When the term ‘trust fund’ first comes to mind, some people immediately think of the phrase ‘trust fund baby.’ A trust fund baby is a person, typically a young adult (around the age of 18-21) who has independent wealth, accumulated by their parents to provide their children with a prosperous future. Although, a lot of negativities surround Filipinos as these ‘trust fund babies’ are easily to be called ‘spoiled’ or not having to work their asses off or living the luxury of not worrying about financial challenges. But hey, every parent would give everything in their power to provide a prosperous life for their children, right? This financial instrument offers tremendous benefits for anyone who wants to pass down their generational wealth. In this article, we will talk about the advantages of having a trust fund in the Philippines, how it works, and how you can get one.
What is a Trust Fund?
A trust fund refers to a legal arrangement where a person or entity (the “trustor”) transfers assets or properties to another person or institution (the “trustee”) for the benefit of a third party or parties (the “beneficiaries”). The trustee holds and manages the assets according to the terms specified in the trust agreement.
Trust funds in the Philippines can serve various purposes, such as wealth management, estate planning, charitable endeavors, or ensuring the financial well-being of specific individuals (which is your chosen beneficiary, it can be your children; if you have one, a partner, or anyone you can think of). The trust agreement outlines the conditions, responsibilities, and distribution of assets based on the trustor’s intentions.
From a financial standpoint, trust funds can provide a means of securing assets and managing their growth over time. They are often used to safeguard assets for future generations, support educational expenses, or contribute to philanthropic causes.
How Does a Trust Fund work?
A trust fund works as a structured process where the “trustor” entrusts and contributes its wealth, assets or investment portfolio to a “trustee”. The role of the trustee is to facilitate, administer, and distribute the trust to the “beneficiaries”.
Trust to Trustee
The trustor begins by choosing a person or entity to oversee the trust. This entity is often referred to as the trustee. The trustee plays a critical role in managing and distributing the wealth according to the trustor’s wishes.
A trust begins with the settlor or trustor, who initiates the trust and contributes assets. This individual establishes the framework for the trust, dictating its purpose and designating beneficiaries.
In order for this transfer of assets to be officiated, the trustor must draft a legal document known as the trust agreement.
This document outlines the specific terms, conditions, and instructions for managing the wealth held in the trust. It covers details such as the purpose of the trust, the beneficiaries, and the trustee’s responsibilities.
The trustor identifies the assets they wish to transfer into the trust. These assets can include cash, real estate, investments, or any other form of wealth. This step is crucial as it formally establishes what constitutes the trust’s corpus or the body of the trust.
The trustor, along with the chosen trustee, signs and executes the trust agreement. This legal act solidifies the terms of the trust and officially begins the transfer of wealth to the trustee’s control.
Not only that, the trustor and the trustee must comply with applicable laws such taxes and transfer of legal ownership) governing the trust to ensure the validity of the transfer.
Trustee to Beneficiary
The trustee informs the beneficiaries about the impending distribution of trust assets. This communication may include details about the nature of the assets, the timing of the distribution, and any conditions or requirements that need to be met.
Depending on the terms of the trust agreement, there may be specific conditions that must be satisfied before the distribution occurs. This could include reaching a certain age, achieving a particular milestone, or meeting other criteria outlined by the trustor.
The trustee prepares for the distribution by identifying and valuating the assets to be transferred. They may also coordinate with legal and financial professionals to ensure that the transfer complies with relevant laws and regulations.
Once all conditions are met, the trustee executes the distribution of trust assets to the beneficiaries. This may involve transferring ownership of financial assets, physical properties, or other specified resources directly to the beneficiaries.
The trustee maintains detailed records of the asset distribution, documenting the transfer of ownership and ensuring transparency in the process. This documentation is crucial for legal and accounting purposes.
After the distribution is complete, the trustee formally communicates to the beneficiaries that the assets have been transferred. This communication may include relevant documentation, such as deeds, titles, or financial statements, to confirm the change in ownership.
Who is the Beneficiary of a Trust Fund?
The beneficiary of a trust fund can be anyone. It may be your family members, spouse, friends, charitable organizations, or even the trustor themselves. Depending on the type of trust, beneficiaries may receive regular income payments, lump-sum distributions, or access to the assets for specific purposes outlined in the trust agreement.
The flexibility of trust structures allows for a tailored approach to meeting the financial needs and goals of the designated beneficiaries.
Types of Trust Funds in the Philippines
If you’re looking to set up a trust to your loved ones, here are the types of trust funds in the Philippines.
