Planning for the future: how Trusts can elevate wealth and asset management in Thailand

Thailand is a development success story, having transformed rapidly from an economy dominated by agriculture to one that is modern, industrialised and export-led. Thailand is now Southeast Asia’s second largest economy after Indonesia, with a well-developed infrastructure, a free-enterprise economy and generally pro-investment policies.

According to the World Bank, Thailand’s economy grew at an average annual rate of 7.5% in the boom years of 1960 to 1996, with growth slowing to 5% a year in 1999 to 2005 after the Asian Financial Crisis. It is now classed as an upper middle-income Southeast Asian economy and successfully navigated a complex global environment and maintained macroeconomic stability following the COVID-19 pandemic.

Since 2008, when Swiss bank UBS published its first Global Wealth Report, wealth has grown fastest in Asia-Pacific (APAC) – by nearly 177%. The Americas came in second at nearly 146%, while EMEA lags far behind at just under 44%. Similarly, growth in average wealth per adult since 2008, expressed in USD, puts APAC first with 122%, ahead of the Americas with 110% and EMEA with 41%.

In its 2024 Global Wealth Report, UBS found that global wealth growth had cooled from an annual average growth of 7% between 2000 and 2010 to just over 4.5% between 2010 and 2023. Thailand remained ahead of the average, with wealth growth rates of 12% from 2000 to 2010 and 5% from 2010 to 2023.

UBS predicted that in 2024, the emerging economies’ share of global wealth would break through the 30% mark, rising to nearly 32% by 2028. It further predicted that the number of dollar millionaires in Thailand would rise by 24% from 100,001 in 2023 to 123,531 by 2028, putting it within the top ten of its sample of 56 markets for percentage growth.

The combination of rising affluence and aging populations has led to a much increased demand for wealth management and succession planning. According to McKinsey analysis, high-net-worth (HNW) families with personal financial assets between USD1 million and USD50 million and ultra-high-net-worth (UHNW) families with more than USD50 million in APAC are set to undergo an intergenerational wealth transfer estimated at USD5.8 trillion between 2023 and 2030.

This demographic shift has significant implications across a number of sectors. Given Thailand’s aging population, there is a growing demand for estate and succession planning to ensure the orderly transfer of assets and the preservation of wealth for future generations.

Estate planning is a critical aspect of financial management that is often overlooked until it’s too late. The absence of a well-drafted will can lead to significant legal challenges and disputes, particularly in jurisdictions like Thailand where intestacy laws govern asset distribution in the absence of a will.

With many such families in Thailand owning operating businesses, preserving a family business for the next generation is the key to its long-term growth. A trust is one of the tools that enables family members to preserve the family’s business legacy, extend the family’s wealth over several generations and provide security for an ageing society.

Challenges facing Thailand’s wealthy in legacy planning
Estate planning and succession in Thailand can be a difficult and complex area, particularly when there are multiple legal jurisdictions and foreign persons or entities involved.

Thai Inheritance Tax
Following the introduction of the Inheritance Tax Act in Thailand in 2016, inheritance tax is now applied to inherited assets which exceed THB100 million (c. USD3 million) in value at a rate of 5% of the tax base for ascendants or descendants and 10% of the tax base for non-ascendants or descendants. Spouses of are exempt and the value of assets can also be offset by liabilities of the estate.

The tax is levied on both Thai individuals and corporate entities and foreign individuals and corporate entities resident in Thailand and applies to inherited property located both in Thailand and overseas. Foreign individuals and corporate entities who are resident outside Thailand, but who inherit assets located in Thailand are also subject to the tax.

The tax filing must be completed within 150 days from the date of receipt or penalties and surcharges are applied.

Thai Inheritance Laws
Making a will is not just a matter of personal preference, it ensures that your assets will be distributed according to your wishes. Without a will, the distribution of assets falls under the intestacy laws in the Civil and Commercial Code, which may not align with your intentions or the needs of your beneficiaries.

A will can be written in either Thai or a foreign language, but it must be signed by the testator in the presence of two qualified witnesses. It should include key provisions such as the identification of the testator, the appointment of an executor, asset distribution instructions and delineation of the executor’s powers. Regularly updating your will is crucial to accommodate changes in family dynamics and asset accumulation over time.

For foreigners in Thailand, the Conflict of Laws Act stipulates that a foreigner’s will is subject to the laws of their home country at the time it is written but must adhere to the legal requirements of the foreigner’s home country and also must not contradict Thai legal requirements.

This means foreign wills must undergo translation and authentication to ensure clarity and validity within the Thai judicial system and the process of having foreign wills recognised may involve multiple court visits. To avoid wasting time and money, many foreign residents opt to draft a separate Thai will for their assets in Thailand and another for assets in other countries.

Thailand also places strict legal conditions on foreigners inheriting land. Under the Land Code Act, foreigners can only inherit land with special ministerial permission if they are recognised as lawful heirs and there are restrictions on the amount of land based on its designated use.

