“With the advent of an aging society, the trust industry must consider the content of products and services based on the needs of elderly customers.” Takashi Kato, head of the Business Planning Department of Mizuho Trust & Banking Co., said that because the physical, mental, economic, and family conditions of different people vary greatly, trust businesses must provide refined and customized services.

In order to help Taiwan broaden its financial horizons, TABF organized a senior delegation to visit trust associations and trust banks in Japan, aiming to learn from its industry system and current situation. Makoto Kawashima, executive director of the Trust Companies Association of Japan, said that Japan's Trust Law was first enacted in 1922, representing an industry history of over 100 years. Today, trusts are quite diverse. “As of September 2022, the overall scale of Japanese trusts has reached 1.5 quadrillion yen.”

Complete and rigorous laws

The Trust Companies Association of Japan currently has 87 member institutions. The new chairman is Kei Umeda, President and CEO of Mizuho Trust & Banking Co., and its members include city banks, regional banks, trust companies, and other financial companies with different attributes. The Association collects members’ opinions on related laws and regulations, compiles their views and complaints, and then communicates and coordinates with the government. In addition, it also organizes activities to promote trusts and assists members to improve their operating conditions. It is similar in nature and purpose to the Trust Association of ROC (TAROC).

Kawashima explained that Japanese laws related to trusts can be roughly divided into three levels. The foundation level is the Trust Act, which applies to all stakeholders, including trust companies and beneficiaries. The intermediate-level law is the Trust Business Act, which governs the operations of all financial institutions engaged in trusts. They must also abide by the Act on Engagement in Trust Business by Financial Institutions, which stipulates the scope of trust business and regulates trust behavior. Finally, the top-level laws are the Act on Investment Trusts and Investment Corporations, Loan Trust Act, and Asset Securitization Act, which regulate products.

Kawashima explained it is mainly banks and trust companies who can sell trusts. Trust companies are divided into two categories: operational and management. The latter cannot use assets entrusted by the client by itself, but must be authorized by the client and act in accordance with their instructions.

Japanese people have a high savings rate, so the government has been calling on people not to deposit all their money in banks, but to invest part of it; trusts are one such investment channel. From Abenomics onto Prime Minister Kishida, the whole country is making every effort to turn savings to investment. In particular, Nippon Individual Savings Accounts (NISA), which encourage investment trusts and stock trading, will be greatly expanded next January, significantly encouraging personal asset accumulation. As of September 2022, 267 trillion yen had been invested in Japanese trusts, which is expected to continue to increase.

“Japanese law strictly prohibits inappropriate sales by trust companies,” Kawashima said. Japanese trust companies evaluate customers’ education level, assets, and aims before recommending products. “However, we must also guard against unscrupulous customers using trusts to launder money.”

Four Mainstream Products

Kawashima said that mainstream trust products in Japan include use specified money trusts (SMTs), defined benefit enterprise annuity trusts, securities investment trusts, and money claims trusts (MCTs).

With SMTs, the trust company can manage funds owned by many customers in a centralized manner, helping magnify the impact of small amounts. Moreover, most SMT contracts stipulate that even if the investment fails, the principal cannot be damaged. “This is like a fixed deposit at a bank, which is quite safe,” said Kawashima.

Enterprise annuities are another important element of Japan’s annuity system. In addition to using the allocated funds, the trust also assists the enterprise client to design their annuity system, make actuarial calculations, and pay the annuities. This form is still one of the lifelines of the industry.

The growth of securities investment trust products has allowed trust companies to play a pivotal role in the securities market. They also package beneficiary rights into funds and sell them to investors. With MCTs, companies entrust the creditor’s rights they own to trust companies, which then package them as trust products for investors.

In Taiwan, trusts are seen as a way for seniors to live and work; trust companies’ services are deeper and broader in Japan than in Taiwan. Kawashima said that Japan is an aging society, and many seniors have large wealth. One of the missions of the industry is to help them spend their old age in peace, smoothly passing their assets onto the next generation.

Japan has many trust products designed for seniors, including education fund donation and childcare support trusts. Clients donate assets for education and childcare expenses of their children and grandchildren, enjoying a preferential gift tax, in contrast to direct cash gifts.

