| The functional positioning of trusts in Chinese legislation that trusts are instruments for asset management on behalf of the trustor, presumes an active management role of the trustee. This perception, however, obscures the fact that actively and passively managed trusts are the dual track of trusts. The misunderstanding in legal scholarship that passive trusts are invalid, combined with regulatory prohibition on channel trusts and the promotion of the active management model, result in the doubt on the legitimacy and validity of passively managed trusts. The legal validity of such trusts should be acknowledged in principle, while potential challenges should be carefully addressed as well. In the dimension of creditor protection, even for extremely passive trusts, it is typically sufficient to deny the asset partitioning effect or the independence of trust property, and there is no need to deny the validity of the trust. In the dimension of the mandatory elements of fiduciary duties, standards of conduct should be separately established for trustees of passively managed trusts, specifying the willful misconduct standard for directed trustees and the duty to exercise reasonable care in selecting and supervising agents for trustees in delegated trusts. And in the dimension of public interest, financial regulators should not prevent channeling risks by prohibiting passive-management structures, and courts should make a substantive evaluation of the validity of channel trusts based on their actual impacts on public interest, rather than overly aligning with regulators. |
京公网安备11010102006664号 京ICP备2023015853号