Editor's note: recently, "Jia Yueting was accused of using American trusts to transfer assets" attracted investors' attention, and Letv Holdings subsequently refuted the rumor, but domestic investors are still unfamiliar with the asset management variety of American trusts. Tencent's "Securities Research Institute" specially invited senior people in the industry to launch a series of "decryption trusts" with the intention of making investors understand trust products in a three-dimensional and comprehensive way.
Tencent "Securities Research Institute" invited Tan Ruihan, co-founder of Horizon Family Office.
There is an old Chinese saying that "you can't be rich for three generations". In the United States, however, there can be many large families that have survived for a century, such as the Vanderbilt family, the Kennedy family and the Rockefeller family. These big families have legends from generation to generation, and the family assets have been passed on for many generations, but they have never caused the problem of competing for production. The secret of the longevity of these American families lies in the inheritance and protection of assets by trust.
Trust has a history of hundreds of years in the United States. Generally speaking, high net worth individuals in the United States set up trusts for three purposes: first, to inherit wealth and transfer assets to designated beneficiaries; second, asset protection and debt isolation, which can protect some assets from being traced by creditors, and at the same time, in many divorce cases, trusts are also used to protect assets from being divided by divorce. Third, tax planning, through the establishment of trust, can reduce the appreciation of assets or inheritance of assets may generate tax.
Gates Foundation
2000年，Microsoft CorpFounder Bill Gates and his wife Melinda Gates founded the Bill and Melinda Gates Foundation. Before 2006, the foundation invested in philanthropy at the same time. In 2006, Warren Buffett donated a large sum of money to the Bill and Melinda Gates Foundation. In the same year, the organizational structure of the foundation was greatly adjusted to a dual entity structure, including the Bill & Melinda Gates Foundation Foundation and the Bill and Melinda Gates Trust Fund (Bill & Melinda Gates Foundation Trust). The Gates Foundation is responsible for donating charitable projects, and the Bill and Melinda Gates Trust Fund is responsible for operating trust assets to add value. The Foundation and the Trust Fund are two separate legal entities, and the Trust Fund regularly allocates funds to the Gates Foundation for charitable projects. As of the fourth quarter of 2016, the total size of the trust fund has reached 40.3 billion US dollars, and the Gates Foundation has donated more than 41 billion US dollars to the community since its inception.
This is a typical "foundation + charitable trust" model, which is widely used in the rich circle of the United States. So, what exactly is a charitable trust? Why do more and more rich people choose this form? Apart from achieving higher social goals and benefiting society through philanthropy, what else can charitable trusts bring to the rich?
Public trust is a kind of private foundation, which is responsible for managing the property funds of donors and allocating assets according to the wishes of donors. Generally speaking, public trust can be divided into two types: public welfare advance trust (Charitable Lead Trusts) and public residual trust (Charitable Remainder Trusts). Public welfare advance trust is to deliver a fixed annuity or a fixed proportion of trust assets to charities within a certain number of years. After the payment is terminated, the remaining assets are transferred to the non-charitable beneficiary. Charitable residual trusts, on the other hand, pay a specific amount to non-charitable beneficiaries over a period of time, and then permanently hand over the remaining assets to charities. At present, more rich people choose public welfare advance trust.
The following figure is the flow chart of the operation of the public welfare advance trust. The trustor first establishes a public trust and donates assets to the trust. Public trust shall be managed and invested by a designated trustee to increase the value of the trust assets and donate a fixed amount or a fixed proportion of the assets to charitable institutions on a regular basis. After the end of the specified payment period, the remaining assets of the trust are transferred to the designated non-charitable beneficiary (usually the descendants of the trustor).
A significant advantage of charitable trusts is tax incentives, which is why more and more rich people choose charitable trusts as a means of wealth inheritance. Tax preference is mainly reflected in the following points:
(1) the increase in the value of public trust assets shall be exempted from capital gains tax.
(2) partial income tax deduction can be obtained.
(3) reduction or reduction of estate duty. When rich people carry out wealth inheritance planning, the first thing they need to consider is how to avoid high estate taxes. In the US, US tax residents enjoy a lifetime estate tax exemption of $5.49 million (2017), and assets exceeding $5.49 million are subject to up to 40 per cent federal estate tax at the time of inheritance. Through the establishment of a public welfare advance trust, after the end of the specified number of years paid to charities, the remaining assets in the trust are allocated to the designated non-charitable beneficiaries, and the beneficiaries do not have to pay estate tax.
Murdoch's two marriages
Rupert Murdoch (Rupert Murdoch), a world media magnate, is a famous news and media operator in the United States. What he createdNews Corp.(News Corporation) is one of the largest and most international integrated media companies in the world. In addition to being a news mogul, Murdoch has a more well-known identity in China-Wendi Deng's ex-husband.
When Murdoch divorced his second wife Anna in 1999, the news mogul spent $1.7 billion to end the 31-year marriage, the most expensive break-up fee in history. Not only that, but the outside world's concern about Murdoch's asset division has also made Murdoch'sNews Corp.(News Corporation) and 21st Century Fox (21st Century Fox) operations have been affected.
After a setback, the news mogul immediately put most of his assets in a trust, isolating and protecting his assets. At the same time, two types of equity (Class An and Class B) are clearly specified in the trust contract-Class A shares do not have the right to vote, while Class B shares have the right to vote. Murdoch family trust holdsNews Corp.About 38.4 per cent of class B shares, but only the four children of Rupert Murdoch and his two previous wives. Through such a designNews Corp.The control is in the hands of four children of Rupert Murdoch and his two ex-wives. Under the tight isolation of the trust plan, 14 years later, when his marriage to Wendi Deng ended, Wendi Deng only got a mansion in Manhattan, New York, and a courtyard in Beijing. Their daughter can only enjoy trust income from the trust, not equity in the company, while Murdoch still has a fortune of about $13.9 billion.
By comparing the property judgments of Murdoch's two marriages, we can see that the role of trust in protecting property is mainly reflected in these aspects:
(1) the trust trustor can effectively separate the family property from the company property through the trust without affecting each other. This is very important for entrepreneurs. If there is no separation between family property and corporate property, any property disputes in the entrepreneur's family will easily affect the operation of their company.
(2) in the aspect of inheritance, the trustor may pass on the assets including equity to the designated heir through trust. Although Murdoch has multiple children, the only heirs to vote are the four children of him and his two previous wives. He and Wendi Deng's daughter did not have the right to vote in the company but enjoyed the right to benefit from the trust, so their lives were guaranteed and prevented Wendi Deng from interfering in the operation of the company in the name of her daughter.
There are many kinds of trusts in the United States, and the trustor can set up different trusts according to their needs, such as equity trust, life insurance trust, real estate trust and so on. At present, China's trust system is still in its early stages of development, but with the growing awareness of wealth management and inheritance, trust will become the preferred tool for all kinds of high net worth individuals in asset inheritance planning. As the establishment of a trust requires legal and tax knowledge, it is suggested that high net worth individuals should seek qualified lawyers and family offices for consultation and assistant design before setting up a trust.
Disclaimer: the contents and views of this article are for reference only and do not constitute any investment advice. Investors operate accordingly at their own risk. For all accurate information about listed companies involved in this article, please refer to the announcement of the exchange. The stock market is risky, so you need to be cautious when entering the market.