Trust funds are gaining popularity as more individuals seek effective strategies for managing and safeguarding their wealth. These financial structures provide long-term security for both the settlor and their beneficiaries. While the concept may seem complex, establishing a trust fund is a straightforward process when broken into clear steps. This guide explores how to create a trust fund in Nigeria.
What Is a Trust Fund?
A trust fund is a legal agreement in which property—such as property, investments, money, or other assets—is managed and administered by a trustee for the benefit of intended beneficiaries. It allows individuals to maintain control, have asset protection, and provide financial security throughout life and even death.
Main Parties in a Trust
- Settlor (Grantor): The individual who establishes the trust and contributes assets to it.
- Beneficiary: The person(s) or organization that benefit from the trust. Beneficiaries may be individuals, organizations, or charities.
- Trustee: The organization or person who administers the trust in line with its terms and objectives.
Why Establish a Trust Fund?
Trust funds offer numerous advantages, including:
- Asset Protection: Safeguards assets from creditors, litigations, and financial risk.
- Controlled Distribution: Specifies how and when beneficiaries inherit assets.
- Wealth Preservation: Transfers assets to future generations.
- Privacy: Trust deeds, unlike wills, which are public documents, are not public.
Common Uses of Trust Funds
- Education: Can be used to finance education at any level.
- Charity Support: Trusts can be established to give money for charitable purposes or organizations.
- Discretionary Use: Trustees can disburse funds based on beneficiaries’ needs.
- Creditor Protection: Prevents beneficiaries’ direct access to property, keeping it safe from creditors.
Types of Trusts
- Irrevocable Trust
The settlor cannot revoke or modify an irrevocable trust without the beneficiaries’ approval. It provides greater asset protection and could have tax benefits.
- Revocable Trust (Living Trust)
In a revocable trust, the settlor may modify or revoke it at any time during their lifetime, thereby retaining control and flexibility.
Trust vs. Will: Key Differences
Timing & Operation
TRUST: Can be effective during the settlor’s lifetime or on death.
WILL: Only becomes effective when the testator has passed away.
Probate Process
TRUST: Avoids probate, with a smooth transfer of assets.
WILL: Requires probate, which can cause delays and additional cost.
Privacy
TRUST: Remains private, with financial affairs not being disclosed.
WILL: Becomes a public document when it is probated.
Asset Protection
TRUST: Protects assets from creditors and lawsuits.
WILL: Offers no protection from creditors.
Complexity & Cost
TRUST : More complex and costly to establish