Introduction
When a person decides to establish a family trust, one of the most important questions is not simply what assets should be placed in the trust or who should benefit from them. It is also who should hold and administer the trust property.
Should the trust property be vested in individual trustees who hold it for the beneficiaries? Or should the trustees be incorporated as a corporate body under Part F of the Companies and Allied Matters Act 2020?
Both structures can be used to achieve legitimate estate-planning objectives, but they have different legal and practical implications.
For a relatively straightforward private trust, carefully selected individual trustees may be capable of holding and administering the trust property effectively. Where, however, the trust is intended to hold substantial family assets and continue for many years or across generations, questions of continuity, trustee succession, accountability and governance become particularly important.
This article examines the distinction between a private trust administered by individual trustees and a structure involving Incorporated Trustees. It also considers important features that should be addressed when structuring a family trust and uses the Michael Jackson Family Trustas an illustration of how a substantial private family trust can operate through individual co-trustees.
Important Features to Consider When Structuring a Family Trust
Before deciding who should administer a family trust, the settlor should consider the fundamental characteristics of the proposed trust.
Revocable or Irrevocable Trust?
One important question is whether the trust should be revocable or irrevocable.
A revocable trust is structured so that the settlor retains specified powers to revoke or amend the trust, subject to the terms of the trust instrument and applicable law.
An irrevocable trust, by contrast, is generally intended to continue according to its terms without giving the settlor an unrestricted power to revoke it.
Irrevocability does not necessarily mean that the settlor must surrender every possible power. Depending on the applicable law and the terms of the trust, the settlor may retain carefully defined powers, including certain amendment, supervisory or trustee-related powers.
The important consideration is that the powers retained by the settlor should be clearly defined. A structure in which the settlor retains unrestricted ownership-like control over the trust property may raise questions about whether the arrangement is operating as a genuine trust in accordance with its terms.
Discretionary or Fixed Trust?
The settlor should also consider whether the beneficiaries’ interests should be fixed or whether the trustees should have discretion over distributions.
Under a fixed trust, the beneficiaries’ interests are defined by the trust instrument.
Under a discretionary trust, the trustees are given discretion, within the terms of the trust, to determine matters such as which beneficiaries receive distributions, when distributions are made and, where authorised, the amount or form of the distribution.
A discretionary structure may be useful for a family trust intended to operate for many years because the circumstances of beneficiaries may differ over time.
For example, one beneficiary may require significant educational expenses, while another may require healthcare, housing or assistance with a genuine business opportunity. A properly drafted discretionary trust can allow trustees to respond to those circumstances while remaining within the purposes and limits of the trust.
Lifetime or Testamentary Trust?
Another consideration is whether the trust should operate during the settlor’s lifetime or arise upon death.
A lifetime trust, sometimes referred to as an inter vivos trust, is established during the settlor’s lifetime.
A testamentary trust is created under a will and takes effect upon the death of the testator.
These structures can also operate together as part of a wider estate-planning arrangement. A person may establish a trust during his or her lifetime and also make provision in a will directing assets forming part of the estate into the existing trust structure.
The choice depends on the settlor’s objectives and the nature of the assets involved.
What Is the Difference Between a Trust and Incorporated Trustees?
A trust and Incorporated Trustees are not the same thing.
A trust is a legal arrangement under which trustees hold and administer property for the benefit of beneficiaries in accordance with the terms of the trust.
Incorporated Trustees, on the other hand, are trustees who have been incorporated as a body corporate under Part F of the Companies and Allied Matters Act 2020.
Section 823 of CAMA provides for the incorporation of trustees appointed by, among others, a community of persons bound together by custom, religion, kinship or nationality. Upon registration, the trustees become a body corporate under section 830 of the Act.
The distinction is therefore important. The question is not simply whether a trust exists. The question is also what legal structure should the trustees use to hold and administer the trust property?
Private Trusts with Individual Trustees
A private family trust may be constituted through a properly drafted trust instrument under which individual trustees are appointed to hold and administer the trust property for the beneficiaries.
The trustees do not thereby become a corporate body under Part F of CAMA.Instead, their authority and responsibilities arise from the trust instrument and the applicable law governing trusts.
The trust deed can specify:
- who the trustees are;
- who the beneficiaries are;
- what property is held on trust;
- the purposes for which the property may be applied;
- the powers of the trustees;
- how distributions are to be made;
- how trustees may be removed or replaced; and
- what happens when the trust eventually terminates.
This can provide considerable flexibility.
A settlor may, for example, appoint two or more trusted individuals to administer family property and provide detailed rules governing their decisions.
The fact that the trustees are individuals does not mean that they personally own the trust property for their own benefit. Their position as trustees is fundamentally different from that of an absolute owner.
Legal Ownership and Beneficial Ownership
One of the fundamental features of a trust is the distinction between legal ownership and beneficial ownership.
A trustee may hold the legal title to trust property but does so subject to the trust and for the benefit of the beneficiaries.
