Trusts have increasingly assumed a central role in estate planning, wealth preservation, and structured asset management in Nigeria. Rooted in equitable principles derived from English common law and subsequently adapted within Nigeria’s statutory framework, the concept of a trust provides a legally enforceable mechanism through which property may be held and administered for the benefit of designated beneficiaries. In practical terms, a trust arises where a settlor transfers identifiable property to trustees who undertake to manage and apply such property in accordance with clearly defined objectives. It entails a fiduciary relationship, whereby a person termed the settlor also referred to as the trust creator, entrusts another person or entity referred to the trustee with tangible or intangible property to be managed for the benefit of beneficiaries in accordance with certain terms stated in a trust deed. In other words it is tripartite relationship between the trust creator the trustee and the beneficiaries.
As Nigeria’s commercial environment matures and private wealth expands, the strategic use of trusts has evolved beyond traditional inheritance planning into sophisticated structures for asset protection, succession continuity, philanthropic governance, and tax-efficient administration. However, the creation and administration of a trust demand careful legal structuring, regulatory compliance, and fiduciary discipline.
The Legal Foundations of Trusts in Nigeria
The legal framework governing trusts in Nigeria is both historically grounded and procedurally nuanced. While Nigeria does not operate under a consolidated Trusts Act, the law regulating trusts is derived primarily from received English law, judicial precedent, and a range of federal and state statutes.
- Trustee Act 1893
The Trustee Act 1893 remains a foundational statute applicable as a law of general application. It defines the scope of trustees’ powers, investment authority, appointment procedures, and liabilities. Nigerian courts continue to rely on equitable doctrines developed under English jurisprudence, particularly in enforcing fiduciary obligations and resolving disputes concerning breach of trust.
- Land Use Act 1978
In matters involving real property, the Land Use Act 1978 assumes critical importance. Since all land in Nigeria is vested in the Governor of each state in trust for the people, any transfer of interest including transfers into a trust structure shall require governor’s consent. Failure to secure such consent can invalidate the transfer and compromise the effectiveness of the trust.
- Corporate Trustees and Professional Trust Companies
Corporate trustees and professional trust companies operate under regulatory supervision by the Securities and Exchange Commission. Where the trust structure involves incorporation or registration of an entity with the Corporate Affairs Commission at first instance, the requirement must be satisfied. This layered regulatory environment reinforces enforceability but necessitates strict procedural compliance.
Judicial authority in Nigeria consistently affirms that trusts will be upheld where three certainties; certainty of intention, certainty of subject matter, and certainty of objects are satisfied. Courts will, however, invalidate trusts that offend public policy, violate perpetuity rules, or are tainted by illegality.
Rationale for Establishing Trusts in Nigeria
The practical motivations for establishing trusts in Nigeria are multifaceted. Foremost among these is estate planning efficiency. Unlike wills, which must pass through probate, properly constituted inter vivos trusts ie living trusts allow assets to be administered and distributed without the delays, publicity, and procedural complexities associated with probate proceedings. This advantage is particularly significant in jurisdictions where probate timelines may be extended due to administrative congestion.
Trusts also serve as instruments of asset protection. Where structured as irrevocable arrangements, trust property may be insulated from personal creditors of the settlor, provided the trust is not created with intent to defraud creditors. In an increasingly litigious commercial climate, this protective function has become particularly relevant for business owners and high-net-worth individuals.
Furthermore, trusts offer continuity in circumstances of incapacity. Should the settlor become incapacitated, trustees may continue to administer assets seamlessly in accordance with the trust deed, thereby preserving stability in family and business affairs.
Philanthropic objectives likewise find expression in charitable trusts, which allow structured, transparent, and accountable deployment of resources toward public benefit causes such as education, healthcare, and religious advancement.
Classification of Trusts in Nigerian Practice
Trusts in Nigeria may be categorized according to private or public trusts, timing, revocability, and beneficiary structure. The following categories discussed below are classified under private trusts.
A living trust is created during the lifetime of the settlor and becomes operational immediately upon proper constitution. By contrast, a testamentary trust arises upon death through provisions contained in a will and becomes subject to probate processes before activation.
