Setting Up A Trust Fund in Nigeria

INTRODUCTION

When we hear the phrase “trust fund babies”, it is normal to automatically assume that children referred to as such have been left a huge amount of wealth to cater to their needs for life. Trust funds can be perceived as vehicles to secure the wealth of the wealthy or to provide their heirs often tagged “trust fund babies” with self-sufficient incomes, removing the need for them to work. Trust funds may be created for various purposes, which could be safeguarding assets for charities, education, retirement accounts, public works, and other purposes. Widowed and divorced couples entering second marriages may use trust funds to hold property for children from their first marriages to avoid potential family problems.[1]

A trust fund is one of several options available to a person for transferring property whether tangible or intangible like money, real properties, a bond, mutual funds, or even stock and other assets to family members or charitable organizations. It can be seen as an estate planning tool, similar to a will, that a person wants his/her affairs handled after death. A trust fund, on the other hand, gives greater freedom, privacy, and specificity.[2] That said, in the light of the above, this article seeks to highlight the basics of setting up a trust fund in Nigeria.

Meaning of Trust Fund

To understand what a trust fund is, it is pertinent to have a knowledge of what trust itself means. In Huebner v Aeronautical Industrial Engineering & Project Management Co. Ltd.[3], the Court citing Professors Keeton in Law of Trust, 9^th Ed., stated as follows: “In its legal sense, “a trust” is the relationship, which arises wherever a person called the trustee is compelled in equity to hold property, whether real or personal, and whether by legal or equitable title, for the benefit of some persons (of whom he may be one and who are termed cestuis que trust ) or for some object permitted by law in such a way that the real benefit of the property accrues, not to the trustee, but to the beneficiaries or other object of the trust.”

Therefore, trust is a fiduciary relationship in which one party, known as a trustor, gives another party, the trustee, the right to hold title to property or assets for the benefit of a third party, the beneficiary.[4] In other words, a trust is an arrangement where a person gives another party the legal right to manage his/her assets for the benefit of another person.

Trust funds are legal entities in which properties whether real or personal are held by one person or group (the trustee) for the benefit of another person or group, usually called the beneficiary. It is set up in such a way that the real benefit of the property accrues, not to the trustee, but the beneficiaries or other objects of the trust fund.[5]

A trust fund is usually set up to control who benefits from the assets of the grantor. With a trust fund, a grantor who desires that his assets are managed properly will state so in the trust deed. It could be a trust fund inter vivos (made during the lifetime of the grantor) or a trust fund made after the grantor’s death[6], directing a person or persons known as the trustee(s) to hold property or assets per the terms and conditions contained in the trust fund instrument (trust deed) for the benefit of the grantor’s beneficiaries. In that instance, the beneficiaries become the equitable owners of the trust fund’s subject matter (i.e., the property or assets), while the trustee retains the legal interest.[7]

A trust fund can also be established by an individual or group of individuals for the care, maintenance, and education of their spouse, children, dependents, and family members during the grantor(s)’ lifetime and in the event of their death.[8]

Furthermore, trust fund can be used to transfer property or make grants to a person or persons of interest. It can also be used to provide financial support and life insurance to a grantor who is incapable or has some limitations, as well as to provide stability during old age. [9] The two major types of trust funds in Nigeria are private trust funds and public trust funds. However, for this article, we shall focus on private trust.

Public trust funds are often established for the benefit or use of the public. Private trust funds, on the other hand, are trust funds established for the benefit of specific individuals, such as family members, who are referred to as ‘beneficiaries.’[10] The settlor/grantor and the trustee enters into a legal agreement known as the Trust deed to establish a private trust.

Private trust funds are classified as express or implied trust funds. Trust funds that are created by the parties’ actions are known as express trust funds, but those that emerge through the operation of law are known as implied trust funds.[11]

Legal Capacity to Create a Private Trust

As a basic element of contract, a settlor, whether an individual, a corporation or a statutory body, must have the legal capacity to create a private trust which relates to the settlor’s capacity to hold a legal or equitable interest in real property. Consequently, an individual or group of individuals with a vested interest in land can establish trust. Whereas, where a person cannot hold interest in land, his capacity to create a trust will be affected.[12]

Under the Nigerian law, an infant (person under the age of eighteen) cannot hold a legal interest in real property and therefore cannot create a trust of real property or create a valid will except if such an infant is a soldier at war or mariners at sea. However, an infant can establish a trust over both legal and equitable interests in pure personality, as well as over merely equitable interests in real property. Similarly, a person with mental incapacity cannot validly create a trust since his mental deficiency may impair his ability to dispose of his property or make a Will. Where the trust was formed while such an insane settlor was in his lucid period and fully comprehended the nature of his deed and its implications, such trust may be regarded as valid.[13]

On the other hand, statutory bodies and incorporated companies can also create trusts if the power to do so is contained in their enabling law and articles of association. In the execution of its business and objects, established corporations have all the powers of a natural person of full age and capacity under Section 43(1) of the Companies and Allied Matters Act, 2020. The import of this is that they can establish trusts without explicitly granting such authority in their articles of association.

