Lectures &

News & Views

Law &



Trust Products
& Practice

About the Guru


Email Feedback

Guest Register












An OFW trust

(Article published in the July 18, 2007 issue of Manila Standard Today)  

         Recently Finance Undersecretary Roberto B. Tan, who is currently acting as the National Treasurer, declared that he is open to the issuance of retail treasury bonds (RTBs) specifically intended for overseas Filipino workers (OFWs).  This statement resuscitates the Bangko Sentral’s proposal to utilize the RTBs as a means of increasing savings among the recipients of OFW remittances, a suggestion which was not too enthusiastically received by the previous National Treasurer.  A second look at the suggestion is thus called for.

       Macro-economic figures show that overseas remittance pie is undoubtedly a big one.  From only US$1.0 billion in 1989, reported cash remittances passing through the banks steadily rose to US$3.9 billion in 1995, to US$6.0 billion in 2000, and further to US$10.7 billion in 2005.  In 2006, remittances reached US$12.8 billion.  For this year, end of May already saw the inflow of US$5.9, making the expectation of  US$14 reasonably attainable despite the slight decrease in the level of deployment of OFWs from January to May this year. 

        The next few years are anticipated to bolster the significant role of OFW remittances in the country’s balance of payment figures.  The deployment of Filipino workers is expected to rise as labor importing countries such as the Middle East, Brunei Darussalam, Malaysia, South Korea, Taiwan, and Singapore employ more skilled overseas workers to meet the demands of their growing economies.  These countries are expected to provide employment opportunities for highly-skilled and professional workers, particularly in the construction, information technology, hotel and restaurant, tourism, shipbuilding/ship repair, medical and healthcare sectors. 

        But channeling part of the tide to investments in RTBs require, in addition to analysis of the macro, a look at the micro. As the water flows in from the sea, it is important, if we want to put some of it into a reservoir, to see how the water is dispensed among the plains along the river banks.


It appears from a market study conducted by the Asian Development Bank (ADB) and completed in July 2004, OFWs send to their beneficiaries, on average, US$340 monthly. The most frequent remittance amount mentioned by the respondents abroad was US$182.

More than two-thirds of the recipients of these remittances, called “beneficiaries”, who responded to the survey indicated that they were able to save some of the money they received and that such savings is generally from 5 to 30 percent of the remittances received.  Hence, the amount of savings, on the average monthly remittance of US$340 monthly, the amount that can be targeted for placement in the RTBs ranges from a low US$17 to a high of US$102, monthly or from US$204  to US$1224  yearly.

If the dire prediction (“dire” at least from the point of view of the beneficiary) that was made last week by HSBC country treasurer, Wick Veloso, comes true, namely, that realistically the exchange rate would stand between Php44 to Php46 to a US$ this year, the monthly available for savings of the beneficiaries can be estimated to hover from Php748 to Php 782 for the low savers and from Php 4,488 to Php 4,692 for the high savers.

Assuming that the RTBs for OFWs will have the same minimum denomination of Php 5,000, and integral multiples thereof, that the National Treasurer will offer on Monday, July 23, 2007, and will cost the beneficiary the same amount of Php 5,000, then to be able to buy just one bond, a high saver needs to accumulate his savings for a little over two months, and the low saver for more than seven months. And since during the period of accumulation, the saving beneficiary is expected to be, as he is now being, continually bombarded by the allures of immediate satisfaction and instant pleasure from the advertisements and enticements of our consumerist society, there is a need to complement the issuance of the RTBs for OFWs with an environment sufficiently conducive to saving that can effectively countervail the temptation to spend.

Essential to that environment, I submit, is a tax-favored, regulatory-encouraged, and private sector-supported vehicle, made readily available to the OFW and his beneficiary and designed to act as a reservoir for the trickles of savings until such time that the funds become sufficient to purchase the RTBs.  That vehicle, in my view, is an accumulation trust.  And to design that vehicle, we can call on my favorite good guys, the Trust Officers Association of the Philippines.

It is a simple matter, as I show in the following paragraphs, how that vehicle can be crafted complying with all the minimum documentary requirements  for a trust as imposed by Sec. x409.1 of the Manual of Regulations for Banks.  For instance, to make the name suit the special nature of the arrangement, all such trusts may be entitled, in noticeable print, “OFW Savings Accumulation Trust.”

The trustor will obviously the remitting OFW and the beneficiaries the (a) trustor himself or herself, and/or (b) members of the trustor’s family whose names the trustor will supply.  There are two major reasons why the beneficiary structure is this way: first, it categorizes the trust, tax-wise, as a “pass-through” arrangement; and second, it qualifies the trust, under BSP regulations, as a “living trust.”  As a “pass-through” it assures the revenue authorities that there is no attempt here to split income (thereby reducing the tax take) by setting up a new taxing entity under Section 60 of the National Internal Revenue Code.  Regulatory-wise, in addition, the trust is thus made free of the reserves imposed by current trust circulars.

The trust agreement will state a general and specific purpose.  The general purpose could be the economic well-being of the beneficiaries and the specific purpose, in order to adhere to the primary intent of the vehicle, will be to accumulate income and additional capital contributions that shall come from the trustor for the purpose of gathering enough funds to purchase RTBs up to the volume or value to be indicated by the trustor. 

The funds that will be subject to the trust arrangement must primarily come from the remittances of the trustor from overseas and from the interest payments due from the RTBs that are bought from time to time as the accumulated funds become sufficient.  No funds from other sources should be allowed so as to prevent the vehicle from losing its focus.

Since the purpose is accumulation, first of monies and then of the RTBs until the intended volume is acquired by the trust, there will be no distribution of income to (nor invasion of principal for payment to or on behalf of) the trustor and/or the beneficiaries, except when needed, in the sole discretion of the trustee, to pay for extraordinary and/or emergency expenses due to illness, accident, and other events than can not be reasonably foreseen by a prudent father of the family. 

Aside from the above discretionary authority of the trustee to pay out income or invade principal in exceptional cases, the trustee will have no investment power other than to put the investible funds directly in RTBs for OFWs or indirectly through a common trust fund holding solely  RTBs and cash as its sole underlying assets. 

Deliberately, I avoided the use of the more current term, “Unit Investment Trust Fund” or UITF in describing the means for collective investment.  I wish thereby to dodge the regulatory attitudes now threatening to complicate matters for operators of current UITFs.  The SEC, particularly, is thinking of treating the “participations” which represent interests in the UITF (as they are currently marketed) as securities requiring registration prior to distribution to the public.  The common trust fund I suggest here is of the original variety, one that is open only to trusts administered by the bank operating the common trust fund and, on account of this exclusivity, thus not open to the public.  It is open only to the OFW trusts serving as a mere  “parking” place for cash awaiting its intended investment in RTBs for OFWs.

The rest of the trust agreement could follow the standard clauses now found in all acceptable trust documents since the requirements they comply with do not have any specific impact on the nature and operation of the OFW trust. 

I am certain that any trust legal counsel worth his salt (and there are many now employed by the trust entities) could fashion an OFW trust for their bank’s clientele.  But if the trust industry wants to adopt a uniform one, I am willing to craft a form along the above lines for the price of a cervesa negra.