Case Study

Safeguarding Assets through Asset Custody


    This case explores the intricacies of asset custody, a situation where assets are held by a third party, and the potential risks it can pose. It highlights the importance of proper planning and introduces the concept of a family trust as a solution to mitigate such risks.

Case Background:

    Ms. Wu, a 42-year-old woman, decided to safeguard her financial future due to a divorce and property separation caused by her friend's husband's infidelity. To protect her wealth, she transferred 20 million CNY, which she controlled, into her mother's name for the purchase of financial products. Unfortunately, her mother contracted COVID-19 and passed away suddenly. In the process of sorting through her mother's belongings, Ms. Wu's brother discovered the funds. He threatened legal action against Ms. Wu, claiming that without proper documentation, the money would be considered part of the inheritance.


Analysis of Risks Associated with Asset Custody:

  1. Ethical Risk: The custodian denying the rightful owner's access to the assets.
  2. Legal Risk: The custodial agreement being deemed invalid by the law.
  3. Disputes from Divorce or Unexpected Death: Unforeseen circumstances leading to disputes.
  4. Taxation Risk upon Asset Transfer: Implications when attempting to reclaim custodied assets.


The Family Trust Solution:

    If Ms. Wu had initially placed her assets in a family trust, the situation would have been entirely different. A family trust can effectively prevent asset custody risks.


Key Benefits of Establishing a Family Trust:

  1. Legal Protection: The nominal owner of the assets becomes the trustee, enjoying legal safeguards.
  2. Risk Isolation: Assets within the trust are shielded from potential custody issues.
  3. Succession Planning: Creating a family trust before marriage can support the smooth transfer of family wealth across generations. By specifying beneficiaries and distribution methods, it ensures the wealth's stable inheritance and fosters long-term family development.


    For individuals facing asset custody risks, planning early to prevent property disputes is advisable. We encourage you to consult a trusted advisor who can tailor a professional trust solution to your needs.

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