Taking the hassle out of inheritance

However, not every senior is healthy and wealthy. Many are poor and suffer from various disabilities. Kawashima said that designated gift trusts are designed for seniors in ill health. Family members, friends, relatives, or well-wishers can use such trusts to pay their living and medical expenses on a regular basis.

Death is not a taboo subject; more and more seniors are willing to draw up wills. However, when a customer passes away, Japanese financial institutions immediately freeze their accounts. Their heirs cannot immediately receive their funds, even if they urgently require them. If the client assigns the assets to the trust on behalf of the will after their death, however, the financial institution can still execute the contract, so that inheritance is not a major hassle for beneficiaries.

Clients want to leave their assets to the partners, children or grandchildren who take care of them the most during their later years, or else to donate them to society. Kawashima said that trust companies can not only provide consultation for clients, but also retain and execute wills on their behalf.

Dementia is a serious social problem in an aging society, whether in Japan or Taiwan. If seniors entrust their assets to trusts, after their cognition and judgment are weakened, the trust company can appoint a contractual “voluntary custodian” to assist them maintain their lives, preventing their assets from being misappropriated. The custodian must apply to the court before withdrawing the money.

Refined and customized

“With the advent of an aging society, the trust industry must design products and services based on the needs of elderly customers.” Takashi Kato, head of the Business Planning Department of Mizuho Trust & Banking Co., said that because the conditions of clients vary greatly, business must provide refined and customized services, taking care of those who can no longer help themselves.

Kato said that the total asset value of many Japanese retirees has continuously declined since they left the workplace; 75% of Mizuho’s customers are over 65. “Therefore, Mizuho has launched a variety of trust products to benefit seniors in financial management, asset management, and bequeathment.”

“If the trustee is in poor health, they can request an agent to ask for money from us.” Kato said that Mizuho only allocates funds after a five-days waiting period. It establishes an app group with the client’s relatives and friends, allowing them to supervise the agent and protect the client’s assets.

Growing old and dying alone have become the norm in Japan. Mizuho assists those living alone to draft wills, and cooperates with companies that assist the elderly to maintain their dignity and execute their wills on their behalf. In addition, it also attaches great importance to academic cooperation, and is cooperating with Keio University to design a client protection system. It jointly developed an app with Juntendo University to judge the mental and physical condition of clients through their mannerisms and provide necessary assistance.

Taiwan should reaffirm the positioning of financial institutions

Katsumi Funabashi, head of the Mitsubishi UFJ Trust Bank Business Planning Department Association, said that Mitsubishi UFJ Trust Bank provides comprehensive asset management solutions, redefining the role of trustees and protecting the lives of seniors.

“The trust industry has limited ability to protect the lives and property of seniors with cognitive decline alone, and must cooperate with experts from other fields.” Funabashi said that because cognitive function does usually not suddenly decline, Japan has combined the power of the government, trust industry, and assisted living industry to strengthen its long-term care system and adjust services according to clients’ physical condition. “The role of the trust industry in this system is to integrate asset management needs.”

Funabashi suggested that Taiwan consider the functions of financial institutions when building its long-term care system; trusts are better to other industries in management, supervision and utilization of assets, he said. He also believes that the trust industry has favorable prospects in an aging society due to increased demand.

All three experts emphasized that risks must be balanced with convenience when formulating the supervision system.

In response to the aging trend in Taiwan, the Financial Supervisory Commission (FSC) launched the Trust 2.0 plan in 2020, and TABF issued the Senior Financial Planning Consultant and Family Trust Planning Consultant professional certifications. The former includes nine series of courses, including basic understanding of senior psychology, behavior and medical care, and nursing and related trusts. The latter includes a total of nine courses on bequeathment, family trust practices, compliance, family trust planning, and family charters and family offices, training practitioners to understand the needs of seniors, communicate with them, and assist them to design appropriate estate and retirement plans and family trusts.

In addition to the trust industry, other financial sub-sectors such as banks, insurance, and securities have also sent executives to participate in this training, as well as long-term care personnel, social workers, lawyers, and pharmacists.

