This content is from: Local Insights

South Korea

The trust system in Korea will be overhauled to permit trusts consisting of several types of properties under one umbrella. The type of properties eligible for trusts will also be expanded to include various intellectual and industrial property rights.

Unlike common law countries where no restrictions exist on the type of property for private trusts, Korea has adopted an approach where the type of property that may be entrusted is enumerated in the law. Such an approach has complicated estate planning and even real estate developments, because, first, different types of property cannot be entrusted under a single trust agreement. Second, the types of assets that may be placed in trust have been limited. And third, real estate development trusts have compriseised exclusively real estate, thereby forcing the trustee to borrow funds for development, and advance the amount to the trust it manages. This had caused a particular concern, because if a trust managed by a trustee suffers financial difficulty, all other trusts managed by the same trustee were forced to suffer the same difficulty.

Other changes will include the deregulation of the management of proprietary assets of the trustee, deregulation of transactions between the trust and the trustee, simplification of procedures for issuing beneficiary certificates, and loosening of standards for the duty to report amendments of the trust deed. On the other hand, regulations on the qualification of management professionals and compliance standards will be heightened.

The reform will affect the market from individual estate planning and intellectual property trading to development financing and even the securitization. For example, intellectual property may be entrusted to a trustee, which would invite investments by issuing the beneficiary certificates and paying the proceeds to the trustor. Then, the trustee may license the intellectual property to companies and collect royalties, which would be paid to the holders of the beneficiary certificate.

Further, according to the draft amendments, a development trust may be entrusted with not only real estate but also funds necessary for the implementation of the project, dispensing with the need to borrow money necessary for the project. Also, individuals may benefit from estate planning services by entrusting all of the properties they hold regardless of the type and regularly receiving proceeds from them (the so-called reverse mortgage).

After gathering the opinions of interested parties, the Ministry of Finance and Economy of Korea intends to file the draft legislation with the National Assembly during June this year.

Hyun Kim

© 2021 Euromoney Institutional Investor PLC. For help please see our FAQs.

Instant access to all of our content. Membership Options | 30 Day Trial