Estate plan can protect inheritance from lawsuits

A proper estate plan allows your estate to pass to beneficiaries without lengthy and costly court processes. FILE 

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