Procedure For Setting Up A Trust In Nigeria

Trusts are one of the most effective legal tools for wealth management, succession planning, and asset protection. In Nigeria, trusts are recognised under both common law principles and statutory provisions. They allow individuals (settlors) to transfer property to trustees, who manage the property for the benefit of beneficiaries according to clearly stated terms. Setting up a trust in Nigeria requires an understanding of the legal framework, the available types of trusts, and the procedures to establish and operate the trust effectively.

Legal Framework for Trusts in Nigeria

The Nigerian legal system accommodates trusts through statutes and case law inherited from English law. Nigeria never enacted a specific trust law; the procedure for setting up a trust in Nigeria is largely rooted in the received English legislation before Nigerian independence and the common law principles and other relevant but indirect statutes. The Key legal frameworks include:

1. The Trustee Act of 1893 (A statute of general application regulating trust arrangements).
2. The Land Use Act 1978 (relevant for trusts involving land).
3. The Companies and Allied Matters Act 2020 (relevant for setting up a special-purpose vehicle for managing a trust fund).
4. Judicial Precedents (the decisions of the Nigerian appellate courts concerning trust arrangements).

Although Nigeria lacks a single consolidated "Trusts Act," trusts are generally enforceable provided they are properly created and not contrary to public policy or existing laws.

Why Set Up a Trust?

Individuals and businesses create trusts for various reasons, including:

• Estate Planning – ensuring smooth transfer of wealth to heirs without the delays and publicity of probate.
• Asset Protection – shielding property from potential creditors or claims.
• Tax and Financial Planning – structuring wealth efficiently for long-term benefits.
• Charitable Purposes – supporting social, religious, or educational causes.
• Management for Minors or Incapacitated Beneficiaries – providing care until beneficiaries can manage assets themselves.

Types of Trusts in Nigeria

Several types of trusts can be established, depending on the settlor's intention:

1. Living Trust (Inter Vivos Trust): Created during the lifetime of the settlor to manage and distribute property.
2. Testamentary Trust: Created through a will, effective only upon the settlor's death.
3. Revocable Living Trust: The settlor retains the power to amend or revoke the trust during his lifetime.
4. Irrevocable Living Trust: Once created, it cannot be altered or revoked, offering stronger asset protection.
5. Private Trust: Benefiting specific individuals or families.
6. Charitable Trust: Benefiting the public or a section of the public, such as education or healthcare.

Steps to Setting Up a Trust in Nigeria

1. Clarify the Objectives

The first step is to determine the purpose of the trust. Is it for estate planning, protecting assets, providing for dependents, or funding a charitable cause? This purpose will guide the type of trust to establish and the drafting of terms.

2. Identify the Parties

The parties to a trust typically include the following:

• Settlor/Grantor: The person creating the trust.
• Trustee(s): The individual(s) or corporate body appointed to manage the trust property. Trustees must be trustworthy, competent, and willing to assume fiduciary responsibilities.
• Beneficiaries: The persons or organizations that will benefit from the trust.

3. Select the Trustees

Trustees may be individuals (such as family members, friends, or professionals) or institutions (trust companies, law firms or lawyers). In Nigeria, corporate trustees are regulated by the Securities and Exchange Commission (SEC).

4. Determine the Trust Property

The settlor must identify the assets to be transferred into the trust. This may include:

• Land and buildings.
• Shares and investments.
• Bank deposits.
• Intellectual property rights.
• Personal property or other valuable assets.

The property must be clearly described to avoid disputes.

5. Draft the Trust Deed

The trust deed (or instrument) is the core document that sets out the terms of the trust. It should be prepared by a legal practitioner and contain:

• The name and details of the settlor.
• The names and details of the beneficiaries
• Appointment and powers of trustees.
• Description of the trust property.
• Rights and entitlements of beneficiaries.
• Duration of the trust.
• Provisions for amendment, revocation (if revocable), or termination.
• Dispute resolution mechanisms.

6. Transfer of Property to the Trust

The settlor must legally transfer ownership of the identified assets to the trust. For land, this involves executing and registering a deed of assignment or transfer. For shares, the transfer is recorded in the company's register of members. Transfer of assets is very crucial to setting up a trust; without a valid transfer, the trust cannot take effect.

7. Acceptance by Trustees

Trustees must formally accept their appointment, often by executing the trust deed or a separate declaration of acceptance. They are bound by fiduciary duties of loyalty, care, prudence, and accountability.

8. Regulatory and Tax Compliance

In setting up some trusts, an incorporation with the Corporate Affairs Commission (CAC) may be required. A special-purpose vehicle may be registered to manage a private or charitable trust. Consequently, trustees must ensure compliance with tax obligations under the Federal Inland Revenue Service (FIRS). For example, income derived from trust property may be subject to tax, although charitable trusts enjoy certain exemptions.

9. Management and Administration

Trustees manage the trust property according to the trust deed. They must keep proper accounts, invest prudently, distribute income to beneficiaries, and act in the best interests of the trust. Beneficiaries may apply to the court to enforce the terms if trustees default.

Duties and Powers of Trustees

Trustees in Nigeria have statutory and common law duties, including:

• Duty of Loyalty: Acting solely for the benefit of beneficiaries.
• Duty of Prudence: Managing trust property with the care of a reasonable person.
• Duty to Account: Keeping accurate records and rendering accounts to beneficiaries.
• Duty to Invest Wisely: Making sound investment decisions under the Trustee Investment Act.
• Duty of Impartiality: Treating all beneficiaries fairly.

Trustees also have powers, such as the power to invest, lease, sell, or otherwise deal with trust property, provided these powers are expressly granted in the trust deed or implied by law.

Advantages of Trusts in Nigeria

Setting up a trust in Nigeria connotes several advantages; some of the key advantages are:

• Avoidance of Probate: Trust assets do not pass through probate, reducing delays and disputes.
• Confidentiality: Unlike wills, trust details are private.
• Asset Protection: Assets in irrevocable trusts are generally protected from creditors.
• Flexibility: Trusts can be customised to suit family or business needs.
• Continuity: Trusts remain effective despite the incapacity or death of the settlor.

Challenges and Considerations

Despite their benefits, setting up trusts in Nigeria faces some challenges, which, among others, include:

• Regulatory Complexity: Different laws govern different aspects (land, investments, charitable purposes).
• Costs: Legal fees, registration, and trustee remuneration may be significant.
• Awareness: Many Nigerians are unfamiliar with trusts, relying instead on wills or informal arrangements.

Conclusion

Trusts are powerful instruments for estate planning, asset management, and charitable purposes in Nigeria. While the legal framework is fragmented, careful drafting of a trust deed, proper transfer of property, and selection of reliable trustees ensure effectiveness. For individuals and businesses seeking to safeguard assets, provide for dependents, or promote charitable goals, setting up a trust is a practical and secure solution. Professional guidance, especially from lawyers, is strongly recommended to navigate legal requirements, avoid pitfalls, and ensure the trust achieves its intended objectives.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.