Estate planning is very important tool in wealth management.
Individuals and families need efficient estate planning to be able to manage properties in their lifetime. Similarly efficient estate plans are necessary for succession planning of businesses and inter-generational wealth transfer. An efficient estate plan can also come in handy when unexpected events such as accidents, deterioration of health or even death occurs.
Estate planning primarily involves determining how an individual’s assets will be preserved, managed and distributed after death. It requires one to answer the following questions:
- Who will be the estate owner’s heirs or beneficiaries?
- How much will each beneficiary receive?
- How will beneficiaries receive the properties being transferred to them?
Having an efficient estate plan can further provide you with the opportunity to have a say in who controls and benefits from your properties during retirement or a period of infirmity.
A good and efficient estate plan aims at constructing a financial and social plan which ensures a peaceful and efficient transfer of properties, roles and values to the intended beneficiaries of an individual’s estate before and after death.
It must be done with the minimum legal and financial risks possible, and in a way that preserves the properties and legacy as long as possible in accordance with one’s intentions.
It should take into account property distribution, business succession, estate taxes, late-stage health care and other end-of-life issues.
Types of Estate Plans
An estate plan may be simple or compound. Simple estate plans consist of mainly a will while compound estate plans comprise multiple legal tools such as a will, a business succession plan, gifts, a trust and an elderly care plan.
The compound estate plan can be further complemented with a life insurance plan, retirement/pension plan, elderly care plan, power of attorney and philanthropic or charity plan.
Factors to Consider When Choosing an Estate Plan
- The personal circumstances of the individual
- The nature and value of the properties, assets and liabilities of the individual
- The business assets of the individual
- The number and status of dependents of the individual
- The intended beneficiaries of the individual’s estate
- The nature and distribution of the individual’s estate
- The cost of constructing the estate plan
- The tax implications of the estate plan
- The professional personnel required
What are the Steps Involved in Estate Planning?
- Prepare inventory of properties
- Set an objective for the estate plan
- Identify the intended beneficiaries of the estate
- Indicate the specific properties and proportions of the estate to be given to each beneficiary
- Choose and construct the desired estate plan (comprising an inheritance plan, succession plan, philanthropy and tax plan) using the appropriate various legal, investment and social tools.
- Confirm the legal enforceability of the desired estate plan
- Prepare an elderly care plan that covers your health and upkeep in your retirement/post-active working years
Frequently Asked Questions (FAQs) on Estate Planning
- Can I prepare my estate plan on my own?
If your estate is relatively small and your objectives are not complicated, you may plan your estate mostly on your own. You would require professional help largely for tasks like writing a will or a trust.
Planning for larger estates can involve the counsel of your lawyer, insurance advisor, accountant and banker, as well as your family and friends.
- When should I start planning my estate?
Although there is no specific age for planning one’s estate, most of the legal documents and tools involved would require that the person should be ideally above 18 years.
- Do I need a certain level of wealth before I consider an estate plan?
It is a misconception that estate planning is only for wealthy people. Individuals at any income level can make an estate plan to ensure assets are distributed according to their wishes.
- What are the means or ways of transferring properties to my beneficiaries?
They include: (i) Wills (ii) Trusts (iii) Gifts (iv) Insurance Plans
(v) Investment Plans and (vii) Philanthropy/Charity.
- How frequently should I review my estate plan?
An estate plan should be reviewed periodically. Generally, a person may agree on any time period with his advisors to review and update the estate plan. An estate plan may also be reviewed upon the occurrence of certain events: such as a change in personal status, conditions, properties or plans.
Estate planning should not be considered as a one-time retail transaction, but as an occasional process that works best when you have a continuing relationship with your professional advisors to review the plan from time to time.
- What happens if I do not have an estate plan?
Without an estate plan, a person dies intestate (without a Will) and the Intestate Succession Act, 1985 (PNDCL 111) will step in to deal with the management and distribution of the individual’s estate.
The law has set out procedure for distributing the assets of a person who dies without a will.
