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Amendments to the Trust Act

Sul A Lee

The Trust Act of 1961 has recently been completely revamped and is expected to significantly affect various financial transactions once it comes into force on July 26 2012. It is expected that these changes will set the necessary foundation to improve Korea's trust laws and bring them in line with global standards. The most significant changes are as follows.

Trustor (settlor) may be designated as trustee: this allows for the protection of trust assets and also enables proper utilisation of the trustor's own trust assets to seek additional funds which ultimately lead to reduced expenses. However, in an effort to prevent any potential abuse, the new Act requires that settlement of a trust takes place with notarised documents and also disallows the trustor from winding up the trust.

General use of beneficiary certificates: the amendments will allow for issuance of beneficiary certificates by all trusts, which represents a significant contrast to the position under the current Act which allows beneficiary certificates to be issued only when clearly stipulated in the legislation.

Limited liability trust: the revised Act applies the concept of limited liability to trusts for the first time.

Issuance of bonds: the trustee is now allowed to cause the trust to issue bonds.

Change of trustor: With respect to real property development trusts, where there is a problem with the trustor's credit rating or its ability to complete the project as originally envisaged, the trustor may be substituted so that the development may proceed without hindrance and protected interested parties.

Delegation of trustee's tasks: Provided that there is a justifiable cause and the beneficiary provides a written consent, the trustee may delegate a third party to carry out the running of the trust.

Cancellation of trust: Where a debtor settles property into a trust with knowledge that it will harm its creditor, the creditor is entitled to file a cancellation claim for the return of property to its original state, provided that the beneficiary received benefits from the trust knowing that such receipt would be harmful to the creditor.

Sul A Lee

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