A Critical Review of the Trust in the Philippines: The Past, Present, and Future Hmvey N. Dychiao*

!. INTRODUCTION ................................................................................. 46 II. THE PHILIPPINE LEGAL SYSTEM ......................................................... 4 7 III. THE TRUST UNDER PHILIPPINE LAw ............................................... 48

A. The Pre-1950 History of the Trust · B. The 1950 Civil Code on Trusts C. The 1997 Rules of Civil Prvcedure D!. Banking and Investment Laws E. ', The National b1temal Revenue Code

IV. TRJsT UsAGE IN THE PHILIPPINES ................................................... 6I A. 'The Nuts and Bolts B. Kinds of Trusts in the Philippines

V. CHALLENGES AND OPPORTUNITIES .................................................... 96

A. Developing a Philippine Trust Law System !3. Refining RegulatOI}' Control and jurisdiction

VI. CoNCLUSION ................................................................................. I I I

I. INTRODUCTION

The renowned authority on trust, Harvard Law Professor Austin V/akeman Scott, perfectly captured the trust's usefulness when he exclaimed: "the purposes for which trusts can be created are as unlimited as the imagination oflawyers."' The trust is a venerated instrument in the legal systems where it is accepted and utilized. Behind t!-& simplicity of its fundamental legal construction lies trillions of dollars worth of industries, deals, and capital

'03 J.D., Ate~eo de Manila University School of Law (Class Valedictorian, Gold Medal for Academic Excellence, and Dean's Award for Best Thesis of Class 2003); 'o7 LL.M., Harvard Law School. The author ranked No. 2 in the 2003 Philippine Bar Examinations. He was previously an Executive Committee Member (2002~ 2003) and the Assistant Managing Editor (2001-2002) of the Ateneo Law journal. He likewise co-authored Bengzon III v. HRET: Issues on Citizenship. and jurisdiction, 4 7 ATENEO LJ 127 (2002). The author is grateful to the following: Pro£ Robert H. Sitkoff, Atty. Reynaldo G. Geronimo, and Mr. Wilfreda Talastas.

Cite as 52 A TEN EO LJ 46 (2007).

!. AUSTIN W. SCOTT & WILLiAM F. FRATCHER, THE LAW OF TRUSTS 4 (I987-l991).

2007] CRITICAL REVIEW OF THE TRUST 47

movement. 2 All throughout the world, through jurisdictions with varying legal traditions, the trust enables people to fine-tune their portfolio of assets efficiently, economically, and ingenuously.

The Anglo-American trust was introduced in the Philippine legal system sometime at the start of the 2oth centtw{. To an appreciable extent, the doctrinal concept of the Anglo-American trust has been infused into Philippine law and jurisprudence such that its name has become a part of ordinary parlance. The history and recognition notwithstanding, the trust is still only vaguely understood by local lawyers and laymen alike. The full depth and richness of the concept has remained egregiously untapped. And while the domestic capital market has grown increasingly receptive to its use, thanks to the soaring popularity (and notoriety) of newly-introduced investment vehicles, one wonders why the state of things remains as it is. Thus, this article starts with a question - why is the trust, despite its popularity, still so unknown and, even worse, so misu11.derstood?

The limitations of this article are principally borne out of the dearth of academic legal literature on the subject, only reinforcing our starting question. Nevertheless, by surveying past and present Philippine trust law and noting how the trust industry has developed, it is possible to come by a holistic analysis of the trust. This work adopts a multi-disciplinary approach in its analysis. Philippine trust law will be examined and evaluated not only by its legal parameters, but also by its philosophical, policy, and commercial underpinnings. This work will tackle important issues and questions, primarily: (I) whether or not the Philippines has an adequate trust legal system; (2) what the rising challenges and opportunities for the development and deployment of trusts in the country are; and (3) how the Philippine trust can be made more real and accessible to users desiring to avail of its benefits.

II. THE PHILIPPINE LEGAL SYSTEM

The Philippines has a presidential form of government similar to that of the United States. The Philippine government is divided into three main branches: the Executive, the Legislative, and the Judiciary. Unlike the United States, however, governance in the Philippines is through a Jnitary government and the political subdivisions of the Philippi~1es are not

2. Interview with Pro£ Robert H. Sitkoff (Apr. 29, 2007). In the United States alone, the value of conm1ercial trusts is already estimated to be at the level of $10 trillion. "Federally-reporting trust institutions have over $r trillion in noncommercial trust funds" while "2/3 of mutual funds (worth $10 trillion) are trusts." Asset securitization and federally mandated pension trusts likewise add trillions to the estimate.