Individual Retirement Account Trust (IRA Trust)
An IRA Trust holds individual retirement account assets and provides a structured way to pass on retirement savings to beneficiaries. This trust ensures efficient management and distribution of IRA assets, considering tax implications and the unique needs of heirs.
Testamentary Trust
A Testamentary Trust is created through a will (or known as “the final will and testament of the truster) and becomes effective upon the trustor’s death. It allows for the distribution of assets according to the terms specified in the will, providing for beneficiaries in a structured manner.
Blind Trust
A Blind Trust is created when a trustor relinquishes control and knowledge of their investments to an independent trustee. This type of trust is commonly used by public officials to avoid conflicts of interest, as the trustee makes investment decisions without the trustor’s input or knowledge.
Charitable Trust
A Charitable Trust is established for philanthropic purposes, allowing assets to be donated to a charitable organization. The trust can provide income to the trustor during their lifetime, with the remaining assets going to the designated charity upon the trustor’s death.
Revocable Trust
A Revocable Trust offers flexibility as the trustor retains the ability to modify or revoke the trust during their lifetime. It serves as a valuable tool for managing assets, avoiding probate, and facilitating efficient wealth distribution.
Irrevocable Trust
An Irrevocable Trust, once established, cannot be altered or revoked by the trustor. This type is often used for asset protection, minimizing estate taxes, and ensuring that the designated beneficiaries receive the intended assets.
Asset Protection Trust (APT)
An Asset Protection Trust is designed to shield assets from creditors and legal judgments. By placing assets into an irrevocable trust, the trustor can protect wealth while still benefiting from certain income streams.
Can you set up a trust fund in the Philippines?
Yes, you can set up a trust fund in the Philippines through banks and financial institutions such as BDO, PNB, Security Bank, and more.
How Do I open a trust fund in the Philippines
Opening a trust fund in the Philippines can be processed with banks and financial institutions below:
- BDO Wealth Protection & Distribution
BDO Wealth Protection & Distribution is a suite of financial services provided by BDO Unibank to assist clients in safeguarding and managing their wealth effectively. This service is designed to address the diverse needs of individuals, families, and businesses, offering a range of solutions to protect assets, plan for the future, and ensure the smooth distribution of wealth.
Available Services:
• Living Trust
• Estate Life Insurance Trust
• Professional Pension Trust
• Special Educational Trust
• Other Special Purpose Trusts
• Testamentary Trust
• Legacy, Endowment and Charitable Trust
• Special Purpose Trust
See more information about BDO’s wealth protection and distribution trust services here.
- PNB Personal Trust Funds
PNB’s personal trust funds allows trustors to set aside funds and finances to their loved ones, children, or a chosen beneficiary. PNB’s trust services also include estate planning to ensure the proper distribution of your estates to your beneficiaries.
Minimum investment for PNB’s Personal Trust Fund is P1 Million or its equivalent to the US Dollar.
To know more about PNB’s Personal trust fund, check out their trust services or email them at [email protected].
- Security Bank Living Trust
As per Security Bank, their Living Trust can help you set-up a Personal Management Trust which takes effect during your lifetime, unlike a will that only takes effect after death. Under this service, Security Bank will help you manage and transfer your assets to your designated beneficiaries. Their service can also be used to complement your existing estate plan and:
- Provide for the needs of your beneficiaries before and after death
- Transfer properties from one generation to another
- Assure the continuity and management of your assets
Trust services available for Security Bank
- Wealth Transfer – Designing conditions on the transfer and distribution of your assets to beneficiaries
- Wealth Management and Preservation – Implementation of the transfer and distribution of the Trust Assets
- Advisory Services -Formulation of clients’ own unique investment portfolio with higher returns
Are Trust Funds a Good Investment?
Trust funds can be a valuable investment option for individuals seeking professional management of their assets in the Philippines. With trust funds, experienced fund managers make strategic investment decisions, often diversifying portfolios to optimize returns while managing risk. While the performance of trust funds can vary, they can offer convenience and expertise, making them suitable for investors looking for a hands-off approach to wealth management.
Why Put Money in a Trust Fund?
Putting money in a trust fund can provide several advantages. Trust funds in the Philippines offer professional management, allowing individuals to benefit from the expertise of fund managers who make informed investment decisions. Additionally, trust funds can be utilized for specific purposes, such as estate planning, education funding, or charitable endeavors. They also offer a structured way to preserve and distribute wealth according to the trustor’s intentions, often providing tax benefits and asset protection.
