This quarter, I will be sharing on a topic that is very important to me.
I will discuss estate planning and the numerous benefits of writing a Will, drawing largely on my experience when my father died ‘intestate’ (i.e. without a Will). I hope that readers of the Finance Coach Column will take some lessons and proactively take the needed steps to protect their Families, legacy and wealth.
Many people work so hard in their lifetime but do not take the precaution to ensure their built-up wealth is properly managed after they have passed on. Some are fearful believing once they have written a Will, death is the next thing to happen. Death is a debt every living person will pay at some point. Writing a Will or planning your Estate does not attract death and the thought that a Will brings on death is far from the truth. This apathy for writing a Will is even more pronounced in the Nigerian culture where even the most enlightened and educated have a phobia for planning their Estates.
People who plan their Estate are only being clever and belong to a minority who are aware of the benefits. It is wise to have a Will to preserve your hard work and it is also wise to have a Will to reduce the amount of tax you would otherwise have to pay.
What is Estate planning?
Estate planning is the act of preparing (during a person’s lifetime) for the transfer of the person’s wealth and assets after his or her death or mental incapacitation. (Mental incapacitation is defined as an absence of mental capacity and the inability to carry on the everyday affairs of life or to care for one’s person or property with reasonable discretion). Estate planning is done with the objective of minimizing Estate or inheritance taxes and to avoid the resulting cost of obtaining a Letter of Administration if one dies intestate. The assets and liabilities of a person all form part of one’s Estate. These include but are not limited to real estate, shares in companies, cash/bank balances, cars, life insurance policies, personal belongings, and of course bank loans and other debts.
Readers should note that Estate planning allows an individual to decide exactly who will benefit from his or her Estate, to what extent, at what time and upon pre-defined conditions. It also protects your beneficiaries from being exposed to avoidable government levies while ensuring they pay the smallest tax possible.
Estate planning preserves your legacy according to your wishes and protects your loved ones from many uncomfortable and undesirable circumstances after your passing. Essential to Estate planning is the task of transferring assets to heirs with an eye toward preserving the value of the Estate as much as possible.
Consequences of not writing a Will
The unfortunate incident of not having a Will occurs amongst all classes of people. Rich, poor, educated and uneducated. The negative consequences of not writing a Will should inspire anyone who has any tangible asset to write a Will.
Simple assets include your bank account balances, shares owned, share of a business etc. While your family may easily have access to houses on family owned land, they will not have access to cash in your bank accounts, your shares or legally documented assets.
I will now examine some of these consequences:
- PROCESSING A LETTER OF ADMINISTRATION
When a deceased does not leave a Will, he/she is deemed to have died intestate requiring the heirs/next of kin to process a Letter of Administration (LOA) to access the deceased’s estate. The entire process of obtaining the LOA of an estate can be cumbersome and extremely exhausting especially for people unfamiliar with the procedure. It is even more daunting due to the unstructured processes in most states in Nigeria and the typical bureaucratic hurdles in government establishments.
Readers should note that there are different guidelines in different states in Nigeria on how Estates which fall into intestacy can be administered by the deceased’s next of kin. I will recommend that the next of kin retains the services of a competent Lawyer to hand hold and guide him through the entire process of obtaining the LOA.
To reiterate, please note that seeking to obtain a Letter of Administration is:
· Time consuming
· Fraught with Delays
· Cumbersome (identification and listing of deceased’s assets is a big task)
· Emotionally draining and complex especially in Nigeria. This is because some offices you need to visit in order to process the LOA do not have proper structures.
- REDUCTION IN VALUE OF THE ESTATE
The Estate of a deceased person can lose value when no Will exists –
1. The value of the Estate is automatically reduced by the percentage of Probate dues applied to the estate when processing the LOA.
2. Also when a different person other than the owner of the assets is involved in the collation of the number and value of assets, there is the possibility of missing out on some valuable assets, which may have been known only to the deceased. This results in fewer assets listed than total Assets available.
3. Depending on the emotional stability of the heirs of the deceased and the circumstances of his/her death, the eligible Administrators may take some time to recover from the loss leading to some loss of value in the assets. In my experience, as a result of the shock and state of my emotions when my father suddenly died, it took me one year to consider processing the LOA and eventually deciding on Asset disposals. By the time we were ready to sell some of the cars, they had lost so much value.
4. Inadequate knowledge on the steps to follow to obtain the LOA, funding required to access necessary legal support and
disagreement amongst heirs are some reasons that can delay execution and administration of the deceased’s estate exposing the estate to devaluation.
5. Inability to access bank funds means that Administrators cannot take timely and best decisions regarding the funds, consequently these funds may not earn maximum interest income.
- NO WILL, NO PEACE
We can argue that it isn’t in all cases where there is no Will that the family resorts to ugly wars. However, there have been unfortunate instances where some rich and educated people ignored this simple task and ended up exposing their loved ones to very ugly and messy situations. There have been occasions where siblings from same parents could not agree on the distribution of a deceased’s assets. I have also seen where only one out of a deceased’s surviving heirs is interested in undertaking the Herculean task of processing the LOA required to access assets – resulting in the entire Estate being subjected to this one heir’s interest, availability, and competence.
Jointly owned assets require that each owner gives specific instructions on his/her share of such assets. You may own assets jointly, but your Will can only bequeath your share of the asset. In some circumstances, the legal documentation of the jointly owned assets may allow some ‘succession clauses’ which allows the full asset to devolve to the co-owner. Where such clauses are adopted, this must be recognised in the Will.
ESTATE PLANNING IS NOT ONLY FOR AGED
Estate planning is not for the ‘aged’ or retirees only. Anyone who owns any valuable asset, irrespective of age should wisely document his/her desire for the distribution of those assets after death.
One of the actions the administrators of an estate must take is to carry out a global search of shares owned by the deceased. Thankfully, the Central Securities Clearing System (CSCS) in Nigeria is very organised and a visit to their office will help in the asset collation exercise. The Administrators of the Estate will be granted access to the relevant records of the shares owned by the deceased on the presentation of the following key documents:
· Death Certificate
· Letter of Administration
· Valid identification for the Adminstrator(s)
· Power of Attorney where relevant
I have attempted to bring attention to this topic and share in simple terms the disadvantages of dying intestate revealing that it is beneficial to plan your estate and pen a Will.
Let me end this article by asking ‘Do you have a Will? Is your Will up to date? If you own any significant asset and are educated, you have no excuse not to have a Will. Be wise and act today. If you need free support, connect with me via E-mail Financecoach@thresholdresources.ng
***Bimbo Komolafe FCA, FCIB writes from Lagos. She has over thirty years’ experience in finance and business and has a passion for seeing people succeed in managing their finances. For more Financial tips from the finance coach follow her on:
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This article is dedicated to the loving memory of my Dad Mr ‘Biola Aturamu (Rtd. Police Commissioner) 1942 – 2011.