An Era of 10 Million Elderly Population... Banks Accelerate Inheritance Trusts

As the elderly population rapidly increases, led by the Electric Baby Boomer generation (1955?1963), banks are consecutively launching financial products and services related to inheritance trusts for asset owners. The industry expects competition among financial companies targeting this market to intensify further, as the population aged 65 and over is projected to surpass 10 million this year, indicating rapid aging.

Sketch of a commercial bank ATM. Photo by Hyunmin Kim kimhyun81@

According to the financial sector on the 28th, IBK Industrial Bank recently launched the 'IBK Naetteutdaero Will Substitute Trust' product. A will substitute trust refers to a product where customers entrust inheritance assets such as money and real estate to a financial company, use them according to their own wishes during their lifetime, and after death, the assets are inherited by designated beneficiaries as stipulated in the prior contract.

Through this trust product, IBK Industrial Bank plans to provide a portfolio composed of various financial products such as government bonds, maturity-matched exchange-traded funds (ETFs), and derivative-linked bonds (DLBs) to ensure stable returns on the inheritance assets entrusted by customers. Of course, partial early withdrawal is possible if urgent funds are needed, such as for hospital bills.

Some institutions are further advancing these services. Shinhan Bank held a bidding last month to develop a system for computerizing will substitute trusts. The main goal is to develop systems for pre-consultation management, contract digitization, managing multiple heirs, and inheritance payment scheduling. The intention is to enhance services by digitizing procedures related to will substitute trusts.

Separately, Shinhan Bank has also opened and operates a specialized channel called the 'Shinhan Trust Lounge' at the Korea Chamber of Commerce and Industry in Jung-gu, Seoul. At this lounge, professional staff provide customized consultations on trust products such as ▲will substitute trusts ▲real estate and monetary gift trusts ▲donation trusts ▲disability trusts ▲guardianship trusts ▲funeral trusts, and offer comprehensive asset management consulting with legal, tax, and real estate experts.

Hana Bank, which has strengths in the private banking (PB) sector, took a step further by opening the 'Hana Senior Lounge' last month in Samseong-dong, Gangnam-gu, Seoul, and launched an estate settlement service that provides one-stop services covering all areas from will drafting to inheritance execution and estate organization. To this end, Hana Bank has established a cooperative system with Japan’s trust-specialized bank Sumit Trust, leading domestic law and tax firms, and general hospitals.

Explosively Increasing Demand in the 'Inheritance Trust Market'

The background behind banks consecutively launching and advancing inheritance-related services is the rapidly increasing elderly population and the relatively underdeveloped inheritance trust market. According to a recent report by Woori Financial Management Research Institute, the size of the domestic trust market’s assets under management was 1,311 trillion won as of last year, a 50.1% increase compared to five years ago in 2018. However, most of these assets were concentrated in specific money trusts (44.8%) and real estate trusts (36.9%). This reflects the fact that the Electric Baby Boomer generation has not long retired and that most household assets are composed of real estate.

However, demand for the inheritance trust market is highly likely to increase explosively. This is because the asset share held by the elderly is significantly increasing due to the growing elderly population. The net asset share of households aged 60 and over, which was 32.2% in 2017, rose by 5.5 percentage points to 37.7% in 2022, while that of those aged 39 and under decreased from 14.7% to 13.1%. The cumulative entrusted amount of will substitute trusts at the five major commercial banks (KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup) also increased by 43% year-on-year to 3.3 trillion won in the first quarter.

Woori Financial Management Research Institute stated, "Domestic financial institutions have been actively launching inheritance trust products since 2020. Although the minimum subscription amounts are currently somewhat high, ranging from 50 million to 1 billion won, as inheritance trust culture becomes more widespread, the launch of affordable products will also expand." They added, "In the short term, it is necessary to develop products and services targeting high-net-worth individuals with superior profitability relative to sales to establish a business foundation, and in the mid to long term, to expand the customer base to the mass affluent, promote cooperation with specialized institutions, and pursue digitalization."