Although many Nigerians are familiar with the broad concept of Trust, there are still a lot of misconceptions about what they are, who they’re for, and the benefits they can provide.
One of the most common misconceptions about trusts is that they are only reserved for the ultra-wealthy. This is quite simply incorrect.
At our last webinar titled “Why trust a Trust?”, our estate planning experts explained how Trust can help protect your legacy.
In our usual fashion, participants had the chance to seek clarity on grey areas. Here are some questions and answers from the webinar.
Q1: Apart from Tax Rebates, what are the other benefits of having Life Insurance?
A: Other benefits are interest yield on premium payments, and including numerous numbers of nominees i.e., beneficiaries of the Insurance payout.
Q2: What happens to a Trust when the trustee folds up or is involved in some challenges that make them unable to continue the business?
A: Trust assets are held separately from the Trustees’ assets. Therefore, in the unlikely case of the Trustees becoming insolvent, the Trust assets revert to the Settlor and the beneficiaries of the Trust. Also, the settlor can appoint a new Trustee, which the initial Trustee can hand over to.
Q3: There are stories about trustees spending and depleting the estate entrusted to their care, leaving the beneficiaries with nothing. How true are these stories? If true, how can this happen and how can it be prevented?
A: This is unheard of for most Corporate Trustees, but it is likely to happen if it is individuals acting as Trustees. The Trust Sector is a highly regulated one and in Nigeria, it is regulated by the Securities and Exchange Commission. Trust companies have to undergo rigorous processes to obtain their operating license, therefore, it is imperative for the Trustee to act at all times in the interest of the Settlor and the beneficiaries. Furthermore, there are also rules against comingling of assets of the Trust company and those of assets held in Trust, which makes it impossible to deplete Trust assets.
Q4: In addition to registered or regulated companies like yours, can an individual be a trustee without a SEC license?
A: SEC rules provide for individuals who wish to get a personal license to be Trustees, however, such an individual must possess the relevant experience and undergo SEC screening.
Q5: If a will can be contested, can a testamentary trust get bogged down by being contested?
A: There is a probability of a Testamentary Trust being contested. However, when the Will passes all the requirements of a valid will (written, signed in the presence of two or more witnesses, etc.) — and in the case of a Testamentary Trust, the Testator has appointed a Trustee — anyone who contests the Validity of it will not succeed.
Q6: What is the service charge for the trust?
A: The service charges are value-based, which means the level of work the Trustees put in and the value of your Estate determines the cost. However, please speak to us about your needs and we will advise accordingly.
Q7: If most of the assets are illiquid, how will the service charge be managed until the execution of the trust?
A: Charges can come in set-up fees or performance/annual management fees. Please bear in mind that the sums are invested in interest-bearing instruments. However, the set-up/annual fees are based on the value of the estate after an independent valuation has been carried out.
Q7: Can a trust that has been set up serve as collateral for bank loans?
A: In this sense, no. However, assets can be transferred to a Trustee in its capacity as Security Trustees primarily to be used as securities for loan(s).
Q8: Can Afrinvest Trustees also legally conclude a litigation matter that is in court after the demise of a client?
A: Yes in a sense. If we have been appointed as Trustees and litigation crops up in regards to the Estate, the Trustees stand in the gap for the client. However, the practice is for the Trustees to engage the services of a Legal advisor to carry out this duty on our behalf.
Q9: Can Afrinvest Trustees also legally conclude a litigation matter that is in court after the demise of a client?
A: Afrinvest Trustees would only be involved in litigation after the demise of a client, through a reputable Law Firm and only in instances where the matter in dispute involves a trust asset which has been duly transferred to the Trust.
Q10: What are the items that may be included in a Trust?
The items or list of assets that can be moved into a Trust are not exhaustive. Any type of asset, be it fixed or floating asset can be moved into Trust.
Q11: What is the cost of the various estate plan tools, compared to probate and estate tax?
Probate and Estate Tax in Nigeria amounts to 10% of the individual’s assets upon demise or before obtaining a grant of probate. However, in other estate planning tools, these fees do not apply.
The only fees applicable in the other estate planning tools are fees payable to the Trustees for the set-up and management of these tools which vary according to the size and complexity of the estate.
Q12: What taxes are applicable in a trust?
The Trust cannot be taxed at any instance. The only tax payable by you as an individual having a Trust structure is the Personal Income Tax, wherein you would have to declare and pay tax on assets or income remitted to you and in most cases, this also involves assets disbursed from the Trust.
