A vast majority of people believe they do not require estate planning and that it is only for the wealthy. Estate planning is for everyone, not just the wealthy and it is a plan a person makes for the management and administration of their property during their lifetime and after their death.
When a person dies without an estate plan, the courts will be forced to make crucial decisions for the deceased such as: the distribution of the deceased properties, appointment of guardians (for the deceased minor children) and personal representatives, dissolution of business, etc. This process is very expensive and can lead to disputes among the members of the deceased families.
Estate planning entails the preparation of will or codicil, setting up trusts, bequeathing gifts to persons or entities and/or granting authority to do certain acts by way of power of attorney. This discuss will explain the various forms of estate planning and highlight its benefits.
Estate planning is the arrangement a person makes during their lifetime for the management, distribution and/or disposal of a their property during the person's lifetime and/or after death. Assets that can make up an individual's estate include real properties (such as buildings and lands), intellectual properties, cars, insurance, shares/stocks, bank accounts and other personal properties.
The testator expresses his wishes through the will or codicil and appoints executors and/or trustees to carry out the intentions of the will.
In a will, the testator may make several arrangements such as: the distribution of their assets (which includes all personal and real properties), distribution of residue (the remainder of the testator's assets that is not specified in the will), appointment of executors and/or trustees to manage and distribute the properties of the testator, the appointment of guardians (where any of the testator's children is a minor), establishment of trusts, funeral arrangements and other instructions of the testator.
The codicil is also ambulatory, that is, it takes effect only after the death of the testator and it is executed in the same manner as the will.
Validity of a Will or Codicil
For a will or codicil to be valid, the following must be present:
- It must be in writing.
-The testator must have the capacity to make the will or codicil. The testator must be at least 18 years old at the making of the will.
- The will must be made voluntarily. The testator must have written the will without coercion or fraud.
- At the making of the will, the testator must be a person of sound mind, illustrating that he understands the extent of his properties and the effects of making a will.
- There must be at least two witnesses who will attest to the making of the will. Under the Nigerian law, for a will to be valid, at least two persons are required to attest a will. This requirement varies in some other jurisdictions where only one or more than two witnesses may be required to validate a will.
- Signature of the Testator: The testator's signature must be appended or acknowledged in the presence of at least two witness.
- Signature of the witnesses: The witnesses must sign (attest) the will in the presence of the testator.
The authenticity of a will or codicil is determined by a legal process which is called probate. After the demise of the testator, the custodian of the will (that is a bank, lawyer or any private person) is required to take the will to the probate registry. The probate is a court supervised process that proves the authenticity of the will to be valid and accepted as the last will and testament of the deceased and grants powers to the executors named in the will to fulfill the tenets of the will.
On the other hand, when a person dies without a will, the family and dependents of the deceased will apply for letters of administration. The letter of administration is the power granted to a person to administer and distribute the properties of the deceased in accordance to the state laws of intestacy and succession..
A trust can be set up by the grantors's last will and testament, in which case, it is called a testamentary trust and it can also be set up during the grantor's lifetime, in this case, it is called a living trust.
The establishment of trusts gives the trustee the powers to distribute the property of the grantor without applying for probate or any court ordered process hence, it reduces estate taxes and saves time.
Under the law, a minor has no the legal capacity to grant gift. However, minors can accept gifts through their legal guardian.
A deed of gift once delivered to the donee is irrevocable that is, it can not be changed or reversed except the donor lacks the legal capacity to grant the gift; the gift was granted under duress, misrepresentation or mistake surrounding the circumstances or the gift was transferred with an intention to evade tax or breach the law.
Usually, the donor delegates powers to the donee where the donor is unavailable to perform the acts delegated, incapable of performing the delegated tasks due to ill health or when the donee's expertise is required for the proper execution of the delegated tasks.
A Power of Attorney may confer either general, specific powers or both powers to the donee:
- General Powers. These are powers that are broadly provided to cover the subject matter. For example, a power given to the donee "To do all that the donor can lawfully do". This does not specify what the donee is authorized to do, it rather gives the donee broad powers to do anything the donor can do lawfully.
- Specific Powers. These are powers given in respect to specific or particular acts, thereby limiting the acts the donee is authorized to do. Examples of specific powers are: power to collect rent, issue notices and manage the real properties of the donor, execute contracts on behalf of the donor, etc.
A power of attorney is further classified as follows:
- Revocable Power of Attorney. If a power of attorney is revocable, the donor can withdraw the power at anytime and for any reason.
- Irrevocable Power of Attorney. This is the power of attorney that can not be withdrawn or cancelled at anytime. Under the Nigerian law, where the power of attorney is irrevocable, it is either irrevocable for a fixed period or irrevocable for a valuable consideration or coupled with interest.
When a power of attorney is irrevocable for a fixed period, it can not be withdrawn until the period stated in the document has elapsed, usually not more than 12 months. When a power of attorney is for a valuable consideration, the donee is given monetary compensation as consideration for the instructions he/she will carry out on behalf of the donor. Also, if the power of attorney is coupled with interest, the donee has an interest, a right or title over the property which is the subject matter in the power of attorney and the power of attorney can not be cancelled or withdrawn until the donee recovers his interest in the subject matter.
In circumstances where a person is unable to manage their properties or finances due to severe illness or unavailability, an estate plan sets helps a person properly determine how their assets should be managed. A power of attorney, personal directives through letters of instruction and trusts can be effective tools for proper estate management.
Estate plan is very beneficial for accurate distribution of an individual's assets. Wills, codicils, deeds of gifts and trusts enables an individual determine how their assets will be distributed to their beneficiaries after their death to prevent disputations in future. Without an estate plan, the court will determine how the assets of a deceased will be distributed.
An estate plan invariably protects the interest of beneficiaries by ensuring that their shares are properly specified and preserved. If an individual has a child who is a minor, the individual can designate guardians and trustees who will oversee the financial and other needs of the minor.
On the other hand, if the individual's children are adults, but are unable to manage finances or assets, the individual can create a trust to protect the children from making bad decisions.
The deed of gift and trusts are very speedy and cost effective ways to transfer one's assets to a beneficiary. Without proper estate plan, the process of transfer of assets may be extremely cumbersome. Estate planning helps an individual to identify cost effective and peaceful way to transfer their asset to their beneficiaries either during their lifetime or after their death.
An estate plan will specify how an individual's assets will be managed and distributed to beneficiaries thereby leaving no room for speculations and confusion. Hence this will prevent disputations and invariably save time and money.
The significant loss of a part of one's estate to the payment of taxes is a factor that should motivate people to establish an estate plan. Through strategic planning, people can substantially reduce or eliminate taxes by setting up trusts as part of their will, living trusts or bequeathing gifts to their beneficiaries during their lifetime.
In conclusion, it is important to note that not every form of estate plan is suitable for everyone. Each form of estate planning has its distinct and unique features and people's. If an individual desires a speedy and cost effective process of property transfer, it's important to consider the various forms of estate plan that will help the individual achieve their desired purpose. For example, executing a deed of gift or setting up trusts depending on the individual's preference, can be preferred to making a will because of the lengthy process of obtaining probate.
Choosing the appropriate estate plan can ensure simple, tax efficient and organized transfer of assets to beneficiaries, it removes uncertainties and prevents disputes.
Vivian Umelue is an attorney and legal templates programmer at Wonder.Legal and is based in Nigeria.