Viewpoint... Wealth inheritance problem analysis series of (II)-the Bank CIRC to regulate the classification of trust business, trust companies will return to the source of trust.

Published:

2023-04-20

On March 20, 2023, the China Banking and Insurance Regulatory Commission issued Document No. 1 of 2023, "Notice on Regulating the Classification of Trust Business of Trust Companies" (the "Notice"). Background of the Notice In recent years, the trust company's trust business has continued to develop and its business forms have continued to innovate. At the same time, the current trust business classification system has been in operation for many years, and trust business practice has not fully adapted, there are multiple cross-classification dimensions, business boundaries are not clear and the service connotation is vague and other issues. In order to improve the trust business classification system, the China Banking and Insurance Regulatory Commission drafted the ''Notice'', which reclassified the trust business and put forward relevant regulatory requirements on the basis of emphasizing the return of trust companies to the position of trustees, aiming to promote the standardized development of various trust businesses. Actively prevent and control risks and consolidate the results of chaos governance, lead the trust industry to give full play to the advantages of the trust system and effectively innovate, enrich the supply of trust source services, get rid of traditional development path dependence, promote the industry to achieve high-quality development. Specific classification of trust business The Notice clarifies the classification criteria and requirements for trust business, and points out that trust companies should classify trust business into three categories: asset service trusts, asset management trusts and charitable trusts, with a total of 25 business varieties, taking the purpose of the trust, the mode of establishment of the trust and the content of trust property management as the classification dimension. (I) Asset Services Trust Asset service trust refers to the trust company in accordance with the legal relationship of the trust, accept the entrustment of the principal, and according to the needs of the principal tailored wealth planning and intergenerational inheritance, custody, bankruptcy isolation and risk disposal and other professional trust services. According to the service content and characteristics, it is divided into five categories: wealth management service trust, administrative management service trust, asset securitization service trust, risk disposal service trust and new asset service trust, with a total of 19 business varieties. (II) Asset Management Trust An asset management trust is a self-beneficial trust in which a trust company sells trust products and provides investment and management financial services to investors of trust products in accordance with the legal relationship of the trust, and belongs to the private equity asset management business, and the Guiding Opinions on Regulating the Asset Management Business of Financial Institutions (Yinfa [2018] No. 106) is applicable. The trust company shall raise funds through a non-public offering of pooled funds trust plan and invest and manage the entrusted funds in accordance with the investment methods and proportions agreed upon in the trust documents. Investors in the trust plan are required to meet the criteria for qualified investors and are both principals and beneficiaries at the time the trust is established. According to the above-mentioned provisions of the new capital management regulations, asset management trusts are divided into fixed income trust plans, equity trust plans, commodity and financial derivatives trust plans and hybrid trust plans, a total of four business varieties. (III) Charitable Trust A public charitable trust is a trust business in which a principal entrusts his property to a trust company in accordance with the law for the purpose of public interest, and the trust company manages and disposes of it in the name of the trust company in accordance with the wishes of the principal, and carries out public charitable activities. The trust property of a public charitable trust and its proceeds shall not be used for non-public welfare purposes. According to the purpose of the trust, public charitable trust is divided into charitable trust and other public trust, a total of 2 business varieties. Wealth Management Services Trust Trust services provided by trust companies for the wealth management of natural persons, legal persons and unincorporated organizations are divided into seven business varieties according to the content and object of the services: (I) Family Trust The trust company accepts the entrustment of a single natural person, or accepts the joint entrustment of a single natural person and his relatives, with the protection, inheritance and management of family wealth as the main trust purpose, providing property planning, risk isolation, asset allocation, children's education, family governance, public welfare charity and other customized affairs management and financial services. The paid-in trust at the time of the initial establishment of the family trust shall not be less than 10 million yuan. The beneficiary shall be the principal or his relative, but the principal shall not be the sole beneficiary. Where a family trust involves a public welfare charitable arrangement, the beneficiaries may include a public welfare charitable trust or charitable organization. The trust business with the nature of special account