CHINA: An Introduction to Private Wealth Disputes

Cross-Border High Net Worth Families: Wealth Disputes, Preventive Solutions and Emerging Needs

Cross-border characteristics of Chinese high net worth families

Chinese high net worth families (HNWFs) typically exhibit three types of cross-border characteristics:

• cross-border wealth – holding various overseas assets such as cash and real estate;
• cross-border identity – family members holding foreign citizenship or residency; and
• cross-border business – family-controlled enterprises engaging in outbound investment or international commercial operations.

Due to China’s foreign exchange (forex) controls and the limited scope of tax incentives for overseas investment income, cross-border HNWFs face significantly more complex legal challenges than their domestic counterparts. Consequently, they must navigate cross-border taxation, forex compliance and family law risks. Proactive planning is essential to mitigate regulatory penalties, minimise exposure to contentious asset division and pre-empt potential disputes.

Emerging legal demands of cross-border families

Stricter tax enforcement efforts drive disputes and compliance services

In 2025, China intensified enforcement of overseas income taxation for residents. Numerous individuals with foreign-sourced earnings have received official notifications from tax authorities mandating self-review and disclosure of undeclared income earned between 2022 and 2024, requiring completion of tax filings and remittance of outstanding liabilities

In response, a growing number of high net worth individuals (HNWIs) are engaging lawyers to assess tax exposure, prepare explanatory statements, and represent them in negotiations with tax authorities to fulfil tax filing obligations and resolve tax disputes.

Some clients seek legal support to establish offshore trusts that provide tax deferral and loss offsetting mechanisms for foreign investments, mitigating the risks of non-offset of losses on foreign-sourced income and frequent tax liabilities from repeated transactions.

Legal services pertaining to cross-border tax compliance ​and offshore trust structuring has emerged as one of the​ primary growth sectors within the private wealth legal services market.​​

Heightened forex scrutiny triggers cross-border disputes and compliance planning demand

China maintains a stringent forex regime, requiring both individuals and enterprises to comply with rules for inbound and outbound fund transfers. Simultaneously, domestic and international financial institutions have escalated anti-money laundering (AML) scrutiny, specifically targeting illicit currency exchanges via underground banks. This has led to the freezing of domestic and overseas accounts held by many cross-border families.

Chinese HNWFs are engaging legal counsel to deal with penalties imposed by the authorities and resolve account freezes implemented by financial institutions.

Against the backdrop of frequent forex disputes, many cross-border families are increasingly opting for legally compliant cross-border fund transfer approaches. Therefore, demand is surging for legal services encompassing:

• the application of emigration asset-transfer approvals;
• the application of cross-border remittance approvals for inherited assets;
• overseas direct investment (ODI) structuring; and
• red-chip restructuring frameworks.

With the frequent occurrence of marriage and inheritance cases, inheritance tools have become a "must have" for high net worth clients

Recent high-profile inheritance and marriage cases involving domestic entrepreneurs have prompted many cross-border families，driven by cautionary tales of failed cases, to adopt more systematic planning tools. Common approaches include dual trust structures (onshore and offshore) supplemented by wills, insurance policies, gift agreements and other customised legal arrangements.

Notably, placing domestic and offshore business entities into corresponding onshore and offshore family trusts is evolving from a "preferred strategy" to a "must have". There is also growing demand for legal expertise to structure trusts for beneficiaries residing abroad in a manner compliant with foreign tax regulations.

The advent of an aging society has triggered legal demands for elderly care and guardianship planning

As HNWIs enter their senior years, their focus in respect of private wealth legal services is gradually shifting from wealth inheritance to personal elderly care planning. The integration of guardianship agreements, legacy support agreements and trust instruments, supplemented by comprehensive planning solutions such as community-based care and home care, has already become a key demand of HNWIs and a field where legal services and elderly care services converge.

Onshore and offshore trusts may become a "disaster zone" for private wealth disputes

As awareness of private wealth planning increases, more Chinese HNWFs are implementing domestic and offshore family trusts as strategic vehicles to preserve wealth and transition assets across generations.

However, in practice, many clients still rely on standardised templates to set up trusts, without engaging legal counsel for proper legal and tax structuring, and remain unfamiliar with the logic and application of trust mechanisms. This gives rise to two major risks:

• improper use of the trust; and
• heightened risk of disputes arising after the settlor's death.​

On the one hand, many HNWIs lack the ability to thoroughly review complex legal documents when establishing trusts, and they are generally unfamiliar with trust mechanisms and terms. At the same time, they usually do not receive dedicated explanatory documents on how to use the trust. This causes trusts, which are supposed to serve as effective wealth management tools, to become complicated shells wrapping wealth that cannot be properly understood or applied. In practice, there have even been cases where trusts have become ineffective due to improper use.

On the other hand, upon the settlor's demise, beneficiaries frequently exhibit deficient administrative literacy regarding the trust's operations and lack procedural manuals (drafted by licensed estate lawyers) to navigate trust governance.

This deficiency frequently triggers disputes between beneficiaries and the trustee. For instance, when the trustee executes gradual distributions (eg, annual payouts) per the settlor's instructions – rather than a lump-sum transfer – beneficiaries may challenge the pacing of disbursements as unduly restrictive, escalating conflicts with the trustee. Furthermore, if the settlor retained control over key trust rights (eg, investment discretion) during their lifetime but omitted succession mechanisms for these rights in the trust instrument, familial contention over posthumous control of trust governance becomes inevitable.

To prevent such problems, HNWIs should engage lawyers to compile and prepare detailed trust user manuals to help settlors understand and use trust structures correctly. Lawyers can also design specific trust terms and draft succession mechanisms, and provide family trust education, to enhance family members' awareness of trust mechanisms. Beneficiary information letters can also be drafted in advance to ensure that, upon the settlor's death, family members are informed of the trust's purpose and structure, and the settlor's intent.

Conclusion

With the growing number of onshore and offshore family trusts for Chinese HNWIs, and the increasing longevity of these trusts, trust-related disputes are poised to rise. Legal services focused on trust formation, ongoing administration and dispute resolution will emerge as indispensable service pillars in China's private wealth legal sector.