Estate planning in Nigeria: A practical guide to protecting your Legacy.

Estate planning refers to the organization and arrangement of personal assets, such as properties, money, shares, stocks, and other investments, to ensure preservation, adequate management, and distribution in line with the owner's wishes in the event of death or incapacitation. [1] Estate planning goes beyond the simple transfer of property, it ensures the future security of loved ones and the preservation of wealth in the long term. This article explores the advantages of estate planning and provides insight into securing one’s estate in Nigeria.

What Are The Benefits Of Estate Planning?

1. Protecting your assets:

Estate planning protects your assets from theft, indiscriminate seizure by creditors, devaluation, payment of avoidable taxes, amongst others.

1. Providing for dependents and other beneficiaries:

Estate planning allows you to determine your beneficiaries and provide adequately for them. It offers the opportunity to include persons who ordinarily may not have been eligible beneficiaries, such as a childless widow, siblings of the deceased, or charitable organizations.

1. Planning for incapacity:

Planning your estate grants you the privilege of determining what happens to you and your assets, even when you no longer wield the ability to make such decisions.

1. Adjustability:

After planning your estate, until death, you reserve the right to make any necessary adjustments as your assets increase or reduce or as your preferences change.

1. Avoiding/ minimizing family disputes: Estate planning takes away most of the squabble over the assets of a deceased person. 

2. Legacy preservation: Estate planning allows the estate owner to determine and leave instructions on how he wants his estate to be dealt with to preserve his legacy.

Who Should Be Concerned About Estate Planning?

The following categories of people should be concerned about estate planning;

1. Any person who owns assets and has dependents or persons who may raise conflicting claims over his estate.

2. A husband/ wife who needs to cater for their spouse, children, and relations upon their death.

3. A bachelor or spinster who needs to provide for loved ones or charity.

4. Any person without relations who needs to secure his/her assets and ensure the assets are distributed as he/she wishes. 

5. Any person suffering from a serious ailment who needs to secure his /her assets in the event of death.

6. Any person practicing polygamy or who has children out of wedlock.[2]

Pre-requisites For Estate Planning:

Before embarking on estate planning, you must: 

1. Identify your assets and liabilities.

2. Identify your proposed beneficiaries

3. Employ the services of a legal professional for legal advice and documentation.

How To Plan Your Estate And Secure Your Legacy:

Below are some of the estate planning vehicles to secure your legacy in Nigeria:

1. Wills

2. Trusts

3. Power of Attorney

4. Corporatization

5. Life insurance

6. Deed of Gift

7. Asset Transfer Clauses

Wills:

A will is a testamentary document voluntarily made and executed by an individual (the “Testator”), which takes effect upon the death of the testator. A will is an important instrument for estate planning because it provides clear instructions for asset management, preserves the residue of the estate for beneficiaries, and helps avoid the complications of intestacy under customary law.

A will must be made in accordance with the law.[3] For a will to be valid, the following elements must exist:

1. Legal capacity: The testator must be of legal age and possess a sound disposing mind. The legal age for drafting a valid will is 18 or 21 years, depending on the applicable law.

2. Intention: A person making a will must have the intention to make the dispositions contained therein. This means that the dispositions in the will must be made voluntarily.

3. Propriety of form: To be valid, a will must be in writing and signed by the testator in the presence of at least two (2) witnesses who must append their signature in the presence of the testator.

4. Beneficiaries/Executors:

A valid will clearly states the beneficiaries of the will and adequately describes the assets to be disposed of. A valid will must also name the executors of the will.

1. Compliance with relevant laws: Wills are governed by various laws, and for a will to be legally valid, it must comply with both statutory and customary law. For instance, in Islamic law, a testator can only bequeath one-third of his property to individuals who are not legal heirs; the remaining two-thirds must be distributed in accordance with Islamic law, irrespective of any conflicting provisions in the will.

If a will fails to meet any of these requirements, the court will deem it invalid, rendering its intended purpose ineffective. Consequently, the beneficiaries will be unable to receive the benefits intended by the testator.[4]

Trusts:

A Trust is a legal vehicle in which an individual (the “Settlor”) establishes a trust and appoints an individual or entity (the “Trustee”) to hold and manage assets for the benefit of another party (the “Beneficiary”). A trust is usually beneficial to cater to beneficiaries who are underage or incapacitated. 

