If you have ever seen someone try to collect their money from a debtor, you know how the story goes.
We will deal with this man today!
Creditors of Salomon & Co. decided that enough was enough. The shoe making company could not pay its debts and it looked like the Managing Director, Mr. Salomon, was about to go scot-free.
He must pay every single dime!
Like any sane person would do, they went to court. To everyone’s surprise, the court eventually ruled that Mr. Salomon was not personally liable for the company’s debts.
The reason was simple:
Just like a child who grows up in the blink of an eye, a Company becomes a ‘separate legal entity’ as soon as it is created. This means that that the law recognizes a Company to be a person with an identity that is different from the owners.
The case of Salomon vs Salomon & Co. became the legal precedent for this principle, commonly referred to as the ‘Principle of Corporate Personality’.
A Trust, as applies to Estate Planning, is very similar in nature to the Corporate Personality of Companies.
When you set up a Trust, the Trust or Trustee legally owns the assets in the Trust even though you still control how the Trust assets are managed. The advantage here is that any court proceedings or action against the Trust asset is therefore an action against the Trust or Trustee and not you, the Settlor.
Here, we will be showing you how to take advantage of Trusts for securing your assets. But before we go on, discover the many reasons why a Trust is right for your Estate Planning needs in UTL’s previous article here.
WHAT IS LIFE LIKE AS A SETTLOR?
In order to put assets into a Trust, a person would typically change the title documents of real estate properties, shares or stocks into the name of the Trust.
For example, if your name is John Musa and you named a Trust John Musa Trust after yourself, you would also need to change the names on your asset documentation (such as title documents or share certificates) to John Musa Trust before the properties can be transferred into the Trust.
Without such change, it would be difficult for the Trustee to access the properties in the Trust upon the passing or incapacitation of the Settlor. This process, when conducted by an experienced Trustee, can be made seamless.
To make the process even easier, liquid assets like bank accounts and chattels like jewelry, art and furniture which do not necessarily have title documents can simply be listed into the Trust Deed in order to transfer them into a Trust.
Note that it is important to consult a Trust expert before setting up a Trust to know which assets require a name change before transfer.
HOW CAN ONE SET UP A TRUST (Offline)?
Several Trust experts have outlined different processes for setting up a Trust. We collated these into a general process as follows:
- Identify Your Assets
You must always start by creating a list that properly describes all the assets to be transferred into the Trust. This allows you get the best possible advice from the Trust expert concerning the documents of properties (such as landed assets, share certificates, etc.) that may require a title or name change.
- Discussing the Situation with Experts
Here, we want to ensure that the expert obtains a list of all beneficiaries you would like to have, and all peculiar details about them. Such details could include age and physical challenges or special needs (if any). Discussing these with the expert will ensure that an accommodating, commensurate and need-based Trust structure is recommended.
- KYC: Help the Trustee Get to Know You
As mandated by the law, the Trust expert must be furnished with ‘Know Your Customer’ documentation for record purposes. This KYC documentation includes:
- Passport photographs of the Settlor, Beneficiaries and Protectors (contact persons) of the Trust,
- Valid identity cards of the Settlor, Beneficiaries and Protectors of the Trust,
- A Recent Utility Bill of the Settlor (Not older than 3 months), and
- Copy of all property title documents (if any).
- Pay the Initial Capital Fund and Professional Fee
Every Trust must be activated with an Initial Capital Fund. This Fund (which remains the belonging of the Beneficiaries) must be transferred into the Trust account before the Trust is activated. As the Settlor, you would also have to pay a reasonable professional fee to the Trust Expert to set up the Trust.
- Getting the Draft Trust Deed Prepared
A draft Trust Deed is one that contains the instructions and intentions of the Settlor. After the Trustee develops this document, they will then send you (the Settlor) a copy which you can vet and review. At the Settlor’s satisfaction, the Trust Deed is then finalized.
- Registering and Stamping
Upon finalizing (and executing) the Trust Deed, it is registered and stamped at the Federal Internal Revenue Service (FIRS). A copy of the registered Trust Deed is then given to the Settlor.
Note: For anyone who thinks about completing the 6 long steps above in person, it sounds like a lot of physical stress. Not to worry, there is a stress-free solution for you! To enjoy all the many benefits of a Trust without the regular hassle, use the award-winning and novel digital Trust platform, WillPower, available at www.willpower.ng.
Finally, we can discuss what happens when one changes their mind about what they want to put in a Trust.
HOW CAN YOU AMEND OR TERMINATE YOUR TRUST?
Several reasons may arise for a Settlor to amend a Trust, such as wanting to include a new beneficiary (for example, a newly born child or a spouse). You could also acquire property that you intend to transfer into the Trust. In such instances, the Settlor can then give instructions to modify the Trust.
Similarly, the Settlor may terminate the Trust as any time for personal reasons. Both termination and amendment of the Trust can simply be done by a letter of instruction signed by the Settlor.
Trusts are extremely useful for asset preservation and Estate Planning, but they must be carefully established by skilled professionals to allow you reap full benefits.
Want to secure your future right now with a Trust?
NB: For expert advice on setting up a Trust, visit UTL Trust Management Services Limited here.