Reforming the Chinese Model of Trust Property Ownership : an Analysis of the Ownership Structures and Functions of Trusts

Gechun Lin

Abstract

For China, the trust is not an indigenous legal institution. In 2001, the enactment of Trust Law of the People’s Republic of China marks the formal reception of the common law trust in the China’s civil law-based legal system. However, critics claim that the “dual ownership”, which is the hallmark of the common law trust, conflicts with the civilian conception of indivisible and absolute ownership. Due to the lack of theoretical foundation, Chinese trust law remains ambiguous on the ownership of trust property. This Dissertation begins by exploring four existing trust property ownership approaches adopted by the common law and non-common law jurisdictions. It shows that Chinese trust law uses a totally different one, which allows the settlor to retain the ownership of trust property or to transfer it to the trustee after the establishment of a trust. This is defined as the Chinese model of trust property ownership in this Dissertation. Later on, a detailed examination of the Chinese model of trust property ownership demonstrates that the current model creates practical and theoretical obstacles for the 6 achievement of trust functions. Therefore, this Dissertation argues that the establishment of Chinese trusts should require the transfer of trust property ownership to the trustee, as the common law trust and most of non-common law trusts do. The aim of this Dissertation is to incorporate the common law model of trust property ownership into China’s civil law-based system. Through the bundle-of-rights approach, this Dissertation challenges the conventional narrow view of “dual” or “split” ownership as well as providing a broader, more nuanced reading of this concept. Adopting the exclusivity model of ownership, legal ownership is interpreted as an encumbered form of ownership in the civilian context. Equitable ownership is recognized as a new form of property right. Finally, this Dissertation proposes a statutory reform for the current model of Chinese trusts property ownership through amending the definition of trusts in Article 2 of the Trust Law of China. The new definition not only requires the transfer of trust property to the trustee for the establishment of a Chinese trust, but also incorporates the common law trust model of dual ownership. Specifically, it stipulates that the trustee obtains fiduciary ownership (xinlai suoyouquan) of the trust property, and the beneficiary has trust beneficial right (xintuo shouyiquan) in the trust property, during the existence of the trust.