Revocable trusts permit the settlor to amend or terminate the trust during their lifetime. While such flexibility may be desirable, it reduces the degree of asset protection available. Irrevocable trusts, on the other hand, restrict the settlor’s ability to reclaim control, thereby enhancing creditor resistance and structural stability.
Trusts may further be classified as discretionary or fixed. In a discretionary trust, trustees retain authority to determine the timing and quantum of distributions among beneficiaries. In a fixed trust, beneficiaries’ entitlements are predetermined and enforceable as defined interests.
Requirements for Establishing a Trust
The establishment of a valid trust begins with clearly articulated objectives.
i. Purpose of the trust arrangement
The settlor must demonstrate unequivocal intention to create a trust rather than a mere moral obligation. This intention must be reflected in a properly drafted trust deed, which constitutes the governing instrument of the arrangement.
ii. Essential Elements and the Imperative of Professional Expertise.
The trust deed must identify the settlor, trustees, beneficiaries, and the trust property with precision. It must define the duration of the trust, delineate trustees’ powers, specify distribution mechanisms, and outline dispute resolution procedures. Ambiguity at this stage frequently precipitates litigation; therefore, professional drafting is indispensable.
iii. Perfection of Trusts.
Crucially, a trust is not perfected until the trust property is effectively transferred to the trustees. Equity will not perfect an imperfect gift. Real property transfers must comply with statutory formalities, including consent requirements under the Land Use Act where applicable. Shares and financial assets must be duly assigned or re-registered in the name of the trustees.
iv. Post-Constitution Administration.
Following constitution, trustees formally accept office and assume fiduciary obligations. Ongoing administration requires meticulous record-keeping, prudent investment management, and adherence to reporting obligations where mandated.
Duties and Fiduciary Obligations of Trustees
- Ethical and legal duties: The fiduciary nature of trusteeship forms the ethical and legal core of trust administration. Trustees owe a duty of loyalty, requiring them to act solely in the interests of beneficiaries and to avoid conflicts of interest. The prohibition against self-dealing prevents trustees from purchasing trust property or deriving unauthorized personal benefit from their position.
- Duty to exercise prudence: The duty of prudence obliges trustees to manage trust assets with the care that a reasonable person would exercise in managing their own affairs. Investment decisions must reflect diversification, risk management, and adherence to the terms of the trust instrument. Trustees must not recklessly speculate or negligently expose trust assets to loss.
- Duty of accountability: Equally significant is the duty of accountability. Trustees are required to maintain accurate financial records and to render accounts to beneficiaries upon reasonable request. Transparency promotes beneficiary confidence while safeguarding trustees against allegations of mismanagement.
- Duty of impartiality and good judgment: The duty of impartiality requires fair consideration of competing beneficiary interests, particularly in discretionary trusts where allocation decisions may affect multiple classes of beneficiaries. Trustees must exercise judgment in good faith and in accordance with the trust’s stated objectives.
Breach of fiduciary duty may result in personal liability, removal by the court, restitution orders, or other equitable remedies. Consequently, protective clauses are often inserted into trust deeds to limit liability for actions undertaken honestly and in good faith.
Tax Considerations Under Nigerian Law
Tax implications form a critical component of trust structuring. The Nigerian Tax Reform Act 2025 addresses the taxation of income from settlements trusts and estates primarily in section 16 (under taxation of resident persons) and the Fifth Schedule. Also worthy of note is that the trust arrangements are not automatically tax-free in Nigeria under the Nigeria Tax Act 2025. Trusts are taxed depending on structure, control, and beneficiaries. The NTA 2025 ensures that income flowing through a trust is taxed to prevent tax avoidance. Therefore, the tax may fall on the settlor, beneficiaries and the trustee or the trust as an entity.
Depending on the type of trust tax obligations may arise in the following instances.
i. When a trust is NOT separately taxed
A trust may not pay tax directly where income is fully distributed to beneficiaries who then pay tax at their personal rates. In this case, the trust acts more like a pass-through vehicle.
ii. When a trust IS taxed
Under the Nigeria Tax Act 2025, taxation applies in these situations:
a. Revocable trusts
If the settlor still controls or benefits from the trust ie all income is taxed as the settlor’s personal income.
b. Undistributed income
If income is not shared with beneficiaries ie taxed in the hands of the trustee.
c. Company-like trusts (e.g., investment trusts)
May be taxed at company income tax rate (up to 30%) .
d. Estate/testamentary trusts
Beneficiaries taxed on distributed income while executors taxed on undistributed income.
e. Capital earned within Trust structures
Previously, capital gains earned within a trust—such as from selling shares or property—were taxed at a flat 10 percent. This made trusts tax-efficient vehicles for holding appreciating assets.