A trustee therefore cannot simply treat trust property as personal property merely because the trustee’s name appears on the relevant title or ownership document.
The trustee’s powers are governed by the trust instrument and applicable law, and the trustee is required to administer the property for the purposes of the trust.
This distinction is central to understanding the use of individual trustees.
What If a Trustee Claims the Trust Property?
The use of individual trustees does not, by itself, make a private trust insecure.
A trustee does not become the beneficial owner of trust property merely because legal title is vested in the trustee. The trustee holds and administers the property subject to the trust and is required to act in accordance with the trust instrument and applicable law.
The more relevant consideration is the choice and governance of the trustees.
Where substantial assets are vested in individual trustees, the settlor should consider arrangements for joint decision-making, accountability, replacement of trustees and protection of the trust property.
For example, the trust deed may require more than one trustee to participate in significant decisions concerning trust assets and may establish procedures for the appointment or removal of trustees where circumstances require it.
The settlor may also appoint independent or professional trustees where the nature and value of the trust property make that appropriate.
The question, therefore, is not whether individual trustees can properly administer a trust. They can. The question is whether the proposed trustee structure provides the level of continuity, independence and governance that the particular family trust requires.
Continuity and Succession of Individual Trustees
One practical issue that should be considered is what happens when an individual trustee dies, becomes incapacitated, resigns or otherwise ceases to act.
The trust itself does not necessarily come to an end simply because a trustee can no longer act. However, the trust deed should contain an effective mechanism for appointing a replacement trustee.
Where the trust owns land or other assets requiring formal title or registration, changes in trustees may also require additional documentation and, depending on the asset and applicable law, further transfer, vesting, stamping, registration or perfection steps.
This makes trustee succession an important part of drafting a long-term family trust.
How Can the Risks of Individual Trustees Be Reduced?
The use of individual trustees does not necessarily mean that the trust is inadequately protected.
The settlor can introduce safeguards into the trust structure.
These may include:
- appointing two or more trustees rather than relying on a single individual;
- appointing an independent or professional trustee;
- requiring important decisions concerning substantial assets to be made jointly;
- providing clear restrictions on dealings with trust property;
- requiring proper accounts and records;
- providing appropriate information and reporting mechanisms;
- establishing clear procedures for removing trustees;
- providing for the appointment of successor trustees; and
- ensuring that the trust deed clearly defines the trustees’ powers and responsibilities.
These measures can strengthen accountability and reduce the risk of unilateral action while preserving the flexibility of a private trust.
The Alternative: Incorporated Trustees
Where the trustees are incorporated under Part F of CAMA, the trustees become a body corporate.
Section 830 provides that, from the date of registration, the incorporated trustees have perpetual succession and may sue and be sued in their corporate name. The section also provides for the corporate body to hold, acquire, transfer, assign or otherwise dispose of property or interests in property belonging to or held for the benefit of the relevant community, body or association, subject to the statutory framework.
This creates an important difference from a structure that depends entirely upon particular individuals continuing to act as trustees.
Why Is Perpetual Succession Important?
Consider a family trust intended to preserve valuable property for the children, grandchildren and subsequent generations of the settlor.
If the property is held by individual trustees, the trust deed must address what happens when those individuals die, resign or become incapable of acting.
An Incorporated Trustee structure provides institutional continuity. The individual persons serving as trustees may change, but the incorporated body continues to exist.
This can be particularly valuable where the trust is intended to operate for a long period.
The importance of this should not be underestimated. A family wealth structure intended to last for decades should have a trustee arrangement capable of accommodating changes in the persons responsible for its administration.
Incorporation Does Not Remove the Trustees’ Duties
Incorporation does not transform trustees into absolute owners of the trust property.
The corporate body remains subject to the legal framework governing the trust and the statutory requirements applicable to Incorporated Trustees.
CAMA also regulates the administration of Incorporated Trustees, including matters concerning their constitution, governance, property and income, trustees and regulatory supervision.
Accordingly, incorporation should not be viewed as a device for eliminating fiduciary responsibilities.
Its principal significance is the creation of a corporate structure through which the trustees can hold and administer property with the benefit of the statutory characteristics of incorporation, including perpetual succession.
Advantages of Incorporated Trustees
For a substantial family arrangement, the potential advantages include:
1. Perpetual succession
The corporate body continues notwithstanding changes in the individuals serving as trustees.
2. Institutional continuity
The administration of the trust does not depend entirely upon the survival or continued availability of particular individual trustees.
3. Corporate legal personality
The trustees become a body corporate with the statutory powers and characteristics provided by CAMA.
4. Continuity for substantial assets
Where the trust is intended to hold significant property over many years, a continuing corporate trustee structure may provide institutional stability.
5. Reduced dependence on particular individuals
Although individuals will still administer the Incorporated Trustees, the legal structure is not dependent entirely upon the personal status of particular trustees.
Disadvantages and Considerations
Incorporation is not without its considerations.
