News
Succession Planning and Debt Shielding Trust for SME Owners
Mr. Wang, a manufacturing business owner with an annual company revenue of RMB 120 million, has a personal net worth of RMB 32 million.
(Holdings include an industrial park shop worth RMB 15 million, RMB 10 million in bank deposits, and RMB 7 million in A-shares.)
Core Challenges:
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Only son uninterested in succession – Focused on art, with concerns that post-sale proceeds might be squandered through impulsive investments.
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Debt exposure – RMB 20 million bank loan for business expansion, with Mr. Wang’s personal guarantee, raising concerns that volatility may endanger family assets.
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Children lack financial management skills – Direct inheritance could lead to poor decisions and asset losses.
Trust Arrangement:
Mr. Wang injects the industrial shop (valued at RMB 15 million) and RMB 8 million in bank deposits into a domestic irrevocable family trust, with a licensed trust company as trustee.
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Monthly living allowance – Trustee distributes RMB 35,000 to his child, upon submission of expense receipts (e.g., rent, dining invoices).
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Conditional capital support – If his child starts an art studio or pursues further education, they may apply for RMB 500,000–2,000,000 in funding with supporting contracts (e.g., lease agreements, admission letters), subject to review by a trust supervisor.
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Debt default safeguard – If the company defaults, the trust automatically activates a “protection mode”: only living allowance continues; large withdrawals are suspended.
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Independent oversight – Retired CFO appointed as trust supervisor to audit fund flows and investment returns every six months.
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During Mr. Wang’s lifetime – He may adjust the shop rental pricing strategy.
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After Mr. Wang’s passing – Trust assets pass to his child. If the child passes away without direct descendants, residual assets will be donated to a local youth entrepreneurship support fund.
Benefits of the Family Trust:
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Debt Risk Isolation – Trust assets remain independent of corporate debt, shielding family assets from personal guarantees.
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Rational Asset Distribution – Conditional, phased support ensures responsible use of inherited wealth.
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Professional Management – Trustee manages real estate and securities portfolio to grow long-term returns.
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Dynamic Risk Control – Automatic debt-trigger mechanism prevents creditor claims, safeguarding succession goals.
