CHINA Trends and Developments Contributed by: Jun Zhang, Xiaochu Zhang and Wan Hu, Dacheng Law Offices
require the joint efforts of practitioners to promote the optimisation and innovation of the system. Legal provisions The following issues are still to be addressed. • Whether the categorisation of public benefit trusts, civil trusts and business trusts needs to be revised under the Trusts Act, and what boundary defini - tions and innovations should be made. • How to clearly define a trustee’s fiduciary so as to safeguard the interests of the principals, beneficiar - ies, and the trust estate without placing an undue burden on the day-to-day operations of the trustee, especially the institutional trustee. • How to improve the trust registration system to fur - ther safeguard the independence of trust property, including the adversarial effect of the trust regis - tration system and its application in civil property disputes, in particular those involving criminal proceedings. • How to define the purpose of a trust that violates laws or administrative regulations or harms the public interest of society, while ensuring the legiti - mate protection of the relevant creditors. The above problems need to be resolved one by one through the improvement of trust legislation or the introduction of corresponding judicial interpretations. Tax reform Although asset service trusts, including family trusts, have been gradually distinguished from capital trust products in regulatory provisions and practices, there have been no targeted tax legal provisions, which is a significant shortcoming. This absence not only fails to meet international standards, but also fails to meet the growing needs of the development of family trusts. Therefore, it is recommended that the development of the relevant legislation be accelerated, a differen - tiated tax burden be establishment for the different stages of trusts, and duplicated taxation be avoided (eg, exempting the deed tax in the establishment stage). In addition, to reduce the establishment costs for equity trusts and real estate trusts, tax exemption policies, such as “non-transactional transfers”, should be expanded.
Technology empowerment Fintech is breathing new life into the trust industry. Trustees can achieve one-stop management of the whole life cycle of family trusts with the help of digi - tal systems by perfecting the operating systems and mobile applications. On the one hand, it meets the needs of different par - ticipants in the family trust for information inquiries, notifications and document access in various sce - narios. On the other hand, the execution of smart contracts can further automate the implementation of the distribution terms and improve the operational efficiency of the trust throughout its duration. Nationwide promotion It is recommended that local regulators build on the local experiences of Beijing, Hangzhou and Shanghai, especially in financial hub cities such as Shenzhen and Guangzhou, as well as in areas with concentrated wealth demand, to accelerate the replication of best practices and promote the development of the indus - try. At the same time, efforts should also be made to harmonise the trust property registration system with the Civil Code, the Charities Law, and other laws to form a unified system nationwide. Industry outlook: from institutional restructuring to value reshaping The innovation of the trust registration system is not only a policy breakthrough, but also the starting point for the reshaping of the trust industry’s value. The authors believe that in the future, the development of the trust industry will demonstrate the following three major trends. • Diversification of service scenarios: shifting from high net worth individuals to general welfare, covering areas such as old age and protection for vulnerable groups. • Upgrading of professional capacity: trust institu - tions must develop the composite service capacity of “law + tax + asset management”, for example, real estate trusts need to be operated by trust insti - tutions in co-operation with property companies. • Outstanding social value: the charitable trusts help wealth distribution, promote shared wealth and form a “blood-forming” public welfare ecology.
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