Interpretation of the Impact of No. 37 Document

Abstract: 

Mainland China is one of the regions with the largest accumulation of private wealth in the world and as one of the fastest growing regions for affluent people, under the strong demand for protection and inheritance of private wealth, family trusts have developed rapidly in recent years.

On the evening of August 21, the China Insurance Regulatory Commission issued the Notice of the Ministry of Trust on Strengthening the Trust Supervision Work in the asset management business transition period (referred to as “No.37 Document”), requiring each Banking Supervision Bureau Trust Supervision Office to follow the principle of “substance is more important than form”, and strengthen the supervision of trust, business, and innovative products. The “No. 37 Document” first defined the definition of family trust, and the part related to family trust became a rare highlight. At the same time, we have noticed that although the current overall legal system for family trusts is still not perfect, the "No. 37 Document" has become a major advancement in the family trust legal system. This note by the International Affairs team form Beijing Docvit Law Firm briefly discusses the "No. 37 Document" and its impact on family trusts.

1

Definition of family trust

“No. 37 Document” defines the definition of family trust and clearly stipulates that charitable trusts and family trusts are not applicable to  the new regulations for asset management. The definition of the family trust is:

（1）First, the bailor must be a single individual or a single family, the definition of the family trust cannot be applied to the definition of a traditional assembled funds trust;

（2）The amount or value of the family trust shall not be less than 10 million;

（3）It shall not be a purely self-benefit trust, and the beneficiary must include family members, including the bailor;

（4）It has both transaction management and financial services functions. It can't just be for financial management. That is to say, the family trust can be a pure money trust as long as it includes asset planning, risk isolation, asset allocation, education, charity and other practical management elements.

"No. 37 Document" indirectly emphasized that, in addition to the traditional value-added function, the family trust also can isolate family and business risks, prevent children from spending and encourage children to work hard. In addition, the family trust has investment attributes, but also has transaction management functions for wealth management and heritage of high net worth individuals.

This revision has raised the threshold of family trust business to 10 million yuan, for the previous small-scale family trust which is In order to seize the opportunity of the family trust market, it has achieved excellent results. Therefore, the trust business, which is for the purpose of pursuing the appreciation of trust property and has wealth management and asset management functions, will no longer be a part of the family trust business.

2

The supervision of the trust will be stricter

Family trusts and property rights trusts will be supported by the regulatory authorities. Regulations encourage trust companies to return to the trust business. The new regulations on asset management require that the trust shall serve the real economy and improve the quality of development.

3

The conclusion

Finally, subject to the limitations of the current Trust Law of People’s Republic of China, Tax Law and Company Law of People’s Republic of China, there are still many problems cannot be solved. Overall, the "No. 37 Document" is a huge advancement in the family trust legal system.

Disclaimer

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