Organisation, management and administration of assets, investments and wealth is paramount in the affairs of the wealthy. Adequate measures and steps in this regard ensure the preservation and transference of the wealth accumulated over the years. Usually, deliberate actions must be taken and unique strategies applied to achieve the desired results, particularly in the administration of the assets after one's lifetime. This basically, is what estate planning entails.
Estate planning is an intentional act and process to ensure an effective administration of a person's assets during and after lifetime or in the event of an incapacitation. The concept goes beyond the administration and management of assets upon demise, to setting up mechanisms that will ensure their continuous growth. Wikipedia defines estate planning as the process of anticipating and arranging during a person's life, for the management and disposal of that person's estate, in the event of incapacitation or death. This includes reducing or eliminating uncertainties over the administration of the estate and ensuring that the specific goals of the estate owner are met. Some of the common goals in this regard include ensuring availability of funds for the education of successors, financing a charitable cause, preserving accumulated wealth etc.
The concept of estate planning is gradually gaining prominence in Nigeria. Many wealthy individuals and families are now taking deliberate steps to ensure seamless transition of wealth. This article aims to shed some light on the concept of estate planning, methods/ techniques and salient points in this regard.
Traditionally, the focus of a patriarch/matriarch in relation to estate planning is quite narrow as it only considers the distribution of wealth upon demise. This perhaps may be due to lack of knowledge of other structures that allow the continuous growth of wealth, sustain the beneficiaries and ensure that the legacy lives on. Some of the traditional methods are discussed below:
Historically, wealth succession in Nigeria is mostly based on customary practice/law. These customs mostly cater to deceased male persons. Generally, upon demise, the practice (especially where there is no laid down instruction by the deceased) is to share the wealth of the deceased among his family members. The traditions and culture of the deceased dictates the manner by which the assets are shared. Often times, this leads to clash of interests, marginalization and misappropriation of the deceased's assets.
Wills also known as testaments, is quite common across the world and has a great level of acceptance in Nigeria. A will or testament is a legal document that stipulates how a person's assets should be distributed upon his demise. The preparer of the will, referred to as the testator, appoints another person referred to as the executor, to take charge of his estate and ensure adherence of his stipulations in the will, to the letter. A testator's will is only enforceable upon his demise.
While considering will as an estate planning tool, one must ensure that it is validly executed in order for it to be admissible during probate.1
Despite its wide acceptance or usage, wills do not mitigate the risk of wealth misappropriation upon the death of the testator. There are instances where the survivors contest the will of the deceased leading to lengthy court proceedings and a declaration by the court on the amendment of the initial provisions of the will.
Deed of Gift
Deed of Gift is an estate planning tool where a donor voluntarily transfers legal ownership and rights over property (physical or otherwise) to another person (the donee) without receiving any consideration in return. Unlike a will/testament, a deed of gift can be done during the lifetime of the donor. For a deed of gift to be valid, it must be executed and delivered by the donor to the donee.
This method enables estate owners to distribute their wealth based on their preference. Thus, there is a better level of assurance that their intentions regarding their accumulated wealth are met.
However, the downside to this is that once the deed of gift is effected, the donor no longer has a legal right over the gifted assets and the donee is able to do as he/she pleases with the assets. There has been instances where the donee sells off the gifted assets and squanders the proceeds even during the lifetime of the donor.
The world is consistently evolving and becoming more complex. A typical family unit or household will generally consist the father, mother and children. This has evolved to structures such as co-habiting parents, blended families, single parent households and so on. In addition, assets generally comprise physical properties and cash. In recent times, asset categories now comprise digital assets, cryptocurrencies, shares, pension assets, rights to intangible assets (such as intellectual property, patents etc..). These assets, where managed properly, are capable of generating income over a long period of time. Thus, estate owners need to consider the use of more sophisticated tools for their estate plans.
Modern estate planning goes beyond planning the distribution of assets upon demise. It seeks to provide constant financial support (for health, education, etc.) to the estate owner and the beneficiaries, manage undue expenses, limit court interference and ensure an efficient management of one's estate. We discuss some of the modern methods hereunder:
A private trust entails the creation of a fiduciary relationship, according to which the settlor (i.e. the estate owner) creates and transfers tangible or intangible property to a trust, which will be managed by a trustee, for the benefit of the beneficiary or beneficiaries (being the persons for whom the trust was created). A trust is created through a formal agreement known as the trust deed. The deed stipulates the modalities for the management or transfer of the assets held in the trust and the treatment of the income generated by such assets.
