[Senior Trend] Money Talk④ Make Good Use of Trust Products

Published 08 Feb.2024 06:10(KST)

According to Statistics Korea, the life expectancy of Koreans in 2022 was 82.7 years. For men, it was 79.9 years, and for women, 85.6 years. Average life expectancy differs between men and women. The marriage age of baby boomers was about four years older for men. It was an age gap considered so good that people didn’t even check compatibility, possibly influenced by military service. Simply put, for couples currently in their 50s and 60s, husbands typically pass away about 5 to 10 years earlier on average. In the traditional family role structure, the man earned money through his job outside the home, while the woman managed the household and supported him. Therefore, investment decisions were often made by the man. Recently, at a senior gathering, I heard a husband express concern not about his children but about his wife being left alone. Although they had a harmonious family, their entire wealth was a single apartment in Songpa, Seoul. He had considered the future if he, in poor health, passed away first. He said his wife might sell the apartment without hesitation to give money to their children if any issues arose, so he made a trust will to sell the real estate during his wife’s lifetime to prevent the children from receiving it prematurely.

Trust products, once seemingly exclusive to the wealthy, have begun to fulfill their original purpose. A trust (信託) is a legal relationship where one entrusts their property to a reliable person (or corporation) to manage it instead of managing it themselves. The client and the trust company enter into a contract, and the trust company manages, operates, disposes of, develops, and performs other necessary actions to achieve the trust’s purpose on behalf of the client. According to the Capital Markets Act, trusts are classified by the type of trust property, such as money trusts and real estate trusts. Comprehensive asset trusts that combine these are also possible. According to the Financial Supervisory Service, as of the end of 2022, there were 60 trust companies with total trust assets of 1,224 trillion KRW. Banks held 542 trillion KRW, securities companies 270 trillion KRW, insurance companies 20 trillion KRW, and real estate trust companies 392 trillion KRW. Although steadily increasing annually, the market is still in its early stages compared to advanced overseas countries. As of the end of March 2023, Japan’s trust product market was about 283% of its GDP, exceeding 1,030 trillion KRW. The U.S. also has a total scale exceeding 130% of GDP, with a wide variety of options essential for long-term asset management portfolios from the middle class to high-net-worth individuals.

Recently, I saw a TV commercial titled [Your 'Trust' Becomes a 'Trust']. The ‘Son version’ conveyed a message encouraging children to stay motivated and work hard despite their parents’ wealth. The ‘Daughter and Companion version’ featured a case where a father set up a trust so that part of his assets would be used for his disabled daughter’s living expenses and the rest for supporting guide dogs for the visually impaired. It presented various examples of how seniors can use trusts as tools to execute their desired posthumous asset plans. Even if parents have life insurance for minor children, they may subscribe to guardianship trusts to prepare for unforeseen accidents. There are disability trusts that provide humane safeguards for children with disabilities, and dementia relief trusts to prepare for the increasing number of cognitive impairments. Interest in pet trusts for animals considered family members is also growing. Trusts can be used as substitute wills when there is no one trustworthy nearby, and they are also utilized for inheritance and tax savings. Additionally, there are charitable trusts for donating assets to temples or churches regardless of family inheritance, and real estate management trusts that solve the complex difficulties faced by ‘building owners.’

Trust products are investment products offered by financial institutions. Stock trusts specialize in stock investments, bond trusts in bonds, and real estate trusts in real estate assets. They provide investment opportunities in assets that are difficult to invest in individually, maximize expected returns through professional management, and are useful as quick asset succession tools. They are also used to prevent inheritance conflicts arising from complicated family relationships due to divorce and remarriage. Moreover, deposits of elderly people are frozen upon death, and even rightful heirs must obtain consent from all related parties to receive payments. If even one party is overseas, the process becomes complicated and cumbersome, so trusts are used as a preparation method. Korea has mainly operated stable trust products, which were distant from general investor demand. However, in the aging era, with longer and more diverse life cycles, there is growing movement to design and use trusts according to comprehensive purposes and goals such as retirement asset management and inheritance planning.

Trusts are not only for posthumous asset management. Even I subscribed to a ‘Power Monthly Compound Interest Trust’ at the Housing Bank in 1998 when I was a savings novice. I paid 50,000 KRW monthly, and it matured on January 13, 2001. I paid a total of 1.8 million KRW over three years, and 20 years have passed since. It was transferred to Kookmin Bank and is still managed there. I regularly receive notifications saying, ‘You currently hold a long-term inactive trust account,’ but I have kept it to use as a lump sum when I need urgent funds in old age. It earns about 7% interest annually and offers tax deductions. It has grown to about three times the principal. This differs from a deposit because it is a contract to manage assets. The purpose of the trust can be diversified with a focus on improving the quality of life in old age. Among senior acquaintances, some have looked into trusts to donate antiques they have collected through long hobbies to museums.

We live in a capital market. Money greatly influences life. Ignorance is not bliss. In an era where investment is not a choice but a necessity, I hope more seniors learn about and adapt to financial products and methods that allow them to enjoy life with money without being controlled by it.

Lee Boram, CEO of Third Age