In Nigeria, trusts are primarily categorized into two types: Private Trusts and Public Trusts. For estate planning purposes, Private Trusts are the most utilized. The Settlor can establish a trust during their lifetime, known as a “living trust,” or create one posthumously according to the stipulations of a will, referred to as a “Testamentary Trust.” A living trust offers significant advantages because it can be set up as revocable, allowing the grantor to maintain control over the assets.

Elements of a Valid Trust:

To be valid:

1. The Settlor must ensure that the property intended for the trust is specific, identifiable, or capable of identification as at the time the trust is created; otherwise, the trust may fail.

2. The Trust must distinctly identify the beneficiaries or provide a means to determine them.

3. The Settlor must intend to establish the Trust.

Power of Attorney:

A power of attorney is a legal document that grants another individual, referred to as the attorney, the authority to act on behalf of the estate owner in the specified capacity. This arrangement can benefit individuals in cases of incapacitation, but the grantor must establish it while they are of sound mind. A properly executed power of attorney allows the attorney to handle various transactions, including health-related decisions, financial matters, and real estate transactions.

This arrangement offers flexibility, as it does not prevent the estate owner from performing the delegated tasks, particularly when the power of attorney is revocable. Additionally, it ensures the smooth management of the estate, whether the owner faces temporary or permanent incapacitation. The power of attorney can be granted for a fixed term, and its powers may be general or specific, taking effect upon the occurrence of a specified event.

Corporatization:

Corporatization involves transferring assets owned by an individual or entity to a company. While commonly utilized by states, it is also employed as a strategy for estate planning. In this context, the asset owner incorporates a company and transfers their assets to it. The company’s shares are then allocated in accordance with the asset owner’s intentions. These shares can later be distributed through the owner’s will as desired.

This approach to estate management safeguards assets from customary or Islamic law restrictions, as ownership is vested in a corporate entity rather than a natural person.[5]

Life Insurance:

Executing a life insurance policy is one of the methods of estate planning. Life insurance simply refers to a contract between an insurance policyholder and an insurer with a promise by the insurer to pay the insurance sum to a beneficiary upon the death or in some situations incapacity of the policyholder.[6]

This method is mostly used to ensure adequate provision for loved ones, especially of a tender age. A life insurance policy can be temporary or last for a lifetime.[7]

Deed of Gift:

Another method of estate planning is by execution of a deed of gift. This is the transfer of assets from a Donor to a Beneficiary during the lifetime of the Donor. This is done using a Deed of Gift. This method of estate planning safeguards the assets from excessive costs as most of the costs to have been incurred at probate are dispensed with.

It is a very good option for a person seeking to transfer real estate or contestable assets.

Asset Transfer Clauses:

Asset transfer clauses in agreements enable direct asset distribution upon death, bypassing probate and easing estate transfers. These clauses can be included in founder’s agreements, shareholders’ agreements, and business partnership contracts. By specifying a next of kin or designated beneficiary for assets like company shares or property, these clauses ensure smoother and quicker asset transfer, reducing the likelihood of family disputes and avoiding lengthy probate processes.

Conclusion: Estate planning is an essential process that ensures your assets, acquired over years of hard work, are preserved and effectively managed upon death or incapacitation. It provides peace of mind by guaranteeing that your estate is settled according to your wishes.

For more information on estate planning in Nigeria and related matters, please contact us at enquiries@laperitum.comor click here to get in touch with us.

[1]https://cowrywise.com/blog/estate-planning/

[2] Kehinde Adegbite, How to write your will with ease,, Revised edition, Pg 7.

[3] Wills are governed by the Wills Law applicable to the Testator or the Testator ‘s estate.

[4] Nola & ors v. Graham Douglas and anor (2019) LPELR-48285(CA)

[5]https://www.investopedia.com/terms/c/coporatization.asp

[6] https://en.m.wikipedia.org/wiki/Life_Insurance

[7] https://trustandwill.com/learn/life-insurance-and-estate-planning