The international law firm recently discussed with this publication the areas of work in trusts and family office structuring that are generating considerable business.

Hong Kong’s status as an initial public offering launch-pad for companies is driving growth in the field of what are called pre-IPO trusts, one of a number of structures that keep the trusts sector growing in the jurisdiction, a senior lawyer says. 

Pre-IPO trusts structures are created by founders of operating businesses. This type of trust tends to be more complicated than trusts that only hold financial assets. Hong Kong’s status as one of the busiest places for floating new firms means this creates plenty of work for lawyers putting trusts together.

This sector is definitely seeing more demand, Wei Zhang, a partner at Withers specialising in tax and wealth planning affairs, says. 

“IPOs are, of course, a very important liquidity event for a founder and his or her family," Wei Zhang told this publication in a recent call about trends in her space. 

There are a number of jurisdictional issues to consider with these trusts, Wei Zhang said. Depending on whether a structure has any US connections (such as settlor or beneficiaries), different US tax considerations apply. Also, it is often the case that more than one tax regime is relevant. When customising the structure to retain or grant certain powers, different priorities in different tax jurisdictions will have to be balanced, she said.

This area has been building for some time. Business trusts in IPOs and listing structures have developed - business trusts have become an alternative offering vehicle to a straight corporate listing.

Singapore like Hong Kong is home to a busy listed trusts sector. In 2004, Singapore implemented its business trust regime and listing rules. In Hong Kong the first business trust listed in 2011. It was the PCCW spin-off HKT (source: Zetland Fiduciary Group, 2014). Since that date Hong Kong has seen more trust listings.

The use of these trusts will to some extent oscillate depending on how vigorous the IPO market is in hubs such as Hong Kong. PricewaterhouseCoopers in September reported that, in the technology, media and telecoms sector – a key one for IPOs – the number of Chinese TMT initial public offerings fell by 47 per cent in the first half of this year from the previous six months, to 26, but the actual total proceeds rose by 15 per cent.

Family offices
A strong trend is work to help families set up family offices in Singapore, benefiting from the jurisdiction’s statutory exemption regime, Wei Zhang said. Again, as with trusts, the size and complexity of these structures are increasing, she continued.

(Under this new system, a fund managed by a Singapore-based family office fund manager will be exempt from Singapore income tax on certain designated investments if certain terms are met. Designated investments include listed securities, derivatives, and immovable property, but excludes real estate. The non-resident fund exemption regime applies to funds located offshore but run by a Singapore-based fund manager. Trustees based in Singapore but who hold offshore funds can also qualify for the exemption.)

“Some private clients are very active in setting up family offices; some of the interests come from immigration into Singapore,” she said. 

“Also, the net worth of the clients I have been working with has definitely gone up,” she said. Wei Zhang has been with Withers since 2010, having worked in the US and Hong Kong, where she has been based since 2014.

One reason for the rise in demand for family office set-up advice is the maturation of the market, as first-generation businessmen and women retire and consider passing on wealth to the next generation. Even so, in China, for example, a lot of wealth is still held by the first generation. Asked if China’s recently relaxed “one-child” policy creates succession issues, she said it might at some point “down the road” but the impact has not been immediate. 

The change in control of wealth is not as imminent an issue in China as it is for some other Asian countries, she continued. “The timing [of inter-generational transfer] is a little bit behind, as with other clients setting up these family office structures,” she said.

Another area where conversation about trusts is in demand is helping families to manage control of businesses, manage voting rights on boards, and other issues. Clients in China and elsewhere are becoming more confident in how to use trusts, having initially been unfamiliar with this English Common Law concept. 

“We see that there’s less hand-holding needed because familiarity with the trust concept is growing,” she added.