ESTATE PLANNING 101: LIVING TRUSTS EXPLAINED

Estate planning is the act of preparing for the transfer of a person’s wealth and assets after his or her death. The most common form of Estate Planning in this clime is a will which is a legal document that express the intentions of the deceased on the management, sharing and disposal of his or her assets.

In a situation where the deceased fails to leave a will, the family members typically resort to applying for a Letter of administration which allows court appointed administrators manage the assets of the deceased for the benefit of the beneficiaries.

A common fallout of these two estate planning processes is the possibility of litigation arising from disgruntled relatives or third parties contesting the will or letter of administration and this typically ties up the estate in Court for years.

A better but not often considered option is the creation of a Trust which is an arrangement whereby a person called the “Settlor”, transfers the legal ownership of assets to another called the “Trustee” which shall be held on behalf or for the benefit of persons called the “Beneficiaries”, who hold the equitable interest in the assets.

While most Trusts are created by Will and become operative on the demise of the Settlor, Trusts can also be created during the lifetime of the Settlor and this is referred to as Living Trust.

In Nigeria, Estate Planning is abhorred and this bête noire stems from the socio-cultural or religious anticipation of death. It is against this backdrop, that this article sets to allay the fears of living persons and bring to the fore the benefits of creating a Living Trust.

DEFINITION OF A LIVING TRUST

A living trust is a fiduciary relationship created during an individual’s lifetime where a designated person, the trustee, is given responsibility for managing that individual’s assets for the benefit of the eventual beneficiary.

TYPES OF LIVING TRUST

Living Trust can either be:

Revocable Living Trust – allows for alteration of the provisions of the Trust or cancelation by the Settlor, who also maintains complete control over ownership and interest in the Trust property and assets during the Settlor’s lifetime. During the life of the Trust, income earned is distributed to the Settlor, and only after death do assets transfer to the beneficiaries. The Settlor can decide how the Trust Property and assets will be used when they are living and how the assets are to be distributed when they are deceased.

Irrevocable Living Trust – is a Trust that cannot be modified, amended or terminated without the beneficiary’s permission. After transferring assets into the trust, the grantor cannot change written terms after it has been executed, thus removing all of his rights of ownership to those assets.

BENEFITS OF A LIVING TRUST

Aside premonition of death, many view Trust as a foreign concept and do not believe in its workability, however, here are some key benefits of a Living Trust:

• Minimize Estate Taxes- A Trust is a cheaper Estate Planning model devoid of the usual taxes and fees payable to Government.  
• Avoid Probate and Third Party Supervision- A Trust does not require probate which refers to the general administering of a deceased person’s assets by Executors or Administrators.  
• Protect Minor Children- A Trust would protect preserve and possibly increase the asset until the maturity of minor beneficiaries
• Protect the Settlor while alive- A key benefit of a Living Trust is the capacity of the Settlor to enjoy the benefits of the asset whilst still alive.

HOW TO SET UP A LIVING TRUST

Whilst it is best to consult an experienced estate planning attorney to help establish your trust, you may however be guided by the following considerations in setting up a Living Trust:

• Evaluate your assets and decide what goes into the trust. Assets can include money, property, investments, businesses etc.
• Select your beneficiaries which may include spouse, family member, friend, business partner, or a charity etc. Think carefully who matters to you and the provisions you intend to make for them in the Trust.
• Administering a trust is a huge responsibility and you must give due consideration to selection of the Trustee who will administer your trust after you die.
• A Trust is typically documented in a Trust Deed and this important document should be prepared by a professional to ensure that it fully reflects your intentions.

CONCLUSION

The end of life is something you probably don’t want to dwell on, but thinking about what would happen to your loved ones and assets after your demise should inspire you to start making these decisions.  

The best time to plan for your estate is while you’re healthy and able to make sound decisions and the trend is to engage regulated Trustee Companies who possess the expertise and can offer better capital appreciation of your assets.