Private Trusts: Key Notes for Trust Creators, Protectors and Beneficiaries – Wealth Management
Nigeria: Private trusts: key notes for creators, protectors and beneficiaries of trusts
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Private trusts are widely adopted as an effective means of transmitting wealth. It is a fiduciary relationship, by which a person called “creator of trust” or “settlor”, entrusts to another person called “trustee”, assets (which can be tangible or intangible) to manage for the benefit of selected persons called “beneficiaries”, according to certain terms specified in a trust deed. In other words, in a private trust, a three-way relationship exists between the creator of the trust, the trustee and the beneficiaries.
It is common to have a protector as a party in private trust structures. A protector is someone who oversees the activities of the trustee for the benefit of the beneficiaries. The obligation and duties of the protector are generally defined in the trust deed.
To ensure that the objectives of a trust agreement are achieved, it is essential that the main actors are aware of their respective obligations and how they must work jointly and individually to make the agreement a success in accordance with the objectives and to the constituent’s aspirations. This article focuses on the notable points in this regard.
Overview of the responsibilities of the parties in a private trust agreement
It is important to note that although there is no specific regulation or law on the administration of private trusts in Nigeria, the laws that govern trusts in Nigeria basically comprise of the English Trustees Act 1893, the Trust Investments Act 1957, rules/cases of English common law laws relating to trusts. That being said, the parties to a trust agreement have distinct obligations which are set out in the trust deed and are binding on the respective parties. Thus, the provisions of the trust deed can be upheld by any court when questions arise regarding the trust agreement. Some common responsibilities of the parties in a trust agreement are highlighted below:
Trust Creator – Some of the responsibilities of the creator/settlor of the trust include creating the trust, transferring assets to the trust, selecting one or more reputable trustees, determining how assets/income will be distributed the trust to the beneficiary, the provision of guidelines and regulations relating to the trust agreement which must be documented in the trust deed, etc.
Curator – The trustee is responsible for managing the assets of the trust, implementing the terms contained in the trust deed, distributing the assets of the trust in accordance with the provisions of the trust deed, determining the mode of distribution of the assets/income of the trust to the beneficiaries, compliance with tax obligations relating to the income of the trust, etc.
Beneficiary – To comply with the instructions set out in the deed of trust with respect to their conduct, whether in matters of education, health, etc.
Key Notes for Parties to a Trust Agreement
A. Trust Creator
- Seek professional advice before setting up a private trust
It is important to seek advice from reputable lawyers and tax experts before setting up a trust. This will allow the creator of the trust to understand the structure of the trust, determine what type of trust (i.e. discretionary, non-discretionary, revocable, irrevocable, etc.) to establish based on the goals of the creator of the trust. trust, legal and financial implications. arrangement, etc. These tips are useful because they help the creator of the trust know how to protect their interests in the trust.
- Make sure the trust deed is unambiguous and well detailed
A private trust can be living or testamentary. An inter vivos trust is generally governed by a trust deed, while a testamentary trust is governed by the testator’s will. In all cases, what is important is the expression of the settlor’s intention concerning the contract of trust. Therefore, it is important that the trust instrument be as detailed and as clear as possible. This is essential to ensure that the intent, purpose and purpose of creating the trust are not misinterpreted or misunderstood by the parties involved. The trust deed or will must explicitly state the nature and purpose of the trust; beneficiaries ; details of trust properties; the duties of each party to the trust; powers of the trust creator, trustees and beneficiaries; remuneration of trustees, grounds for terminating guardianship and winding up the trust, among others.
- Selection of trustees
Irrespective of the character of the fiduciary, i.e. institutional or non-institutional, it is important to consider reputation, experience and prestige when selecting a fiduciary. This can be determined through detailed research on the choice of trustee, examination of their clientele, their processes and procedures, their professional identity, their ethics and their history. Institutional administrators are widely preferred for their stability and the perception that they have well-developed processes and procedures, and may not want to be involved in unethical activities for fear of litigation and reputational damage.
- Use Protectors
Assigning protectors to a trust provides additional comfort to the creator of the trust that their wishes, as documented in the trust deed, will be carried out. Trust protectors act separately from the trustee. Their main task is to ensure that the interests of the beneficiaries are protected throughout the life of the trust. The role of a trust protector is usually built into the trust deed or agreement. The deed will state their powers, duties and responsibilities. These may include reviewing the trustee’s investment management decisions and accounting, reviewing decisions relating to the distribution of trust income to beneficiaries and acting as an intermediary between the trust creator, trustees and beneficiaries in areas of disagreement.
- Fulfill fiduciary responsibilities and obligations
Fiduciary responsibility involves the legal obligation of a person or entity to act in the best interests of their client. A fiduciary must respect his fiduciary duties, that is, ensure that he acts honestly and reasonably, and that he does not use his fiduciary position for his own benefit. They are legally and ethically bound to fulfill these obligations. These fiduciary duties include the obligation to invest the assets of the trust prudently, the obligation to distribute the assets of the trust (based on the provisions of the trust deed) and to maintain equality among the beneficiaries, and the obligation to account for and provide information about the assets of the trust as may be required by the beneficiaries. Therefore, according to the statutory provisions of fiduciary jurisdiction, fiduciaries can be taken to court and prosecuted if they fail in their responsibility, resulting in huge fines, penalties and liabilities.
- Inclusion of fiduciary protection clauses in the trust deed
Since the deed or instrument of trust is the most impactful tool in a trusteeship agreement, it is important that the trustee uses this mechanism to protect itself from unnecessary liability by inserting relevant protection clauses into the trust agreement. If a fiduciary performs his duties and acts strictly within the powers and limitation of powers that bind him, he should not be liable for any loss that does not arise from his actions or inactions.
- Use of trusted advisors
A fiduciary adviser directs and guides the fiduciary in the execution of his duties. Trust advisors are responsible for providing advice to trustees on matters that may directly or indirectly impact the trust. Thus, it is quite beneficial for trustees to appoint advisers to enable them to succeed in the performance of their duties and obligations.
- Trustee-beneficiary meetings should be held often
Meetings should be scheduled between the trustee and the beneficiary as often as necessary. Such meetings can range from serious business meetings with a pre-agreed agenda, to informal discussions over lunch. It is relevant that such meetings be held as often as necessary in order to serve as a tool for connecting the trustee and the beneficiary, to pass on information, to clarify gray areas and areas of concern. Given the dynamics of society, such meetings could be held virtually where the parties cannot meet physically. This allows the beneficiary to understand the role or other requirements that may be expected of them in relation to the trust arrangement.
- Understand your role as a beneficiary
Beneficiaries need to understand their role in a trust agreement. For example, they must know all of the trustee’s responsibilities, modern portfolio theory and the asset allocation process, attend family business meetings, gain a clear understanding of each trust in which the beneficiary has an interest, etc This will allow the beneficiary to reap all the benefits of a trust agreement.
Trust agreements have many advantages, some of which have been discussed in this article. When setting up a trust, it is therefore important that the parties consider important points, some of which have been covered in this article. Trust creators should seek advice from professionals who will guide them through the process and ensure the fulfillment of their wishes and aspirations during and after life.
The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.
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