Can foreign trust help rich Chinese to settle shares?


(Jasontian78) #1

With more and more Chinese rich people migrating to foreign countries, esp English speaking world, a critical part of estate plan for them is to deal with their corporate shares/equities in China. Many of them just obtain a green card while keeping the other leg within China since they need to operate their business in China.

So how can we help them to settle part or all of their corporate equities or shares on trusts?

One legal background in China: due to China Trust Law’s requirement on registration of trust comprising of trust properties like real estate and corporate shares (those assets whose transfer requires registration), strictly speaking, without registration, trusts created on such properties cannot be legally recognized in Chinese laws. So in practice, there are virtually no civil trusts settled on real estate or corporate shares.

So for those Chinese migrating to foreign countries, I have been thinking that the only possible way to help those Chinese riches is to settle those shares into a foreign trust (with foreigner trustees running the trusts). The road map will be like this:

(1) the Chinese settlor first set up a trust in the foreign jurisdiction (could be those settlor-friendly jurisdictions like Cayman, Jersey or Bermuda) whereby a foreigner individual trustee is appointed. The initial trust corpus is cash which can be invested by the trustee to set up an offshore company (SPV with the trustee being the shareholder) to purchase shares in the China company;

(2) with the offshore SPV duly set up, the trustee will then take steps to purchase the shares owned by the Chinese settlor back in China (assuming that such shares are allowed to be purchased by foreign investors). A lot of work here to be done to complete the purchase. Besides outright purchase of shares, other tactics can be adopted as well.

(3) Once the purchase or acquisition is done as outlined above, then indirectly the China copmany’s shares are settled into the foreign trust whose beneficiaries will be the family members of the Chinese settlors or anyone the settlor is happy with. Further, if possible, the Chinese settlor shall then change the trustees to some other people including himself or herself.

This is something I have been thinking of for some time. But as I don’t really know much about any foreign trust law, not sure whether this will work or not. I would like to have comments from practitioners from USA or Canada where are home to the large number of Chinese migrants. Any other comments are equally welcomed as well.

thanks in advance.