By Elvis E. Asia
Given the non-predictability of life which is even more compounded by low life expectancy rates in most developing countries such as Nigeria, it is very important to pay attention to welfare of loved ones in the event of the occurrence of the unexpected. Estate planning offers an opportunity for the implementation of a man’s desire regarding the management and distribution of his estates both for the preservation of his legacies as well as the welfare of loved ones in the event of unforeseen circumstances.
Estate planning refers to the process of arranging for the management and disposal of a person’s estate either during the person’s life or in the event of incapacitation or death. The goal is the efficient management and preservation of your assets either during your lifetime or in the event of incapacitation, as well as making the decisions on how your assets will be distributed or managed upon your death.
Statistics show that majority of people, particularly black people; have no estate planning strategies in place. Even in America, it is reported that up to 70% of the African American community have no form of estate planning. Though there are no accurate statistical figures in Nigeria, the numbers are even higher.
The reasons people hardly think about estate planning include the natural tendency to avoid imagining one’s death and the myth that it is meant only for the wealthy. Whilst it is understandable not to think of death, it is however a certain end that cannot be avoided simply by not thinking about it. Planning for what happens in that event is a prudent means of protecting your legacy and ensuring that your family is protected. Estate planning is not a death wish but a realistic plan for the inevitable future. No matter how small your assets are, it is important for you to design a smooth transition to the next generation.
Why you need an estate plan
The need for estate planning cannot be over emphasized. Firstly, everyone needs to determine what happens to his assets when they are no more or incapable of managing their assets and businesses. This is to avoid a situation where the assets get into the hands of unintended persons. Where a person failed to design an estate plan, his property falls under intestacy which means default rules will be used to determine who gets what. The properties may end up in the hands of those you never wanted to have them and may never be traced by loved ones.
With estate planning, loved ones can continue to be maintained without interruptions and difficulties of accessing the assets. Apart from the legal difficulties of accessing the assets in the absence of a valid estate plan, most assets are lost because the beneficiaries are not aware of them.
Estate planning reduces the complexities and the cost of transferring title to the beneficiaries. When a person dies intestate and without any plan, the process of obtaining Letters of Administration can be tedious and costly. There are many instances where beneficiaries have been unable to take the benefit of assets left for them because of lack of funds to process the requisite legal documentation for transfer of title. The cost can be reduced and managed with a proper plan in place.
In appropriate cases, estate planning sustains the business of the bread winner and prevents it from being wasted. A common problem in Africa is lack of generational businesses and wealth. One of the reasons for this is the almost absence of strategies for transferring businesses and wealth to the next generation. With appropriate estate planning, the business of a bread winner can be sustained and preserved for the next generation. Such an arrangement will also prevent maladministration and ensure knowledge transfer to beneficiaries. The interest of minors can also be protected and even adults who are incapable of managing the assets are taken care of.
There are also tax considerations for estate planning. For example, estate planning strategies such as life insurance policies and pensions would avoid taxes. 10% ‘estate duty’ often imposed for obtaining Letters of Administration will be avoided.
Estate planning is a veritable check on customary law on inheritance. The truth is that most customary laws across the country are not friendly to women (wives and daughters). Though the courts have struck down most of the discriminating cultural practices against women, the practice is still very much alive. There are reported cases of wives and daughters being chased out of properties on the death of their husbands and fathers by family members on account of the principle of primogeniture prevalent in Nigeria.
Perhaps the most important reason why you need an estate plan is that it prevents family disputes over property. The incidence of family disputes is very high in Nigeria. Most of the cases in courts across the country have something to do with disputes over the estate of a deceased person. Many of these cases can be reduced or avoided with proper estate planning devices. An estate plan will specify how the assets will be distributed and managed leaving no room for speculations.
Estate planning options
There are many estate planning mechanisms that can be adopted depending on the nature of the assets in question and the preference of the owner. Below are some estate panning mechanisms:
Interestingly, apart from love and companionship, marriage is an estate planning tool. A valid marriage under the Marriage Act, excludes the application of customary law on inheritance. Where a person marries under the Act, with or without a Will, his wife and children are protected because the Administration of Estate Laws gives priority to them. Customary marriage on the other hand subjects your properties to customary law of inheritance which is mostly unfavourable to wives and female children.
Joint ownership of property or account is a good mechanism for seamless and cost free transfer of property to beneficiaries. The legal significance of joint ownership depends on how the property is held. If the property is held as joint tenants, on the death of one of the joint owner, the property goes directly to the other joint tenant(s) on the principle of survivorship. In the event of the death of one of the joint owners, there will be no need to obtain Letters of Administration or obtain probate or execute any other document to pass title. The joint property is also protected from the creditors of the deceased joint owner and ownership will not be affected by a Will.
Life insurance policy/Pension
Life insurance policy is an agreement between an insurance company (the insurer) and a person (the insured), where the insurer commits to pay a named beneficiary a sum of money upon the death of the insured. Life insurance policy ensures that the family will be catered for in the event of death. One significance of the policy is that the insurance premium paid for the policy is tax deductible. It is therefore a great tool for tax avoidance.