Under recent reforms, including the Nigeria Tax Act, capital gains are no longer taxed separately at that lower rate. They are now treated as ordinary trust income and taxed at rates of up to 25 percent, depending on total earnings. As a result, overall tax exposure may increase.
In addition, trustees face enhanced disclosure and reporting obligations, placing trust structures under closer regulatory scrutiny to ensure transparency and compliance.
iii. Why trusts are taxed at all
The Act uses a principle:
Income should be taxed where the economic benefit goes. This prevents people from:
a. Diverting personal income into trusts
b. Avoiding personal income tax.
c. Shifting income to low-tax beneficiaries artificially and to minors who are beneficiaries of private trust arrangement.
d. Anti-avoidance provisions in the law specifically target this.
iv. When trusts can enjoy reliefs
Some trusts may enjoy exemptions in cases of charitable/public purpose trusts (if income used solely for charity). Additionally, this exemption extends to certain gifts and inheritance structures and some capital gains exemptions.
Benefits and Structural Advantages
Trusts confer several structural benefits within Nigeria’s legal environment. They promote privacy, as trust arrangements are not ordinarily subject to the same public disclosure requirements as wills admitted to probate. They also enhance continuity in asset management and provide mechanisms for long-term wealth stewardship across generations.
Trusts also allow customization. Conditions may be attached to distributions, educational milestones may trigger advancement, and staggered entitlements may protect beneficiaries from premature dissipation of wealth. For entrepreneurial families, trusts can serve as governance vehicles for holding business shares, thereby preventing fragmentation of ownership.
Practical Challenges and Risk Factors
While trusts remain valuable planning tools, recent tax reforms and regulatory tightening have introduced additional challenges that must be carefully evaluated before establishment.
One key consideration is the evolving tax landscape. With capital gains now treated as ordinary trust income and taxed at rates of up to 25 percent, trusts may no longer deliver the same level of tax efficiency previously associated with them. Settlors must therefore assess long-term tax exposure, distribution strategies, and compliance obligations at the structuring stage.
The legal framework itself remains fragmented. In the absence of a single codified Trusts Act, practitioners must navigate a combination of common law principles, statutory provisions, and regulatory guidelines. Where real estate forms part of the trust property, transfers remain subject to consent requirements and procedural formalities, which may delay or complicate execution.
In addition, enhanced disclosure and reporting obligations now place trustees under closer regulatory scrutiny. Failure to maintain proper records or meet filing requirements can expose trustees to penalties and reputational risk.
Cost is another important factor. Professional drafting, regulatory filings, tax advisory services, and trustee fees can be significant, particularly for complex or long-term structures. Without careful planning, administrative expenses may erode the intended benefits of the trust.
Finally, limited public understanding of trust structures continues to pose risk. Poorly drafted deeds, unclear beneficiary provisions, or informal arrangements may result in disputes, delays, and unintended tax consequences. For this reason, professional legal and tax guidance is not merely advisable but essential to ensure that the trust achieves its intended objectives.
Conclusion
In Nigeria’s evolving regulatory and tax environment, trusts remain a sophisticated and flexible vehicle for estate planning, asset protection, and intergenerational wealth preservation. However, their continued effectiveness now depends more than ever on careful structuring, full tax awareness, and strict compliance with fiduciary and disclosure obligations. A trust that is poorly designed or casually administered may create unintended tax exposure or regulatory risk.
Conversely, when established with clear objectives, properly constituted, and professionally managed, a trust offers continuity, privacy, and structured wealth transfer across generations. For families, founders, and high-net-worth individuals seeking long-term legacy planning within a tightening compliance framework, the trust remains a legally resilient and strategically sound instrument—provided it is implemented with precision and expert guidance.
Written by Adeola Osifeko LLB,BL,LLMACIS,ABR. Principal Partner AEO Law Practice. She can be reached on adeola@aeolawpractice.com
The Legal Trove 