese families show a growing desire to know more on estate and legacy planning, they are lacking the knowledge to put together a wealth transfer plan and find the suitable solutions to meet their needs. Surprisingly, a lot of the knowledge and information still come from either their family members or friends.”
Expert Opinion - Michael Olesnicky, Senior Consultant, Tax & Wealth Management, Baker McKenzie: “Wealthy people in China tend to be younger, their children are younger, and they might have fewer children because of the one-child policy, so thoughts of succession, legacy and family harmony might not play on their minds as much as in other countries. Divorce comes before death and more immediate concerns are protecting their assets on divorce. There is a lot of discussion about succession, but actual implementation is still a struggle. Educating clients is key.”
Expert Opinion - Jacqueline Shek, Executive Director, Trust Services, ZEDRA: “Asian businessmen and businesswomen have very specific needs and increasingly prefer a global solution as they themselves go international. Our typical clients need a level of cultural understanding and linguistic competence to deliver global best practices. All this means a successful, sophisticated fiduciary services operation in Hong Kong must have functional specialists who are native speakers and more importantly, can adapt to the pace and way things are now done. A new generation of confident, successful Chinese entrepreneurs are setting the bar ever higher.”
Encourage, but do not dictate solutions
A closing comment came from a practitioner who advised strongly against dictating to the client the structures and solutions they should adopt. “No matter how appropriate and sophisticated the solutions, these clients prefer to be nurtured, educated and guided, they love to hear case studies, of course, on a no name basis, about what the Western world families are doing, what the Hong Kong families are doing in the rest of the world. They love to consider how these cases can apply to their own family situations. So, patience is essential in guiding them to the right solutions.”
The nextgens hold many of the keys
And the final word went to a guest who advised working with the younger generations sooner rather than later, involve them from early on in the family discussions. An issue with Chinese families, he said, is sometimes there is a tendency not to involve the children, as a broad generalisation, and the younger, well-educated generations can often help the discussions develop and take a more sophisticated approach than their founder parents. “Many of them have come home armed with MBAs from top colleges worldwide, and they're the ones who realise that something has to be done. If you can use the children as a channel to convince the parents of what to do, that frankly can be sometimes more effective because parents might listen to the kids, but they won't always listened to me, or us.”