Trust Fund Setup in the Philippines

A comprehensive legal-practice guide (updated to 18 June 2025)

Note: This article is for general information only and does not constitute legal advice. Trust-law practice is highly fact-sensitive; always consult Philippine counsel and licensed fiduciary professionals before acting.

1. Governing Law & Regulatory Map

Area	Key Sources
Civil-law foundation	Civil Code of the Philippines (Arts. 1440-1457: “Trusts”), plus Arts. 1318 (contracts) & 1327-1329 (capacity).
Bank & trust entities	Republic Act (RA) 8791 – General Banking Law of 2000; Bangko Sentral ng Pilipinas (BSP) Manual of Regulations for Banks (MORB, esp. §§ 409-428 on trust, IMA & UITF); RA 9505 (PERA); BSP Circulars 808/2013, 1085/2020 & subsequent.
Trust corporations (non-bank)	RA 11211 (amending the BSP Charter) + SEC Memorandum Circular 14-2019; Revised Corporation Code (RA 11232).
Tax	National Internal Revenue Code (NIRC as amended by the TRAIN & CREATE Acts); BIR Revenue Regs. 02-40, 13-77, 05-21, et al.
Anti-Money Laundering / Data	AMLA (RA 9160, as amended), Data Privacy Act (RA 10173), BSP Circular 706 (AML/CFT).
Real-property registration	Property Registration Decree (PD 1529); Rules on Land Registration.
Succession interface	Civil Code Book III, Rules 73-109 of the Rules of Court (probate).

2. What Is a Trust?

A trust is a juridical relationship where title to property (the trust res) is held by one party (trustee) for the benefit of another (beneficiary), created by a settlor (also called trustor). Under Art. 1440, a trust may be express (intent written or oral) or implied (resulting or constructive). Only express private trusts are covered here.

3. Parties & Capacity

Role	Minimum Requirements	Common Pitfalls
Settlor	Legal capacity to contract & own the property to be transferred. Married settlors need spousal consent if conjugal/community property is placed in trust (Art. 124 Family Code).	Using guardians or attorneys-in-fact whose authority does not expressly cover trust creation.
Trustee	If private/one-off: any natural or juridical person with capacity;
If commercial or accepting funds from the public: must be a BSP-licensed bank trust department or stand-alone trust corporation (Sec. 79, RA 8791; BSP Cir. 447).	Naming a foreign corporate trustee without SEC license; naming a friend abroad (difficult to enforce).
Beneficiary	Identifiable person(s) or a class ascertainable when the trust takes effect; the settlor may also be a beneficiary.	Open-ended “for my loved ones” descriptions → void for uncertainty.

4. Requisites for a Valid Express Trust

Intent – Clear intention to create a trust; precatory words (“wish”, “hope”) are not enough.
Trust Res – Specific present property or rights; future property cannot be held in trust until it comes into existence.
Definite Beneficiary – Except in charitable trusts, beneficiaries must be certain or ascertainable within the rule against perpetuities (40 years for private trusts, Art. 870).
Proper Form –
- Real property – a written, notarised deed; inscription/annotation on the certificate of title (Sec. 53, PD 1529) for opposability to third parties.
- Personal property – writing is strongly advised; required if the asset itself (e.g., shares) demands written transfer.
Delivery or Transfer – Title/possession must actually pass to the trustee; symbolic delivery or stock transfer forms suffices for shares.
Acceptance by Trustee – Express or implied; written acceptance avoids disputes.

5. Drafting & Executing the Trust Deed

Essential Clauses

Cluster	Recommended Provisions
Identity & recital	Parties, citizenship/addresses, authority (board/resolution if corporate), recitals of purpose.
Property schedule	Detailed list; for realty, Transfer Certificate of Title (TCT) numbers; for shares, certificate numbers & tax-ID of corporation.
Powers & duties	Investment parameters (BSP “prudent person rule”), delegation limits, power to lease/sell/borrow, conflict-of-interest rules.
Fees & expenses	Trustee compensation scale, indemnity, allowable reimbursements.
Reporting	Frequency, format & sign-off level (audited vs unaudited).
Beneficiary rights	Distribution triggers (age, milestones), discretionary vs mandatory powers, spendthrift clause.
Protector/Advisory committee	Optional; grants veto or consent powers.
Tax & compliance	Authority to file BIR returns, secure TIN for the trust (Sec. 236 NIRC).
Amendment/Revocation	Conditions if revocable; silence means irrevocable (Art. 873).
Duration & termination	Event/date, complete distribution, merger with other trusts.
Governing law & venue	Philippine law; exclusive courts of Makati/Taguig often chosen for banking convenience.
No-contest & severability	Deters frivolous challenges; saves valid clauses.

