Legal due diligence on family trusts

From the perspective of the subject being investigated, legal due diligence in family trust business can be divided into due diligence by the settlor on the trustee and due diligence by the trustee on the settlor. This article proposes to discuss certain common issues encountered in the latter type of due diligence.

With respect to the question of whether legal due diligence is required in a family trust business, there currently is no consensus opinion among various trust companies when they engage in business. Certain trust companies with a more rigorous stance will engage lawyers to investigate the household relationships and credit status of the settlor and key beneficiaries, title to, and lawfulness of, the trust property, etc. Trust companies with a more flexible stance will, on the other hand, mainly rely on the various undertakings and warranties given by the settlor.

When investigating the qualifications of the settlor and key beneficiaries, the first step will generally be to check whether the settlor or the beneficiaries are state public servants, and whether they’ve been involved in any major social incident or investigation. The main family relationships of the settlor and beneficiaries, and the family relationship between the settlor and beneficiaries, will also be investigated. Although these steps are not required by the Trust Law, from the perspective of anti-money laundering, anti-corruption and guarding against the funnelling of benefits, the trustee genuinely needs to check the above-mentioned.