[Financial Microscope] Growing Testamentary Substitute Trust Market... Banks Step Up Customer Acquisition

Bank Trust Balances for Testamentary Substitute Trusts Reach 3.8 Trillion Won as of August
Surge from 879.3 Billion Won in 2020... More Than Fourfold Growth in Five Years
Same Legal Effect as a Will, with Simple and Detailed Planning Possible <

The market for testamentary substitute trusts, which allow inheritance of assets without the need for a complicated will, is growing rapidly. As the aging population increases interest in inheritance planning, the balance of trust accounts has surged more than fourfold over the past five years. As the number of subscribers rises, the perception of "inheritance planning," once considered exclusive to high-net-worth individuals, is becoming more mainstream. Banks are fiercely competing to attract customers by launching "standardized" products and offering comprehensive services linked to care and funeral planning.

Bank Testamentary Substitute Trust Balances Near 4 Trillion Won... Fourfold Growth in Five Years

According to the financial sector on August 27, the balance of testamentary substitute trusts at the five major commercial banks (KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup) stood at 3.8894 trillion won as of August 22. This represents an increase of 382.2 billion won in just eight months compared to the end of last year (3.5072 trillion won), nearly matching the annual increase of 396.6 billion won recorded last year.

The testamentary substitute trust market has grown rapidly over the past five years. Compared to the end of 2020 (879.3 billion won), the balance has increased more than fourfold. Notably, after surpassing 1 trillion won in 2021, the balance reached 2.0541 trillion won in 2022 and 3.1106 trillion won in 2023, setting new records each year. This year, the market continues to show a steep upward trend, with monthly increases of over 60 billion won in the second half of the year. At this rate, the balance of testamentary substitute trusts is highly likely to exceed 4 trillion won in 2025.

A testamentary substitute trust allows an individual to entrust assets to a bank or other financial institution during their lifetime, and then have those assets transferred to beneficiaries according to predetermined timing and methods after their death. While a traditional will is typically drafted with the help of a lawyer, a testamentary substitute trust is established through a contract with a bank. The appeal of this product lies in the fact that it carries the same legal effect as a will, but offers a simpler subscription process and allows for more detailed planning.

To have legal effect, a will must meet strict requirements such as a handwritten document and witnesses, and must be rewritten each time its contents are changed, which is cumbersome. However, a testamentary substitute trust does not require notarization, and there is no need to worry about the authenticity or loss of the will.

The greatest advantage is that the trustor can freely design the beneficiaries, timing, and methods of inheritance, and can easily change the conditions or contents. For example, the trustor can set up the trust so that assets are not handed over to children all at once, but are paid out as living expenses each month over a specified period. The trustor can also designate the spouse as the primary beneficiary, and then have the assets transferred to children sequentially after the primary beneficiary passes away. Because it allows for more specific and clear inheritance planning than a will, it is attracting attention as a means to reduce inheritance disputes.

The number of single-person households without children subscribing to these trusts is also increasing. These individuals can set up the trust so that, in the event of an accident or cognitive decline such as dementia, part of their assets is used to pay for nursing care or hospital expenses each month. They can also use their assets themselves while alive, and then have the remainder donated to social organizations or scholarship foundations after their death. This allows individuals to plan in advance so that their assets are used as they wish even after they pass away.

Banks Compete for Customers... Lowering Entry Barriers and Expanding to Comprehensive Services

As the market expands, banks are actively seeking to attract testamentary substitute trust customers.

One notable example is the significant reduction in the minimum subscription amount, which used to be in the hundreds of millions of won. At the end of June, KB Kookmin Bank launched a "simple testamentary substitute trust" product with a minimum subscription of 10 million won. Previously, only those with more than 1 billion won in entrusted assets could subscribe, but now ordinary middle-class customers can also use testamentary substitute trusts. This product attracted hundreds of billions of won in just one month, and the number of subscribers continues to grow steadily in August.

Shinhan Bank has launched two versions of testamentary substitute trust products this year alone. In April, it introduced a simple product with no minimum amount, and earlier this month, it launched the "Testamentary Substitute Trust Basic Monetary Contract" product. This product has no restrictions on minimum amount or minimum fees, and immediately executes inheritance to the posthumous beneficiary upon the trustor's death.

NH Nonghyup Bank's monetary trust product can be subscribed to from 5 million won, and the comprehensive type, which was renewed in May, lowered its minimum subscription from 300 million won to 50 million won. Woori Bank also plans to launch the "Woori Neri Sarang Anshim Trust" in the second half of this year, with a minimum subscription amount of 10 million won. Hana Bank, which was the first to enter the testamentary substitute trust market in 2010 and holds the largest market share, allows subscriptions starting from just 10,000 won, effectively removing the minimum amount barrier. The bank also offers a wide range of products for dementia care, caregiving, filial piety, single-person households, and people with disabilities.

A banking sector official stated, "With lower entry barriers, people no longer need to be billionaires to design the distribution of their assets after death. The scope of services is expanding beyond just post-retirement asset management or inheritance to include comprehensive offerings such as senior residences and funeral planning."

This content was produced with the assistance of AI translation services.