A Studyon Legal System of Heritage Trust〔＊〕

Wang Zhaihua

（School of Law Nanjing University of Finance ＆ Economics，Nanjing Jiangsu 210042）

Ⅰ.A general description of heritage trust system

1.Concept of heritage trust

Trust is one kind of legal relationship，where property is managed for the benefit of others.Heritage trust refers to the act that the trust－or，on the basis of trust in the trustee，establishes a trust in the way of making a will and transfers his/her property to the trustee，and the trustee manages or disposes of the property rights in his/her own name according to the wishes of the trust－or for the benefit of the beneficiary or for specific purposes.

2.Nature of heritage trust

The essence of a trust is its design of transferring and dividing ownership.Trust system is different from entrustment because the principal will not lose ownership due to the loss of possession of the entrusted in the entrustment re－lationship.Heritage trust system is a combination of the will system and the trust system.A will is a unilateral legal act and the testator does not need the consent of others to make a will，but a trust is a typical legal act of both sides，it is usually established in the way of contract and it can be established after both sides reach consensus.

3.Establishment of a heritage trust

（1）There is a clear intention.A heritage trust is established when the testator states that his/her property is held in trust in his/her will，so a valid will is the prerequisite for the establishment of a heritage trust.The trust－or should be able to effectively express his/her intentions，that is，the trust－or must have complete civil capacity.

（2）Beneficiaries are confirmed.Beneficiaries must be able to be confirmed，if beneficiaries do not exist when a trust is established，but they can be confirmed in the future.However，natural persons who are alive when the heritage trust is established but dead when the will enters into force or dissolved corporations and other organizations cannot be the beneficiaries of the trust and their heirs cannot inherit the benefits of the trust.

（3）Trust property is definite and legal.A heritage trust requires definite and legal trust property.If the trust－or has been dead and all the trust property designated in the will is not trust property，the heritage trust cannot take effect due to lack of trust property.The property or property rights used to establish a heritage trust should be able to be measured with money and should be legally acquired and possessed by the trust－or.The trust－or should have complete rights to possess，use and dispose of the property and may not claim rights for other people’s property.

Ⅱ.Operation situation of China’s heritage trust

1.Development status of heritage trust

In recent years，China’s economy develops rapidly and living standards of residents are improving，accompanied by agrowing number of property inheritance disputes.China introduced heritage trust in 2010，but most people still tend to rely on the law of succession in the area of inheritance and there are few successful examples of heritage trust.

Although China has such cases of heritage trust，the number is small.In practice，few people know the heritage trust system.China is a traditional oriental country and talking about death during lifetime is a taboo.Furthermore，most decedents prefer to make arrangements for things after their death in the way of wills，bequests，etc，so the heritage trust system develops slowly.In practical life，especially in the vast rural areas，the development of the heritage trust system is facing difficulties.

2.Reasons for the arrested development of heritage trust

（1）Double taxation inhibits the development of heritage trust

After the trust－or establishes a heritage trust，the heritage trust will take effect when the trust－or dies and the trust property of the trust－or will be transferred to the trustee.At this time，the trustee needs to pay transaction tax for property transfer.When the trustee gives the beneficiaries specified in the will the principal of the trust property，the beneficiaries need to pay transaction tax for property transfer，so there is a double taxation.However，the heritage trust system of Anglo－ American countries provides that inheritance tax should be paid only once for inheritance for which a trust is established so as to avoid tax burden.On taxation，we can learn from Japan’s regulations and clarify that beneficiaries are the only taxpayers because trust property is not the inherent property of the trustee，and the trustee does not have real ownership，so he/she does not have the obligation to pay taxes.

（2）Qualifications of trustees are strictly restricted

According to the law of China，without the approval of the People’s Bank of China，any individual or organization should not engage in trust business.The law has basically killed China’s civil trust and also hindered the development of trust business in China.China is different from the countries of the Anglo－American law system，and most European countries emphasize laws，but our society pays more attention to worldly wisdom and Chinese people，whether in urban or rural areas，attach great importance to mutual trust between friends and relatives.Trust－ors have more confidence in the people selected by themselves rather than people formally engaging in trust business，so restricted qualifications of trustees undoubtedly make heritage trust substantially less likely to succeed.

（3）The amount of each trust fund should not be less than fifty thousand yuan

Such restriction on the trust property goes against the principle of freedom of trust and keeps away small trusts.Although China’s economy has been developing and per capita income has been increasing，the gap between urban and rural development is large，and the proportion of rural population is high and the income of rural residents is not significant.In addition，rural people have relatively traditional thoughts and they are more willing to leave their property to their sons，even if their children will quarrel about property.Everyone has the right to freely dispose of their property.Undoubtedly，the threshold of trust fund，which is set at fifty thousand yuan，has restricted trust－ors’freedom to dispose of their own property and this provision also makes most people unable to achieve property distribution in the way of heritage trust.