This tends to mostly have a negative impact on businesses. The ownership of businesses may pass to unintended beneficiaries.
Business owners, especially sole proprietors, tend to include their children or a family member in running the business. Without defining their roles and responsibilities through an estate plan, the future of the business and assets may be uncertain; which may lead to disputes and legal challenges, causing further financial and emotional strain on the family and others involved in the business.
- Do I need to consider any other matters aside from inheritance planning in my estate plan?
The following matters may be also considered with the assistance of qualified professionals: business succession planning, financial planning, investment management and risk management.
- How do I transfer my lands to my dependents to avoid future litigation?
There is the need to exercise due diligence during preparation of the estate plan in respect of lands. This is a simple process that can help:
- Prepare a list of land interests owned and take note of the status of those lands
- Confirm the physical safety of landed properties
- Take possession of landed properties
- Confirm title documents over the land
- Confirm registration of land title documents/land documents
- Where the land demarcation is not clear, it will be necessary to contract a surveyor to plot the land and prepare the relevant plan for the land for registration.
- Confirm whether the land is owned individually, or held jointly or held together with a family, and any legal restrictions in that regard.
- Confirm the nature of the interest, and the remaining interest in the land and if there is a need for renewal.
- Where there are trespassers on the land, or another person is laying claim to the land, it will be necessary to institute the relevant Court action to defend the title to the land.
- Is there a standard estate plan?
The ideal estate plan for an individual or a family is based on the circumstances of the person or the family. There is no such thing as a ‘standard’ estate plan, or standard will or trust. It comes down to the assets, personal circumstances, wishes and plans of the person involved.
A consultant will be able to use those factors to assist you build a suitable estate plan that can save money and time for your heirs, minimise taxes and other liabilities, and help avoid confusion and costly litigation.
The precise mix that is best for you is as unique as your circumstances.
Estate Planning for Businesses
Estate planning for a business, also referred to as business succession, describes the process of planning for and managing a business owner’s assets in the event of death or retirement of the individual.
It involves planning the transfer of legal ownership and management of a business to successors to ensure the smooth continuation and survival of the business beyond retirement or death of the current ownership or management.
It aims at ensuring that the business is able to survive and thrive beyond the present owners and managers.
An effective business succession plan in the estate plan can be used to achieve the following:
- The individual’s plans and intentions for the business
- Appoint the persons to benefit from the individual’s ownership stake in the business
- Appoint the persons to have legal control over the ownership stake of the individual.
- Appoint any other persons with special powers in relation to the company.
- Effective management of the business after the individual retires or passes
- Mitigate the impact of retirement or death of the individual on the business
Steps Involved in Business Succession at the Level of Ownership of the Business Assets
- Identify the nature of the individual’s interest and ownership in the business assets
- Confirm whether the legal control and beneficial ownership of the individual should be allocated to one person or different groups of persons
- Formulate a succession plan for the ownership stake with other stakeholders in the business
- Confirm the time or period to transfer the control and beneficial ownership of the individual’s stake in the business.
- Identify the beneficiaries and confirm their capacity to own or benefit from the individual’s stake in the business
- Confirm whether the beneficiaries are capable of managing and controlling the business assets or if there is need for further assistance, training or mentoring.
- Confirm whether the individual has the powers, rights and influence to implement the decisions unilaterally
- Confirm if there any stakeholder approvals or consents required.
- Confirm if any agreement or arrangement will be affected by the succession plan and put in place mitigation measures
- Drafting, executing and registering all required documents and agreements for transfer of the legal and beneficial ownership of the business assets to the appropriate persons.
There are instances when it may be prudent to consider the sale of business assets or a merger of the business with another business.
Steps Involved in Business Succession at the Level of Management of the Business
- Confirm the individual’s interest, powers and roles in relation to the business assets
- Assess the state of current stewardship and management, and identify the roles and matters requiring stewardship and management in the circumstances
- Confirm the events and time periods for the transfer of powers and roles in relation to management of the business
- Agreement with relevant stakeholders in the business on a succession plan for the transfer of powers, roles responsibilities to the potential successors.