Trust laws in Thailand
The legal system of Thailand is fundamentally a civil law system and the Civil and Commercial Code (CCC), adopted in 1935, expressly prohibited the creation of trusts except when provided for by specific legislation.

The CCC was amended in 2008 to create a statutory exception for investment trusts under the Trust for Transactions in the Capital Market Act of 2007. A decade later, in July 2018, the Cabinet approved a new Draft Bill on Trusts for the Purpose of Personal Asset Management. This was intended to bring more wealth back to Thailand because it was drafted to permit both Thai and overseas assets to be used to set up a trust. However, the draft legislation has not progressed and remains under consideration by the Council of State.

As things stand, therefore, any trust established by a Thai national or an expat resident in Thailand must be set up overseas (offshore) and only in respect of assets outside Thailand. This means that the legal owners of the trust assets, the trustees, are resident outside Thailand, effectively removing the overseas trust assets from the settlor’s estate in Thailand.

Under Thailand’s Act on Conflict of Laws, the effects and interpretations of a will are governed by the law of domicile of the testator at the time of the testator’s death. If the law of domicile of the testator at the time of the testator’s death allows an individual to create a trust, the will that creates the trust can be recognised and effected in Thailand.

Thai Personal Income Tax
Until 2024, Thailand operated a territorial system of income tax such that only foreign-sourced income brought into the country by Thai nationals and foreign residents in the same year it was earned was subject to Thai personal income tax (PIT), with all other remittances exempt.

But in 2023, the government scrapped this long-standing rule. Under the new regulations, as of 1 January 2024, anyone classified as tax resident in Thailand must declare all foreign income – including benefits received from an overseas trust – that is remitted to Thailand and pay tax at progressive rates between 5 and 35%, regardless of the tax year it was earned.

A Thai resident is defined as a person residing in Thailand at one or more times for a period equal to 180 days in any tax year. Income earned prior to 2024 remains under the previous rules and is not taxable if remitted after the year in which it was earned.

It is worth noting that in May this year, the Revenue Department said legislation was being drafted to grant Thai tax residents an exemption for foreign income that is repatriated within 12 months of the calendar year it was earned.

The proposal, designed to incentivise investment and economic activity by enhancing foreign fund inflows into Thailand, is an acknowledgement of the negative impact caused by the new rules. The Revenue Department reported a significant drop in revenue with tax collection projected to fall short by THB20 billion by the end of the fiscal year in September.

Why Trusts offer greater flexibility and certainty
Many people seek to order their affairs by making a will, but the probate process can result in lengthy delays, high administration costs and often tax liabilities. The widespread use of corporate structures and nominee arrangements to circumvent Thailand’s restrictive business and land ownership laws carries significant legal risks and have been the target of intensified government scrutiny.

Nominee arrangements, which involve Thai nationals acting as majority shareholders on paper while foreigners retain actual control, are illegal and can lead to substantial fines, confiscations and criminal charges against company directors, foreign investors and nominees.

The best alternative to a will or nominees is to set up a trust during lifetime. A well-constructed trust can place the right assets, in the right hands, at the right time. They offer the flexibility, creativity and control that a will cannot, and allow the settlor to organise their wealth to ensure that they can maximise its effectiveness during their lifetime and beyond.

The practical advantages of a trust are gained from the distinction that is drawn between the legal owner of property, the trustee, and those people that have the use or benefit of the property, the beneficiaries.

• Estate planning: trusts can help avoid the delays, costs and taxes associated with the administration of a deceased’s estate.
• Confidentiality: trusts offer enhanced confidentiality whereas proving a will is a public procedure.
• Asset protection: as the legal ownership lies with the trustees, the trust assets are generally insulated from claims by creditors, litigants and divorcing spouses by providing a layer of protection against third-party claims.
• Forced heirship: trusts can avoid forced heirship rules in civil law jurisdictions and Islamic countries.
• Accumulation of income: income can be accumulated indefinitely in a CIT without any requirement to need to make distributions.
• Continuing a family business: to prevent the unnecessary liquidation of a family company on the owner’s death and ensure that their wishes are observed.
• Initial Public Offering (IPO) planning: a pre-IPO trust for family or employee shareholdings can offer a suite of benefits.
• Tax planning: a correctly structured trust that is set up in a tax neutral jurisdiction may offer substantial tax efficiencies.
• Protecting the weak: trusts offer long-term protection to those unable to manage their own affairs due to age, sickness or capacity.

Strategic benefits of Trusts for Thai clients
Trusts can form a central part of a long-term succession strategy. They provide an effective mechanism for families to protect their assets, ensure smooth succession and manage family dynamics.

