[PB Notebook] Asset Management Strategies Designed Beyond Death: Will-Substitute Trusts

In recent years, legal disputes among family members over inheritance have been rising rapidly in South Korea. According to the Judicial Yearbook of the Supreme Court, inheritance-related cases reached around 57,000 in 2023, an increase of approximately 64% compared with 2013. In particular, inheritance property division cases, where family disputes are most acute, totaled 3,075 in 2024, 3.6 times higher than in 2014. As population aging, expanding asset sizes, and changes in family structure intersect, inheritance is no longer an issue limited to a small group of high-net-worth individuals, but is spreading to become a risk management area for the broader middle class.

Choi Sungmi, Private Banking Team Leader at Shinhan Bank Premier Private Wealth Management Seoul Finance Center.

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Under the traditional inheritance system, assets are distributed according to wills or statutory shares, and in the actual execution process, differing interpretations among heirs and frequent disputes have been common. A tool designed to address these limitations is the will-substitute trust.

A will-substitute trust is an arrangement in which an asset holder enters into a trust contract with a financial institution during their lifetime, manages and operates the assets directly while alive, and, upon death, has those assets automatically inherited by pre-designated beneficiaries through the financial institution in accordance with the contract. Unlike a will, it can be executed without probate by the court or agreement among heirs, and is therefore used as a means of preventing inheritance disputes and enhancing the stability of asset transfer.

To aid understanding, let us look at an actual consultation case involving a wealthy client. Client A, a high-net-worth individual who had recently begun to feel a noticeable decline in health, was deeply worried that, after his death, his children might neglect his spouse and focus only on the inheritance, and he wanted certain deposit assets and the home he was living in to go to his spouse. Accordingly, it was suggested that his cash-like assets be deposited and managed during his lifetime in banks or investment products as he wished, and a will-substitute trust was established designating his spouse as the posthumous beneficiary. For the jointly owned house where he currently lives with his spouse, his ownership share was placed in trust and registered with the bank so that, in the event of his death, ownership would be safely transferred to his spouse as the beneficiary.

Inheritance procedures do not necessarily have to be delayed even when there are children residing overseas. High-net-worth client B was planning to obtain permanent residency and citizenship abroad and was concerned that inheritance procedures could be delayed because his son, whose freedom to enter Korea was limited, might not be able to come to the country. To address this, he entered into a contract specifying that his real estate and deposits would be distributed evenly among family members in the proportions he desired, and, for his son, he used a representative designation system so that asset transfer could proceed at the time of inheritance execution without his son having to appear in person. In this way, a will-substitute trust offers the advantage that, even if beneficiaries live overseas, they do not need to be physically present either when the contract is concluded or when the inheritance is executed.

A will-substitute trust is also useful when it is difficult to obtain unanimous consent from all heirs. Client B, a wealthy individual in his 90s with two sons, had his eldest son caring for his parents for a long period and managing key assets such as his real estate and deposits, while his younger son had been out of contact for years after family conflicts, making it difficult even to determine his current place of residence. Concerned that future inheritance procedures might be delayed for an extended period and that, in the process, his spouse and eldest son could face economic and legal difficulties, he turned to a will-substitute trust. Through this structure, even when agreement among heirs is impossible, assets can be transferred automatically according to the prearranged contract, allowing inheritance to be executed without court intervention even if there is an heir who cannot be reached.

There are, however, several points that require caution. Beneficiary designation and the distribution structure need to be carefully reviewed and designed in light of potential future changes in family relationships and asset conditions. In addition, the relationship with the statutory reserved portion system, tax burdens, and trust fees, as well as other legal and tax factors, must be considered comprehensively to minimize unexpected disputes or costs. If the structure is meticulously designed in advance with the help of experts, a will-substitute trust can serve as an effective inheritance planning tool that both prevents inheritance disputes and allows the asset holder to maintain control over their assets until the very end.

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