By: Kemfon Josephneke esq.
A trust in simple parlance and as used in ordinary communication connotes confidence in another. Its conceptual starting-point of having confidence reposed in some other gave rise to moral obligations to which the courts through judicial precedent, aided by the legislature, have continued to develop it. The moral weight given to trust in ordinary usage crystallized into a formidable legal instrument with enforceable duties and liabilities.
Today, a trust is an arrangement whereby legal ownership of certain assets are transferred by a person, the Settlor to another, the Trustee to be held for the benefit of selected third party(ies) as beneficiaries. The concept of legal trust is versatile and encompasses a large plethora of options and opportunities. These opportunities give a general idea of the trust’s versatility and of some of the common types of purpose which a trust’s settlor may have in establishing a trust.
These purposes include;
- Concealing ownership and keeping the details of assets confidential. Assets will not go through probate, a public procedure that allows State authorities to list your assets for estate tax.
- Facilitating land conveyancing and other types of dealing in property, holding and controlling property for the sake of large groups of people (particularly in the fields of collective investment and charitable and other non-profit-orientated activity).
- Providing for the settlor’s family in various ways over long periods of time (both before and after his or her death) and preserving family wealth and facilitating intergenerational wealth transfer.
- Protecting property from creditors, unscrupulous business partners and untrustworthy executors.
- Protecting legacy accumulated over a lifetime from the extravagance and recklessness of individual members of the family by not dividing up amongst your beneficiaries after one has passed on but are retaining as one fund to accumulate more wealth. Trust could have provision for payment to members of the family as beneficiaries on need basis or periodically while preserving some funds to continue growing.
- Cutting down tax liabilities, particularly on the transfer of private capital and avoid the expense and delay of probate processes.
- In the case of a living trust, offering the opportunity to receive first-hand experience of how your wishes are adhered to and how your estate would be eventually managed upon demise.
The legal framework for trust in Nigeria is the English received law as there is no specific statute governing private trust in Nigeria yet. However in respect of taxation, and even though trust is not created for the benefit of the trustees, trust fund is taxable under the personal income tax regime from any income retained in the hands of individual trustees after deduction of expenses and beneficiary fund. It is also taxable as corporate tax where a corporate trustee earns income. The said funds also constitute taxable income in the hands of the beneficiaries.
Trust settlors, companies and banks are now appreciating the importance of setting up trust structures and the global opportunities in it because of the different legal framework in other countries. It is now common for people to set up trusts in offshore jurisdictions that have more favourable legal regimes. Trust is technical and should be undertaken with sound legal advice so that it can be structured in the manner that achieves the purposes of the settlor and aligns with his or her personal circumstances.