Viewpoint... A brief analysis of the rights and obligations of the parties in the family trust.
Published:
2021-12-06
A trust, in short, is a special property management system and legal act in which the principal entrusts his property rights to the trustee based on his trust in the trustee, and the trustee manages and disposes 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 principal. Trust should have been used as a specific legal structure to manage and pass on wealth, but in real life, due to the imperfection of the trust structure, a large number of disputes have been brought to court. How to make reasonable use of the trust structure to manage wealth and reduce the generation of disputes, this paper analyzes the rights and obligations of the three parties in the trust structure as the starting point. In a trust, three parties are generally involved, namely, the principal who invests the credit, the trustee who is trusted, and the beneficiary who benefits from the person. 1. the rights and obligations of the principal The settlor shall have the right to know the management, use, disposition and income and expenditure of his trust property, and shall have the right to request explanations from the trustee. At the same time, when the trustee disposes of the trust property in violation of the purpose of the trust, or is grossly negligent in managing the use or disposition of the trust property, the settlor shall have the right to remove the trustee in accordance with the provisions of the trust documents. 2. the rights and obligations of the trustee The trustee has more stringent obligations than the principal. The trustee shall abide by the provisions of the trust documents, handle the trust affairs with due diligence, manage the trust property, and perform the obligations of honesty, credibility, prudence and effective management. At the same time, the trustee shall not use the trust property for his own benefit, except to obtain remuneration in accordance with the provisions of the law or the agreement of the parties, nor shall the trust property under his management be confused with his own inherent property. Trustees play an extremely important role in family trusts. It can be said that the trustee is equivalent to the housekeeper of family wealth, and undertakes the important task of helping to maintain and increase the value of huge wealth. Therefore, the strength in asset management should not be underestimated. Under different legal circumstances, the trustee may have the ownership and disposal rights of the trust property at the same time or separately, and the security, increase or decrease and income of the trust property are directly related to it. Trustees in family trusts are broadly divided into natural persons and trusts. Choosing a natural person as a trustee is often not suitable for the design of a family trust. Because a family trust is a long-term wealth investment, a natural person may be unable to perform the duties of a trustee due to his physical condition, and a natural or accidental death may result in the absence of a trustee. It may also be unable to properly manage trust affairs due to limited ability, and may even cause moral risks of infringing trust property and harming the interests of beneficiaries due to lack of supervision, the occurrence of any of the above-mentioned situations will cause the management service of the family trust to a deadlock and affect the realization of its objectives; on the other hand, the trust company, as a statutory business trustee, is fully integrated into the country's financial supervision and has the advantage of institutional protection. At present, China implements a monopoly system for the operation of trust business, except for trust companies, banking, securities, insurance and other financial industries are not allowed to operate trust business, and other legal entities are not allowed to operate trust business unless they are licensed by law. Legal entities other than trust companies can only act as non-business trustees and cannot provide trustee services as their profit-making activities, which not only affects their overall understanding of trustee responsibilities, but also limits their professional investment in trustee capabilities, and cannot be included in the country's financial supervision like trust companies. 3. the rights and obligations of the beneficiaries The beneficiary is the person who has the right to benefit from the trust in the trust relationship. The rights of the beneficiaries mainly include the following aspects, such as: the various rights enjoyed by the trustee, the transfer and inheritance of the beneficial rights of the trust in accordance with the law, the use of the beneficial rights of the trust to pay off the debts that cannot be repaid at maturity, the trust documents do not provide for the attribution of the trust property, the priority of obtaining the trust property, etc. As far as the obligation of the beneficiary is concerned, it is generally accepted that when the trustee suffers a loss through no fault of his own in the course of handling the trust business, the beneficiary is obliged to accept the trustee's request for fees and deduct them from the trust income. When the legitimate rights and interests of the beneficiaries are infringed, the following remedies can be taken to circumvent the damage. First of all, when the trustee fails to hand over the trust property to the right owner in accordance with the provisions of the trust documents, the right owner has the right to claim the return of the trust property. The trust property here can be movable property, real estate, or marketable securities, debt, intellectual property, and equity. Secondly, after the termination of the trust, when the trust property is