Multi-Homeowners Turn to Gift Trusts Amid Concerns Over 'Filial Piety Fraud'

Increase in Gifts Due to Strengthened Transfer and Holding Taxes... Family Disputes Surge
Tax Savings Effect by Maintaining Asset Control and Preventing Conflicts Through Trusts

Although apartment transactions have decreased, the expectation of rising house prices and lower tax rates compared to capital gains tax have led to a steady continuation of apartment gifts. The photo shows the Songpa and Gangdong districts viewed from the Seoul Sky observatory at Lotte World Tower in Jamsil, Songpa-gu, Seoul, on the morning of the 5th.

Mr. J, who owns two houses, initially decided to sell one property due to the burden of holding taxes but changed his mind to gift it after seeing the estimated capital gains tax. Those around Mr. J are concerned about his choice, saying, "He is passing on a large asset too early to his unmarried child in their twenties," causing him considerable worry.

As holding taxes and capital gains taxes on real estate have been strengthened, multi-homeowners are turning to gifting instead of selling, and along with the increase in family conflicts and lawsuits after gifting, ‘gift trusts’ are gaining popularity.

According to the financial and tax industries on the 3rd, inquiries about real estate ‘gift trusts’ have recently surged, especially among multi-homeowners. A private banking (PB) official at a major commercial bank said, "They would rather gift than pay 65% capital gains tax when selling, but the problem is that rash gifting often leads to increased disputes between parents and children."

In the industry, the term ‘filial piety fraud’ has already become common. It refers to the situation where children promise to be dutiful and receive assets, but after the gift, they change their minds and neglect their support obligations. The PB official explained, "People who want to gift but also want to avoid potential family conflicts are interested in ‘gift trusts.’"

A gift trust refers to establishing a trust contract while gifting assets. Generally, the parents (settlors) and an asset management company or bank (trustee) enter into a contract, and the trustee manages and operates the gifted assets.

Tax accountant Shin Bang-su said, "Using gift trusts can provide benefits in tax aspects as well as asset management and operation," adding, "It is also expected to prevent the increasing family property disputes by designating the trustor in advance."

Assuming real estate prices continue to rise, the later the gifting occurs, the higher the gift tax burden on the child. For multi-homeowners, holding taxes such as comprehensive real estate tax increase sharply every year, so gifting assets early to avoid heavy taxation is making gift trusts increasingly popular.

Also, since gifting is carried out according to the terms of the trust contract, it can prevent trustees from squandering assets. The trust contract can be designed so that ownership of the property remains with the settlor, while only the income generated from asset management is transferred to the beneficiary (child).

With growing interest in gift trusts, the amount of real estate assets under trust management is steadily increasing. Woori Bank launched the real estate gift trust product ‘Woori Naeri Sarang Real Estate Trust’ last September, and it is reported that trust contracts exceeding 10 billion KRW were signed within just over a month.

Meanwhile, real estate gifting is at an all-time high. According to the Korea Real Estate Agency’s apartment transaction status (based on reporting dates), the total number of apartment gifts nationwide from January to August this year was 58,298. This accounts for 6.8% of all transactions (sales, gifts, judgments, exchanges, pre-sale rights transfers, and other ownership transfers) totaling 853,432 during the same period. This is the highest ratio since related statistics began being compiled in 2006.