Basic Elements of Private Trust

There is no specific statute regulating private trust funds in Nigeria. Therefore, reliance is placed on cases decided under English law.[14]

Except for charitable trusts, every trust must fulfill the three certainties of intention, subject matter, and objects as propounded by Lord Lansdale in Knight v Knight (1840) 49 ER 58. These certainties are briefly discussed below:

1. Certainty of intention: The grantor must express or indicate an intention to establish a trust fund. As ‘equity looks to intent rather than form’, there is no need for any technical expression to be used to create trust. The intention in every case is a question of the construction of the words used. [15]A simple declaration of aspiration or desire is inadequate.
2. Certainty of Subject matter: The property held on trust must be identifiable, and the beneficial interests must be clear. The trust fund’s subject may be an interest in the property, a car, money, a debt, or even a promise. Whatever structure the trust fund’s subject takes, it must be specified with reasonable certainty. If there is a lack of certainty as to the subject matter, the trust fails, and the property will return to the settlor or estate on resulting trust.
3. Certainty of objects: This means that the trust fund’s intended beneficiaries must be recognized or ascertainable. If the beneficiaries cannot be found, the trust fund will fail and the trust fund’s subject will revert to the settlor/donor or his estate unless it is a charitable trust.

It should be noted that where the trust fund is created in respect of real property (i.e. land), the trust fund instrument must conform with the statutes governing the transfer of title to land in the applicable state’s land use act and registration of title law. [16]

Parties in a  Private Trust Arrangement

As stated earlier, a trust arrangement is always a tripartite relationship whereby a person termed the “settlor”, entrusts another person termed the “trustee”, with property (which may be tangible or intangible) to be managed for the benefit of select persons termed “beneficiaries”, per certain terms stated in a “trust deed”.[17] It should be noted that each party has duties to perform in line with the trust deed executed.

The Settlor is responsible for establishing the trust, transferring assets to the trust, selecting reputable trustee(s), determining the manner of distribution of trust assets/income to beneficiaries, and providing guidelines and regulations on the trust arrangement (to be captured in the trust deed).[18]

A trustee must be an adult of sound mind, a body corporate, or an institution with the legal authority to hold property. The trustee is in charge of managing the trust assets, carrying out the terms of the trust deed, distributing the trust assets in accordance with the provisions of the trust deed, complying with tax obligations pertaining to trust income, safeguarding the trust fund, rendering account, and providing information on trust fund property as requested by the beneficiaries.[19]

The beneficiary also has a responsibility to follow the directions in the trust deed regarding their conduct, whether it is related to education, health, etc.[20]

It should be noted that the trust instrument executed between the settlor and the trustee is called the trust deed. The trust deed should expressly state the nature and purpose of the trust, the beneficiaries, the details of the trust properties, the duties of each party to the trust, the powers of the trust creator, the trustees, and the beneficiaries, remuneration of the trustees, the grounds for terminating trusteeship, and the winding up of the trust, among other things.

CONCLUSION

Setting up a trust fund will involve the identification of the type of trust fund, the appointment of a trustee which can be an individual(s), firm, or company, and the transfer of assets to the trustee through the trust deed.

It is silhouetted against the backdrop of the foregoing that persons seeking to set up a trust fund in Nigeria seeks legal assistance from a qualified legal practitioner who will help them through the process and ensure that their wants and aspirations are realized both during and after their lifetime.

FOOTNOTES:

[1] https://www.investopedia.com/terms/t/trust.asp) accessed on 11^th June 2022

[2] https://oal.law/how-to-set-up-a-trust-fund-in-nigeria/ accessed on 10^th June 2022

[3] (2017) LPELR-  42078(SC)

[4] https://www.investopedia.com/terms/t/trust.asp accessed on 11^th June 2022

[5] https://oal.law/how-to-set-up-a-trust-fund-in-nigeria/ accessed on 10^th June 2022

[6]https://www.pulse.ng/business/trust-funds-what-they-are-how-they-work-and-types-of-trusts/teg33xy accessed on 11^th June 2022

[7] https://oal.law/how-to-set-up-a-trust-fund-in-nigeria/ accessed on 10^th June 2022

[8] Ibid

[9] Ibid

[10] Ibid

[11] Ibid

[12]https://imperiallawoffice.com/blog/creation-of-private-trust-in nigeria accessed on 10^th June 2022.

[13] Ibid

[14] Ibid

[15]Elements of the Nigeria Trusts Law by Sulaiman Abdussamad https://www.researchgate.net/publication/331286963_Elements_of_the_Nigerian_trusts_law/link/5c7045ee299bf1268d1e02d9/download accessed on 10^th June 2022

[16] Ibid

[17] Private Trusts: Key Notes for Trust Creators, Protectors, And Beneficiaries—https://www.mondaq.com/nigeria/wealth-asset-management/1162132/private-trusts-key-notes-for-trust-creators-protectors-and-beneficiaries?type=mondaqai&score=71 accessed on 10^th June 2022

[18] Ibid

[19] Ibid

[20] Ibid