Major banks focus on strengthening family trust services

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The market for will-substitute trusts is steadily growing with Korea's rapidly aging population.

A will-substitute trust is a service where a grantor, who wants to pass on their assets to beneficiaries, entrusts their assets, such as deposits, real estate or bonds, to a financial institution. The financial institution will be responsible for executing the inheritance upon the grantor's death. It is regarded as a more flexible inheritance measure compared to a will, which can potentially cause disputes among heirs or tax issues.

As the baby boomer generation approaches retirement, the wealth management industry sees significant opportunities in facilitating family trusts. This trend is attracting close attention not only from securities companies but also from the banking sector.

As of the end of the first quarter this year, the balance of will-substitute trusts at four major commercial banks in Korea — KB Kookmin, Shinhan, Hana and Woori — stood at 3.3 trillion won ($2.3 billion), an increase of over 43 percent, compared to the first quarter of last year.

Considering that the balance was only around 870 billion won at the end of 2020, the growth rate is impressive.

Hana Bank Vice President Lee Jae-chul, left, and Lee Sang-hwan, attorney at Kim & Chang, hold the signed document for their strategic business agreement to promote trusteeship at the Hana New Senior Lounge located in southern Seoul, Wednesday. Courtesy of Hana Bank

Among the four major banks, Hana Bank was the first to launch a will-substitute trust service under the name Hana Living Trust back in 2010.

The service provides a comprehensive inheritance planning program, allowing clients to manage and operate their assets during their lifetime and designate beneficiaries to receive the trusted assets after their death.

Aiming to further strengthen the bank's customized trust service, Hana Bank announced Thursday that it formed a strategic partnership with Kim & Chang, Korea's largest law firm, to cooperate in the will-substitute trusts area.

Under the agreement, Hana Bank and Kim & Chang will cooperate in legal and tax consultation for will-substitute trust services, legal education as well as regular seminars and exchange of research information to advance the overall trust system.

"With this business agreement with Kim & Chang, Hana Bank is now able to provide optimal one-stop asset management solutions that are tailored to customers' life cycles," Hana Bank Vice President Lee Jae-chul said.

Following Hana Bank's lead, other commercial banks have also lately been actively entering the will-substitute trust market.

Shinhan Bank began building a trust computerization system in April this year, and Industrial Bank of Korea launched its own will-substitute trust service in May.

While about 30 percent of all inherited assets are managed through trusts in the United States, Korea's trust market is also expected to get a significant boost once financial authorities push for the deregulation of trust regulations, including the expansion of the range of assets that can be held in trust.