First, it introduces a statutory regulatory framework. Incorporated Trustees must operate in accordance with Part F of CAMA and their governing documents.
Secondly, there are registration and ongoing administrative requirements.
Thirdly, incorporation may be unnecessarily elaborate for a small or straightforward private trust.
The settlor should therefore consider whether the additional formality and regulatory requirements are justified by the nature and value of the trust property and the intended duration of the trust.
Is Incorporation Required for Every Family Trust?
No.
The fact that CAMA provides a route for incorporating trustees of a community of persons bound together by kinship does not mean that every private family trust must be incorporated under Part F.
A private trust and an Incorporated Trustee structure are distinct legal arrangements.
The more appropriate question is:
Which trustee structure provides the most suitable combination of protection, continuity, accountability and flexibility for the particular trust?
For a straightforward private trust involving modest assets and carefully selected trustees, individual trustees may be sufficient.
For a substantial family wealth structure intended to operate across generations, the advantages of incorporation may be considerably more compelling.
A Real-World Example: The Michael Jackson Family Trust
The Michael Jackson Family Trustprovides an interesting illustration of a substantial private family trust administered through individual trustees rather than an Incorporated Trustee structure under Nigerian law.
Jackson established the trust during his lifetime. His Amended and Restated Declaration of Trust was dated 22 March 2002. His Last Will and Testament, executed on 7 July 2002, subsequently directed his entire estate to the trustee or trustees then acting under the Michael Jackson Family Trust.
The will therefore operated alongside an existing lifetime trust rather than creating the entire trust arrangement only after Jackson’s death.
This distinction is significant.
The trust existed before Jackson’s death, while the will provided for his estate to pass into the existing trust structure.
In other words, the will and the trust performed different functions.
Who Were the Trustees?
The publicly available estate materials identify John Branca and John McClain as co-trustees of the Michael Jackson Family Trust.
The arrangement therefore provides an example of a substantial family trust administered through individual co-trustees rather than through a corporate trustee structure comparable to Incorporated Trustees under Nigerian law.
The example also illustrates the value of appointing more than one trustee where substantial family assets are involved.
How Did the Trust Provide for the Family?
The publicly available materials identify Jackson’s mother, Katherine Jackson, and his children among the beneficiaries of the trust, together with charitable interests.
The trust arrangements governed how the beneficiaries were to benefit from the property, rather than simply requiring all assets to be distributed outright immediately upon Jackson’s death.
This illustrates an important estate-planning principle: a family trust can be structured to preserve and manage assets for beneficiaries rather than simply transferring substantial property to them outright.
What Does the Michael Jackson Trust Teach Us?
The Michael Jackson Family Trust does not establish that individual trustees are always preferable to Incorporated Trustees.
Nor does it establish that incorporation is unnecessary for a Nigerian family trust.
Its value is that it demonstrates that a sophisticated family trust can be structured around individual co-trustees, with the trust continuing beyond the settlor’s death.
It also illustrates the importance of selecting capable trustees and establishing a structure through which substantial family wealth can continue to be administered after the settlor’s death.
The example therefore brings us back to the central questions:
Can a private trust work without Incorporated Trustees?
Yes.
Does that mean that individual trustees are necessarily the best choice for every substantial family trust?
No.
The appropriate structure depends upon the assets involved, the beneficiaries, the intended duration of the trust, the level of trustee independence required and the settlor’s objectives.
Private Trust or Incorporated Trustees: Which Should You Choose?
There is no universal answer.
A private trust with individual trustees may offer flexibility and a relatively straightforward structure. It may be suitable where the trust is modest in scale, the trustees are carefully selected and the trust deed contains adequate provisions for succession and accountability.
An Incorporated Trustee structure may be more attractive where substantial family assets are involved and the trust is intended to operate for many years or across several generations.
In such circumstances, perpetual succession and corporate identity may provide significant practical advantages.
The decision should therefore be made at the beginning of the estate-planning process, rather than after the trust property has already been transferred.
Conclusion
The choice between individual trustees and Incorporated Trustees is ultimately a question of structure, governance and long-term administration.
A private trust can operate effectively through individual trustees, provided that the trust is properly constituted, the trustees are carefully selected and appropriate safeguards are included in the trust deed.
An Incorporated Trustee structure can provide institutional continuity and perpetual succession, although it also brings the trustees within a statutory regulatory framework.
The Michael Jackson Family Trust demonstrates that individual co-trustees can administer a sophisticated family trust. The Nigerian legal framework, however, presents its own requirements and considerations.
The most appropriate structure should therefore be determined by the nature of the trust, the value and character of its assets, the beneficiaries, the intended duration and the level of continuity and governance the settlor seeks to achieve.
Disclaimer
This article is for informational purposes only and does not constitute legal advice. The appropriate structure for a family trust depends on the particular circumstances, assets, beneficiaries and objectives involved. Professional legal advice should be obtained before establishing a trust or transferring assets into one.
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