Introduction
A family trust can be a useful legal structure for preserving family wealth, providing for children and future generations, and ensuring that family assets continue to be properly managed even when the person who created the arrangement is no longer able to manage them personally.
For families considering a trust in Nigeria, however, creating one involves more than simply preparing and signing a document. The settlor must decide what the trust is intended to achieve, identify the beneficiaries and trust assets, select appropriate trustees, determine how the assets will be managed and distributed, prepare the appropriate documentation, establish the appropriate trustee structure and, where applicable, register the trustees and properly transfer or vest the relevant assets.
This article explains the principal steps involved in setting up a family trust in Nigeria.
What Is a Family Trust?
A family trust is an arrangement under which property is held and administered by trustees for the benefit of specified beneficiaries or a defined class of beneficiaries.
The person who establishes the trust is generally referred to as the settlor. The persons appointed to hold and administer the trust property are the trustees, while the persons for whose benefit the trust is established are the beneficiaries.
The basic legal principles governing trusts, including the three certainties required for an express trust, are discussed in our earlier article, Exploring the Concept and Legal Elements of Trusts in Nigerian Law.
A family trust may be established during a person’s lifetime or may arise under a will, depending on the objectives of the person establishing it and the structure adopted.
Why Set Up a Family Trust?
There is no single reason for establishing a family trust. The appropriate structure depends on the family’s circumstances and objectives.
A person may consider a family trust where the intention is to:
- preserve family wealth for future generations;
- provide for children and future children;
- provide for education, healthcare, maintenance and housing;
- support beneficiaries in establishing businesses or making investments;
- ensure continuity in the management of family assets;
- provide a framework for the management of assets if the settlor becomes incapacitated;
- continue providing for beneficiaries after the settlor’s death; or
- prevent substantial family assets from being distributed outright to beneficiaries before they are considered capable of responsibly managing them.
The important point is that the trust should be designed around the settlor’s objectives.
Step 1: Determine the Purpose of the Trust
The first question should not be, “How do I register a trust?”
It should be, “What do I want the trust to achieve?”
For example, a parent may want to preserve family assets while ensuring that the children receive support for education, healthcare, housing and other legitimate needs.
Another person may want the trust to hold investment assets and use the income generated from those investments for the benefit of the family.
The answers to these questions will influence the beneficiaries, trustees, trust property, distribution provisions, trustee powers and duration of the trust.
Step 2: Identify the Beneficiaries
The settlor must determine who should benefit from the trust.
The beneficiaries may be specifically named individuals or may comprise a defined class of persons.
For a family trust, careful drafting is particularly important where the settlor wishes to provide for children who may be born in the future.
For example, the trust deed may need to address whether children subsequently born to the settlor will automatically fall within the class of beneficiaries.
It may also be necessary to distinguish between the settlor’s children and other persons who may subsequently become members of the wider family.
The beneficiary provisions should therefore be sufficiently precise to reflect the settlor’s actual intention.
Step 3: Identify the Trust Property
The next step is to determine what property will be placed in the trust.
Depending on the circumstances, trust property may include:
- land and buildings;
- shares in companies;
- investment portfolios;
- money and bank deposits;
- business interests;
- intellectual property; or
- other property capable of being held on trust.
It is important to identify the assets clearly.
The mere intention to put an asset into a trust does not necessarily mean that the asset has already become trust property. The appropriate transfer, assignment, vesting or other funding mechanism must be considered for each asset.
This distinction becomes particularly important where the trust is intended to hold land, shares or other registrable assets.
Step 4: Decide Whether the Trust Should Use Income, Capital or Both
The settlor should decide how the trust property is intended to be used.
One possible approach is to preserve the capital of the trust while using income generated by the trust assets for the beneficiaries.
For example, rental income, dividends or investment returns may be applied towards education, healthcare, maintenance or other purposes permitted by the trust deed.
The trust deed may also give the trustees carefully defined powers to apply part of the capital where necessary.
This can provide flexibility where a beneficiary requires a substantial amount for an important purpose, such as education, healthcare, housing or a genuine investment opportunity.
The precise powers given to the trustees should, however, be carefully drafted.