financial management is not a family trust simply to pursue the preservation and appreciation of trust property. Recently, Ping An Trust successfully set up the first "Family Charter + Double Protector" family trust, innovatively incorporating the family charter into the trust documents, and creating a "Double Protector" mechanism for the protection of human beings and human beings to perform their duties together, with a scale of 10 million yuan. The beneficiaries are three generations of family members of the trustor and the direct blood relatives of the trustor born in the future. The family trust innovation incorporates a family charter to regulate the behavior of future generations and urge them to follow family rules and family spiritual culture. Another major innovation of the family trust is the introduction of a "double protector" mechanism, which performs different protector functions by setting up two types of protectors: one is a natural person protector, which is held by the family members of the client and is responsible for the investment of the family trust and the addition and change of beneficiaries; the other is an institutional protector, which is held by an external law firm hired by the client and is responsible for supervising the implementation of the family charter code of conduct by the beneficiaries, if the beneficiary violates the code of conduct, the institutional protector may apply to the trustee to suspend the beneficiary's eligibility. The family trust provides a one-stop family inheritance solution for ultra-high net worth customers, effectively serving the dual needs of "creating a generation" to inherit the family's material and spiritual wealth. (II) Family Services Trust A trust company that meets the relevant conditions, as a trustee, accepts the entrustment of a single natural person, or accepts the joint entrustment of a single natural person and his family members, to provide services such as risk isolation, wealth protection and distribution. When the family service trust is initially established, the paid-in trust shall not be less than 1 million yuan, the term shall not be less than 5 years, and the investment scope shall be limited to trust plans, bank wealth management products and other public asset management products with interbank deposits, standardized debt assets and listed and traded stocks as the final investment targets. Family service trusts can be understood as "inclusive" or "MINI" versions of family trust products. Compared with the family trust, the threshold of the paid-in trust set up by the family service trust is more "people-friendly", not less than 1 million yuan. Family service trusts are basically the same as family trusts in terms of service functions, and are wealth management tools based on the trust system, all of which belong to wealth management service trusts under the new three classifications. Compared with the family trust, its service object is more extensive, can be extended to the public service population, the trust service contract is relatively standard, the scope of investment is limited to the standard investment. The functions of family service trusts include: family care, wealth inheritance, risk isolation and asset allocation. (III) Insurance Trust The trust company accepts the entrustment of a single natural person, or accepts the joint entrustment of a single natural person and his family members, and establishes the trust as the trust property with the relevant rights and corresponding interests of the life insurance contract and the funds required for the subsequent payment of premiums. When the payment conditions stipulated in the insurance contract occur, the insurance company will transfer the corresponding funds to the corresponding trust account in accordance with the insurance agreement, which will be managed by the trust company in accordance with the trust documents. Statistics from China Trust Registration Co., Ltd. show that in January 2023, the scale of new insurance fund trust was 8.974 billion billion yuan, an increase of 67.05 percent from the previous month, and the scale reached a new high in nearly 11 months. Compared with family trust, the threshold of insurance fund trust products is greatly reduced, which can enable more customers to share the high-quality and characteristic financial services provided by the trust plan, and gradually become a new hot spot of family wealth management, with broad space for future development. (IV) Special Needs Trust The trust company accepts the entrustment of a single natural person, or accepts the joint entrustment of a single natural person and his relatives, to meet and serve the living needs of specific beneficiaries as the main purpose of the trust, management and disposition of trust property. Recently, Everbright Trust and Everbright Bank Private Bank have cooperated to land the first single bank-trust cooperative physical and mental disability service trust in China, breaking the blank of domestic private banks in the field of physical and mental disability service trust, and providing innovative solutions for the lifelong care of people with physical and mental disabilities. In the trust structure, the principal is the family of the mentally handicapped child, the child is the beneficiary of the trust, and the Everbright Trust provides the trust service as the trustee. Due to the special circumstances of the beneficiary, in order to prevent the client from taking care of the child or leaving the child's property to be embezzled by others after the death of the client, the physical and mental