Funding a Trust with Land

The trust deed says the land belongs to the trust. The register says it belongs to your father.

The scene repeats itself with a regularity that ought to be embarrassing to the profession. A man dies. The family produces a trust deed, executed some years earlier, well drafted, properly witnessed, listing in its schedule a property at Gwarinpa or Lekki or Lafia. The widow believes the property is safe. The children believe the property is safe. Then somebody visits the registry, and the register shows what it has always shown: the deceased, in his own name, holding the right of occupancy he held on the day the trust was signed.

The property is therefore estate property. It falls to probate. It waits for letters of administration. It is exposed to the creditors of the estate, to the delays of the registry, to the claims of persons the settlor never intended to benefit and to the arithmetic of intestacy if the will is defective. The trust, meanwhile, holds nothing. It is a complete instrument governing an empty set.

The mistake is not one of drafting. The drafting is usually the strongest part of the arrangement, because drafting is the part a lawyer is paid to do and the part the family can see. The mistake is a category error about what a trust deed is. A trust deed is a constitution. It states who holds, who benefits, on what terms, with what powers, until when. What it cannot do is perform the act it contemplates. The deed declares the trust; a separate transaction funds it. Between the declaration and the funding sits the whole of Nigerian land law, and that law is not indifferent to being skipped.

There is a narrow exception which does more harm than good, because people reach for it as a shortcut. Where the settlor is himself to be the trustee, a declaration of trust over property he already holds may, in principle, constitute the trust without a transfer, since there is nobody to transfer to. Lawyers reach for this to save consent fees and registry time. It is a false economy. A self-declared trust over land, unregistered and unnoticed on the title, is invisible to every third party who deals with that land — a purchaser, a mortgagee, a judgment creditor, the estate itself. It is also the single easiest arrangement in Nigerian practice to attack as a sham, because nothing on the face of the world changed on the day the trust was made. The settlor still collects the rent. The settlor still pays the tenement rates. The settlor still calls it his house.

The discipline of this essay is therefore simple and unforgiving. Funding is not a formality that follows the real work. Funding is the real work.

Before a settlor can transfer land into a trust he must be clear about what he holds, because in Nigeria he almost certainly does not hold what he thinks he holds. Since the Land Use Act came into force in 1978, all land within the territory of a state is vested in the Governor of that state, to be held in trust and administered for the use and common benefit of all Nigerians. What the individual holds is a right of occupancy — statutory or customary, expressly granted or deemed — for a term of years, subject to conditions.

This changes the object of the settlement. The settlor does not settle the land. He settles a right of occupancy with an unexpired residue, encumbered by whatever conditions the grant imposes and whatever consents the law requires. Any schedule to a trust deed that describes the asset as though it were freehold property held absolutely is describing something that does not exist in Nigerian law, and it will be read against the settlor when the description is tested.

The second consequence is the one that defeats most transfers. The Act requires the consent of the Governor to be first had and obtained before a holder of a statutory right of occupancy alienates his right by assignment, mortgage, transfer of possession, sublease or otherwise. Moving land into a trust is an alienation. It does not become something else because the transferee is a trustee, because the beneficiary is the transferor's own child, or because no money changed hands. The trustees are strangers to the title until the Governor says otherwise.

A third category defeats a different class of settlor entirely. Land held under customary tenure by a family or community is not the personal property of the man whose name the neighbours attach to it. It is vested in the family, administered by the head of family with the concurrence of the principal members. A purported alienation by the head without that concurrence is voidable at the instance of the family; a purported alienation by a member acting alone is void. A settlor who places family land in the schedule of his trust deed has not funded a trust. He has created a dispute and postdated it to the reading of his will.

The audit that opens every land funding exercise therefore asks four questions in order. What right is held. In whose name it is held. What conditions, consents, encumbrances and outstanding obligations attach to it. And whether the holder has the unilateral capacity to part with it at all. Where any answer is unsatisfactory, the land is not ready to be settled, and drafting a schedule that says otherwise merely records the defect in a more formal typeface.

What follows is the sequence. It is written as a sequence because the order is load-bearing: a step taken out of turn generally has to be taken again, and one of them cannot be repaired at all once the settlor has lost capacity or died.

Funding is not an event. It is a state of affairs that must be capable of proof by a person who was not present when it happened, years after the people who arranged it are unavailable to explain it. That person may be a judge, a bank's solicitor, a purchaser's counsel, a tax authority or a beneficiary who suspects the trustees. What they will ask for is a file.

