How to plan your inheritance

In this piece, HENRY FALAIYE examines the significance of writing a will and how to strategically plan inheritance assets

Inheritance planning is a crucial aspect of financial management that involves the strategic transfer of assets to heirs. This process encompasses a range of legal and financial considerations, including the creation of wills, the establishment of trusts, and navigating the intricacies of estate taxes.

 In a country with a diverse cultural and legal landscape, understanding the nuances of inheritance planning is paramount to ensure a seamless transfer of wealth from one generation to the next.

 Most Nigerians are not prepared for the eventuality. They believe planning their inheritance while they are alive may spark controversies among their heirs.

However, inheritance planning serves several essential purposes, the most fundamental being the orderly transfer of assets upon an individual’s demise. This process helps avoid disputes among heirs, ensures that the deceased’s wishes are honoured, and provides financial security for the surviving family members.

 In Nigeria’s ever-evolving economy, where wealth generation is constantly changing, the importance of inheritance planning cannot be overstated.

  It serves as a strategic imperative for safeguarding and smoothly transferring accumulated assets in this dynamic landscape of wealth creation.

In essence, inheritance planning in Nigeria serves not only as a means of asset protection but also as a dynamic strategy for fostering intergenerational wealth sustainability amid the fluidity of the economic environment.

 Speaking with The PUNCH, a financial expert, Mrs Ola Oladele, said that some jurisdictions charge death or inheritance taxes, which can be as high as 50 per cent of the total wealth.

While the Nigerian Capital Transfer Act 1979 which stipulates a 60 per cent tax rate on assets worth more than N1m has been repealed, some states still charge 10 per cent estate duty.

“In effect, if a man bought a property for N1m that is now worth N50m, at passing-relatives of the deceased will be required to pay 5 million in estate duty for that property,” she said.

“This significant cost can be avoided with proper estate planning and the use of Trusts. Contrary to popular belief, estate planning is not planning to die, it is planning to be wealthy,” Oladele added.

Also, a lawyer, Olukayode Sanni, said that the reason most Nigerians don’t plan their inheritance or even write wills is because they feel like they are passing a death warrant on themselves.

He said is like telling themselves that they are going to die tomorrow, that’s why most Nigerians don’t either plan for it or don’t write their wills.

 According to Sanni, the moment they mention will or inheritance planning to them is like telling them there is a death wish on them already, and that is why people don’t prepare for it.

He said, “There is a need for a lot of sensitisations for people over how their inheritance or property should be handled after their demise, because of the issues and disputes that happen after the passing of a breadwinner and in most cases, it doesn’t matter if the person in question has a lot of property or little property.”

He added that people think until they are so rich that they should be talking about planning their inheritance and it is not necessarily that way.

Meanwhile, he said an asset like a car could cause a lot of disputes after the death of a person let alone a house, land and money.

He stressed the importance of sensitisation so that a breadwinner could have peace of mind when they are alive that when he or she dies, his or her affairs or property would be properly managed by the legitimate beneficiaries of the will that has been written.

According to Sanni, the perspective on inheritance and wills ought to be revised to provide property owners and their families with reassurance and peace of mind.

He said in Lagos State, the probate division handles the issuance of wills and issuance of letters of administration of estates of deceased people.

 Sanni noted that the probate division shouldn’t just sit back, expecting people to come and register their wills as they are written or sit back to issue letters of administration.

He noted that the government needed to embark on a sensitisation exercise to drive the practice and ensure that people order their affairs by writing wills.

Will

 A will is a legal document that outlines an individual’s wishes regarding the distribution of their assets after death. In Nigeria, the Wills Act of 1837, which originated from English law, governs the creation and execution of wills. The Act requires the testator (the person making the will) to be of sound mind and not under undue influence.

Steps to writing a will

 Identifying assets: The first step is to take stock of all assets, including real estate, bank accounts, investments, and personal belongings.

 Appointing an executor: The testator appoints an executor, an individual responsible for ensuring the terms of the will are carried out. This person should be trustworthy and capable of managing the complexities of estate administration.

Specifying beneficiaries: The testator identifies beneficiaries and outlines the distribution of assets among them. Specific bequests, such as a particular piece of property or a sum of money, can be detailed in the will.

 Guardianship for minors: If the testator has minor children, the will can designate a guardian to care for them in the event of the testator’s death.

Signature and witnesses: The will must be signed by the testator in the presence of two witnesses who are not beneficiaries. The witnesses, in turn, must sign the document to validate its authenticity.

While a will is a foundational element of inheritance planning, it is essential to recognise its limitations. In Nigeria, a will primarily addresses assets within the country, and its efficacy may be compromised by factors such as changes in marital status or the acquisition of new assets after the will’s creation.

 Trusts

In addition to wills, trusts offer a valuable mechanism for inheritance planning, providing increased control and protection over assets. A trust involves the transfer of assets to a trustee, who manages and distributes them according to the terms specified by the settlor (the person creating the trust).

Meanwhile, trusts can be particularly advantageous in Nigeria, where the family structure may involve extended relatives and complex dynamics.

 Also, it provides a means to safeguard assets, control their distribution, and potentially minimise exposure to estate taxes.

 Estate taxes

Understanding the implications of estate taxes is crucial for effective inheritance planning. In Nigeria, estate taxes are governed by the Capital Gains Tax Act and the Companies Income Tax Act. While there is no specific estate tax, capital gains tax may apply to the transfer of certain assets.

 Regarding estate taxes, certain assets and amounts may be exempt from capital gains tax, and there are threshold limits beyond which the tax becomes applicable.

 The proper valuation of assets is essential to determine the tax liability accurately. This includes real estate, investments, and any other taxable assets.

Also, engaging in strategic tax planning during one’s lifetime can help minimise the tax burden on the estate. This may involve gifting assets, establishing trusts, or utilising other legal mechanisms to optimise tax efficiency.

Cultural and religious considerations

 Inheritance planning in Nigeria is not only shaped by legal and fiscal considerations but also by cultural and religious factors. Nigeria is home to diverse ethnic groups, each with its customs and traditions regarding inheritance.

In many Nigerian communities, customary laws dictate the inheritance of property and assets. Understanding and respecting these customs is vital to avoid conflicts and ensure that the wishes of the deceased are honoured.

Meanwhile, for individuals adhering to the Islamic faith, Sharia law governs inheritance. Sharia prescribes specific rules for asset distribution among heirs, and compliance with these rules is often a legal requirement.

In the same vein, a lawyer, Mr Damola Adeleke, stated that despite the importance of inheritance planning, several challenges persist in Nigeria.

 According to Adeleke, these include inadequate awareness, reluctance to discuss mortality and financial matters and the absence of a comprehensive legal framework for certain aspects of estate planning.

“Inheritance planning in Nigeria is a multifaceted endeavour that requires a careful balance of legal, financial, cultural, and religious considerations. Wills and trusts serve as foundational tools, while an understanding of estate taxes and a nuanced approach to cultural and religious dynamics are equally essential,” he said.

He explained that as Nigeria continues to evolve economically and socially, a proactive and informed approach to inheritance planning becomes increasingly vital.

 “By addressing challenges, raising awareness, and embracing professional guidance, individuals can secure their financial legacies and contribute to the intergenerational stability of their families,” he added.