• When assets are spread across different countries, a trust can eliminate the complexities of managing multiple probate processes across different jurisdictions, which can be time-consuming and costly, with each country’s legal system imposing its own requirements. The trustees can immediately act to distribute the assets according to the deceased’s wishes.
• Centralised asset management: a trust allows settlors to consolidate their global assets under one legal structure. This simplifies the management of these assets, reducing administrative burdens and ensuring that they can be managed and distributed from a single jurisdiction. It also ensures that wealth accumulated over a lifetime can be retained as one fund to accumulate further.
• If the assets are centralised in a politically and economically stable jurisdiction, and denominated in hard currencies, it provides security from volatility in the home country as well as providing flexibility and potential for diversification.
• Assets held in trust do not necessarily need to be liquidated upon the settlor’s death. This can be advantageous during market downturns, as the trust structure allows assets to be retained rather than sold at a loss, preserving their value and benefiting the beneficiaries in the long term.
• For business owners, the trust structure is particularly effective in avoiding disruption during the generational handover of a business. By transferring ownership and control of the business into a trust, founders can ensure that the enterprise remains within the family while safeguarding it from personal financial issues, divorce or external threats.
• In situations where some family members are actively involved in the business and others are not, a trust can prevent potential conflicts over how the business is run and who holds decision-making power while allowing others to benefit financially through income distributions.
• A trust also introduces the option of professional oversight. Trustees with commercial expertise can be appointed to manage or co-manage the business alongside family members, ensuring operational competence even where successors may lack experience.

Types of Trusts
Trusts can be made during the settlor’s lifetime or included in his or her will. Normally the trust terms are set out in a trust deed or will and include the names of the beneficiaries and how they can benefit from the trust fund. The standard form is a ‘fixed interest trust’, where the beneficiaries may be given a right to income and/or capital, perhaps on the occurrence of a specified event. However, there are more flexible types, as follows:

• Discretionary Trusts – a ‘discretionary trust’ can provide a mechanism for managing property that is capable of adapting as conditions demand. No beneficiary has any fixed or absolute interest in the trust assets, allowing the trustees to adapt distributions based on beneficiaries’ changing circumstances, such as financial needs or personal situations. The settlor can guide the trustee in relation to his intentions and the exercise of the trustee’s discretion by a ‘letter of wishes’. This allows the settlor to retain a degree of flexibility over how the trust is to operate, which can be updated throughout lifetime without having to amend the trust deed.
• Reserved Powers Trusts – if settlors are not comfortable with the idea of handing over complete control over their assets to a third party, a number of trust jurisdictions, including Singapore, have legislated to reserve powers generally given to the trustee. A common reserved power, particularly in Asia, is the ‘reserved power over investments’, which enables the trustee’s role in investing the trust fund to be divested to the settlor or another third party. This offers a practical solution in situations where a settlor is more knowledgeable or experienced in managing their investments and wants to continue to do so even after they cease to be the legal owner of the trust assets.
• Purpose Trusts – some offshore jurisdictions have legislated to allow the creation of ‘non-charitable purpose trusts’, which combine a traditional beneficiary trust with a traditional charitable trust. Purpose trusts are not required to have any identifiable beneficiaries, although they often do, and the trustee holds the trust fund on trust for the fulfilment of certain defined purposes. They are suited to address succession concerns around fragmentation of wealth, especially family businesses, and can enable mixed purpose trusts for the purpose of fulfilling both philanthropic and personal objectives. The settlor will generally appoint an ‘enforcer’ whose role it is to hold the trustee to account.

Offshore vs. Onshore considerations
Given the current prohibition on most trusts under the Thai Civil and Commercial Code, Thailand-resident expatriates and Thai nationals with foreign assets will need to assess the different countries worldwide that have enacted trust legislation, which can vary in quality and suitability.

When selecting the best offshore jurisdiction for establishing a trust it is important that it should offer:

• A strong tradition of enforcing trusts
• An English common law system
• An established reputation for trust business
• Modern legislation, including contemporary trust concepts
• Low or no taxation for trusts.

Hong Kong and Singapore score highly in all these areas and both have the added benefit of a convenient location in Southeast Asia. Further afield, Sovereign generally recommends Cyprus, Gibraltar, Guernsey, the Isle of Man, Malta and Mauritius as among the best available options. Sovereign is fully licensed to act as professional trustees in all these jurisdictions.

Why choose Sovereign Group?
As the Asian region continues to grow as a hub for HNWIs, the need for sophisticated wealth management and preservation strategies has never been greater. Sovereign Group is well-positioned to assist HNWIs and families in navigating the complexities of wealth management and legacy planning in this dynamic region.

Sovereign has more than 30 years’ experience of setting up and managing various types of trust around the world. We offer trustee, wealth management, succession planning and tax advisory services to internationally mobile families and entrepreneurs, with an emphasis on cross-border asset management and family governance.

Choosing the right trustee is a crucial part of setting up a trust. Corporate trustees that are appropriately licensed, like Sovereign, are held to a standard of providing responsible ethical conduct, careful exercise of discretionary powers, competent investment management, expertise in tax and legal matters, and continuity in the administration of the trust for its duration.

We can review your circumstances and provide bespoke trust planning to Thai clients to ensure your wealth is managed and preserved in the most effective way possible. Contact us today to learn more about how we can help you achieve your legacy goals.