By CATHY MPUTHIA
The Business Dailyreported last week
that the Delameres are sub-dividing an estate worth Sh5 billion as part
of a succession plan. This, according to the report, is to allow family
members access to their inheritance.
Many people do not have succession plans and die
intestate or without a written Will. This subjects their estate and
dependants to protracted legal process after their demise.
Many times the heirs cannot access the property
until the court process is finished. Mysterious would-be beneficiaries
also emerge from nowhere subjecting one’s estate to a lot of frustration
in trying to establish legitimacy of such claimants.
Estate planning is, however, becoming a common trend and is not only relevant for the wealthy.
One way of estate planning is using the strategy
employed by the Delamere family. It is done by forming a separate
company limited by shares and having the desired beneficiaries take up
shareholding.
You can then transfer your property as desired
into this company to relinquish control to the beneficiaries who can do
they wish with it. But the property still does not belong to the
individual beneficiaries but to the company.
The principle of company law that a firm and its
shareholders are separate would apply so that no beneficiary has a
separate stake in the property. The estate can be managed by allotting
different shareholding to the various beneficiaries.
The one you would want to have the largest stake
gets the highest shareholding while the ones with the minimal stake get
the least. The property is then held according to these ratios.
Managing the relationship between the
beneficiaries can be done using a shareholders “agreement” and the
articles of association which provide for dispute-resolution.
This method is not as simple as it sounds because
company law will be the prevailing legislation in management of your
estate. Furthermore, you will lose control of the property completely to
your successors.
You cannot have a say in how they run it and they
may even elect to sell their stake to outsiders. They can also dispose
of the property at a time you may deem undesirable.
This method is therefore only suitable when it is
intended to allow your beneficiaries access to some of the property and
when you do not mind ceding control to them.
It is also suitable where the property or assets
are unique and likely to appreciate in the long run such that more
value is created for your heirs by having them hold on to it rather than
sell this unique asset and split the money.
You may elect to transfer only one asset to your
beneficiaries —for example your business — and leave the immoveable
property for a later stage. You may also form several companies if you
have many dependants and transfer a specific property to each heir.
It is a complex and cumbersome way of estate
management and it is important to engage an estate planning lawyer. One
of the biggest risks with this method, however, is leaving some
dependants out of the plan by mistake
Once the property is transferred it ceases to be
in your control and goes to the named beneficiaries. The ones who are
left out can only depend on the goodwill of the others.
The major benefit is that it protects your estate from third party claims.
Ms Mputhia is a partner with Muthoga Gaturu Advocates
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