Q13: Who regulates the activities of Trustees?
Trustees in Nigeria are regulated by the Securities and Exchange Commission (SEC), whilst their activities are also bound by the Trustee Act and the Trustee Investment Act.
Q14: How can one obtain performance review feedback from Trust beneficiaries Afrinvest has acted on their behalf?
As a result of the confidential nature of the Trust, it would be impossible to get feedback from the beneficiaries for public consumption. However, there are track records to show the competence and vibrancy of Afrinvest Trustees Limited.
Q15: Who determines how trust is managed?
The Settlor (person who sets up a Trust), having given his assets to the Trustee, determines how he wants his Trust structure to run.
Q16: Must a Trust be invested only in Afrinvest, or can it be invested in say, a fund managed by a different firm?
Trust Assets (liquid assets) do not necessarily have to be domiciled with Afrinvest Trustees Limited if those investments are already with another firm or institution and it is the Settlor’s intention that assets remain with such firm or institution. On the other hand, the Settlor has the prerogative to decide which asset management firm would administer its assets. This and many others are the benefits of Trust.
Q17: How do Trustees earn their fees from the creation of a Trust?
The Trustees earn majorly two types of fees;
- Set-Up Fees — for the set-up and creation of the Trust which is usually a one-off fee, and;
- Annual Administration Fees — for the annual administration of the Trust assets.
Any other fees payable to third parties for other professional services rendered to the Trust would be duly communicated to the Settlor.
Q18: How affordable is the creation of trust?
A Trust is bespoke, depending on the Estate planning needs of the individual. There is no specific indication as to the cost implication of a Trust, as the cost is entirely dependent on certain factors such as the type of Trust you have chosen to set up, the administrative work to be done e.t.c. All of which would be communicated to you by the Trustee.
Q19: In an era of financial crisis, how do Trusts fair?
A trust is not immune to economic trends. This is because Trust assets are like any other assets; shares, cash, treasury bills, real estate etc. If there is a financial crisis, the assets will be impacted like they naturally would.
Q20: Can a currently owned real estate asset be placed under a trust? If so, what are the steps?
Yes. The process is the transfer of title from the current owner into the trust. This implies that the change in title will be effected at the Lands registry and any search on the property will reflect the name of the Trust set up. If you would like to set up a trust, kindly reach out to us via email at Trustees@afrinvest.com.
Q21: How do you protect the personal information or confidentiality of settlors in the era of rampant ‘Ransom and Kidnapping’?
Code Names, that’s how. We do not name our trusts using the explicit names of our clients. A code name at the choosing of the client can be used to set up the Trust. You may find names like ‘Pearl Trust’ or initials ‘DOA Trust’.
Q22: Does legal ownership have to revert to trustees on behalf of the owner of the asset?
Yes. The idea behind a trust is ownership, not just custody. That’s the only way to fully enforce the client’s desire.
Q23: How can a trustee obviate default of life insurance claims at maturity?
This might be tricky to answer because of some missing details in the question. We’ll assume the following scenarios to make a more wholesome answer.
Scenario 1: Where the life insurance is under a company’s group life plan. i.e our client was an employee of the said company.
Group life plans are a part of a company’s welfare packages and they (the company) chose the insurance firm, not the beneficiary. If there was a breach of contract by the company that resulted in the insurance firm’s just refusal to pay the beneficiary, the company would be to blame and legal action might be taken against them (the company) by the beneficiary, in this case, the Trust.
Scenario 2: Where the Life Insurance is a stand-alone plan, and there were breaches, the insurance claim may be enforced by legal action.
Q24: What about settlors who do not work in Nigeria for the purposes of paying personal income tax?
The trust will not be responsible for remitting personal income tax. They are taken at source by the company the employee works for. If it’s a partnership business or business name, the partners/owners would be personally responsible for remitting their taxes.
Q25: What’s the minimum asset liquidity one must have to qualify for a Trust?
Understanding the trust needs of every spectrum of the economy, our Private Investment Trust (a product for liquid assets only), is open to anyone. The minimum subscription amount is N50,000 or $500.
Q26: How does one start a trust fund investment?
You can get started by simply sending us an email to Trustees@Afrinvest.com, declaring your interest.
That’s a wrap! The full webinar recording is available on YouTube.
Remember, our goal is to simplify investments for you. A visit to our website will show you how we can help you reach your financial goals.
Till the next webinar, keep investing!