occupied by someone other than the trustee, the owner of the right has the right of recourse to that person, and Article 22 of China's Trust Law stipulates that if the trustee disposes of the trust property in violation of the purpose of the trust, and the transferee of the trust property knowingly accepts the property in violation of the purpose of the trust, it shall be returned. In addition, under section 49 of the Trust Act, after the termination of the trust, the beneficiary, if he is the owner of the trust rights, also has the right to claim damages and the right to remove the trustee. As the owner of the trust property, when the transferred trust property is lost due to the trustee's breach of the purpose of the trust, breach of management duties, improper handling of trust affairs, the right owner also has the right to claim compensation within a reasonable range for the portion of the loss caused by the trustee. Rights and obligations of 4. protectors In the general trust structure, in addition to the three basic trust subjects of the principal, trustee and beneficiary, it is often possible to establish a trust role called the protector (protector). In China's Trust Law, the duties of the supervisor focus on the protection of the interests of beneficiaries and the realization of public welfare purposes, while the main purpose of setting up a protector in a family trust is to implement the wishes of the principal and protect the beneficiaries. In general, common protectors' rights include:(1) appointment and removal of trustees;(2) request/consent of trustees to change the jurisdiction of the trust;(3) request/consent to increase or decrease beneficiaries;(4) request/consent to distribution of the trust;(5) request/consent to early termination of the trust; and (6) appointment of successor protectors. The above-mentioned rights are all important conditions for effective supervision of the trustee in the process of trust survival. The above-mentioned rights enjoyed by the trustworthy protector can better ensure that the trust survival and operation meet the wishes of the establishment, and the use and distribution of trust assets are more in line with the maximization of the interests of the beneficiaries, but at the same time, it must be noted that the rights of the protector should not be too large, otherwise it may lead to serious adverse consequences. Therefore, when setting up protectors, in addition to fully considering the general rules of the regular, the protectors, their scope of duties, and selection rules should also be designed in individual cases, such as "adapting measures to local conditions and varying from person to person", so that the "protectors" can be named and real, better perform their duties, and escort the inheritance of family wealth from generation to generation. George Soros once said, "There is no reproach for taking risks, but at the same time remember that you must not put all your eggs in one basket." This article analyzes the rights and obligations of the parties in the family trust, so that more people can understand this "slightly unfamiliar" field, and avoid the situation of losing both sides in the "Lunan Pharmaceutical Family Trust Equity Dispute.
A trust, in short, is a special property management system and legal act in which the principal entrusts his property rights to the trustee based on his trust in the trustee, and the trustee manages and disposes 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 principal.
Trust should have been used as a specific legal structure to manage and pass on wealth, but in real life, due to the imperfection of the trust structure, a large number of disputes have been brought to court. How to make reasonable use of the trust structure to manage wealth and reduce the generation of disputes, this paper analyzes the rights and obligations of the three parties in the trust structure as the starting point.
In a trust, three parties are generally involved, namely, the principal who invests the credit, the trustee who is trusted, and the beneficiary who benefits from the person.
1. the rights and obligations of the principal
The settlor shall have the right to know the management, use, disposition and income and expenditure of his trust property, and shall have the right to request explanations from the trustee. At the same time, when the trustee disposes of the trust property in violation of the purpose of the trust, or is grossly negligent in managing the use or disposition of the trust property, the settlor shall have the right to remove the trustee in accordance with the provisions of the trust documents.
2. the rights and obligations of the trustee
The trustee has more stringent obligations than the principal. The trustee shall abide by the provisions of the trust documents, handle the trust affairs with due diligence, manage the trust property, and perform the obligations of honesty, credibility, prudence and effective management. At the same time, the trustee shall not use the trust property for his own benefit, except to obtain remuneration in accordance with the provisions of the law or the agreement of the parties, nor shall the trust property under his management be confused with his own inherent property.
Trustees play an extremely important role in family trusts. It can be said that the trustee is equivalent to the housekeeper of family wealth, and undertakes the important task of helping to maintain and increase the value of huge wealth. Therefore, the strength in asset management should not be underestimated. Under different legal circumstances, the trustee may have the ownership and disposal rights of the trust property at the same time or separately, and the security, increase or decrease and income of the trust property are directly related to it.