Ⅲ.Suggestions to improve China’s heritage trust system

1.Suggestions at the legal level

（1）The establishment of a heritage trust should not need the promise of the trustee

The effectiveness of a heritage trust should still be subject to Article 42 of the Opinions of the Supreme People’s Court on Several Issues concerning the Implementation of the Law of Succession，namely“If the testator makes several wills with incompatible content in different forms，the notarized will finally prevail if any；if there is no notarized will，the last will made by the testator will prevail”.

（2）Allow to take a variety of forms to establish heritage trusts

The essential content and selective content of trust legacy should be clear，which should include the following aspects：（1）the name or title，address，etc.of the trust－or and the trustee；（2）the purpose of the heritage trust；（3）appointed beneficiaries or the scope of beneficiaries；（4）the scope，type，status，etc.of the trust property；（5）the ways and methods for the beneficiaries to get trust benefits；（6）the ownership or disposal of the trust property after trust term expires；（7）trust term；（8）and the management methods of the trust property，the trustee’s remuneration，how to appoint a new trustee，termination of the trust and other matters.

（3）Liberalize the qualifications of trustees

First，make specific and complete provisions on trust subject and object，mainly including the rights and obligations of beneficiaries，trust institutions and supervisors.If there are provisions in the heritage trust，be subject to the provisions；if no provisions，be subject to relevant stipulations of the Trust Law.

Second，make special provisions in the Trust Law on the following core issues of the legal trust relationship：（1）change of the trustee and conditions；（2）the trustee’s liability for breach；（3）corresponding relief channels for the beneficiaries to respond to the trustee’s breach or violation.

Third，according to relevant provisions of the Trust Law，the trustee may be a natural person or a trust company.

If the trustee is a natural person，the natural person should have complete civil capacity.（2）If the trustee is a trust company，the trust institution should comply with relevant provisions of the Trust Law and the Administration Measures of Trust Companies.In addition，particular attention should be paid to the credit status of the trustee.There should be a comprehensive investigation and analysis of the credit status of the trustee so as to exclude trust institutions with poor credit status from the market and provide the testator with more complete details to select a trustee.

（4）Clearly define the ownership of the trust property

A heritage trust should be established completely according to relevant legal requirements both in form and in essence.For example，more than two witnesses in case of writing legal document for others and sound recording，handwriting in case of holograph，requirements for establishment in the oral form，etc.Also，in terms of the substance，for example，a necessary portion of an estate should be left to the people lacking the ability to work and having no source of income so as to guarantee their basic living；the legacy distributed and disposed of in the agreement should be personal legal property of the testator，etc.In addition，all necessary items of a heritage trust should be clarified.A heritage trust must define the scope of the trust property，the liability for breach of the beneficiaries，the trust－or and the trustee，conditions for changing the trustee，the ownership and disposal of the trust property after trust term expires，circumstances where the beneficiaries will lose the right to income and the establishment of trust supervisors.

（5）The establishment of supervisors or executors

As for the development of laws，relevant trust supervisor system can be established for heritage trust because among existing laws，only the Trust Law establishes the supervisor system for public trust，but there is no supervisor system for personal trust and commercial trust.Compared with heritage trust，the establishment of a trust relationship is based on the premise that the trust－or wants to achieve his/her purpose by entering into an agreement with the trustee，so the supervisor system becomes indispensable when considering whether the trust institution manages the trust property according to the wishes of the trust－or.Obviously，a sound supervisor system can well play a supervisory role to protect the interests of the trust－or.

2.Suggestions at the social level

（1）Trust institutions should improve their own credit

Rich persons entrusts their great wealth to trust institutions so as to protect their property from being damaged by outsiders，so whether the trust institutions can manage and distribute their property according to their wishes becomes a key concern for them.The improvement of the trust industry is a process requiring efforts of multiple sides.Not only should the state adopt policies to standardize and improve industrial threshold，but also trust institutions should establish a good image and enhance reputation to make customers have more trust in them.On the other hand，the trust industry may set up a supervision authority to manage the non－standard behaviors in the industry.It can also assess the credit of the trust institutions every year so as to actively promote the standardization and perfection of the industry and provide customers with a credit reference.

（2）Increase publicity to popularize heritage trust

In countries where heritage trust is developed，people have a high recognition of heritage trust and nearly eighty percent of the people consider it a way of wealth management.Maybe now they don’t have enough assets to establish a heritage trust，but it does not guarantee that he will not have the property to establish a heritage trust.In fact，heritage trust is not just an activity of rich people，and it is likely to become a universal wealth management way in the future，which will be its development trend.Therefore，increasing publicity to enhance the people’s understanding of heritage trust and develop potential cus－tomers is also an important step in the development of the heritage trust system.

（3）Learn from the experience of other countries

Currently，there is not much improvement in the development of the heritage trust system in China，but the development of heritage trust in Britain，the United States，Japan and other countries is flourishing.However，we can confirm and foresee that the heritage trust system will certainly get considerable development in China in the future，so how to learn from others’advantages and avoid unfavorable conditions should be considered in the development of the heritage trust system.Therefore，learning from the experience of other countries to accelerate the development of heritage trust business，develop more heritage trust products and meet the increasingly diversified needs of customers is key to the development of the heritage trust system.

Notes：

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