Legal Alert: Wills & Living Trusts; A Necessity?
In this Issue
- Business Motivational Quote of the Month.
- Legal News.
- Legal Alert for September 2006 – Wills & Living Trusts;
Business Quote of the Month
“Your Worth consist of what you are and not in what you have” - Thomas A. Edison.
The attempt to increase the rate of Value Added Tax, which is
a consumption tax, has failed at the Nigerian National
Assembly. The Legislators have in stead recommended an
improvement in the machinery of collecting the tax, financial
independence for the tax collecting agency, etc.
It is expected that the complete amendments to all the
existing tax Laws in Nigeria with the contemplated new ones
would come into effect before the beginning of the coming
Legal Alert –Wills & Living Trusts; A Necessity?
The perception that the making of a Will is a contemplation of
immediate death has caused many people to permanently
defer the consideration of the making or writing of a Will. This is
in spite of the estate and business advantages of making a Will.
You can visit our web site – www.oseroghoassociates.com –
for basic information on Wills, Intestacy, Trusts, etc.
The making of a Living Trust, in the likelihood that you share
the apprehension of making a Will, is an alternative legal
method of ensuring that while you are alive, in good or bad
health or for any other unforeseen circumstance, your assets
and your dependants would be properly managed according to
your wishes by your appointed individuals/institution as
opposed to the Laws of your jurisdiction which may not be
agreeable to your wishes.
What is a Living Trust?
A Living Trust has been described as a written legal Agreement
between the person/persons creating the Trust, who is called
the Trustor, and the person or Institution named to manage the
assets of the Trust, who is usually called the Trustee. The
person(s) who would receive the Trust Properties is/are called
the beneficiaries while the person or Institution who takes over
from any appointed Trustee is called the Successor Trustee.
One of the beautiful attraction of making a Living Trust is that
the person who makes it can also name himself as the initial
Trustee whilst he is alive! In the event of any form of incapacity,
the Successor Trustee immediately steps into the Trustor’s
place without the complexities and costs of engaging a
Solicitor, applying for Probate, appointing a Guardian for
Infants, death taxes, etc.
Advantages of a Living Trust.
- It is a very flexible legal Instrument which the Maker can
amend or revoke at any time provided he is in good
mental capacity at the time of doing so.
- It allows the Maker and his Trustees or Successor
Trustees to manage the assets while the Maker is still
alive! This guarantees a practice and fix strategy.
- It allows for confidentiality and private management of
your assets unlike a Will which must be filed in a public
Probate Registry and is available for scrutiny on an
application and payment of the probate search fees.
- In the event of your unavailability for any reason – i.e.
travel, ill health, too busy, death, preference for
professional management, etc – it allows your appointed
Trustees to, without the permission of a Court of Law,
manage your assets in a professional and accountable
- It is a probate tax avoidance instrument particularly as
probate/death tax is above 10% of the value of the
estate in many jurisdictions. This cost is in exclusion of
Solicitors fees and other miscellaneous expenses. You
can save your beneficiaries these expenses.
- A Living Trust commences immediately it is executed
and funded – a Living Trust is funded when assets are
transferred to it. This is in marked contrast to a Will
which takes an average of four to eighteen months to
obtain a Probate Certificate presuming that the Will is
Disadvantages of a Living Trust.
- Initial set-up challenges and costs are associated with
the creation of a Living Trust. The names and title
certificates of all the trust assets would need to be
changed including the names on landed properties.
Associated expenses here would include Solicitors and
- A Living Trust has less legal protection, less judicial
intervention and less public accountability.
- Except for a reduction in death/estate tax, no direct tax
reduction is foreseen. The possibility of double taxation
of income when it is distributed to the beneficiaries of
the Trust by the Trustee could occur.
- Problematic if you contemplate regular trades in your
landed properties or you are a real estate developer.
- Not a complete substitute for the making of a Will. For
example, in some jurisdiction, a Guardian cannot be
effectively appointed for a Minor in a Living Trust though
it is recommended that he is mentioned in the Living
Trust; neither are assets acquired after the making of
the Trust save those assets are purchased in the name
of the Living Trust.
To remedy the above disadvantages, it is recommended that
you have prepared both a Living Trust and a Will to protect your
assets and beneficiaries.
Duties of Trustees in a Living Trust.
The duties of Trustees under a Living Trust are both legal and
contractual. The essential duties include:
- Fiduciary duty to the Trust, the Trustor, the beneficiaries
and the society.
- Strict compliance with the instructions of the Trust.
A Court of Law can hold a Trustee liable where the Trust
instructions are not followed.
Taxation & Myths of Living Trust.
One of the common myths of a Living Trust is that it is a tax
avoidance tool. Except for countries that are regarded as tax“heavens”, most tax Laws are not interested in the legal vehicle
or title under which assets are held and income is earned. All
income are subject to taxation. Please consult your Solicitor for
advice on the application in your jurisdiction.
Also, a Living Trust does not protect you or your estate/beneficiaries from your creditors. A Living Trust may only
delay the ability of your creditors to trace your assets but it
does not extinguish the debts.
Finally, a Living Trust does not exempt you from writing a Will.
In its stead, it is strongly recommended that you have both a
Will and a Living Trust, if that is what works for you.
Conclusion & Last Word.
It is recommended that having worked very hard for your
assets, you should have the added luxury of determining who
it should go to when you are not around.
Estate planning and investment vehicles, apart from a Will
and a Living Trust, include Joint Tenancy with right of
survivorship, Financial Power of Attorney, Life Insurance
It is necessary that you update your inventory of all your
assets and liabilities, depending on your age and health,
every two years.
The last word would be that not everyone needs to create a
Living Trust. Consult an estate planner for more information.
Where however a Living Trust is prepared, it should be
executed in the presence of a Notary Public with another
Witness, both present at the same time of the Trustor
executing the Living Trust. While this latter requirement might
seem to be superfluous, you can only do as much as possible
to eliminate legal challenges to your instructions.
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EHIJEAGBON O. OSEROGHO