Trustees in family trusts are broadly divided into natural persons and trusts. Choosing a natural person as a trustee is often not suitable for the design of a family trust. Because a family trust is a long-term wealth investment, a natural person may be unable to perform the duties of a trustee due to his physical condition, and a natural or accidental death may result in the absence of a trustee. It may also be unable to properly manage trust affairs due to limited ability, and may even cause moral risks of infringing trust property and harming the interests of beneficiaries due to lack of supervision, the occurrence of any of the above-mentioned situations will cause the management service of the family trust to a deadlock and affect the realization of its objectives; on the other hand, the trust company, as a statutory business trustee, is fully integrated into the country's financial supervision and has the advantage of institutional protection. At present, China implements a monopoly system for the operation of trust business, except for trust companies, banking, securities, insurance and other financial industries are not allowed to operate trust business, and other legal entities are not allowed to operate trust business unless they are licensed by law. Legal entities other than trust companies can only act as non-business trustees and cannot provide trustee services as their profit-making activities, which not only affects their overall understanding of trustee responsibilities, but also limits their professional investment in trustee capabilities, and cannot be included in the country's financial supervision like trust companies.
3. the rights and obligations of the beneficiaries
The beneficiary is the person who has the right to benefit from the trust in the trust relationship. The rights of the beneficiaries mainly include the following aspects, such as: the various rights enjoyed by the trustee, the transfer and inheritance of the beneficial rights of the trust in accordance with the law, the use of the beneficial rights of the trust to pay off the debts that cannot be repaid at maturity, the trust documents do not provide for the attribution of the trust property, the priority of obtaining the trust property, etc. As far as the obligation of the beneficiary is concerned, it is generally accepted that when the trustee suffers a loss through no fault of his own in the course of handling the trust business, the beneficiary is obliged to accept the trustee's request for fees and deduct them from the trust income.
When the legitimate rights and interests of the beneficiaries are infringed, the following remedies can be taken to circumvent the damage. First of all, when the trustee fails to hand over the trust property to the right owner in accordance with the provisions of the trust documents, the right owner has the right to claim the return of the trust property. The trust property here can be movable property, real estate, or marketable securities, debt, intellectual property, and equity. Secondly, after the termination of the trust, when the trust property is occupied by someone other than the trustee, the owner of the right has the right of recourse to that person, and Article 22 of China's Trust Law stipulates that if the trustee disposes of the trust property in violation of the purpose of the trust, and the transferee of the trust property knowingly accepts the property in violation of the purpose of the trust, it shall be returned. In addition, under section 49 of the Trust Act, after the termination of the trust, the beneficiary, if he is the owner of the trust rights, also has the right to claim damages and the right to remove the trustee. As the owner of the trust property, when the transferred trust property is lost due to the trustee's breach of the purpose of the trust, breach of management duties, improper handling of trust affairs, the right owner also has the right to claim compensation within a reasonable range for the portion of the loss caused by the trustee.
Rights and obligations of 4. protectors
In the general trust structure, in addition to the three basic trust subjects of the principal, trustee and beneficiary, it is often possible to establish a trust role called the protector (protector). In China's Trust Law, the duties of the supervisor focus on the protection of the interests of beneficiaries and the realization of public welfare purposes, while the main purpose of setting up a protector in a family trust is to implement the wishes of the principal and protect the beneficiaries. In general, common protectors' rights include:(1) appointment and removal of trustees;(2) request/consent of trustees to change the jurisdiction of the trust;(3) request/consent to increase or decrease beneficiaries;(4) request/consent to distribution of the trust;(5) request/consent to early termination of the trust; and (6) appointment of successor protectors. The above-mentioned rights are all important conditions for effective supervision of the trustee in the process of trust survival. The above-mentioned rights enjoyed by the trustworthy protector can better ensure that the trust survival and operation meet the wishes of the establishment, and the use and distribution of trust assets are more in line with the maximization of the interests of the beneficiaries, but at the same time, it must be noted that the rights of the protector should not be too large, otherwise it may lead to serious adverse consequences. Therefore, when setting up protectors, in addition to fully considering the general rules of the regular, the protectors, their scope of duties, and selection rules should also be designed in individual cases, such as "adapting measures to local conditions and varying from person to person", so that the "protectors" can be named and real, better perform their duties, and escort the inheritance of family wealth from generation to generation.
George Soros once said, "There is no reproach for taking risks, but at the same time remember that you must not put all your eggs in one basket." This article analyzes the rights and obligations of the parties in the family trust, so that more people can understand this "slightly unfamiliar" field, and avoid the situation of losing both sides in the "Lunan Pharmaceutical Family Trust Equity Dispute.
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