Family wealth succession has always been a global challenge and a perennial concern for the wealthy. How can one break the curse of "wealth not lasting beyond three generations"? Looking at wealthy families abroad, such as the Rockefellers and the Kennedys, all have utilized family trusts to achieve wealth succession and ensure their legacies remain evergreen.
Recently, the beautiful photos and stories from the royal wedding of Prince Harry of the United Kingdom flooded social media. One point that drew significant attention was that, in the face of true love, Prince Harry did not take precautions regarding his wealth and declined to sign a prenuptial agreement.
However, in reality, Prince Harry's late mother, Princess Diana, had established a family trust for him long ago. This not only allowed Prince Harry to inherit his wealth smoothly but also protected his assets from being eroded by any factors.
Why did Princess Diana set up a family trust for Prince Harry instead of simply leaving him cash deposits?
It is important to clarify that a family trust is not a product, but a legal structure. In China, what people often perceive as a trust is actually a self-beneficiary trust, which is a type of investment and wealth management product aimed at generating profit. What Princess Diana established was a third-party beneficiary trust in the true sense, aimed at wealth succession, asset protection, risk isolation, and providing for living expenses. It is a form of transferring wealth to descendants (or caring for one's relatives). The purposes, functions, and applicable legal provisions of the two are entirely different.
Family trusts inherently possess asset isolation capabilities. Trust law stipulates that once a trust becomes effective, the trust property becomes independently operated property. The trust property is separated from the settlor's own property and is independent of the trustee's own property. The trustee can only operate and distribute it in accordance with the provisions of the trust agreement. At the same time, it does not belong to the beneficiary's property until the trust benefits are paid out. The provisions of trust law achieve a triple isolation of trust assets: independent from the settlor, independent from the trustee, and independent from the beneficiary.
Below, we will analyze the divorce case of media mogul Rupert Murdoch and Wendi Deng to see how a trust, as a legal structure, manages the isolation of a settlor's assets.
In the divorce case of global media mogul Rupert Murdoch and Wendi Deng, Wendi Deng received $20 million in assets, while Rupert Murdoch's total assets were $13.4 billion. Relying on the robust protection of a family trust, the divorce did not affect the assets and operations of News Corp.
The Murdoch family holds nearly 40% of the voting shares in News Corp, with over 38.4% of these shares held by the Murdoch Family Trust. The beneficiaries are Rupert Murdoch's six children. The four children from Rupert Murdoch's first two marriages are the trustees of this trust and hold the voting rights for News Corp, while the two daughters from his third marriage with Wendi Deng only enjoy beneficiary rights without voting rights. In this way, the control of News Corp remains firmly in the hands of the Murdoch family.
Trust assets have legal independence. Once a family trust is legally established, if the settlor faces bankruptcy liquidation due to business operation issues, their trust assets can be protected and will not be included in the scope of liquidation. Corporate and family assets are independent of the personal assets of family members, and will not be damaged or reduced due to risks such as the personal capabilities, debts, or marriages of family members.
By holding shares through a family trust, effective concentration of corporate equity is achieved, separating the ownership and management rights of the founding shareholders or corporate management successors, preventing equity division risks caused by marriage or asset distribution, and achieving continuous and effective control over the family business. The trust separates ownership, enhances control, and guarantees beneficiary rights.
Family trusts can also flexibly set various terms according to the settlor's requirements, such as duration, asset distribution methods, and property disposal in case of emergencies, and can be adjusted during the term of the trust according to prior agreements. At the same time, the settlor can also explicitly specify the conditions for the beneficiary to receive benefits in the trust terms, add restrictive clauses for descendants, realize the education and restraint of successors, and achieve the multiple transmission of both material and spiritual wealth.
