Estate Trust and Settlement
Estate Trust and Settlement
Estate Trust and Settlement
T R U S T,
SETTLEMENT AND
ESTATE
entered into directly or indirectly and includes a person who has provided funds
directly or indirectly for the purpose of the settlement or has made with any
other person reciprocal arrangement for that person to make or enter into the
settlement.
16. Reminder Man: A person who has a right to the capital of the settlement
when the life interest terminates.
Total Income - The aggregate of all sources of income derived by the estate,
trust or settlement in any year of assessment. Expenses are deducted from total
profit.
Computed Income - This is the difference between the total income,
unrelieved losses and allowable expenses.
Allowable Expenses
The following are deductible from the income of trust or estate:
a. Any expenses of the trustee or executor relating to the settlement, trust
or estate; such as fees but excluding amounts payable to beneficiaries.
b. Any annuity or fixed annual amount paid out of the income of the
settlement, trust or estate; and
c. Agreed capital allowances.
STEP BY STEP IN COMPUTING THE CHARGEABLE INCOME OF A
BENEFICIARY
1. Identify the sources of incomes for the Estate Trust Settlement
2. Sum up income from all sources to obtain the total income
3. Identify all allowable expenses
4. Determine the computed income by deducting Step 3 from step 2
5. Deduct discretionary payments to each beneficiary from step 4.
6. Deduct Step 5 from 4 to obtain the remainder of computed income.
7. From the remainder of computed Income, the amount distributed is allocated
as per trust deed.
8. The taxable or chargeable income of each beneficiary from the trust is the
sum of Step 5 to 7.
N N
Income Earned x
Unearned x x
Deduct:
Authorized Expenses of Trustees x
Annuity of Fixed Amount x
Trustees or Executors Remuneration x x
Computed Income xx
A B C
N N N
Annuity of fixed amount x x x
Share of computed income x x x
Discretionary payments x x x
xx xx xx
ILLUSTRATION ONE
Mr. Ada created a Trust many years ago for the benefit of his four children, Ade, Bintu, Mic and Dan. A legal
practitioner was appointed as the Trustee of his estate.
For the year ended 30 September 2016, the Trust income was N3,600,000. Each of the beneficiaries receive an annuity
of N180,000 per annum while administration expenses for the year was N60,000. The trustee is entitled to a
remuneration of 2.5% of the computed income.
Mr. Adaku instructed that discretionary payment of N25,000, N24,000, N22,000 and N20,000 be made to Ade, Bintu,
Mic and Dan respectively. In addition, 90% of the remainder of the computed income should be shared equally among
the four children.
As tax consultant, you have been asked to supervise the administration of the Trust.
REQUIRED:
• State the basis of assessment of Estate, Trust and Settlements.
• Compute the income of the Trust.
• Determine the amount due to each beneficiary.
ILLUSTRATION TWO
Dr Teddy died peacefully in hid sleep on 31st December 2015. He is survived by three children – Joe, Jay and Jane. Two
Trustees were appointed for the settlement created in favour of the children to ensure that they were not badly affected by
the demise of their father.
Details presented by the two Trustees for the year ended 31st December 2015 are as follows:
N’000
Rental income (gross) 360,000
Trading income 480,000
Interest on bank deposit 108,000
Sundry income 102,000
v. Under the terms of the Trust Deed, the Trustees made discretionary payments to John –
N35,000; Jones – N30,000 and Janet – N25,000;
• Deed: Fixed amount of N30,000 each plus 2.5% of computed income; and
In view of agitation by the extended family recently, you have been contacted as a tax consultant to compute the following: