CHINA Law and Practice Contributed by: Chengchen Gan (Mark), Commerce & Finance Law Offices
Settlor’s Right to Revoke a Trust According to Article 22 of the Trust Law, the settlor can only apply to the People’s Court to revoke the trust if the trustee disposes of trust property against the trust’s purpose or causes loss to the trust property due to improper management of trust affairs. Therefore, in China, the concept of revocable trusts, as understood in other jurisdictions, does not apply in the same manner. The conditions to revoke a trust are strictly limited to situations where specified legal conditions are met, ensuring the legitimacy, protection and stability of trust arrangements under Chinese law. 4. Family Business Planning 4.1 Asset Protection In mainland China, two common methods of asset According to Article 1065 of the PRC Civil Code, spouses can agree on the ownership of property acquired during their marriage, either separate, joint, or partially separate and partially joint. It is also pos - sible to agree that property acquired during the mar - riage belongs separately to each spouse, and debts incurred by one spouse are their own responsibility. This agreement is often used to protect one spouse’s assets from being affected by the debts of the other. However, for the agreement to be effective, it must be signed in writing to clearly define the division of property, and assets shall be managed separately in daily life to avoid confusion. Life Insurance Life insurance allows for the designation of beneficiar - ies without the need for inheritance notarisation, thus ensuring a more exclusive and definitive inheritance. In recent years, high net worth individuals in China have increasingly chosen life insurance for asset pro - tection, which also plays a role in asset isolation, risk mitigation, and tax planning. protection include the following. Spousal Property Agreement
ernment is actively increasing efforts to regulate and standardise this industry. 3.3 Tax Considerations: Fiduciary or Beneficiary Designation According to Articles 19, 24 and 43 of the PRC Trust Law, individuals, legal persons and non-legal person organisations can all act as parties to a trust. However, companies holding trust licences issued in China, due to supervision by Chinese financial regulatory authori - ties, may be prohibited from serving as trustees for foreign trusts. This restriction does not apply to Chi - nese individuals or non-financial institution legal per - sons. On this premise, under Article 35 of the Trust Law, trustees can benefit from the trust according to the trust deed but cannot be the sole beneficiary of the trust. Currently, Chinese tax laws do not specify how income from property held by trustees in trust is taxed. Sup - porting tax declaration and collection measures have not yet been established. 3.4 Exercising Control Over Irrevocable Planning Vehicles Under the PRC Trust Law, trusts are not explicitly cat - egorised as revocable or irrevocable. In foreign juris - dictions, a revocable trust typically refers to a situ - ation where the settlor can unilaterally terminate or revoke the trust. However, under the PRC Trust Law, there is currently no provision granting the settlor the unilateral right to terminate or revoke a trust, unless specific conditions outlined in the trust deed, Article 12 or Article 22 of the Trust Law occur. Creditor’s Right to Revoke a Trust Under Article 12, if a settlor establishes a trust that prejudices the interests of their creditors, the credi - tors are entitled to apply to the court to have the trust revoked. Importantly, revocation of the trust by the court does not affect the trust benefits already acquired by bona fide beneficiaries. The right to apply for revocation is subject to a limitation period: credi - tors must exercise this right within one year from the date they knew or should have known the grounds for revocation. Failure to do so will result in the right being extinguished.
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