Step 5: Decide When Beneficiaries Can Receive Trust Assets
A common question is whether a beneficiary should automatically receive his or her share of the trust property upon reaching a particular age.
There is no universal answer.
For some arrangements, an age-based distribution may be appropriate. In other circumstances, automatic transfer of substantial family assets merely because a beneficiary has reached a particular age may defeat the purpose of preserving family wealth.
A trust can instead allow trustees to retain and manage the property while making distributions according to the beneficiary’s circumstances and the purposes of the trust.
The trust deed can therefore be structured to give trustees appropriate discretion while still providing clear parameters for the exercise of that discretion.
Step 6: Decide How Much Discretion the Trustees Should Have
Trustees need sufficient powers to administer the trust effectively.
For example, trustees may need to determine:
- when a beneficiary should receive a distribution;
- how much should be distributed;
- whether a distribution should be made from income or capital;
- whether funds should be paid directly to a school, hospital, landlord or service provider;
- whether trust assets should be invested or retained; and
- whether a distribution should be postponed in particular circumstances.
The objective should be to give trustees meaningful discretion without creating an arrangement in which the trust’s objectives are uncertain.
The trust deed should therefore establish the framework within which the trustees exercise their powers.
Step 7: Consider Protective Provisions
A family trust may also contain provisions designed to protect the trust property and the interests of beneficiaries.
For example, the trust deed may allow trustees to defer or restrict a distribution where a beneficiary is temporarily incapable of responsibly managing a substantial amount of money or property.
Such provisions should be carefully drafted because the purpose is not simply to prevent beneficiaries from enjoying the trust. Rather, the purpose is to ensure that the trust property continues to be applied consistently with the settlor’s objectives.
Step 8: Choose the Trustees
The choice of trustees is one of the most important decisions in establishing a trust.
Trustees will have legal and fiduciary responsibilities in relation to the trust property and the beneficiaries.
The settlor should therefore consider the trustees’:
- competence;
- independence;
- integrity;
- availability;
- understanding of the trust’s objectives; and
- ability to administer the assets properly.
Depending on the circumstances, the settlor may prefer an independent or professional trustee, or a combination of individuals and professional trustees.
The trust documentation should also provide for the appointment of successor trustees so that the trust does not become difficult to administer when a trustee dies, resigns or becomes incapable of acting.
Step 9: Provide for Trustee Remuneration and Expenses
The trust deed should expressly address whether the trustees are entitled to remuneration for their services and how expenses properly incurred in the administration of the trust are to be dealt with.
This is particularly important where an independent or professional trustee is appointed to manage substantial family assets or undertake continuing administrative responsibilities. The trust deed may provide for reasonable remuneration or professional fees, where appropriate, and should also provide for the reimbursement of reasonable expenses properly incurred in carrying out the trustees’ duties.
Trustee remuneration should, however, be distinguished from reimbursement of expenses. Remuneration is payment for services rendered in the administration of the trust, while reimbursement relates to expenses incurred by the trustee in carrying out the trustee’s functions.
Where the trustees are incorporated under Part F of the Companies and Allied Matters Act 2020, the remuneration arrangement must also be considered in light of the statutory provisions governing Incorporated Trustees and the application of their income and property. The trust deed and the governance arrangements should therefore be structured to comply with the applicable legal requirements.
Providing for these matters expressly can help avoid uncertainty and potential disputes concerning the cost of administering the trust, particularly where the trust is intended to continue for many years.
Step 10: Consider the Settlor’s Own Position
A settlor may wish to retain an interest in the trust.
For example, a parent establishing a family trust may also wish the trust to provide for the parent’s healthcare, maintenance or other legitimate needs during the parent’s lifetime.
That can be accommodated where the trust is properly structured.
However, there is an important distinction between being a beneficiary of the trust and retaining unrestricted ownership-like control over the trust property.
A trust should not merely be a mechanism for transferring assets to trustees on paper while the settlor continues to exercise unrestricted control as though the settlor remained the sole owner.
The trust deed should therefore carefully balance the settlor’s legitimate interests with the trustees’ responsibilities.
