What Is a Grantor Retained Annuity Trust?

Annuity trust is one of the main trust methods in Japan. It is a trust method in which the annuities accumulated by enterprises and employees (that is, pensions) are entrusted to trust banks for management and processing. The pension system is a system adopted by the Japanese government in response to the aging of its own population. The purpose is to guarantee the lives of the elderly in a planned way, thereby maintaining social stability. There are three types of such trusts: personal annuities; corporate annuities; public annuities. In the process of trust, the trust bank only plays the role of investment consultant, has the privilege of property management, but has no obligation to take care of the interests of beneficiaries. ^[1]

Annuity trust

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Annuity trust is one of the main trust methods in Japan. It is a trust method in which the annuities accumulated by enterprises and employees (that is, pensions) are entrusted to trust banks for management and processing. The pension system is a system adopted by the Japanese government in response to the aging of its own population. The purpose is to guarantee the lives of the elderly in a planned way, thereby maintaining social stability. There are three types of such trusts: personal annuities; corporate annuities; public annuities. In the process of trust, the trust bank only plays the role of investment consultant, has the privilege of property management, but has no obligation to take care of the interests of beneficiaries. ^[1]

Annuity trusts are different from other trusts in that they are: ^[2]

Annuity trusts are private trusts. Depending on whether the purpose of the trust is for the benefit of a specific beneficiary or for the benefit of an unspecified public, trusts can be divided into private trusts and public trusts. Annuity trusts should be classified into trusts set up to realize the interests of ordinary individuals based on their purposes. They are opposed to public trusts set up to realize public interests. ^[2]

Annuity trusts can be divided into two major categories according to the source of funds and payment methods, namely, the fixed payment type (DC type) and the fixed payment type (DB type). ^[2]

The legal relationship is a rights and obligations relationship formed according to the law. The subject of the legal relationship is the party to the legal relationship. The object of the legal relationship is the object to which the rights and obligations of the subject of the legal relationship are directed. The subject of legal relationship in the annuity trust system is the parties to the annuity trust, and the object is the trust property formed after the establishment of the annuity trust. ^[2]

The development prospect of China's annuity trust business depends first on what kind of pension management model the government adopts. If the government directly manages the model, the annuity trust will have no institutional basis and no room for development. Research by the World Bank shows that the government-managed pension model is the one with the highest management costs and the worst performance. The reason is that government departments are not efficient enough to operate, and even corruption has occurred.

The success or failure of the endowment insurance system is related to the vital interests of each worker and the success or failure of reform. Theoretically, adopting an annuity trust to establish China's supplementary pension system is conducive to using the trust system's debt risk and bankruptcy risk isolation system to fully protect the interests of workers, and the performance of market-based operations is higher than the administrative management model. At present, 5.6 million people in China have participated in the enterprise annuity plan, and the accumulated funds are only 19.2 billion yuan. But precisely because the annuity plan has just started, the annuity market will likely develop at a faster pace, and the potential market for the annuity trust business is extremely broad.