Refer Report

As the aging society approaches, interest in trusts in lieu of wills is growing among middle-aged people preparing for old age. A trust in lieu of wills is a financial product that functions as a will by entering into a trust contract with a financial institution such as a bank. The financial institution manages the assets of the trustor while he is alive and distributes them to heirs such as spouses and children after the trustor’s death. The transfer of assets can also be specified. For example, an apartment can be designated for the eldest daughter and a commercial building and cash for the second son. In return, the financial institution receives a contract, execution, and management fee.

Easier than a will

As the elderly population and inherited assets increase, the market for trusts in lieu of wills is also expanding. According to Statistics Korea, the inherited and gifted assets in 2022 will be 188.4214 trillion won, more than doubling from 90.4496 trillion won five years ago. In fact, the balance of trusts in lieu of wills of the five major banks, including Kookmin, Shinhan, Hana, Woori, and Nonghyup, was tallied at 3.515 trillion won in the second quarter of this year. It is about four times larger than the 880 billion won at the end of 2020, four years ago.

The biggest advantage of a will-in-lieu trust is its simplicity. Until now, inheritances were mainly made through wills. However, in order for a will to be effective, there are strict requirements such as a notarized will, a handwritten document, and a recording. On the other hand, a will-in-lieu trust is relatively convenient because the person himself signs up and a financial institution such as a bank executes it on his behalf. In addition, after the consignor’s death, the financial institution transfers the inheritance to the designated beneficiary according to the trust agreement, so unnecessary inheritance disputes that arise during the process of interpreting the will can be prevented.

Another advantage of a will-in-lieu trust is that it can be designed flexibly. If a trust is designed with the condition that the children will receive the inheritance when they fulfill their support obligations, the trust contract can be terminated if the children do not fulfill their obligations. If the inheritance is to be given to a minor, a safety device can be established so that a financial institution such as a bank manages the assets on their behalf until they reach a certain age. A will-in-lieu trust is also useful for single-person households. You can plan to receive monthly nursing and hospital expenses in preparation for old age through a trust, or designate a funeral, burial facility, or donation plan upon death.

The oil spill is a recognized trend

The assets that can be entrusted to a will-in-lieu trust are limited to seven types: △ money △ securities △ bonds △ personal property △ real estate △ real estate rights △ intellectual property rights. Among real estate, agricultural land such as rice paddies, fields, and orchards cannot be entrusted. It should be noted that the court has recently ruled that assets in a will-in-lieu trust are also subject to the return of the reserved portion (a certain percentage of the inheritance that is guaranteed to a specific heir regardless of the will). This means that even if a will-in-lieu trust is made, the distribution of assets should be done with the reserved portion in mind in order to prevent disputes.

In the past, there was a lot of prejudice that only wealthy people could subscribe to a will-in-lieu trust, but recently, the threshold for subscription has been lowered. Currently, the minimum subscription amount is 50 million to 1 billion won. In 2010, Hana Bank was the first in the financial sector to launch a will-in-lieu trust service by launching ‘Hana Living Trust’. Shinhan Bank also opened and began operating ‘Shinhan Trust Lounge’. Industrial Bank of Korea, which has many transactions with small and medium-sized companies, has launched the ‘IBK Will-in-lieu Trust’ product. Among insurance companies, six companies are operating trust businesses: Samsung Life Insurance, Samsung Fire & Marine Insurance, Kyobo Life Insurance, Hanwha Life Insurance, Mirae Asset Life Insurance, and Heungkuk Life Insurance.

Reporter Kim Bo-hyung kph21c@hankyung.com

Source: Korean