Have you ever wondered how wealthy families (within the international sphere) who are industry titans, business leaders, and entrepreneurs such as the Walton family (Walmart), Mars family, Koch family, Dumas family (Hermes), etc. have generational wealth that transcends generations of the families? The answer is that such families’ Patriarch and Matriarch instituted structures around their wealth and businesses that protected and preserved the wealth of their families. These structures are deliberate and intentional. Intergenerational wealth does not happen by chance, it requires planning.

We shall discuss structures targeted at instituting generational wealth and legacies in a series termed “Generational Wealth Planning”. In this edition, we will focus on “The use of Trusts”.

Creation of a Trust

A Trust is an estate planning tool by which legal ownership of an asset is transferred to a Trustee to hold, manage and distribute on behalf of the Settlor (the person creating the trust) while he/she is alive, and transferred to chosen beneficiaries upon demise.

There is no specific statute governing private trust in Nigeria. Therefore, reliance is placed on Received English Law (such as the Trustee Act, 1893) and decided cases. In addition, the Trustee Investment Act (T22 LFN) provides guidance for the investment of trust assets as a default position when there is no documented Trust Deed.

A Trust involves three parties:

• The Settlor who is the person establishing the trust. The settlor must possess unfettered capacity to create the Trust and must be the owner (legal owner) of the assets to be settled into the Trust;
• The Trustee (individual or corporate entity) who looks after the trust assets and are the legal owners of the transferred assets;
• The Beneficiaries who are the individuals for whose benefit the Trust is created.

A Trust is governed through a legal document known as a Trust Deed which contains a set of provisions and terms guiding the operation of the Trust. Upon execution of a Trust Deed, the document is stamped to guarantee its admissibility in the Court of Law.

Upon creation of a Trust, the assets under Trust are held and owned by persons (Individual or Corporate) called the Trustees hence separating legal ownership of the assets from the Settlor.

In this vein, assets transferred under the trust are not accessible to claimants, creditors or individuals except those acknowledged by the Settlor in the Trust Deed.

Assets that can be under Trusts includes Real Estate (landed properties); Movable chattels; cash in bank; liquid investments; incorporated entities, stocks and shares, intellectual properties amongst others.

A pertinent advantage of a Trust is that the assets can be managed by the Trustee to cater for the Settlor while he is alive (inter vivos) and same is held seamlessly and safely for the beneficiaries upon the Settlor’s demise. Alternatively, the Trust can be structured in a way that the assets remain under the management of the Trustee while income generated is utilized towards the upkeep of beneficiaries up until a time when such assets shall vest with the beneficiaries completely in accordance with the Settlor’s wishes (where he/she so wishes) per the Trust Deed.

The Advantages of a Trust include:

• Assets under Trust are held, managed and administered by the Trustee on behalf of the settlor and chosen beneficiaries;
• The creation and setup of a trust is a private affair. There is no requirement for public disclosure.
• Assets are protected from third-party interference;
• A Trust allows for succession plans to be easily implemented. Hence benefits in Trust assets may be passed on to the next and subsequent generation(s);
• Oversight of the Trust is guaranteed through the appointment of a Protector who shall be vested with the responsibility of monitoring the activities of the Trustee.
• A Trust minimizes estate taxes for example in Lagos State, the statutory cost of 10% is charged on assets of an estate before such assets can be transferred to beneficiaries upon the demise of the Settlor.