Estate Planning: Deciding On How To Manage and Distribute Your Assets 

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There are two important vehicles used in bequeathing estates namely, a Trust and a Will. 

In Nigeria, it is common to use Wills for this purpose. Trust even though a part of our legal system has remained at its infancy. The reason is not because of its inadequacy in catering for the asset management and distribution needs of corporate entities and individuals but largely because of ignorance and lack of information on the subject.

A will and a Trust can co-exist for the purpose of assets management and distribution. 

However, it is my humble opinion that a Trust is the best vehicle to be used for the management and distribution of assets.

Why Trust?

  • A Trust is good for Estate Planning.
  • It helps an individual (called a settlor) to plan his/her life well before their demise.
  • It gives a settlor the opportunity to have direct control of the way and manner his/her assets are held, managed and distributed by the trustees unlike a Will which only takes effect upon a person’s demise.
  • It is useful for the financing of children’s education.
  • It is beneficial in the preservation of wealth for future generations.
  • It is used to take care of a spouse after death.

A Trust is very important where a person has accumulated assets both liquid and physical and has a family to cater for.

The view of some experts is that, a Trust should be created only where there are complexities and tax issues involved in the assets of a person; otherwise, a Will is most suitable for the distribution of assets. While for other experts, they hold the unequivocal view that, Trust is the best vehicle for the management and distribution of assets.

It is advisable to get as much information as possible before setting up/creating a Trust. The key information is the cost for the establishment and management of a Trust and if its actually necessary to create a Trust to take care of the needs of an individual.

Unlike a Will which comes into force after the death of the testator. A Trust can take effect during the lifetime of an individual. An example is a Trust inter vivos. The advantage is that, during a person’s lifetime he can appoint trustees to hold, manage and distribute assets according to his/her wish. The keyword is CONTROL.

While setting up a Trust, it is always advisable to use professionals and experts who will do a proper assessment of your financial status in order to create a Trust that will meet your needs. 

Further on this subject, I had an interaction with some Trustees and I got the following information: 

  • Wills and Trust form essential elements of Estate Planning. 
  • Outside a Will, a Trust remains the ultimate vehicle to manage and distribute assets.
  • While creating a Trust, it is tailored according to the peculiar needs of each client. 
  • After the creation of a Trust Deed, all the assets of a settlor are put in what is called a “Trust Pool”. 
  • Under a Trust, the settlor reserves absolute control over the management of his/her assets. The trustees are mere custodians who carry out the wishes of the settlor. 
  • A settlor can create a will and in it state that he/she is bequeathing all his/her assets to the Trust. 
  • The liquid assets of a settlor are not allowed to lie fallow but are invested for the benefit of his beneficiaries and even for himself. The settlor could elect that the interests accruing from the investments be paid to him or any of his dependents every month. 
  • The liquid assets are usually invested in:
  • Money Market Funds.
  • Treasury Bills.
  • Commercial Papers.
  • Government Bonds.

These investments are usually on a long term basis and the above areas of investment are considered as low risk, high-risk areas are totally avoided.

  • After the demise of a settlor, total control is not lost to the Trustees. Under the Trust Deed, a settlor usually appoints a “Trust Protector” or a designated representative who acts as a check on the Trustees in order to make sure that all the wishes of a settlor are carried out. The Trust Protector doesn’t need to know anything inside the Trust Deed while a settlor is still alive but the Trustees can make the information available to him/her after the demise of the settlor.

Cost of creating a Trust

  • Some Trustees charge 0.1% or N1,050,000 (One Million and Fifty Thousand Naira) whichever is higher, of the interests accruing from investments for its corporate clients. This is usually negotiable.
  • For individual clients, some Trustees could charge as much as 10% of the interests accruing from investments. This is not the minimum and it is highly negotiable.
  • One of the factors that affect the cost of a Trust is whether the assets are Income and Non-income generating assets. A typical example of non-income generating assets are private residential properties occupied by the family of a client. If the property is not a private residential property it will be leased to generate income. 
  • For non-income generating assets, some Trustees charge a flat fee. This will be done after a search is carried out to ascertain the epitome of title of the property and estate valuers are also called in to value the property. Therefore, the fee charged is dependent on the value of the property.

Conclusion

A Trust is the absolute choice when choosing the best means to manage and distribute your assets. However, experts must be used in doing this in order to get the best result(s) because a Trust, is as good as the professional who sets it up.

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