Step 11: Decide What Happens if the Settlor Dies or Becomes Incapacitated
A properly structured family trust can provide continuity.
The trust may continue after the settlor’s death, allowing the trustees to continue administering the trust property for the beneficiaries in accordance with the trust deed.
The documentation should therefore address what happens upon:
- the death of the settlor;
- incapacity of the settlor;
- death or resignation of a trustee;
- appointment of successor trustees; and
- eventual termination of the trust.
This can be particularly important where the purpose of the trust is long-term preservation of family wealth.
Step 12: Prepare the Trust Deed
Once the principal decisions have been made, the trust documentation can be prepared.
A properly drafted trust deed may address matters including:
- the identity of the settlor;
- the identity and powers of the trustees;
- the beneficiaries;
- the trust property;
- the purposes of the trust;
- investment powers;
- powers to distribute income and capital;
- protective provisions;
- appointment and removal of trustees;
- successor trustees;
- trustee remuneration;
- amendment provisions;
- the settlor’s reserved or protective powers, where appropriate;
- the duration of the trust; and
- termination and distribution of remaining trust property.
The deed should reflect the actual arrangement intended by the settlor rather than simply adopting a generic trust template.
Step 13: Consider the Appropriate Trustee Structure
A family trust may be structured with individual trustees or, where appropriate, through Incorporated Trustees. The choice of structure will depend on the nature and value of the trust assets, the intended duration of the trust, the number and circumstances of the beneficiaries, the settlor’s objectives and the governance arrangements required.
For certain family arrangements, particularly those involving substantial assets intended to be preserved and administered over several generations, an Incorporated Trustee structure may provide important advantages, including continuity and institutional stability.
This is particularly relevant in Nigeria because section 823 of the Companies and Allied Matters Act 2020 provides for the incorporation of trustees appointed by, among others, a community of persons bound together by kinship. The provision also covers certain associations established for specified purposes.
This is important for a family trust because it means that the possibility of incorporating trustees is not limited to churches, charities and other familiar non-profit organisations. The statutory language expressly includes communities bound together by kinship.
However, the legal structure must be carefully considered. Registration of incorporated trustees does not by itself mean that every asset belonging to the family has automatically become trust property.
The trust deed, the incorporated trustee structure and the transfer or vesting of particular assets are related but distinct matters.
Step 14: Register the Incorporated Trustees Where Appropriate
Where the proposed family arrangement is appropriately structured to operate through Incorporated Trustees and satisfies the requirements of Part F of the Companies and Allied Matters Act 2020, the trustees may be registered with the Corporate Affairs Commission.
First, the proposed name for the Incorporated Trustees must go through the applicable consent process. The required consent of the Registrar-General is obtained before the name can proceed to approval/reservation for the Incorporated Trustees registration. Once the name has been approved, the applicant can proceed with the remaining registration requirements, including the application and submission of the required constitutional and trustee documents.
Where the application is approved, section 829 of CAMA provides for registration of the trustees and issuance of a certificate.
The significance of incorporation is that, from registration, the trustees become a body corporate with the legal characteristics provided by section 830 of CAMA, including perpetual succession and the capacity to sue and be sued in the corporate name.
Step 15: Transfer or Vest the Trust Assets
Registration of the trustees is only one part of the process.
The assets intended to form part of the trust must also be properly transferred, assigned or vested in accordance with the nature of each asset and the applicable law.
For example, the procedure for transferring land is not necessarily the same as the procedure for transferring shares or cash.
Land
Where land is involved, the appropriate conveyancing instrument and any applicable consent, stamping, registration and perfection requirements must be considered.
The title to the property should be examined before the transfer is undertaken, because the appropriate procedure may depend on the nature of the existing title and the applicable land laws.
Shares and Investments
Shares and investment assets may require their own transfer documentation and compliance with the rules applicable to the relevant company, investment institution or securities arrangement.
Cash and Bank Assets
Cash may be introduced into the trust through an appropriate funding arrangement, followed by the establishment and operation of suitable banking arrangements for the trust.
The important principle is that the trust should be properly funded and that the records should clearly establish which assets are trust assets.
