To open a trust in the Philippines, the settlor (or trustor) will create the trust deed that establishes the details under which the trust is created for the benefit of another party.
The Civil Code, along with other relevant laws and provisions are used as reference by the one who sets up the trust in the Philippines. Our experts in company formation in the Philippines can give you complete information on the legal basis for opening trusts in the country and other essential details.
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How does one open a trust in the Philippines?
A trust in the Philippines is set up by a trustor or settlor. This is the party that empowers another, the trustee, with the management of assets and/or property, for the benefit of a third appointed party, the beneficiary.
The fiduciary relationship between the trustor and the trustee, and the terms under which the beneficiary will gain access to the funds of the trust, are set forth in the trust deed.
A trust in the Philippines created by a trustor with a clear intention for the benefit of a designated party is called an express trust. The following are some of its key traits:
- The beneficiary’s acceptance is required, although in some cases this is presumed;
- An appointed trustee can decline such appointment, however, this does not mean that the trust ceases;
- There is no mandatory trust deed model, the only requirement is for the trust’s purpose to be intended clearly;
- The express trust can be revocable, meaning that the one who will open a trust in the Philippines, retains the power to modify the trust terms during his lifetime. The option to set up an irrevocable trust is also available in the Philippines.
Our team can give you more details about these particularities, as needed.
What are the main advantages of a trust in the Philippines?
A trust can be a valuable wealth management or estate planning tool. It is not reserved solely for the high-net-worth individual as others who wish to control how their assets are distributed to their descendants can open a trust in the Philippines.
A trust can be used for:
- estate planning;
- asset management;
- business succession.
As previously mentioned, a trust can be revocable or irrevocable. The latter does not allow for flexibility and this may be a preferred trait by many settlors (i.e., having the option to control the assets and/or make changes in terms of the trust beneficiaries).
What are the governing laws for trusts in the Philippines?
The Civil Code, along with provisions from banking and tax laws are relevant for the creation of trusts. As far as the court treatment of trusts is concerned, in some cases, the procedural rules of the court are used for settling matters such as trust enforcement or disputes.
A trust is an instrument that is subject to taxation. Some taxes that affect trusts are:
- the transfer tax which can apply in the case of real property, at 0.5% to 0.75% on the higher gross sale price of the property at the time of its transfer (in the case of real estate investment trusts);
- the donor’s tax of 6% which applies on the fair market value of the property, at the time of the transfer. For example, the transfers of assets into an irrevocable trust can be treated as a donation, and subject to this tax;
- the 6% inheritance or estate tax which applies both in the case of residents and non-residents.
Please take note of the fact that the aforementioned taxes for trusts should be considered for informational purposes only. Those who open a trust in the Philippines can find out detailed information about taxation from our accountant in the Philippines.
In addition to our assistance provided for the creation of trusts or companies, we can also answer important questions for those who will move to the Philippines.
Contact us if you have questions about how to open a trust in the Philippines or if you are interested in starting a business in the Philippines.