The file for a single parcel of land contains the certified true copy of the root document and the chain of title; the survey plan; the pre-transfer search result; the application for consent and the consent as endorsed; the executed deed of assignment, stamped; the receipts for duty, consent fees and registration; the post-transfer search result showing the trustees on the register; the trustee minute accepting the asset; the entry on the asset schedule; the insurance policy in the trustees' names; and the first year of rent and rates records in the trust's name. Where the settlor remains in occupation, the file contains the instrument under which he occupies.

The standard is not tidiness. It is sufficiency. The question the file must answer is adversarial: if the settlor's estate, or a creditor of the settlor, asserted tomorrow that this land never left him, could the trustees prove otherwise from the file alone, without oral evidence from anyone still living? Where the answer is no, the funding is incomplete even though every step was taken, because a transfer that cannot be proved and a transfer that did not happen produce the same result in court.

This is also the point at which the file stops being an administrative burden and becomes an asset. A trust whose land holdings are documented to this standard can be lent against, restructured, partially distributed or defended without a forensic exercise. A trust whose holdings are not so documented cannot do any of those things quickly, and speed is usually what the family needs on the day it needs anything at all.

The failures are few in number and endlessly repeated, and each of them is visible in advance to anyone willing to look.

The unconsented transfer is the commonest. The deed is executed, the family relaxes, and nobody applies. The trustees hold an inchoate interest which is good against the settlor and useless against the world, and the defect becomes irreparable at the moment the settlor loses capacity, because there is no longer anyone who can lawfully complete the alienation he began.

The unregistered instrument is the next. Consent was obtained, duty was paid, the deed sits in a drawer. When the property is contested, the instrument the family relies upon is the one instrument they may not be permitted to tender to prove their title.

The schedule that outran the transfers is the most demoralising, because it is created by diligence pointed in the wrong direction. Nine properties are listed in the settlement; two were ever assigned. The schedule is then read, correctly, as evidence of what the settlor intended and, equally correctly, as evidence of what he failed to do.

The sham allegation is the most dangerous, because it attacks not one asset but the whole arrangement. Where the settlor transferred the land and then continued to deal with it exactly as before — collecting the rent, granting the tenancies, mortgaging it for his own borrowing, describing it as his own in his other dealings — a court invited to find that the parties never intended the transfer to have effect has been handed its evidence by the settlor himself. The remedy is not better drafting. The remedy is the conduct described in Step 06.

The creditor's challenge turns on timing, and timing is why land is funded early or not at all. A transfer made while claims are pending, threatened or reasonably foreseeable invites the argument that it was made to defeat them, and the argument is stronger where the settlor retained enjoyment of the asset. Land settled in a quiet year is protection. Land settled in a bad month is evidence.

The family land trap and the matrimonial home are the two that no amount of procedure repairs, and both are diagnosed in Step 01. Land held by a family cannot be settled by one of its members. A matrimonial home in which a spouse has an interest, contributed or presumed, cannot be settled as though that interest did not exist. The correct response to either finding is not to proceed carefully; it is to select a different asset.

Land enters a Nigerian trust by assignment to the trustees, consented to by the Governor, stamped, registered, and thereafter administered by the trustees in fact as well as in name. Each of those five is necessary. None of them is implied by the settlement deed. Where any is missing, the property remains, for every purpose that matters, the settlor's — and it will be treated as his by the registry, by his creditors, and by the court that eventually distributes his estate.

The refused neighbours are named rather than absorbed. Whether the settlor should use a trust for this land at all, rather than a company, a will or an outright gift, belongs to the comparative branch. What the deed must say about the property once it is in belongs to the clauses essay. How the trustees run it thereafter belongs to the administration essay. The other asset classes are refused on the same principle, and each is decided on its own page. Shares answer to a register kept by the company: the essay on funding with shares. Insurance answers to a register kept by the insurer, and to the date a notice reached it: the essay on funding with insurance. A family business answers to six registers at once, and to the discovery that an enterprise is not an asset: the essay on funding with a family business. Cash answers to no register of beneficial ownership at all, which is why the family must keep the book itself: the essay on funding with cash. And digital assets answer to a ledger kept faithfully and publicly, which records addresses rather than people: the essay on funding with digital assets. This page decides one question only: how the land gets in.

The deed records what the family meant. The register records what the family owns. Where the two disagree, the register prevails, and the trust holds nothing but a promise.

A trust is not funded by intention. It is funded by transfer, and in Nigeria a transfer is a procedure with a receipt.