Make protecting your legacy a priority at Lunar New Year

As we welcome in the Year of the Wood Snake in 2025, we enter into a period of wisdom, transformation and renewal. The snake – a symbol of intelligence, intuition and creativity – invites us to reflect on our journey and plan for a prosperous and secure future.

Why Legacy Planning Matters

Legacy planning is more than just arranging your finances; it’s about safeguarding your family’s future, ensuring continuing prosperity and passing down your values alongside wealth. In a world of uncertainties, legacy planning offers stability and control over how your assets are managed and distributed. The Wood Snake’s themes of protection, renewal and strategic thinking remind us of the importance of methodical preparation in securing our legacies.

The Role of Trusts in Legacy Planning

Trusts are among the most powerful tools in legacy planning. They not only protect your assets but also ensure that they are used according to your wishes. Here’s how a trust can embody the characteristics of the Wood Snake:

• Wisdom and Knowledge – trusts are tailored financial arrangements that provide clarity and certainty as to how wealth is managed, ensuring informed decisions for generations to come.
• Protection and Security – just as the snake encourages the creating of safe spaces, trusts shield assets from legal disputes, creditors and unforeseen financial risks.
• Transformation and Renewal – a trust can adapt to changing family dynamics, economic conditions and legal environments, ensuring its relevance over time.
• Strategic Action – trusts allow for deliberate, well-timed disbursements that align with your family’s goals and needs, mirroring the snake’s thoughtful and measured approach.

In Chinese culture, the Wood Snake represents more than just a zodiac sign – it is revered as a divine messenger and a protector of sacred places. Its unique ability to shed its skin symbolises renewal and transformation, making it an ideal inspiration for individuals and families to let go of old habits and adopt new strategies for wealth management and legacy planning. With this in mind, we will explore three recent case studies of trust solutions adopted by high-net-worth individuals (HNWIs).

Case Study 1: Discretionary Trusts – The Wong Family Trust

Background

The Wong family – Mr and Mrs Wong and their two children – wanted to establish a trust to manage their family wealth, which includes liquid investments and life insurance policies. They were particularly concerned about maintaining investment control over the trust assets and ensuring that their children would benefit from the trust upon reaching adulthood.

Establishment of the Trust:

1. Trust Deed Creation – Sovereign drafted a trust deed that outlines the terms of the trust, including the roles of the trustee and the beneficiaries. Mr Wong also drafted a letter of wishes that provides important guidance to the trustees on the trust asset distribution to the beneficiaries.Reserved Powers – Mr Wong, as the trust settlor, included specific reserved powers in the trust deed, which enable him to retain control over investment decisions.Protector – Mrs Wong was appointed as the ‘protector’ of the trust, which provides her with powers to:change the trustee, if necessary.change the beneficiaries and their respective distributionsamend the trust terms to adapt to changing family circumstances or laws.

Implementation

The trust was funded with family assets, including two life insurance policies and a USD5 million diversified portfolio of assets, which included stocks and bonds held in a private bank account. Mr Wong, as the settlor, retained certain rights, such as the ability to direct the trustee on specific investments.

Benefits:

• Control – Mr Wong was able to maintain significant control over the trust assets, ensuring that the investments aligned with the family’s values and goals.
• Protection of assets – the trust helped protect family assets from potential creditors or legal disputes, especially the children and future generations in the event of divorces.
• Tax efficiency – the trust structure provided potential tax benefits, allowing for more efficient wealth transfer to the next generation.

Outcome

As the children reached adulthood, they began to receive distributions from the trust according to the guidance set out in Mr Wong’s letter of wishes. The large lump sum from the life insurance pay-out and income from the low risk investment portfolio were able to provide the Wong’s children with a good standard of living. Mr Wong had the peace of mind knowing that the trust will be able to meet the family’s evolving needs, while providing for his children’s future.

Conclusion

The Wong Family Trust exemplifies how the Hong Kong Reserved Powers Trust can be utilised to balance control with flexibility, making it an attractive option for families looking to manage their wealth and ensure the long-term financial security.