Chi-Chia Chang, who has more than 10 years training executives and senior financial planning consultants on trusts at TABF, is also deputy general manager of the personal finance department of COTA Bank and a management training committee member of TAROC. The rigorous Trust Law Act and diversity of product customization are quite favorable for related domestic businesses, he says.

Japan’s experience could potentially be implemented in Taiwan. For example, Funabashi said that because UFJ is a franchise, lobby tellers can explain trust services to customers in detail. Reflecting on Taiwan’s current industry, when customers come to tellers for advice, they must be referred to specialized service personnel. Chang suggested that financial holding groups with abundant resources may gradually gain a new perspective by setting up special trust banks, providing complete services through education and training.

As for opportunities in Taiwan, Chang is optimistic. According to the latest 2022 population estimation report by the National Development Council, Taiwan will become a super-aged society in 2025 (with over 20% elderly population), at which point the proportion of elderly population still will grow faster than in other countries. Starting in 2052, its proportion of elderly population will be slightly higher than in other major countries; by 2057, it will reach 40%; by 2070, at 43.6%, Taiwan will be second only to Korea, at 46.4%. Fortunately, we still have time to plan for this.

Trusts will become indispensable, like insurance

Japan’s trust industry has developed for more than a hundred years, and it has full-time trust banks. Taiwan’s trust industry, in contrast, is less than 30 years old, and is run only by special departments at banks. Even though Taiwan’s Trust Act and Trust Business Act are both modeled after Japan, and it has similar trusts, such as real estate, elderly, and testamentary trusts, the momentum and diversity of the industry still lag Japan.

Japan’s aging society came earlier than Taiwan (1995 versus 2018). Therefore, its senior trust product planning is more complete than Taiwan’s, and product design is also more rigorous. Japanese trusts are loved in Taiwan, just like other products. The problem is that Japan’s laws are more complete than Taiwan’s, making it difficult for Taiwan to replicate its level of innovation.

Furthermore, the entire concept has not yet been popularized in Taiwan. In practice, consumers often cannot accept that their money is being managed by their bank, yet they still need to pay management fees, or they may mistakenly believe that trusts are exclusively for the rich. The Trust 2.0 policy lists “advocacy and industry-university cooperation” – that is, public promotion of trusts – as an important evaluation item, urging the industry to actively promote trusts so that the public can recognize the concept of financial tools that can be used at all stages of life to prevent fraud, take care of yourself in old age, or bequeath assets.

With imagination, trusts can be tailor-made for individuals and turned into actual contracts. As the concept becomes more popular, they will eventually become an indispensable financial product, just like insurance. That objective is still a ways off, but it also indicates rich business opportunities.

The spirit of trust service

Ting-yi Wang, who has worked in the industry for many years, believes that the public still does not understand trusts. Three high-level myths exist. The first is difficulty. Many customers think that the product planning and service content are more complex than for other financial products; in fact, dedicated staff can give detailed explanations at branches. The second is high fees. Trusts are implemented by professional financial institutions. In fact, a reasonable user processing fee is much cheaper than being cheated by fraudsters, relatives, or friends.

Finally, there is the myth of a steep learning curve. In the media, rich people often execute stock trusts or family property trusts, which leads to the myth that they are only used by the rich. Wang explained that although they are to some extent a channel for legal tax planning, in fact, trusts are more accessible now, and ordinary people can also use property trusts to preserve property and manage assets.

The FSC and TAROC have made considerable progress over the two years since the launch of the Trust 2.0 plan in cross-industry alliances, laws, self-regulatory norms, talent cultivation, and business quality. The FSC now hopes that through the evaluation and incentive measures of the second phase of the plan, it can continue to guide the industry to develop services which keep pace with the times. Its core goals are to meet clients’ needs at different stages of life, expand and deepen cross-industry alliances, and enhance understanding of services for the elderly and those with physical and mental disabilities.

In addition, Wang also suggested that the domestic financial industry and regulators learn from the Mitsubishi UFJ Trust Museum, which is full of images of Peter Rabbit. The author, Ms. Potter, used income from the series to buy land in the Lake District, preventing its development and destruction. After her death, she donated 14 farms and more than 4,000 acres of land to the National Trust to preserve the beauty of the countryside. The museum conveys the service spirit and purpose of trusts: “Forever, for everyone.”