Execution Steps

Finalise deed → 2. Notarise (sign in presence of notary public) → 3. Pay Documentary Stamp Tax (DST) within 5 days of the month following execution (Sec. 196 NIRC: ₱15 per ₱5,000 of value on conveyance to trustee) → 4. Transfer/endorse assets → 5. Register real-property deeds with the Registry of Deeds; endorse share certificates; notify banks/brokers → 6. File BIR Form 1905/1901 to obtain a Trust TIN.

6. Licensing & Oversight of Trustees Acting “For the Public”

Bank trust departments must hold a BSP Certificate of Authority, maintain ₱500 million “Trust Quality Assets” capital (MORB § 411) and submit quarterly FRP (financial reporting package).
Trust corporations (non-bank) are organised under the Revised Corporation Code, with ₱300 million minimum paid-up capital; dual regulation by SEC (corporate governance) and BSP (fiduciary operations).
Unit Investment Trust Funds (UITFs) and Investment Management Accounts (IMAs) are subject to BSP Circular 1011/2018 on valuation, disclosure and client suitability.
AML requirements: Customer Due Diligence (CDD) on settlors, trustees and, since 2022, beneficial owners; file CTR/STR via AMLC portal; maintain records for 5 years after trust closure (RA 9160 § 9-B).

7. Taxation of Philippine Trusts

Tax Type	Rules & Rates (2025)	Compliance
Income Tax	Trusts are separate taxpayers (Sec. 56 NIRC). Same graduated rates as individuals (up to 35 %); ₱250 k exemption does not apply. If revocable or income distributable annually, income may be taxed to settlor/beneficiary instead (Secs. 61-64).	File BIR Form 1701-F on or before 15 April following year-end; creditable WHT & foreign taxes attach.
Donor’s Tax	Transfer to an irrevocable trust is a taxable donation unless full, adequate consideration shown. Rate: 6 % of net gifts above ₱250 k per donor per calendar year.	File BIR Form 1800 within 30 days from deed date.
Estate Tax	Assets in an irrevocable trust are excluded from gross estate if settlor relinquished control (§ 85 NIRC). Retained reversionary interest → includible.	Executor/trustee to disclose in BIR Form 1801.
VAT	Passive investment income exempt; but trustee’s fees are subject to 12 % VAT if trustee is VAT-registered.
DST	As above on conveyance; additional DST on share transfers, debt instruments held in trust, etc.

Tip: Where tax deferral is essential (e.g., family businesses), consider creating a holding corporation and place its shares—not operating assets—into the trust.

8. Investment & Administration Standards

Prudent Person Rule (Sec. 80 RA 8791; MORB §412): trustee must exercise “care, skill, prudence and diligence that a prudent person acting in a like capacity and familiar with such matters would use”.
Written Investment Policy Statement (IPS) now mandatory for institutional trusts (BSP Circ. 1085).
Eligible placements: government securities, bank deposits, BSP-approved collective schemes, listed equities, REITs, foreign investments up to 50 % of portfolio unless higher limit approved by BSP.
Borrowing/Lending by Trust: Allowed if expressly authorised and loan is fully secured; insider loans prohibited.
Valuation & Mark-to-Market: UITFs and discretionary portfolios marked daily; private fixed trusts at least quarterly.
Audit: Annual external audit plus BSP on-site exam every 18-36 months.

9. Reporting & Record-Keeping

Required To	Report	When / Frequency
Settlor/Beneficiaries	Financial statements & narrative report	As provided in deed (best practice: semi-annual).
BSP (licensed trustees)	FRP-T (Trust), risk-based capital adequacy, AML compliance reports	Quarterly / as required.
SEC (trust corporations)	AFS, GIS, beneficial-ownership disclosures	Annual / within 30 days of anniversary.
BIR	Income tax returns, withholding reports, DST declarations	Various statutory deadlines.

Trustees must preserve original records for 10 years; electronic copies permitted under BSP Circular 949/2017.

