Elevating Wealth Management: Exploring the Effectiveness of Private Trust Arrangements in Financial Planning

Are you earning income through various streams or investments? Do you want to ensure the tax efficiency of your investments and facilitate a smooth wealth transfer to future generations? If so, strategically managing your investments through a well-structured and properly managed investment vehicle can be a solution.

High-net-worth individuals (HNIs) often have diverse investments, including equity interests in companies, real estate holdings, and financial portfolios. Best practices suggest holding these investments through an investment vehicle rather than direct ownership. Such a vehicle serves as a conduit for HNIs to deploy funds into current and future projects while facilitating wealth transfer to successive generations.

Investment vehicles typically take the form of holding companies or private trusts. Both options have distinct characteristics, benefits, drawbacks, and tax implications. This article focuses on wealth planning and management through private trust arrangements and explores the associated tax implications.

Private Trust: A trust is a fiduciary relationship where the settlor (creator of the trust) transfers assets or property to a trustee. The trustee holds and manages these assets for the benefit of the beneficiaries—the individuals for whom the trust is created. In the context of wealth planning, a private trust is established to benefit specific individuals, and it can be set up locally or offshore.

Key Elements of a Private Trust Structure:

  1. Settlor:
    • The individual creating the trust and transferring assets to the trustee.
  2. Trustee:
    • The appointed individual, corporation, or professional entity responsible for managing and administering the trust assets.
  3. Beneficiary:
    • The individual or group of individuals for whose benefit the trust is created.

A trust is not a separate legal entity; instead, it relies on the trustee to manage the assets within the trust. The trustee can be a professional with financial expertise, a corporate entity, or even a trusted friend or relative of the settlor.

In a private trust, the HNI transfers ownership (legal title) of current investments to the trust and directs future investments in the name of the trust. This strategic approach helps consolidate and manage the HNI’s assets while offering flexibility and potential tax advantages.

For tax efficiency and wealth preservation, private trusts provide a structured mechanism for HNIs to navigate the complexities of diverse investments and ensure a seamless transfer of wealth to succeeding generations.

For professional advice on Accountancy, Transfer Pricing, Tax, Assurance, Outsourcing, online accounting support, Company Registration, and CAC matters, please contact Inner Konsult Ltd at www.innerkonsult.com at Lagos, Ogun state Nigeria offices, www.sunmoladavid.com. You can also reach us via WhatsApp at +2348038460036.