Case Study 2: Private Trust Company (PTC) – The Lee Family Purpose Trust holding a Private Trust Company

Background

Mr and Mrs Lee wanted to establish a long-term structure to manage their wealth and ensure the continuity of their family business. Having spoken to Sovereign, they decided to set up a Purpose Trust in Hong Kong that would also hold a Private Trust Company (PTC) in Hong Kong.

This would enable them to maintain control over their family assets while also benefiting from the flexibility and efficiency of the trust structure.

Establishment of the Trust:

• Trust Deed Creation – the trust deed set out the purpose of the trust, which included managing family investments, protecting family wealth and ensuring the sustainability of the family business.
• Private Trust Company Formation – the Lees also established a Private Trust Company in Hong Kong to act as the trustee of the family trust. This PTC allowed them to retain direct control over trust management and decision-making processes.

Implementation

The purpose trust was set up to hold the shares of the PTC, which in turn managed various family assets, including investments, real estate and the family business.

The purpose trust was set up without specific beneficiaries but focused on the overarching goals of wealth preservation and business continuity.

Benefits:

• Control – the PTC structure ensured that the Lee family retained control over trust management, allowing them to make decisions that aligned with their family values and goals.
• Flexibility – the purpose trust provided flexibility in managing assets without the rigid requirements of traditional beneficiary-focused trusts.
• Asset protection – by placing assets within the trust, the Lees protected their family wealth from potential creditors and ensured that their business could continue to operate without disruption.

Outcome

With the trust in place, the Lee family successfully managed their investments and business operations. The PTC allowed for seamless decision-making regarding asset management, while the purpose trust ensured that the family’s long-term goals were prioritised. The structure facilitated smooth transitions in leadership as the next generation began to take on roles in the family business.

Conclusion:

The Lee Family Purpose Trust, holding a Private Trust Company, exemplifies a strategic approach to wealth management and family business continuity. This structure enabled the Lees to maintain control over their assets while providing flexibility and protection, demonstrating the advantages of using a purpose trust in modern estate planning.

Case Study 3: Charitable Trusts – The Chan Charitable Trust

Background

The Chan Charitable Trust was established by Ms Chan, a successful businesswoman, with a vision of address critical social issues in Hong Kong, particularly focusing on education and poverty alleviation.

Establishment of the Trust:

1. Trust Deed Creation ?– Ms Chan engaged a Hong Kong lawyer to draft a trust deed outlining the charitable objectives of the trust, the governance structure and the role of the trustee.Charitable Objectives – the trust was created with specific purposes, including:Providing scholarships for underprivileged students.Supporting local non-profit organizations that focus on community development.

Implementation

The trust was funded entirely by Ms Chan’s personal contributions and the payout of her life insurance policies, ensuring that the trust remained aligned with her vision and values. It did not accept external donations.

A board of trustees was established, comprising individuals with expertise in philanthropy and community development, responsible for overseeing the trust’s operations and ensuring transparency.

Benefits:

• Tax benefits – as a registered charitable trust, the trust enjoyed tax exemptions on its income, allowing it to maximise its resources for charitable purposes.
• Long-term sustainability – the trust was structured for long-term sustainability, enabling Ms Chan to plan for ongoing support of its charitable activities. The trust’s activities improved the lives of many individuals and highlighted the importance of philanthropy in addressing local needs.

Conclusion By establishing clear objectives and maintaining control over funding through personal contributions and insurance payouts, Ms. Chan was able to maximize the trust’s impact and contribute meaningfully to society.

Step into the New Year with Sovereign

At Sovereign, we believe in empowering individuals and families to take control of their financial futures. The Year of the Wood Snake offers a unique opportunity to embrace wisdom and strategy in your wealth management and legacy planning. We can assist you to transform your wealth into a legacy that endures down through the generations.

We offer expert guidance and tailored solutions to ensure your wealth is managed and preserved in the most effective way possible. Contact us and start your journey towards a prosperous and secure future today.

Contact Vivian Leung: [email protected].