- Select key competencies and skills necessary for successors under the business succession plan
- Assess the scope of individual’s powers, rights and influences to confirm the succession plan can be implemented unilaterally or if there are any other stakeholders required. For sole proprietorships, small-medium enterprises and family businesses, this may be within the scope of the business owner’s powers, or a shareholder who acts as the managing director
- Grooming, training and briefing successors to meet future business needs
- Appointment of successors to appropriate roles such as managers, directors or professional consultants under an employment agreement or independent contractor agreement
- Monitoring of successors for compliance with agreements and arrangements.
Frequently Asked Questions (FAQs) on Estate Planning For Businesses
How is estate planning related to businesses?
An individual’s estate may include business assets in the form of ownership of a sole-proprietorship, beneficial or legal ownership of shares in a company.
Depending on the individual’s level of involvement in management of the business, and the scope of powers of the individual, it may be necessary to implement a business succession plan for management of the business as well.
Therefore, the succession in relation to businesses occurs at two levels: (i) management of the business; and (ii) ownership of the business. The ownership of the business can be further divided in legal ownership/control and beneficial ownership. This is very relevant for family businesses which may require that a large group of people benefit from the business, but does not require that all such persons are actually involved in the actual control of the business.
What are the factors to take into consideration in preparing an estate plan for a business?
To construct an effective estate plan in relation to a business, it is important to appreciate the following factors:
- the current stage of the business;
- the plans (short-, medium-, long-term) for the business;
- the individual’s intentions and plans for the business;
- other partners and stakeholders involved in the business;
- consents, approvals and registrations required to implement the succession plan;
- the interest and ownership stake of the individual in the business;
- the control, influence and scope of powers of the individual;
- the structure and components (corporate governance and shareholding) of the business and how it impacts the estate plan of the individual.
What constitutes an effective business succession plan?
An effective business succession plan outlines the arrangement for transferring the ownership and leadership of a company to specific beneficiaries and successors.
An effective estate plan in the form of a business succession plan and a comprehensive estate plan is essential for business people to ensure the continuation of their businesses and efficient transfer of their assets to their intended beneficiaries.
It involves identifying potential successors, developing a plan for their training and development, and setting up a timeline for the transition.
The must be a balance between the needs and goals of the company, the intentions of the outgoing and incoming managers, and other stakeholders involved in the business.
This creates a well-crafted business succession plan that ensures a smooth and successful transition of ownership and leadership, while minimising disruptions to the business and maximising its long-term success.
Ultimately, a well-structured succession plan also attracts potential investors or buyers, increasing the value of the business – which is crucial for long-term sustainability of the business in a growing economy.
Can’t I just use a Will to plan for my business?
The simple estate plan (Will) is great for simple business and small amounts of assets, but it is proving inefficient on its own for small business, family business and sizeable assets. It is necessary to plan out how your business continues, who should run your business when you get old or retire to take care of yourself.
It is important to oversee the initial stages of your business succession to ensure there is an understanding between the persons taking over the assets and business. It can also give you an opportunity to advise your successors on how best they can manage and preserve the assets while giving them freedom to improve it
The simple estate plan works best for business when it is combined with other social and legal tools
Is there a standard or perfect estate plan or business succession plan for every business?
There is no such thing as a ‘standard’ or ‘perfect’ estate plan or a business succession plan for a business. It comes down to the various factors listed above.
Your consultant or professional advisors should be able to use the various legal and business management tools to build an estate plan in line with your intentions, circumstances; and in the best interest of the business.
The precise mix that is best for an individual’s business asset is as unique to the individual.
The author is with Benchmark Lawyers & Consultants – a full-service law firm advising both Ghanaian and foreign individuals, families and entities operating in Ghana on a wide range of matters such as transactions, projects, regulatory compliance and estate planning. Benchmark Lawyers & Consultants represents and advises individuals and entities in litigating and settling several corporate, commercial and land-related matters.
Contact: [email protected] / 0501052553
