China has recently introduced new tax rules targeting offshore trusts and the income generated through them.
The message is clear: for Chinese tax residents, putting assets into an offshore trust should no longer be viewed as a way to simply remove those assets from the Chinese tax net.
Among other measures, the new rules provide for a 20% tax on certain gains arising when assets are transferred into an offshore trust, as well as taxation of certain income generated by the trust and offshore entities it controls. The rules also contain broad anti-avoidance provisions.
But beyond the tax implications, I believe this development raises a more fundamental question:
❓ What is the purpose of a trust?
A properly structured trust has never been about making assets “disappear” from the tax system.
A trust is a legal and fiduciary framework designed to address much broader objectives:
- 🧬 succession and intergenerational wealth transfer
- 🛡️ protection and continuity of family assets
- 🏛️ governance of complex family wealth
- 🌱 management of assets for future generations
- 🤝 protection of vulnerable beneficiaries
- ⚖️ separation between ownership and benefit
- 🌍 long-term stewardship of family wealth
And this is where the role of the trustee becomes critical.
👤 The Role of the Trustee
A professional trustee is not simply the registered owner of the assets.
The trustee has a fiduciary responsibility to administer the trust in accordance with the trust deed and applicable law, to act in the interests of the beneficiaries, to exercise appropriate discretion where required, and to provide independent oversight of the trust assets and its administration.
This distinction is particularly important when working with international families.
🏗️ Structure Alone Is Not Enough
A structure such as:
Family → Offshore Trust → Holding Company → Investment Portfolio
does not automatically create a robust wealth-planning structure.
The quality of the structure depends on the substance behind it:
- 👤 Who established it?
- 🎯 Why was it established?
- 🔐 Who controls what?
- 📜 What powers does the settlor retain?
- ⚖️ How independent is the trustee?
- 📈 How are investment decisions made?
- 💰 How are distributions determined?
- 👨👩👧👦 How is succession addressed?
- 🌐 And, critically, how is the structure treated from a tax perspective in the family’s country of residence?
🌍 Substance Over Jurisdictional Arbitrage
China’s new rules are therefore not necessarily an argument against offshore trusts.
They are, in my view, an argument against using trusts for the wrong reasons.
For internationally mobile families, the future of trust planning will increasingly be about substance, governance, fiduciary responsibility and transparency, rather than simply jurisdictional arbitrage.
A well-designed trust should still make sense even when tax considerations are taken out of the equation.
And a good trustee should be able to explain exactly why the trust exists, what it is meant to achieve, and how it is actually being administered.
That, ultimately, is what professional trusteeship should be about.