Settlements, trust and estate administrations have given rise to issues of accounting and taxation. Usually, the administrators of deceased properties are expected to give detailed account of his stewardship to all the beneficiaries and tax authorities to their satisfaction. Hence, tax authorities use these accounts to assess the income of the deceased person arising from either the disposal or valuation of the property or assets.

In carrying out the tax assessment, individual beneficiaries pay tax according to their benefits (in terms of the property/assets) and not collectively from the entire property. This unit demonstrates to you the preparation of accounts of this nature and the apportionment of computed income arising there-from.


At the end of this unit, you should be able to:

  1.  state the differences between trusts, settlements and estates
  2. explain the preparation of accounts of this nature and identification of beneficiaries
  3.  discuss the apportionment of computed income
  4. illustrate some basic terms that concern accounts and taxation of trusts, settlement and estates
  5.  prepare computed incomes of beneficiaries.


3.1 Definition of Terms

  1. Settlement – this is an agreement whereby a sum of money is set aside to make provision for another person. Settlement also is a device by which the enjoyment of an estate under the same deed or will may be had by persons in succession.
  2. Trust – this is a mandate given in trust to one or more trustees to dispose or value property and apply the benefits arising out of the property for the advantage of the “beneficiaries”.
  3. Estate – this is a property of a deceased person or the aggregate of the things possessed by a person such as money, goods and property of any kind. These three concepts, according to their definitions, refer to some kind of benefits which are arranged, kept or left for the benefit of some person(s), and administered by another person who may not necessarily be one of the beneficiaries.

The following terms are defined so as to avoid misinterpretation or confusion with every day usage of such words.

  1. Executor – this is a representative appointed by a deceased person (as stated in a will) to administer his estate after his death. When a person dies, his estate passes into the possession of his personal representatives, executors or administrators.
  2. Administrator – this is a person appointed by the court to administer the estate of an interstate or of a testator where an executor has not been appointed or if appointed, does not act.
  3. Administration – under this context, it means the dealing with the estate of a deceased person. That is, collecting assets, paying the debts and distributing any surplus amongst the beneficiaries.

The period in between the date in which the deceased person passes on and the date in which the administrator finishes the distribution of the estate is known as administrative period.

  1. Intestate – when a person dies and lives no valid will or leaves a will but has not disposed off all his property by the will, he is said to have died intestate, while the person who died leaving a will is known as a testator.
  2. Settler – in relation to a settlement, include any person by whom the settlement was made or entered into directly or indirectly; and in particular, it includes any person who has provided or undertaken to provide funds directly or indirectly for the purpose of the settlement. Beneficiaries – these are types of persons that may benefit from the income of an estate; examples include the following:

(a) Legatee – one to whom a legacy is bequeathed; that is, a person receiving a specific bequest from the estate;
(b) Annuitant – a person receiving an annuity that may be charged on the income of the estate, on income and capital or on particular assets.

A beneficiary, as a person, is entitled to income (or part of it). He holds a limited interest; the capital passes to some other person known as a remainder-man at the death of such a beneficiary.


1. Enumerate the differences between settlement, trust and estate. 2. Analyse the similarities between a settler, an executor and an administrator.

3.2 Preparation of Accounts

Accounts are prepared for a trust, settlement or an estate to demonstrate that funds relating to any of them have been applied in accordance with the instruments setting them up. With the preparation of such accounts, the beneficiaries, trustees as well as other interested parties such as relevant tax authorities are provided with information about the transactions and the current state of affairs of the trust.

3.2.1 Responsibility for Preparation of Accounts

It is the responsibility of a trustee of a settlement or trust, or the executor of an estate in Nigeria to prepare accounts of the income from all sources for successive periods to 31st December of each year, and to the date in which the assets of the settlement, trust or estate are finally distributed. The trustee of a settlement or trust or executor of an estate shall be answerable for all things to be done in connection with related tax issues.

Income of trust, settlement and estate, according to PITA 1993, schedule 2, part 1, section 1 and 2, shall for all purposes of the act be deemed to be the income of the person creating the trust, as the case may be; and this shall be so much of that income as is derived from a source in Nigeria and any of the income brought into Nigeria.

3.3 Computation of Income of Trust, Settlement and Estate From the prepared accounts, income subject to income tax is computed in a manner similar to sole traders and partnerships. PITA part 3 provisions deal with deductions allowed in computing income of this nature in the same way as that of all individuals if:

(a) the settler or person retains or acquires an immediate exercisable general power of appointment over the capital assets of the settlement or trust or over income derived therein;
(b) that settler or person makes use of, directly or indirectly by borrowing or otherwise, any part of the income arising under the settlement or trust;
(c) the settlement or trust is revocable in circumstances where the settler or person or his spouse resumes control over any of the income or assets;
(d) paragraph 4 (1) states that during the life of the settler, if any income in excess of N500 is paid to or for the benefit of an infant, unmarried child of the settler in any year of assessment, the income is treated as the income of the settler.

3.3.1 Special Deductions for a Trust,

Settlement and Estate Besides the deductions allowed listed in PITA part 3, the following deductions are unique to income of this nature:
(a) any expenses of the trustee or executor relative to the settlement, trust or estate which is authorised by the terms of the deed of settlement, trust or estate or of the will as the case may be; (b) any annuity of fixed annual amounts paid out of the income of the settlement, trust or estate, in accordance with the provisions of the deed or will.

Where the income includes any gain or profit from a trade, business or vocation or any rent or premium, there shall be added or deducted- as the case may be, any sum which would have been added or deducted for the next following year of assessment under the provisions of part 5 of the act, if the income from those sources had been the assessable income of an individual for that year of assessment under the provisions of section 36.

3.3.2 Apportionment of Computed Income

Paragraph 3, part 1 of PITA states that the computed income of a year of assessment of a settlement, trust or estate shall be apportioned for the settlement in the following manner:

ai. The terms of the deed of settlement or trust or of a will provide that the whole income of the settlement, trust or estate after deduction of any authorised expenses or annuity of fixed amount is to be divided in specific proportion among the beneficiaries entitled thereto, from time to time; or
ii. By operation of the law of intestacy, the income of an individual is to be divided as above (i), the income of each beneficiary of any year from the settlement trust or estate shall be his similarly
apportioned share of the computed income;
bi. A trustee or executor has discretion to make any payment (other than a payment on account) to a beneficiary out of the income of a settlement trust or estate in such amount as he sees from time to time, then the amount of the payment be treated as income of that year which is assessable to tax in the hands of that beneficiary and

ii. Out of the remainder of the computed income after deducting the aggregate amount of all the payments during any year, there shall be apportioned to each beneficiary who has any specified
proportion to the remainder, provided that if the aggregate amount exceeds the computed income, the amount of each payment to be treated as income in the hands of a beneficiary under this sub-paragraph shall be reduced proportionally so that the aggregate of the amount so reduced does not exceed the computed income.

c. Any remainder of the computed income of a settlement, trust or estate of any year after deducting all amount apportioned to beneficiaries or treated as income in the hands of beneficiaries
under this sub-paragraph shall be reduced proportionally. Income paid for the benefit of a child of the settler in a year of assessment shall be treated for the purpose of the act as the income of the settler and not the income of any other person if at the time of payment; the child is an infant and unmarried- except where:

(i) in a year of assessment, the aggregate amount of the income paid to or for the benefit of that child does not exceed N500 only; (ii) the income arising under a settlement in a year preceding a year of assessment if the settler is not in Nigeria at any time during that year of assessment, or is not in Nigeria for a period or periods amounting to 183 days or more in any twelve months period, commencing in the calendar year and ending either in the same year or the following year.