The use of so-called will testamentary trusts is rapidly gaining popularity in South Korea as more people seek ways to manage their inheritance and prevent conflicts among family members after their death. (Image courtesy of Korea Bizwire)
SEOUL, May 29 (Korea Bizwire) – The use of so-called will testamentary trusts is rapidly gaining popularity in South Korea as more people seek ways to manage their inheritance and prevent conflicts among family members after their death.
According to data from South Korean banks, the balance of will testamentary trusts held by the nation’s five major commercial banks reached 3.3 trillion won in the first quarter of this year, a staggering 43% increase from 2.3 trillion won in the same period last year.
A testamentary trust is a financial product in which a customer (trustor) entrusts their assets to a bank or other institution (trustee), which then distributes the assets to designated beneficiaries, such as a spouse or children, after the trustor’s death.
During the trustor’s lifetime, they can directly access and use the assets, while specifying how and when the assets will be distributed to the beneficiaries after their passing.
One of the key advantages of testamentary trusts is the ability to meticulously plan one’s inheritance without the need for a traditional will.
Wills can be deemed invalid if they fail to meet legal requirements or lack proper formatting, such as missing a date, address, name, or seal on a handwritten will.
However, with a testamentary trust, the trustor and the trustee enter into a contract, ensuring that the assets are distributed according to the trustor’s wishes, without the need for a separate will.
Preventing conflicts among children over inheritance is also a significant motivator for establishing these trusts.
The number of legal disputes related to inheritance reached 2,776 cases last year, an increase from 2,379 in 2021, as more individuals seek to claim their fair share of the estate, departing from the traditional practice of allowing the eldest son to inherit the bulk of the assets.
By clearly defining the deceased’s wishes through a testamentary trust, the trustee can distribute the assets according to the contract, minimizing potential conflicts.
This is particularly valuable in cases where the value of real estate assets has risen sharply, leading to disputes among family members over the timing and method of property sales.
With a testamentary trust, the trustor can specify the timing and manner of disposing of real estate assets while still alive.
Kim Ha-jung, the head of Hana Bank’s Living Trust Center, said, “Elderly single households or families with children living abroad may designate a proxy in advance through a testamentary trust to ensure their assets are used safely for medical expenses, nursing care costs, and living expenses as they age.”
Testamentary trusts are gaining traction in South Korea, but there are key considerations to keep in mind.
These trusts do not necessarily prevent disputes over the “reserved portion,” the minimum share of an estate guaranteed to legal heirs.
The Supreme Court has yet to decide if assets received under a testamentary trust are subject to these reserved claims by non-beneficiary family members.
Additionally, family members sometimes sue trustees, arguing the trust contract is invalid, leading to contentious inheritance battles.
Industry experts warn that such legal disputes can deplete the inherited assets due to legal costs, emphasizing the need for thorough risk assessment in advance.
M. H. Lee (mhlee@koreabizwire.com)
