Trust
Overview
A trust (信託, Trust) is a legal relationship in which a settlor transfers his or her property to a trustee, or grants the trustee the power of disposal, for a specific purpose, and the trustee manages, administers, and disposes of that property for the benefit of a beneficiary. The separation of legal title (ownership) from benefit (beneficial interest) is its core structure, and the system, which developed in Anglo-American equity law, was adopted into civil law systems and settled as legislation in each country. In Korea, the Trust Act enacted in 1961 was fully amended in 2011 and entered into force on July 26, 2012, and a person who handles trusts as a business is also subject to the Financial Investment Services and Capital Markets Act (Capital Markets Act).
Main Content
The Three-Party Relationship of a Trust
A trust basically consists of three parties. The settlor (委託者) is the person who establishes the trust, contributing the property and determining the purpose of the trust. The trustee (受託者) is the titleholder of the trust property and has the authority to manage, administer, and dispose of it, and bears under the Trust Act the duty of care of a good manager, the duty of loyalty, and the duty of segregated management. The beneficiary (受益者) is the person who receives the benefits of the trust, and may be divided into a principal beneficiary and an income beneficiary. If the settlor designates himself or herself as the beneficiary, it is a self-benefiting trust; if a third party is made the beneficiary, it is a third-party-benefiting trust. Because a third-party-benefiting trust is a dispositive act that creates rights for a third party, statutory requirements apply more strictly.
Independence of Trust Property
The most powerful function of a trust is the independence of trust property and bankruptcy remoteness (insolvency isolation). Trust property is kept separate from the trustee's own property (segregated management), so even if the trustee becomes bankrupt, the trust property is not included in the bankruptcy estate. In addition, even upon the bankruptcy of the settlor, if certain requirements are met, the property is not subject to compulsory execution or the enforcement of security interests. However, if the trust was established as a fraudulent act, it may be revoked, and if the purpose after establishing the trust was for the settlor to evade debts, the creditor's right of revocation becomes an issue.
Types of Trusts
Trusts are classified according to various criteria.
- Method of establishment: contractual trust, testamentary trust, declared trust (self-declaration trust)
- Business nature: commercial trust (handled by a trust company), non-commercial trust (trust between ordinary persons)
- Management method: specified money trust (investment target designated), unspecified money trust (comprehensive management), trusts other than specified money trusts
- Purpose: money trust, property trust, real estate trust, securities trust, monetary claim trust, movable property trust, intellectual property trust
- Detailed subtypes of real estate trust: land trust, management trust, disposition trust, security trust
- Beneficial interest structure: successive beneficiary trust, testamentary substitute trust, guardianship substitute trust
Business Trusts and Supervision
The trust business is a type of financial investment business and requires a license, and banks, securities firms, insurance companies, and others handle it in the form of concurrent business. A trustee must account for trust property separately from its own property, may receive a trust fee, and bears liability for damages if there is negligence in handling trust affairs. The financial authorities supervise the soundness of trust companies, the prevention of conflicts of interest, and the appropriateness of the management of trust property. Typical types of disputes include excessive claims for trust fees, violations of management instructions, and controversies over liability arising from problems with the viability of real estate trust projects.
Recent Trends
The testamentary substitute trust introduced in 2016 spread rapidly against the backdrop of population aging and demand for dementia care, and has established itself, together with the adult guardianship system, as an alternative for managing assets in old age. Entering the 2020s, purpose-specific trust products have increased, such as family business succession using successive beneficiary trusts, dementia-preparedness trusts, and trusts for persons with disabilities.
The main trends of 2024–2025 are as follows. First, the combination of security tokens (STO) and trusts. Methods of using trust structures for the management of issuance and distribution accounts and for investor protection are being discussed and introduced, intertwined with discussions on revising the Capital Markets Act and the Electronic Securities Act. Second, with the growth of the virtual asset custody business, services that hold real-name account and cold wallet assets in the form of a trust have increased. Third, as the domestic trust balance grew to a scale exceeding 1,000 trillion won, the share of trust management in tax-advantaged accounts such as retirement pensions (DC·IRP) and ISAs increased. Fourth, under the financial authorities' policy of rationalizing trust business regulation, the scope of concurrent business, the permitting of incidental business, and the accounting and disclosure standards for trust accounts are being overhauled. Fifth, as inheritance and guardianship disputes increase due to population aging, the design of advance asset allocation using trusts is becoming the standard in the asset management market. Along with this, trust management advisory using AI and robo-advisors, ESG trusts, and the like are emerging as new areas.
Related Topics
- [[신탁법|Trust Act]]
- [[자본시장법|Capital Markets Act]]
- [[유언대용신탁|Testamentary Substitute Trust]]
- [[부동산신탁|Real Estate Trust]]
- [[수탁자|Trustee]]
- [[도산절연|Bankruptcy Remoteness]]
- [[성년후견제도|Adult Guardianship System]]
- [[자산관리|Asset Management]]
- [[토큰증권|Security Token]]
- [[퇴직연금|Retirement Pension]]