Step 16: Establish Banking, Investment and Administrative Arrangements
Once the trust has been established and funded, appropriate administrative arrangements should be put in place.
These may include:
- a bank account in the appropriate name;
- investment accounts;
- accounting records;
- records of trust assets;
- records of distributions;
- trustee resolutions;
- periodic reviews of investments; and
- proper records of trustee decisions.
The trustees should administer the trust in accordance with the trust deed and applicable law.
Step 17: Provide for the Long-Term Administration of the Trust
A family trust should be viewed as an ongoing legal arrangement rather than a one-time registration exercise.
The trustees may need to manage the trust for many years.
The trust deed should therefore anticipate changes in circumstances, including:
- the birth of additional children;
- death or incapacity of beneficiaries;
- death or resignation of trustees;
- changes in family circumstances;
- changes in the value or composition of the trust assets;
- changes in investment opportunities; and
- the eventual termination of the trust.
A well-structured trust should be capable of operating even after the person who established it is no longer available to give instructions.
Common Mistakes When Setting Up a Family Trust
Several mistakes can undermine the effectiveness of a family trust.
1. Treating the trust as merely a document
Signing a trust deed is not necessarily the end of the process. The trust must be properly structured and, where appropriate, funded with the intended assets.
2. Failing to define the beneficiaries
Ambiguous beneficiary provisions can create uncertainty and disputes.
3. Giving the settlor unrestricted control
If the settlor attempts to retain unrestricted ownership-like control over the trust assets, the intended legal structure may be undermined.
4. Choosing trustees without sufficient care
The trustees will be responsible for administering the trust. Their competence and suitability therefore matter.
5. Failing to provide for successor trustees
A trust intended to last for many years should anticipate the possibility that its original trustees will no longer be able to act.
6. Assuming registration automatically transfers the assets
Registration of an Incorporated Trustee does not eliminate the need to properly transfer or vest particular assets in accordance with the law applicable to those assets.
7. Failing to address future children
Where the settlor wants children born subsequently to benefit, the trust deed should say so clearly.
8. Making the trust unnecessarily rigid
A trust intended to operate for many years should have sufficient flexibility to respond to genuine changes in circumstances while remaining within clearly defined parameters.
How Long Does It Take to Set Up a Family Trust?
There is no single timeline for establishing a family trust.
The time required will depend on matters such as:
- how quickly the trust structure can be agreed;
- preparation and execution of the trust documentation;
- the number and nature of the assets involved;
- the complexity of the trustee structure;
- the CAC registration process where Incorporated Trustees are used; and
- the time required to complete asset transfers and perfection.
Can a Family Trust Continue After the Settlor’s Death?
Yes, a trust can be structured to continue after the settlor’s death.
This is one of the reasons a family may establish a trust in the first place.
Instead of requiring the trust property to be distributed immediately upon the settlor’s death, the trust deed can provide for continued management of the assets for the beneficiaries.
The duration and termination provisions should be carefully drafted so that the trustees understand when and how the trust is eventually to come to an end.
Is a Family Trust the Same as a Will?
No.
A will and a trust can serve different purposes and may be used together as part of a broader estate-planning strategy.
A will generally takes effect upon death, while a trust may be established and begin operating during the settlor’s lifetime.
A trust may also provide a framework for the management of assets during the settlor’s lifetime and after death.
The appropriate combination of a will, trust and other estate-planning arrangements depends on the person’s circumstances and objectives.
Conclusion
Setting up a family trust in Nigeria requires more than selecting trustees and signing a trust deed.
The settlor must first identify the objectives of the arrangement, determine who should benefit, identify the assets to be placed in the trust, decide how income and capital should be applied, choose appropriate trustees and establish the governance structure.
For a family seeking to preserve wealth across generations, the real value of a trust lies not merely in its registration, but in the quality of its structure, documentation, funding and ongoing administration.
Disclaimer
This article is for informational purposes only and does not constitute legal advice. The requirements applicable to a particular family trust may depend on the nature of the trust, the assets involved, the identity of the trustees and beneficiaries, and other circumstances. Professional legal advice should be obtained before establishing or transferring assets into a trust.
If you found this helpful, please share it on social media — it only takes a click.