10. Special-Purpose Trusts

Employee Retirement Trusts – Must be approved by BIR to enjoy tax exemption (Sec. 34 A (1) NIRC); comply with DOLE Retirement Pay Law (RA 7641).
PERA (Personal Equity and Retirement Account) – Voluntary, tax-favoured individual pension; overseen by BSP; requires accredited “PERA Trustee”.
Charitable & Religious Trusts – Exempt from donor’s & estate tax (vs. income tax, which is subject to “actual-use” test); must register with SEC if amounting to a foundation.
Spendthrift & Special Needs Trusts – Enforceable; Philippine courts recognise restraint on alienation provided it’s reasonable and not against public policy.
Business Trusts / REIT wrappers – Shares or real estate can be transferred to a trust to satisfy public-float or ring-fence regulatory requirements.

11. Cross-Border & FX Concerns

Foreign Currency Deposits placed in trust are covered by Foreign Currency Deposit Act (RA 6426) secrecy; trustees need written waivers to disclose.
Outbound remittances by trustees require BSP Form BSP-C-1 if > US$60 k.
Philippine trust income distributed to non-resident aliens is subject to 25 % final withholding unless tax-treaty relief (BIR Form 0901-F).
Recognition of foreign trusts in PH courts relies on proof of foreign law (lex loci contractus), filed as an action in personam under Rule 73 for estates or Rule 2 ordinary action.

12. Termination, Amendment & Judicial Relief

Mode	Requirements
By terms	Occurrence of event/date stated in deed; trustee files terminal report, pays final taxes, executes deed of distribution.
Mutual agreement	If revocable, written instrument signed by settlor & all beneficiaries (Art. 129, RCC for corporate trustees).
Court order	RTC acting as special commercial court may modify or terminate if purpose fulfilled/impossible/illegal, or if circumstances not anticipated defeat the purpose (doctrine of cy-près for charitable trusts).
Merger/Conversion	Allowed if trustee corporate restructuring approved by BSP/SEC; needs notice to beneficiaries.

Beneficiaries may file accounting, removal or breach-of-trust actions in the RTC of trustee’s principal office or where trust property is located (Rule 73 § 1).

13. Common Pitfalls & How to Avoid Them

Using an unlicensed trustee → criminal liability under RA 8791 § 36.
Failing to pay DST promptly → 25 % surcharge + 20 % p.a. interest.
Ambiguous distribution clauses → litigations among heirs; draft triggers precisely (age “25 years as shown on PSA birth certificate”).
Mixing trust assets with trustee’s own funds → automatic breach; maintain dedicated bank accounts per MORB § 415.
Ignoring AML/beneficial-owner disclosures → hefty BSP penalties; prepare a BO register.
Over-broad powers of appointment → may cause inclusion in estate tax base; keep powers limited or contingent.

14. Step-by-Step Checklist (Private Family Trust)

#	Task	Responsible	Target Time
1	Define objectives & list assets	Settlor(s)	Day 0
2	Select qualified trustee; vet licensing	Settlor	Week 1
3	Draft deed + schedules	Counsel & Trustee	Weeks 2-3
4	Review tax implications; secure valuations	Counsel & Tax adviser	Week 4
5	Execute deed & have it notarised	Parties	Week 4
6	Pay DST & file BIR Form 2000	Trustee	Within 5 days of next month
7	Transfer assets / annotate TCT	Trustee	Week 5
8	Register trust TIN; open dedicated trust current & investment accounts	Trustee	Week 6
9	Issue initial Statement of Account to settlor	Trustee	Week 10
10	Ongoing filings & reports	Trustee	Per schedule

15. Key Take-Aways

Setting up a Philippine trust is not a mere formality; it is a regulated financial activity once it involves public solicitation or fiduciary compensation.
The Civil Code provides the skeletal framework, but BSP and BIR rules supply the musculature—capital, valuation, AML, and tax compliance.
Proper drafting, licensing, and tax planning at the outset avert the two most common disasters: (a) void or revocable trusts accidentally included in estate tax, and (b) BSP sanctions for unlicensed activity.
Treat the trust as a living entity: keep records current, file returns on time, and review the investment policy annually.

16. Conclusion

A well-structured trust remains the Philippine jurisdiction’s most versatile legal tool for wealth preservation, succession planning, asset-protection and investment management. By aligning the Civil Code’s timeless principles with modern BSP and BIR regulations, practitioners can deploy trusts that are both technically sound and commercially agile, delivering the settlor’s objectives while safeguarding beneficiary interests.

Trust Fund Setup Requirements Philippines