Plan it; don’t dump it!

 

I have always envisioned for myself a life where I am able to generate enough income to live the “good life”. Perhaps even, create wealth to support the lifestyle of my dreams, acquire assets, fund my children’s education, plan a good retirement and leave a lasting legacy for the next generation. However, like the average person, I scarcely expend a thought in that regard.

 

Before now, one could easily argue that wealth accumulation is just a part of our daily lives. In fact, the planning achieved by most folks was almost in all cases, purely “accidental”. Time has challenged this traditional thinking about investment, asset allocation, diversification, and correlation. In fact, investment assumptions are being upturned, and fundamental clichés are being questioned. The constantly changing state of the global economy re-echoes the fact that this easily negligible part of our lives requires a high level of deliberation. If not, one may never achieve the delicate balance between the competing objectives of wealth accumulation and distribution. Indeed, the most critical questions that always beg answers are; will I have enough during my lifetime? How will I support my preferred lifestyle? Who gets what when I leave and how?

 

The good news is, the story is not all gloom and doom. The answers to these questions are constantly being evaluated and articulated and the simplest solution has been described as wealth management. Broadly speaking, wealth management is a combination of personal investment management, financial advisory and estate planning. For the present purpose, our focus would be on estate planning (wealth distribution) and the techniques available for its efficient achievement.

 

With a viable wealth management plan, one is able to:

 

1. manage assets more effectively during his/her lifetime;
2. ensure that assets pass to the intended persons;
3. protect the financial interests of your immediate family, siblings from unforeseen risks and liabilities
4. reduce your estate’s tax liabilities; and
5. create a lasting legacy in your community

 

It is against this background and the usual reluctance to discuss creating a will, that attention has begun to shift to alternative techniques that are just as viable for wealth management and tax-efficient distribution. These techniques range from trust, gifts, limited liability companies, joint tenancies, joint accounts amongst others. I will now attempt to explain some of these techniques briefly in the following paragraphs.

 

Gifts

A gift is an immediate, outright, unconditional transfer of property from one person to another. If the intention is to give out small sums of money or property to an adult beneficiary, a gift may be the most appropriate course of action. Where the intention is to benefit a minor or someone who is perhaps irresponsible with money, it may be inappropriate to make a gift and consideration may perhaps be given to providing for that beneficiary through a trust. In any event, a minor cannot hold the legal estate in land.

 

It is important to note that until the asset being gifted is completely transferred, there is no gift. In other words, the person making the gift must part with the property and his/her control over it (or part of it) before it is considered a gift. This can be achieved by transferring title to the property to the person who is receiving the gift. Under Nigerian Law, where the gift is real property, the transfer would only be effective if executed by deed and registered in the relevant land registry. It is also important to note that whilst real property that has been transferred as a gift would no longer be subject to probate fees upon the death of the giver, the transfer will attract some statutory fees on the assessed value at the time the gift was made.

 

Trusts

In the simplest terms, a trust is a situation in which an individual or corporation known as the grantor/settlor transfers assets from his personal ownership to another individual or corporation known as a trustee for the benefit of a specific person or group, called the beneficiary. The terms and conditions of the trust are set out in a document referred to as the trust deed which must clearly state the purpose/intention of the trust, the assets which will be subject of the trust, the appointed trustees and the named beneficiaries.

 

A trust can either be living or testamentary. Whilst the former is effective immediately the trust deed is signed, the latter only becomes effective upon the death of the settler/grantor. With the unprecedented growth and increased complexity of personal wealth, trusts offers a lot of flexibility for wealth transfer planning. Some of the benefits of setting up a trust include but are not limited to the following:

 

• Avoiding probate
• Providing for your family efficiently during your lifetime and after your death
• Protecting assets from creditors
• Avoiding inheritance/estate tax
• Maintaining confidentiality
• Making charitable donations

 

It is important to note that for a trust to be considered valid in law, there must exist 3 (three) certainties. They are, certainty of intention; certainty of subject matter and certainty of objects. If there is no certainty of subject matter, i.e. the property to be held on trust, the trust is nugatory. Similarly, if there is certainty of subject matter, but no certainty of words, then the person entitled to the trust property holds the property free from any trust. Where the dual certainties of subject matter and words are present, but no certainty of object, the law will construe a resulting trust for the settlor.

 

Olubukola Seun-Oguntuga