Law Articles
2025-10-29
Law Articles
The Legal Core Thinking of Family Asset Trust and Succession Planning
【Charlotte Wu, Partner Lawyer, Zhong Yin Law Firm】
charlotte.wu@zhongyinlawyer.com.tw
charlotte.wu@zhongyinlawyer.com.tw
The Legal Core Thinking of Family Asset Trust and Succession Planning
— Reflections on the Process from Standardized Trusts to Customized Private Trusts
In modern society, "wealth succession" is no longer merely a matter of estate distribution but a long-term project concerning value continuation and family relationship stability. As the wealth structure of high-net-worth individuals becomes increasingly diverse, the standardized trust services provided by traditional financial institutions can hardly meet the complex and individualized needs. At this point, "private trusts" arranged through professional assistance have become a more flexible solution that better addresses the actual needs of families.
I. The Development and Current Status of Taiwan's Trust Legal System
In Taiwan, the legal sources of trust are mainly divided into two aspects: one is the "Trust Act," which establishes the basic framework of trust legal relationships; the other is the "Trust Enterprise Act," which regulates the internal control and management mechanisms for financial institutions such as banks and trust companies when engaging in trust business.
Currently, common trust products on the market, such as "pension trusts," "education trusts," and "investment trusts," are mostly designed by large banks or trust companies according to formats approved by regulatory authorities.These products typically use cash, securities, funds and other highly liquid and evaluable assets as the main targets. They operate safely with rigorous systems, making them suitable for clients who need stable returns and clear structures. Currently, the commonstandardizedtrust services on the market can be roughly divided into the following categories based on asset types and purposes:
1. Pension Trust
Annuity trusts primarily assist elderly individuals in managing their living and care expenses. The settlor entrusts funds to a bank for management, and the bank regularly disburses payments for medical, care, or living expenses according to predetermined conditions. The characteristics of this type of trust are high security and transparent management, which can ensure the stability of the elderly's life in their later years.
2. Investment Trusts (Securities/Fund Trusts)
This type of trust aims for asset appreciation, with trust institutions investing in listed stocks, bonds, or funds on behalf of the client. Banks establish portfolios based on the client's risk profile and regularly report performance, making it suitable for clients who wish to maintain asset value through professional management.
These trust products are designed with considerable rigor and security, especially within the regulatory framework, ensuring that funds are not misused and that accounts are clear and transparent. However,trust companies typically have certain requirements regarding the services they can provide and the circumstances of the settlor, limiting the degree to which they can tailor services for individual clients.Asthe wealth structure of high-net-worth families becomes increasingly complex,single financial products andstandardizedfunctional trusts oftenfail to reflect the complete picture and long-term needs of the family. Moreover, asasset types diversify and family members become more internationalized, more and more high-net-worth clients are finding that simple standardized financial trusts cannot fully cover their asset characteristics and succession goals.
II. Trust Needs ofHigh-Net-Worth Clients:The Combination ofTailored andFlexible Structuresand Complex Legal Integration
The asset classes and composition of high-net-worth clients typically present unique characteristics due to their distinct family histories. In addition to cash andpublicly tradedstocks, they often include:
- Multiple parcels of land and real estate;
- Equity in private companies;
- Overseas assetsor virtual currency assets;
- Artwork and antique collections;
- Family business management rights and brand trademarks.
This is precisely where private trust planning can demonstrate itsuniquevalue. Unlike the standardized product regulations that financial institutions must comply with under the Banking Act,private trust legal frameworkscan, in accordance with the Trust Act and civil and commercial law systems,even assist in integrating cross-border resources,toclients custom-create trust structures that align with their asset composition and family relationships. While ensuring legality and stability, more detailed and flexible wealth inheritance arrangements can be achieved.
However, it must be acknowledged that trusts established for the purpose of asset inheritance typically involve higher legal and tax complexity. Factors such as the types of assets, the purpose and focus of inheritance, legal uncertainties and changes, the longer time required to establish trust agreements, and the need for different considerations all contribute to making this an extremely challenging task that requires deep and broad legal and tax understanding throughout the process.
III.Special Challenges and Legal Planning forReal Estate and Land Trusts
Taiwanesepeoplehave long believed that land is wealth. In theassetstructure of Taiwanesefamilies,real estate andlandoften occupya significant proportion, and are also the most commonly overlooked yet risk-laden part of family inheritance.
Real estate properties come in various types, from agricultural and industrial land to building land, each with its own usage restrictions and legal risks. Without proper trust arrangements and management systems, the following problems often arise:
1. Encroachment and Unauthorized Possession
If land is not properly demarcated or is loosely managed, instances of third parties encroaching upon or occupying the property are common.
The trust institution or trustee should establish regular inspection and legal rights protection mechanisms to ensure trust property is not encroached upon.
2. Waste Dumping and Environmental Responsibility
If landowners fail to fulfill their management responsibilities, they may be subject to administrative penalties or cleanup costs for illegally dumped waste. Therefore, clearly specifying the trustee's management obligations and insurance mechanisms in the trust agreement is a crucial legal consideration that cannot be overlooked.
3. Property Division and Inheritance Disputes
Differences in family members' perceptions of land value often lead to disputes. Through a trust, land can be centrally managed under the trustee's name, with the trust agreement stipulating income distribution and usage rights, thereby preventing property fragmentation or litigation disputes.
4. Use Restrictions on Agricultural and Industrial Land
Agricultural land is subject to principles of agricultural use and restrictions on inheritance registration; industrial land must comply with environmental protection and urban planning regulations.
5. Trust Arrangements for Urban Real Estate, Urban Renewal, and Joint Construction of Hazardous and Old Buildings
For real estate located in urban areas, future participation in urban renewal or the reconstruction of hazardous and old buildings often represents a crucial opportunity to enhance asset value. However, such projects involve long durations, multiple stakeholders, and complex legal procedures. If held or managed separately by family members, they can easily lead to coordination difficulties and disputes.
6. Estate Planning for Co-owned Land and Right of First Refusal
In family assets, co-owned land is an extremely common asset type with underlying risks. If one co-owner intends to sell their share, other co-owners have the right of first refusal. However, when there are many family members and after generational transitions, with rights holders being dispersed and lacking clear agreements, this often leads to transaction delays or disputes.
These should all be addressedthrough comprehensive legalassessmentand designduring the initial stages of trust planning to avoid future management difficulties or legal risks.
IV. Trust Design for Equity and Family Businesses
For families with self-owned businesses or holding companies, "corporate equity trust" is one of the core issues.Many families encounter corporate management deadlocks during the business succession process due to disagreements among heirs or dispersed share ownership. Family settlorscan, in accordance with regulations such as the Company Act, Trust Act, and Inheritance Tax Act, assist in designing succession mechanisms that balance operational stability with family prosperity. The purpose of such private trust arrangements is not merely to distribute assets, but to perpetuate family values and maintain long-term governance.
V, Conclusion: From Institutional Trust to Value-Based Trust
Trust services offered by financial institutions emphasize security and institutionalization, forming the foundation of sound asset management. However, when asset structures become more complex and family needs more individualized, private trusts can demonstrate greater flexibility and depth.
Every family's story is unique, and a dedicated trust plan is precisely the legal vehicle that continues this unique value and spirit, building a stable and warm inheritance blueprint for the family's future.
If you require legal advice regarding trust structures, or need to review the legal terms of trust contracts provided by financial institutions or trust companies, please feel free to contact:
Attorney Wu Jiehua
charlotte.wu@zhongyinlawyer.com.tw
tel +886 2 2377 1858 ext 8888