LETS TALK ABOUT ESTATE PLANNING PART III.
We have discussed “Wills” and the need to have one in the previous edition of this article.
“If you ponder on your end, you will plan about your life after death and your family after you are gone. Have you written your Will?” – Pastor E.A. Adeboye [Open Heavens, June 19th 2013]
I do hope you have taken steps to put your Will in place. Please do not procrastinate. Do it now!
In this edition, we will talk about another Estate Planning tool called “TRUSTS.”
i. What is a TRUST?
A Trust is an arrangement whereby one person agrees to hold property or assets for the benefit of another. A TRUST is a legal entity and assets once transferred into the Trust are managed in accordance with the written terms as documented under a TRUST DEED.
Planning your estate with Trusts provides a variety of advantages over simply relying on a Will alone. You gain enormous flexibility when you add a Trust to your mix of estate planning tools. Trusts can be used for avoidance of probate; business succession planning; controlling how and when assets are distributed to your heirs; disability planning etc.
ii. PARTIES TO A TRUST :
The parties to a Trust include:a) The “Settlor” – the creator of the Trust is called a “Settlor” or “Grantor”.
b) The “Trustee” – the custodian of the property/ asset for the benefit of another.
c)The “Beneficiary” – the person for whose benefit the property is being held.iii. TYPES OF TRUSTS
Our focus today shall be on Private Trusts.
As the name implies, these are Trust Services of a ‘Private and Confidential’ nature,
set-up for Private/High Networth Individuals. ALM Trustees recommends that you set up a Living Trust instead of a Will if your portfolio of assets is valued at ₦50Million and above.
Some types of Private Trusts include:
· Living Trust
· Education Trusts
· Spendthrift Trusts
· Special Needs Trust
· Charitable Trusts
· Dynasty Trusts.
We shall discuss only the first two Trusts.
A Living Trust is a trust created during a person’s lifetime and it takes effect during their lifetime. A Trustee under a Living Trust holds your assets and also follows your instructions concerning the use of these assets during your lifetime and upon your demise. It can be either revocable or irrevocable.
REVOCABLE AND IRREVOCABLE TRUSTS
· A “Revocable Trust” is one that can be amended, changed or terminated during the Settlor’s lifetime. - meaning that the Settlor can change their mind and take assets out of the Trust at any time.
· An “Irrevocable Trust” is one that cannot be amended, changed or terminated during the Settlor’s lifetime - once the Trust is created and assets are transferred into it; those assets cannot be taken out of the Trust except as described in the Trust Deed.
A sound education would provide our children with the confidence and hope of a bright future. An Education Trust is a Trust created to enable the Settlor set aside funds to be managed by the Trustee strictly for the education of his/her children or wards (Beneficiaries). This Trust provides peace of mind to parents, grand-parents and guardians as it gives them the opportunity to provide this legacy to their children, grand-children and wards.
The Trust Deed is a legally binding document between the “Settlor” and the “Trustee” which sets out all the terms and conditions of the Trust. It states how the Trust assets will be managed and distributed – It is the bible, foundation and governing document of all trust structures. The Trust Deed is duly stamped at the Stamp duties office.
BENEFITS OF A TRUST
A Trust provides the greatest value of inheritance to the beneficiaries as a Trust eliminates payment of Probate Fees and Legal fees for Estate administration.
A Trust simplifies and removes probate and ensures that your beneficiaries immediately receive the assets you have left for them.
A Trust is a private and confidential instrument whilst a Will becomes a public document upon the demise of a Testator. The details of the Testator, Executors and Beneficiaries in a Will are published as a notice in a newspaper for public view for 21 days before final issuance of Letter of Administration by the Probate registry of the High Court.
When the Settlor dies leaving a Trust, the Trust assets transferred into the Trust are usually separate and distinct from the Settlor’s personal estate and cannot be accessed by creditors.
ROLE OF A TRUSTEE
The Trustee acts as a fiduciary charged with the following responsibilities:
Administration of the Trust in accordance with the provisions of the Trust Deed.
Ensuring Security of Funds/Asset.
Investment of the Trust Asset for the benefit of the Beneficiaries.
Keep proper Accounts and avoid conflict of interests.
Ensure that payment is made to genuine Beneficiaries.
Who can act as a Trustee? : A Trustee may be an individual or a Corporate entity.
Questions to consider before selecting an individual as a Trustee:
- Is the person responsible with money and capable of managing money and other assets?
- Is the person willing and able to carry out the terms of your Trust?
-Is the person trustworthy and fully prepared to manage the assets of the Trust solely for the benefit of the beneficiaries?
- Does the person have time to manage your Trust?
- Is the person willing and able to provide regular accounts to the beneficiaries, consistent with the laws and terms of the trust deed?
Serving as Trustee is difficult work and not everybody is prepared to accept the task or perform it indefinitely. Your individual trustee may also grow old, become ill or unable to serve.
BENEFITS OF USING A CORPORATE TRUSTEE
i. Perpetuity: A Corporate Trustee as a corporate entity would be available in the future to ensure that the Settlor’s wishes as captured in the Trust Deed are adhered to.
ii. Independence: The Corporate Trustee is an independent and impartial third party who owes their primary allegiance to the Settlor, who is relying on them to make decisions that best serve the interest of the Trust.
iii. Accountability: The Corporate Trustee must be registered with the Corporate Affairs Commission (“CAC”) and licensed by the Securities and Exchange Commission (“SEC”) in order to carry out Trustee Services in Nigeria. Its operations and activities are monitored by these agencies to ensure adherence to professional standards.
iv. Professionalism: The Corporate Trustee employs a team of experts, including in-house lawyers, accountants, etc. whose key functions/business is to service Trust clients. Furthermore, they are required to maintain Fidelity Guarantee Insurance cover by the SEC.
We would like to hear from you. Please send your questions or comments to us at:
Phone: 01 7642224, 4637451, 4637452
Ø Open Heavens Volume 13, 2013 –Key Points for Monday June 17th 2013.
Ø Estate & Trust Administration for Dummies by Margaret Atkins Munro & Kathryn A. Murphy
Ø Wills & Trusts Kit for Dummies by Aaron Larson
Ø Suze Orman Will & Trust Kit.