disorder service trust reduces the proportion of cash distribution to the beneficiary and increases the function of entrusted payment compared with the previous family trust. The trust funds are based on the instructions of the client or other command owners (I. e. the client designated the person who sent the instructions to the trust company after his death), payments are made in the form of service fees to institutions that provide assessment, care, old-age care, rehabilitation and other services to beneficiaries, who are not in charge of a large amount of property themselves, but who can continue to enjoy the services provided by the institutions, thus safeguarding their quality of life in the future. (V) testamentary trust In order to realize the plan of the estate, the single settlor (testator) specifies the management plan of the estate, including the management, distribution, use and payment of the estate, in the way of establishing trust terms in the will and relevant trust documents in advance. After the will takes effect, the trust company will manage and dispose of the trust property according to the trust terms in the will. (VI) Other Personal Wealth Management Trusts The trust company, as a trustee, accepts the entrustment of a single natural person to provide property protection and management services. The principal shall establish a wealth management trust with the property legally owned by him and shall not illegally pool the property of others to establish a wealth management trust. The trust benefit rights of other personal wealth management trusts may not be split and transferred. The paid-in trust at the time of initial establishment of other personal wealth management trusts shall not be less than 6 million yuan. (VII) Corporate and Unincorporated Wealth Management Trusts As a trustee, the trust company accepts the entrustment of a single legal person or unincorporated organization to provide comprehensive financial planning, specific asset management, compensation and welfare management and other trust services. In addition to the management of compensation and benefits for the purpose of the trust, the wealth management trust of the legal person and the unincorporated organization shall be a self-beneficial trust. The beneficial rights of wealth management trusts of legal persons and unincorporated organizations may not be split and transferred. The value of the property delivered by the trustee of the wealth management trust of the legal person and the unincorporated organization shall not be less than 10 million yuan. Risk Disposal Services Trust The trust company, as a trustee, provides fiduciary services for the disposal of corporate risk and establishes a trust for the purpose of repaying debts to creditors to improve the efficiency of risk disposal. According to the risk disposal method is divided into 2 business varieties: (I) Enterprise Market Restructuring Service Trust As a trustee, the trust company provides fiduciary services for the disposal of corporate risks in the face of debt crisis, proposed debt restructuring or equity restructuring, and establishes a trust for the purpose of repaying the debt to the creditors of the enterprise. The reorganization enterprise delivers the trust property, plays the advantage function of risk isolation, and pays off the creditors by distributing the trust benefits to the beneficiaries through the disposal of the trust property. The trust can balance the interests and demands of multiple parties, resolve the pain points and difficulties in reorganization, improve the efficiency and repayment rate of enterprise bankruptcy reorganization, and maximize the operation and value of asset management. (II) Business Insolvency Services Trust The trust company, as a trustee, provides fiduciary services for the disposal of enterprise risks in bankruptcy reorganization, reconciliation or liquidation in accordance with the the People's Republic of China Enterprise Bankruptcy Law, and establishes a trust for the purpose of repaying debts to the creditors of the enterprise. The 2019 Bohai Steel bankruptcy reorganization case introduced a trust structure for the first time in the corporate bankruptcy reorganization. Simply put, the bankruptcy reorganization trust is the enterprise is not good to realize or realize a large loss of the assets to be liquidated with the trust into a package, by the trustee in 5-10 years to slowly choose the opportunity to dispose of, and then the disposal of the funds back to the beneficiaries, that is, creditors. Conclusion: Trust companies will eventually return to their trust roots. The term "trust" as mentioned in the Trust Law refers to the act of entrusting the property rights of the trustee to the trustee on the basis of trust in the trustee, and the trustee shall manage or dispose of the property in his own name for the benefit of the beneficiary or for a specific purpose in accordance with the wishes of the trustee. Trust companies engaged in trust business should be based on the trustee's position, follow laws, regulations and regulatory requirements, ensure that the purpose of the trust is legal and compliant, handle trust affairs for the best interests of the beneficiaries, and fulfill the fiduciary responsibility of honesty, trustworthiness and diligence. From the present stage, the notice is a basic system to promote the transformation and development of the trust industry, which plays a positive role in promoting the industry to return to its origin and achieve sustainable and healthy development.

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