A COMPARATIVE ANALYSIS OF THE TRUSTEESHIP IN NIGERIA
By: DOYINSOLA OMOMOWO Esq.
INTRODUCTION:
Trusteeship is not strange to Nigeria or Africa. Among the various ethnic groups in Nigeria, trusteeship is well-inherent and operates according to customary conventions. It is fulfilling to know that our people are increasingly becoming aware of the benefits of estate planning. You have worked so hard to build a comfortable savings cushion with the intention of living comfortably at retirement and to make sure your children and family are well taken care of. It is only logical to have your ‘sweat’ well preserved by applying processes and procedures that ensure orderly management while alive and a seamless transfer at passage.
WHAT IS A TRUST?
A trust is a legal (document) arrangement through which an individual (or an institution such as bank or a law firm), called a “Trustee”, holds legal title to property of another individual known as a “Settlor or Grantor” for a third party called a “beneficiary” It is designed to allow for the easy transfer of the settlor’s assets thereby by-passing the often complex and expensive legal process of probate.
The trustee has the fiduciary duty to manage the settlor’s assets wisely and upon the death of the settlor, these assets flow to the beneficiary (ies) according to the settlor’s wishes as outlined in the trust agreement. Unlike a Will, a trust does not have to clear the courts to reaches its intended beneficiaries when the settlor dies or becomes incapacities. The trustee named to carry out the instructions in the trust contract can be a relative of the settlor, an appointed professional trustee (such as a financial institution), etc.
The settlor can leave a full inheritance to his or her heirs (beneficiaries). The settlor also has the power to place certain conditions that need to be fulfilled before named beneficiaries can access the inheritance such as a beneficiary finishing college before he/she can have access to the inheritance.
TYPES OF TRUST
There are two major types namely:
1. Testamentary Trust; and
2. Living Trust.
TESTAMENTARY TRUST
This type of trust is set up through a last will and testament i.e. it only comes to existence upon the death of the settlor. It needs to pass through the process of probate before such can be transferred to the beneficiaries.
Here, property must pass into the trust by way of the will and, thus, said to be funded and must go through the probate court process.
LIVING TRUST
This type of trust is setup and implemented during the settlor’s lifetime. The settlor names a trustee to carry through the provisions of the trust upon his or her death. This happens outside of the probate process thereby saving time and cost in this regard. Establishing a living trust requires additional planning and documentation beyond a last will and testament, therefore it costs more upfront.
Worthy of note is that an unfunded living trust would technically not exist until it receives some assets. If you attempt to create a living trust but fail to transfer any asset to it except through your will, the property must go through probate just like a testamentary Trust.
Other types of trust include the following:
• Totten Trust;
• Charitable Trusts;
• Spendthrift Trust;
• Constructive Trust;
• Asset Protection Trust;
• Corporate Trust;
• Special Needs Trust; etc.
FORMS OF TRUST
There are two forms of trust namely:
1. Revocable Trust; and
2. Irrevocable Trust.
REVOCABLE TRUST
In this form of trust, the settlor has the power to change and amend the trust at any time such as changing the names of the beneficiaries or even undoing the entire trust. Here, the settlor can name himself or herself as the initial Trustee i.e. designating himself or herself as a trustee while he or she is still alive. In the event of any form of incapacity or death, the Successor Trustee immediately steps in without the complexities and costs in engaging a solicitor, applying for probate, etc.
The downside of this form of trust is that the assets in the trust would still remain a part of the settlor’s estate, meaning he or her may still be liable for estate taxes after his or her death (i.e. where the estate is valued beyond the estate tax exemption at the time of death). Revoking this form of trust is not a quick job, but it can be done making it a flexible option.
IRREVOCABLE TRUST
This form of trust allows you to permanently and irrevocably give away your assets during your lifetime thereby relinquishing all control and interest in the assets.
Once the trust agreement for an irrevocable trust is made, the named beneficiaries are set and the settlor can do little to amend the agreement. It would take a judge to decide whether a change can be made and even then, the circumstances would have to be very special. Some people might start off with a revocable trust but then convert it to an irrevocable trust later (i.e. when they are more certain of things).
When the settlor dies, the revocable trust automatically converts to an irrevocable trust (as the only person who could have changed it has passed on
ADVANTAGES OF CREATING A TRUST
Some of the merits of creating a trust are:
1. Avoids Probate – probate is a requirement under a valid will, but under a trust, your successor Trustee is required to pay your debts and distribute your assets according to your instructions.
2. Provides Privacy – This is because a trust is not made public and is distributed in private. A will on the other hand is a public record and so all transactions will be public as well.
3. Offers more Protection if Challenged – this is because it would be harder for challengers to prove that you were coerced into signing the trust documents and also proving the fact that you went through the whole process of finding the trust e.g. retitle and re-deed process.
DISADVANTAGES OF CREATING A TRUST
Some of the demerits of creating a trust are:
1. Personal Inconvenience – not having control over the assets anymore except under revocable form of trust which would still be a long process to ensure wielding control over such assets in the trust.
2. High Expenses – some of these attending costs include cost of setting up the trust, cost of administering the trust, cost of the process of retitling the documents to bear the name of the trustee, etc.
3. More Detailed – as trusts are much more complex to draft.
CONCLUSION
While a living trust is a better option for some people, wills are just fine for others. A trust is most appropriate for individuals who have complex financial or personal circumstances.
Therefore it is always advisable to consult an estate planning attorney for more information and to act as a legal guide.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
For more information, clarity or consultation, fill in the contact form, or send us a mail. info@asalawpractice.org
SOURCES
Article (Trusteeship – An Overview by Monro Wright & Wasbrough
LLP Solicitors August 2014) – http://www.mww-llp.com/wpcontent/uploads/2014/09/Trusteeship-an-overview-FINAL.pdf
Breaking Down ‘Trust’ – https://www.investopedia.com/terms/t/trust.asp
FindLaw.com “Types of Trust” – http://estate.findlaw.com/trusts/types-of-trusts.html
Ekundayo: The Business of Trusteeship Needs a Complete Overhaul March 29, 2017 – https://www.thisdaylive.com/index
JOURNAL
• Abdulkarim I., Trust Law and the Administration of Real Property in Nigeria, in
International Journal of Advanced Legal Studies and Governance, (2011) Vol. 2(1) 210- 235