Trust arrangements used to be totally prohibited in Thailand, but were opened for the capital market investment and fundraising in 2007 by the legislation of The Trust for Transactions in Capital Market Act. Soon after enactment, the Real Estate Investment Trust (“REIT”) became available from various financial institutions for the purposes of fundraising and investment in real estate and infrastructure.
Since the current capital market trust law tends to function as an extension of mutual funds rather than to provide a caretaker for private assets, the Private Trust Bill was proposed in 2018 by the Ministry of Finance.
The Bill is intended to allow real private trusts to be established specifically for private wealth that wants to establish a trust under the care of a licensed Trustee to serve as part of a family office or private wealth management. The latest legislative development is positive as the Bill has been approved in principle by the Cabinet and is being reviewed by the Council of State.
1. Private Trust Establishment
The trust property is established by a private contract between the private assets owner as the Settlor who transfers the assets ownership to the Trustee. The transferred assets vest in the Trustee and become the trust property. The Trustee may not enjoy the fruit of such trust property nor set off against any of the Trustee’s debts. The trust property is also not subject to receivership or liquidation should the Trustee goes bankrupt.
Basically, the qualified Trustee under the Bill must be a juristic person whose core activity is within the bank or financial institution area. The specific juristic person may be permitted to be the applicant of the trustee license, subject to rules to be further imposed by the Security and Exchange Commission (“SEC”), as the main regulator.
The private trust contract may last up to 100 years in tandem with the lifetime of the second generation to pass on the prosperity to the grandchildren of the first generation who originally established the trust property. The terms and conditions of trust contract can be flexibly agreed upon as to the investment plan, Trustee’s authority limits, beneficiary(s)’ proportionate share, etc. The trust property may not be established by the last will like bequeathed estates upon the death of the testator, but rather must be a contract executed while they are still alive.
According to the Bill, there is no restriction on the nationality of the Settlor, thus a foreigner is entitled to enter into a private trust contract in order to transfer his or her personnel assets to the Trustee for property and investment management. However, the Bill strongly suggests that the trust contract must be compliant with the Foreign Business Law with regards to the permitted business activity and land ownership.
2. Foreign National Ratio and Beneficiary’s Proportionate Share
Given the Bill’s background purpose is to retrieve private wealth/family trust of Thai nationals back from the foreign jurisdictions and encourage local investment, the Bill has one restriction: that the proportionate share of the foreign beneficiary must comply with the Foreign Business Act. To the best of our knowledge, it can be implied that regardless of the Settlor’s and Trustee’s nationality, the beneficiary ratio between Thai to foreigner in the private trust should remain 51:49.
The same restriction would also apply to land ownership as it appears in the public hearing report that the Land Department has been informed of the Bill’s implication. It means that the land office will regularly investigate the ultimate stakeholders’ nationality who in this case is the beneficiary. Thus, the proportionate share among the Thai to foreign beneficiaries in the trust property consisting of land would remain 51:49.
Technically, since the private trust is established by contract between the Settlor and Trustee, such contract may be made separately to form as many Trust Properties with different list of transferred assets. The Settlor in the trust contract may be comprised of various individuals of different nationalities as agreed by the beneficiaries. Given the flexible contract terms and conditions, the transferred assets in the trust property may derive from various sources and multi-national Settlors whose existence can be the legal entity or natural person. The Settlor may also put him or her as one of the beneficiaries to enjoy the fruits of the trust property.
It is likely that the final draft will not compromise with foreign ratio restrictions under the prevailing statues. As such, Settlors will have to factor such restrictions to asset allocation in addition to the investment and asset management plan.
3. Benefits of the Legislation
Despite the fact that the Bill was intended to promote wealthy Thai families to maintain their prosperity in the country and draw back the investment from overseas, the legislation will extend benefits to any foreign private wealth or family office interested in diversifying their investment portfolio into Thailand, especially when their successor has a Thai nationality.
Due to the administrative transition period after the recent election, the Bill is currently pending in order for the new Government to determine whether they will continue the legislation, although the Bill was already approved in principle by the soon-to-be former Cabinet.
We will monitor the development of the Bill and we will provide you with updates when these will become available.
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This article was originally published on the Antares Group’s website.
This article does not constitute legal advice or a legal opinion on any matter discussed and, accordingly, it should not be relied upon. It should not be regarded as a comprehensive statement of the law and practice in this area. If you require any advice or information, please speak to practicing lawyer in your jurisdiction. No individual who is a member, partner, shareholder or consultant of, in or to any constituent part of Interstellar Group Pte. Ltd. accepts or assumes responsibility, or has any liability, to any person in respect of this article.