Pension can also be used to obtain a life insurance policy upon cessation of employment and voluntary contribution allowed by the law may be explored to ensure that family and dependents are catered for in the event of incapacity or death.
Deed of gift
The law allows the owner of property to give it out as a gift to any person. To avoid disputes in the event of death, you may choose to give out assets to beneficiaries during your lifetime. To be valid, there must be intention to make the gift and the gift must be delivered in the presence of witnesses to the donee who must accept it and take immediate possession.
Gifts avoid estate duty and cannot be affected by a Will. Gifts take immediate effect upon execution and a stamped and registered deed of gift is hardly subject to dispute. This is because the Donee would already have assumed ownership and physical control during the lifetime of the Donor.
There is also a tax advantage. The Second and Third Schedules to the Personal Income Tax Act (as amended) (“PITA”) suggest that a Gift from a Donor to a Donee is exempted from personal income tax because there is no gain or profit from any trade or profession as a result. The situation will however be different if the asset passes after death in which case personal income tax will be applied on the beneficiaries and trustees/executors.
A Trust is a legal arrangement wherein the creator (the “settlor”) transfers title in his assets to a person, persons or trust company for the benefits of his beneficiaries. The settlor can also create a living trust in which case he will name himself as trustee during his life time and makes provisions for a successor trustees after his death. A living Trust provides for the management of the settlor’s assets during his lifetime and after his death or during a period of incapacity.
A Trust has many advantages including the fact that it is flexible and comes into effect immediately it is executed. The Settlor can amend or revoke it at anytime. Trusts can be used to professionally manage the assets and businesses of the Settlor in favour of beneficiaries who have no technical knowhow to manage them. It ensures private and confidential management of assets unlike a Will that is a public document.
Another way to seamlessly preserve the estate of a person is for the person to create a family investment company. The estate owner will hold the shares in the company with his family and beneficiaries. The properties forming part of his estate will then be held or acquired in the name of the investment company. It is important to ensure that this is done before the assets are acquired to avoid transfer related cost and expense. The good thing about this is that in the event of death, no estate duty is paid and there will be no requirement to obtain probate or letters of administration in respect of the assets. The beneficiaries will continue to enjoy the benefit of the assets using the company. It also preserves the assets for the family as there will be no partitioning. It is however important for the estate owner to determine who gets his shares in the company in the event of death.
A Will is a document which contains the intention and wishes of a person to be carried out after his death. It details specific directions on who will receive your property after your death and names personal representatives or executors to oversee the implementation of your will. The major objective of a Will is the avoidance of the application of customary law and provision for people and causes that may not ordinarily be covered under default rules. However, Wills are made subject to customary law to some extent in some states across the country and is also subject to estate duty.
Power of attorney
Power of attorney is a legal document which gives a broad or limited authority to an agent to make decisions in respect of property, finances and other assets on behalf of the donor. It also allows you to appoint an agent or agents to make decisions for you in the event of incapacity. The decisions may include matters such as withdrawing and depositing funds from bank accounts, investment accounts, mutual funds, accessing safe deposit boxes, selling real estate, filing tax returns and dealing with employment benefits, insurance companies, healthcare decisions and asserting claims.
Important points to note in planning your estate
Important decisions in estate planning include:
a) Value of estate
The first step in estate planning is to take stock of present and future value of your estate.
The most important decision is who to entrust with the management of your estate . It is important to carefully choose executors and trustees as well as guardians for your minor children, to handle and distribute your property and care for your family. Be sure to choose someone you trust and know will carry out your wishes. You may want to choose a trust company depending on the nature and complexities of the estate. Generally, you need to choose people with the time and requisite expertise to manage the estate.
The privilege of determining who manages your estate is one of the key advantages of estate planning. Failure to do this will make the management of your estate to go to people that may not have the interest of your beneficiaries at heart.
c) When and how to transfer wealth
There is no better time than now to set up an estate plan. Generally, the age and maturity of the beneficiaries, the size of the estate and cash flow needs and the tax implications are factors to consider in choosing an appropriate estate plan.
d) Future needs of beneficiaries
When planning an estate, you should consider the future needs of the intended beneficiaries. It is wise to earmark funds in a trust to cover specific expenditures, such as college tuition or special needs expenses.
The definition of a ‘life well spent’ spent cannot be complete without a final word on the management of one’s legacy. No man can truly love his family without devising means of ensuring their comfort in his absence. With the high incidence of disputes over estates, the difficulties of accessing properties left behind and high cost of securing inheritance in Nigeria, every man must become ‘future forward’ by taking deliberate steps to put in a place a plan to manage and transfer assets in the event of incapacity or death.
Presented By Elvis E. Asia, Managing Partner, Law Future Partners (LFP), Lagos at the virtual seminar themed ‘Plan for the Future Now’ organized by Heritage Bank on the occasion of the 2020 International Men’s Day on Wednesday November18, 2020
 It must be noted that this duty is not specifically defined in any law.