Transcript The Living Trust

Trust Consciousness Week
16 March 2006
The Living Trust
is alive and well
Reynaldo G. Geronimo
Partner
Romulo Mabanta Buenaventura
Sayoc and De Los Angeles
Versatility of the trust device
• trust “is an institute of great elasticity
and generality; as elastic, as general as
contract.”
-Frederick William Maitland
• “the purposes for which trusts can be
created are as unlimited as the
imagination of lawyers…The trust can be
and has been applied as a device for
accomplishing many different purposes”
-Austin Wakeman Scott
Elements of a trust relation
• Trustor, or settlor, or grantor, or
creator, or donor
• Property, or trust res, or trust corpus, or
principal
• Transfer, or conveyance, in trust
• Trustee, or fiduciary
• Purpose, or objective
• Beneficiary, or cestui que trust
Who can be a trustor?
• Generally: Anyone who has the legal
authority to perform the act needed to
effect a valid transfer in trust
• Specifically:
Testamentary trusts: 18 yrs + sound mind
Inter vivos, gratuitous or
for consideration: capacity to contract
What property can be put in trust?
• All things which are or may be the object
of appropriation (Art. 414), whether real,
or personal, or mixed
• The property must be certain or definite
• The property must be transferable
What is meant by
“transfer in trust”?
• The settlor must “convey” his title over the trust
•
•
res and must clearly show that he intended to
create a trust.
No particular words are required (Art. 1444).
But if the trust res is real property, the
document creating the trust must be in a public
instrument, i.e. notarized, in order to be
accepted as evidence (Art. 1443). To bind third
parties, it must be registered (Sec. 50, Act No.
496)
Who can be a trustee?
• Any natural person, but aliens cannot be
trustees of land in the Philippines
• Any juridical person, if so authorized by
their enabling charter: national or local
governments, private corporations,
partnerships
• But, to engage in the business of trust,
the trust entity must have a trust license
from the BSP (Sec. 79, Gen. Banking Law)
What purposes may a trust pursue?
• Passive trust- objective is for trustee to be mere
•
•
•
•
title holder
Active trust- objective is for trustee to have
affirmative duties of administration and
management
Private trust- for the benefit of identified persons
Charitable trust- for the benefit of society as a
whole
Not for illegal purposes
For whom a trust may be made?
• Any person or group of persons who have
juridical capacity
• Excluded are persons who cannot receive
by donation or will
• Acceptance by beneficiary is necessary.
But acceptance is presumed if no onerous
condition is imposed
Common kinds of trusts
• As to mode of creation:
– Testamentary trust
– Intervivos or living trust
• As to the finality of transfer
– Revocable
– Irrevocable
– Reversionary
• As to segregation of the trust res
– Separately or individually managed trust
– Participating trust in a “CTF”, now “UITF”
More types of trusts
• As to powers of the trustee
– Full Discretion
– Limited Discretion
– Directory or directed
• As to rights of the beneficiary
– Spendthrift or protected trust
– Fully transferrable interest
• As to duration of the trust
– Short term
– Co-terminus with attainment of purpose
Why the special focus
on Living Trusts
• BSP is about to issue a circular providing
•
•
“Guidelines on Living Trust Accounts”
This is in response to certain market behavior
that is seen as systemic risk generating
It is the latest move in the game of “hot potato”
among three parties: (a) the regulator of banks;
(b) the regulated banks; and (c) the clients of
the banks.
Structure of the proposed Circular
• Lays down what it takes for a relationship to be
•
•
considered a “living trust” under the Manual of
Accounts for trusts
Governs the method of marketing the service of
being a trustee of a living trust
Allows for a transitory period for trust entities to
reconfigure their current trust accounts to
conform to the new requirements and provides
penalties for non-compliance
General Criteria for trusts to be
qualified as Living Trusts
• Must be created by an Agreement and must be
•
•
operational during the lifetime of the trustor as
soon as the Agreement is executed.
Beneficiary must be trustor and 3rd parties or 3rd
parties only; not trustor only
Agreement must specify (a) purpose, (b) nature
and value of res, (c) trustee’s investment
powers,(d) names of beneficiaries, and (e)
terms of distribution of income and principal
Specific Requirements-1
• Size: minimum entry is Php 100,000.
• Investment area of initial fund: Php
100,000 to Php 500,000-ONLY in deposits
• Lock-up: 6 mos. If terminated before
that, account must be closed and trustor
disqualified to open another one for one
year.
• Reversion of “principal and/or income”–
allowed only upon revocation
Specific Requirements-2
• Form: May be pre-printed, BUT, in that
case,the Purpose Clause and Dispositive
Clause must be left blank and filled out by
client upon signing of Agreement.
• Purpose clause- samples are provided.
• Dispositive clause
– Terms and conditions must be clearly defined
– Must also be coordinated with Purpose Clause
Specific Requirements-3
• Settlor/s
– May be more than one in one Agreement
– But, if so, must be related by consanguinity or
affinity within the second degree
• Marketing
– Bank proper personnel cannot market Living
Trust products or sign pre-printed Agreements
– Bank Managers/Officers may refer clients to
Trust Dept. and make short introduction of
the products to clients
Carrot and Stick
• Carrot:
Non-compliant living trust accounts have 3
months to comply
• Stick
– After 3 mos. – non-compliant living trust accounts will
be TOFA, subject to reserves
– Violations of Circular- subject to Sec. 37 of R.A. No.
7653, the New Central Bank Act
Assessment by
the TRUST GURU
• The impending circular is a mere stop-gap measure
•
•
to arrest the migration of funds from CTFs and UITFs
pending completion of BSP’s over-all review of trust
regulations.
Last week, an international commercial law expert,
Satish M. Kini, from the Washington law firm,
GOODWIN l PROCTOR, was here to make an onsite
study of our trust industry.
I must disclose that we had two sessions, of more
than two hours each, talking about my comments
and observations on the trust industry.
1
Assessment by
the TRUST GURU
• The focus of the new issuance is not Living Trusts
•
•
but Living Trust Accounts.
The intention is to give guidelines in order to
qualify an account as a Living Trust in the
Manual of Accounts for trusts.
The substantive nature of a Living Trust is not
affected. What is sought to be achieved is the
unmasking of deposits masquerading as
trusts.
• The honest-to-goodness Living Trust is
still alive and well.
2
Thank You
For related topics:
www.thetrustguru.com