Setting Up an Inheritance Trust in Nigeria: A Legal and Tax Perspective -By Veronica Jolugbo

A trust allows assets to be preserved, managed, and distributed in accordance with the settlor’s instructions, thereby avoiding probate delays, minimizing disputes, and ensuring intergenerational continuity.

Unlike a will, which becomes a public document upon probate, a trust affords privacy and seamless administration. This paper examines the legal basis, practical steps, and taxation framework for establishing a private inheritance trust in Nigeria.

Nature of a Trust.

A trust is a legal arrangement whereby a person (the settlor) transfers property to another (the trustee) to hold and manage for the benefit of designated persons (the beneficiaries). The trustee assumes fiduciary duties and is bound to act in utmost good faith and in accordance with the trust deed.

Essential Features of a Valid Trust (the “Three Certainties”).
1. Certainty of Intention – The settlor must intend to create a trust.
2. Certainty of Subject Matter – The property to be held in trust must be clearly defined.
3. Certainty of Objects – The beneficiaries must be identifiable or ascertainable.
Where these are absent, the trust is liable to fail.

Why Use a Trust for Inheritance?
1. Control: The settlor dictates how and when assets will be distributed.
2. Asset Protection: Trust property can be insulated from creditors and mismanagement.
3. Privacy: Unlike wills, trusts do not pass through probate.
4. Continuity: Assets are managed seamlessly after the settlor’s death.
5. Tax Planning: Trusts may provide efficiency in estate taxation.

Legal Framework for Trusts in Nigeria

Trusts in Nigeria derive from both statute and common law principles:
1.Trustee Laws of various States (e.g., Trustees Law of Lagos State, Cap T6).
2. Companies and Allied Matters Act (CAMA) 2020 – particularly relevant for incorporated trustees or where a corporate trustee is appointed.
3. Conveyancing Acts of 1881 and 1911 (still applicable by reception).
4. Judicial precedents under common law and equity.
5. Securities and Exchange Commission (SEC) Rules (for investment-based or collective trusts).

It is important to distinguish between private/family trusts (which do not require CAC registration) and incorporated trustees (registered under Part F of CAMA, usually for NGOs and charitable purposes).

Practical Steps in Setting Up a Private Inheritance Trust

1. Identification of Assets:
The settlor must specify the assets intended to be transferred into the trust, which may include real estate, cash, investments, shares, or intellectual property rights.

2. Appointment of Parties:
Settlor – the creator of the trust.
Trustee(s) – trusted individuals or professional/corporate trustees charged with fiduciary management.
Beneficiaries– persons or entities entitled to benefit under the trust.

3. Drafting of the Trust Deed:
The deed, prepared by counsel, sets out: settlor’s details, trustee appointments and powers, list of beneficiaries, description of trust property, distribution provisions, dispute resolution clauses, and duration of the trust.

4. Execution of the Trust Deed:
The deed must be executed by the settlor and accepted by the trustees. At least two independent witnesses must attest execution. Stamp duty is payable under the Stamp Duties Act.

5. Registration (where applicable):
Real property: Transfers must be perfected at the State Land Registry (via deed of assignment/vesting deed).

Shares/investments: Transfer forms and share certificates must be lodged with the company’s registrar.

Cash: A trust bank account is opened in the trustees’ names.

Other assets (IP, business interests): Relevant registries must record the transfer (e.g., Trademarks Registry).

CAC registration: Not required for private family trusts, unless a corporate trustee is used.

6. Administration:
Trustees hold and manage the property in accordance with the deed, keep proper accounts, and act in the best interests of beneficiaries.

Taxation and Compliance
Tax obligations in relation to trusts fall across the settlor, trustees, the trust itself, and in some cases, the beneficiaries. We have the following tax:

1. Stamp Duties: Which is required to be pain upon execution of the trust deed. It is paid by the settlor. It is a fixed duty or ad valorem duty depending on whether property is transferred.

2. Capital Gains Tax (10%): It is paid when assets such as land, shares, or investments are transferred into the trust. It is paid by the settlor, as the transfer is deemed a disposal.

3. Personal Income Tax (7% – 24% under PITA): It is paid on income earned by the trust (rent, dividends, business income). It is paid by the trustees on behalf of the trust.

Note: The trust is treated as a separate taxable entity and must file annual returns with the Federal Inland Revenue Service (FIRS) or relevant State IRS.

4. Withholding Tax (typically 10%): It is deducted at source on dividends, rent, and similar income payable to the trust. The trust, though trustees may claim credit when filing returns.

5. Charitable Trusts: It is applicable when the trust is established exclusively for charitable, educational, or religious purposes Such trusts may enjoy tax exemptions, provided they comply with registration and reporting requirements.

Conclusion
A private inheritance trust is a sophisticated and effective estate planning tool under Nigerian law. It ensures control, privacy, continuity, and protection of assets while offering potential tax efficiencies.

The critical elements for enforceability are:
1. Drafting a comprehensive trust deed in line with statutory and equitable principles.
2. Proper execution and stamping of the deed.
3. Vested transfer of assets into the trust.
4. Compliance with tax and filing obligations by trustees.

When properly constituted, an inheritance trust avoids probate, secures beneficiaries’ interests, and remains enforceable under Nigerian law without mandatory CAC registration (unless a corporate trustee is appointed).