2. Trusts

a. The modernisation of the trust law

In recent years, demand for investment and finance schemes in the commercial trust sector has grown, while the advent of an increasingly aged society has led to an increase in the possible use of family trusts, for the purposes of asset management and inheritance transfers.

It was against this background that the government started to consider a review and modernisation of the trust law, and in September 2004, the Minister of Justice consulted with the Legislative Council of the Ministry of Justice about a review of the law. The Council established a subcommittee on the trust law, and proceeded with their deliberations. The results of these deliberations were decided upon by the Legislative Council in the form of ‘The Outlines on Revision of the Trust Law’ in February 2006, and relayed to the Minister of Justice. In March 2006, a draft trust law and supplementary bill based on the outlines was submitted to the 164th ordinary session of the Diet (the Japanese parliament), and after continued deliberation they became law at the 165th extraordinary Diet session in December 2006.

b. An outline of the new trust law

The main points of the new trust law are summarised below.

i. Rationalisation of the details of trustees’ obligations under appropriate conditions

• Rationalisation of provisions concerning duty of loyalty
• Rationalisation of provisions concerning duty not to delegate

ii. Development of rules to improve the effectiveness and mobility of beneficiaries’ execution of rights

• Rationalisation of methods for making decisions in trusts in which there are multiple beneficiaries
• Creation of a trust supervisor and beneficiary proxy system
• Development of rules relating to the creation and maintenance of account ledgers
• Creation of rights to file injunctions against trustees’ actions

iii. Development of systems to respond to a variety of formats for using trusts

• Creation of a system for the merger and break-up of trusts
• Creation of beneficiary security-issuing trusts, limited liability trusts and declaration of trust

c. Issues surrounding the new law

While much is expected of the new trust law, there are also criticisms that it overemphasises commercial trusts, and the difference between the law and company law is opaque; the definition of trust is vague, and the discrepancies with traditional trust law considerable; and it does not emphasise family trusts, the needs for which are expected to grow.

The extent to which the new law is used will remain an important issue in the future, and it is likely that further amendments will become a topic for discussion if use of the law proves to be infrequent.

• Right of lien – the right of obligees to control the assets (things or rights) of obligors or third parties to secure a claim. This is treated as a real right because the person possessing the right of lien is entitled to receive the performance from the subject matter with priority over any other obligees: