A study on the living trust accounts offered by universal banks, commercial banks and thrift banks for the period of September 1998 to December 2005

• Main Authors: Ang, Arlene Abigail C., Araneta, Gretchen S., Dabbay, Ma. Fe Carmen L., Ong, Evangeline C.
• Format: text
• Language: English
• Published: Animo Repository 2006
• Subjects: Trust and trustees > Philippines; Trust companies > Philippines; Finance and Financial Management
• Online Access: https://animorepository.dlsu.edu.ph/etd_bachelors/14187
• Institution: De La Salle University

Living Trust is one of the longest-existing trust products offered by trust institutions in the Philippines. It is an estate planning tool which is created during one's lifetime wherein there is a transfer of assets to a trustee for management according to the terms of the trust agreement. Its importance and significance are further realized in this study. In the latter part of 2005, issues arose regarding living trust's unusually large growth (2003 and 2005). For the period of 1998-2002, its movement was stable with minimal increases and decreases in its volume. Furthermore, speculations and statements by different authorities came up that living trust was being used as a deposit substitute. In response to these concerns, Circular 521 was implemented by Bangko Sentral ng Pilipinas (BSP) in March 2006 regarding the guidelines on living trust accounts. This paper discusses the factors, in general, which affected the movement in the volume of living trust accounts offered by Universal, Commercial and Thrift Banks for the period of September 1998 to December 2005, giving insight to its sudden surge in 2003 and 2005. These factors include common trust fund (CTF), time deposit, and capital market liquidity represented by CTF's year-on-year yield, 91-day T-bill rate, and money supply respectively. Economic events for the years included, Circular 447 on the eradication of CTF and implementation of UITF, and Section 409.8 of the Manual of Regulations for Banks (MORB) about the tax-exemption on individual trust accounts were also taken into consideration. With this, trustees will now be more sensitive and responsive to external forces that explain the rise and decline in the volume of living trust accounts. Moreover, this paper attempts to verify if there is any truth to the allegation that living trust is being used as a deposit substitute. If living trust is found to be operated as a deposit substitute, its real purpose is defeated and sanctions should be imposed. Through surveys and interviews with trust officers and a BSP representative, it was discovered that some trust institutions were actually liable for this claim, particularly in the provincial branch levels. Knowing the factors that influenced the volume of living trust and confirming that some trust institutions used living trust as a deposit substitute, several recommendations were prepared by the proponents. BSP and the trust industry should work together in achieving their goal of increasing the investors' awareness through seminars, giving a clearer perspective on the differences between bank and trust products. BSP should be stricter in implementing the current penalty system to restrain trust institutions from doing unsound trust practices. Lastly, for the next researchers, it is suggested that a follow-up study be made on a micro-level in order to validate the statement by BSP about the violation done at the trust and branch level. The trust industry has much to offer, and would do well to further develop and grow. The proponents believe that this paper can contribute tot he industry's development, especially in achieving its objective of raising the level of public awareness and understanding of the principles and concepts of living trust."