Another party to a trust arrangement is a protector. A protector is a person or company that monitors the activities of the trustee, acts in the interest of the beneficiaries and ensures that the settlor's wishes are met. The obligation and duties of the protector are usually defined in the trust deed.
Trusts are effective instruments in estate planning and management. Depending on the jurisdiction of set-up, there are stringent regulatory requirements to be fulfilled by the trustee. These measures ensure that the estate owner's property is well protected.
In Nigeria, foundations are non-governmental or charitable organisations that are registered as incorporated trustees under the provisions of Part F – Incorporated Trustees, of the Companies and Allied Matters Act 2020 (CAMA). Based on the provisions of the CAMA, the aims and objects of the foundation is for advancement of any religious, educational, literary, scientific, social, development, cultural, sporting or charitable purpose. They are considered to be non-profit making corporate entities and as such, not subjected to income taxes.
In some jurisdictions, the object clause of a foundation extends to catering for the personal needs of the founder. In these jurisdictions, charitable foundations can be set up for a specific or indefinite period, to cater for the charitable and non-charitable wishes of the estate owner or the founder. Thus, the estate owner can set up a foundation (which is a legal entity) to hold the assets, the benefits of which will be for himself or his immediate family. It should be noted that in these jurisdictions, the foundations are equally seen as non-taxable corporate entities as they are charitable foundations.
Power of Attorney (POA)
This is a legally binding document wherein one (known as principal) appoints another person (referred to as an agent) to manage one's property, medical or financial affairs. The power of attorney grants the agent the right to take decisions regarding specific aspects of the principal's life on his behalf. This could be due to the principal being medically incapacitated.
The POA becomes legally binding on the parties when it is duly signed/executed in accordance with the relevant laws.
Salient Points to Consider in Selecting an Estate Planning Method
- Setting of Goals and Objectives:
There is a need to determine what the goals and aspirations are in
relation to one's estate. Some estate owners would like the
wealth to grow and sustain their family generations over a long
period of time. Others prefer to pass their estate to non-family
members under a charitable cause, thereby pushing their offspring
or immediate family members to be wealth creators. A combination of
these objectives can also apply.
Thus, once the goals, objectives and aspirations have been set, the method that enables the estate owner to best achieve these can then be considered.
- Age, Disposition & Professional
Qualification: The age factor can be viewed from two
perspectives, the estate owner and the beneficiaries. Where the
estate owner is agile, methods that will ensure his participation
in the affairs of the estate even in his lifetime can be
considered. Alternative methods will have to be considered where
In relation to the beneficiaries, careful thought will be required to determine their mindset and their ability to be responsible, should assets be bequeathed to them. In addition, their level of qualification will also help to identify the roles that can be assigned to them in the course of managing and administering the estate after the demise of the owner.
- Nature of Assets: This is quite vital in setting up an estate plan. For instance, it will be ineffective to adopt a conventional estate planning method for sophisticated assets (such as intangible properties). This is because the conventional method will lack the ability to adequately cover the various aspects to be considered for sophisticated assets. As such, to ensure workability and effectiveness of an estate plan, the methods adopted should fit the required need of the estate/assets.
- Financing & Cost Implications: Needless to say, substantive investment is required to put one's estate and affairs in order and to draw up plans ahead of the inevitable. As expected, there is a difference in the cost implication of the various estate planning methods. Thus, the method to adopt should be that which is relevant and applicable to the goals of the estate owner and the nature of the assets, and equally be affordable. More often than not, where proper mechanisms are in place, the estate is able to generate the income that is required for its self-sustenance.
Estate planning is essential to ensure that one has a say on what happens to one's assets upon demise; inadequate estate planning have dire consequences. Often times, the customary laws do not have adequate provisions that will ensure protection of an estate owner's dependants upon demise, or proper management of the deceased assets. Modern methods also require careful review before any is adopted. Thus, professional evaluation and support is key as this allows the estate owner identify the combination of estate planning techniques that is most suitable for their unique circumstance.
Leave a legacy and not a mess.
1. A probate simply refers to the judicial/legal proceedings required in the review and administration of a will, upon the death of the testator.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.