In Japan, three statutes primarily regulate matters regarding trusts. The Trust Law sets out the rights and obligations of parties under a trust, the Trust Business Law regulates trust businesses and the Law Concerning Concurrent Trust Businesses of Financial Institutions (Concurrent Trust Business Law) regulates trust businesses operated by financial institutions. The current session of the Diet is considering a complete revision of the Trust Business Law, which will apply to trust companies and, certain provisions of which will also apply to financial institutions operating trust businesses. It is also likely that the Trust Law will be substantially revised soon.
Trust business law
Types of trust assets expanded
Although the Trust Law generally allows all types of property to be entrusted to a trust, the Trust Business Law restricts eligible trust assets to cash, securities, rights to receive money, certain movable assets, lands, buildings and other certain specified rights. The revision is expected to remove this restriction and allow trustees of commercial trusts to hold other types of assets and rights in trust, such as intellectual property (IP) and security interests. The revision would probably encourage large companies to entrust IP held within their corporate group to manage the IP more efficiently and universities to set up trusts to hold IP so that technology licensing organizations can more effectively license such assets to the private sector. Banks are also considering the possibility of creating security trusts, where security interests in real estate would be entrusted for more efficient credit management. However, whether security trusts are permitted under the Civil Code is yet to be discussed.
Types of trustees expanded
For historical reasons, trust business is only carried out by banks (mainly trust banks) permitted under the Concurrent Trust Business Law and no current trust company is licensed under the Trust Business Law. It is expected that the revised Trust Business Law will facilitate the licensing of trust companies by specifically setting out the qualifications for trustees (such as maintaining a minimum capitalization) and other relevant requirements (such as disclosing trust assets to beneficiaries). Furthermore no licences will be required for trust companies who only act under the instructions of the settlor or who administer trusts provided that they do not change the nature of the trust assets. Such trust companies will be required to register with the authorities every three years.
This autumn the Legislative Council of the Ministry of Justice is expected to form a special committee to propose a new Trust Law. The content of the new law is unknown, but certain experts argue that it should include provisions limiting the liability of trustees, clarifying the rights of multiple beneficiaries and allowing parties to contract out of the duty of loyalty.
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