By Binta Max-Gbinije
THE desire of all parents is to give their children the best in life: the best upbringing, education, exposure, life experiences, and so on. Of these, however, perhaps the greatest legacy a parent can bequeath to a child is sound and qualitative education. Education gives a child a sound footing in life, which explains why as parents we continue to seek out the best education opportunities for our children worldwide. From neighbouring Benin Republic, South Africa to far away Japan, Australia, and even Iceland, Nigerians pay billions of dollars to ensure their children are properly educated.
Qualitative education, unfortunately, does not come cheap. The average tuition in Nigeria, excluding feeding, boarding, books, and others, to train a child through 12 years of schooling (primary and secondary schooling) in an average private school is about N12 million and about N5 million through university. These figures, it must be said, are conservative and they continue to rise to reflect inflation. Financing foreign education is far pricier. The total yearly average cost of studying in a UK university, for instance, is roughly N8 million. This comes to N24 million for the three years it takes to earn a degree in that country.
For parents who cannot afford foreign education for their children, the situation in local schools is not much different as school and other sundry fees continue to rise faster than family income, in line with inflation and other macroeconomic factors. Due to regular disruptions in academic calendar of public schools in the country from strikes and protests, and the perception of low quality, private schools are preferred by parents.
Quality education for children, even for the wealthy or comfortable, could sometimes be daunting. And the reality for many other parents is that their desire for the best education for their children is often unmatched by their financial power. This mismatch is often a painful challenge. However, with proper planning and smart investments in educational trusts, training our children in the best schools anywhere in the world, even for the average-income family, can be achieved. Unfortunately, many of us still do not appreciate the astonishing power a Trust has to help smoothen the rough financial edges and make the attainment of family goals and aspirations, including qualitative education for our children, almost painless and seamless.
To give a proper perspective, let us examine Trust. Trust is an arrangement between two persons/entities whereby one entity agrees to hold assets for the benefit of other person(s) who may include the person with whom the arrangement was entered into. The initiator of the Trust is called the ‘Settlor’ or ‘Grantor’, the entity agreeing to hold the assets for the benefit of another is called the ‘Trustee’ and the person for whose benefit the asset is being held is called the ‘Beneficiary.’ Put differently, a Trust is an arrangement whereby assets are transferred by an individual or a corporate, known as the ‘settlor’, to a trustee, to be held by the trustee for the benefit of certain beneficiaries. A Trust is an estate planning tool which helps an individual plan his estate in such a way as to protect his or her wealth and eventually pass it on in a smooth inter-generational transfer.
A parent may have the wherewithal to adequately provide quality education for the child but the unfortunate incident of death with no planning in place may sometimes scuttle even the best of intentions. An Educational Trust comes in handy in such situations. A typical example of an education trust is the Stanbic IBTC Educational Trust called SET, which is specifically designed to address such and many other needs. For instance, SET translates intentions to concrete actions by ensuring continuity of the educational trust objectives, which include uninterrupted schooling and qualitative education for the beneficiary through an education protection plan. Such a plan includes ensuring the Trust is well funded by the settlor and making direct payments to the beneficiary’s school by Stanbic IBTC Trustees to negate diversion of funds in any form.
If you ever wondered how some families remain perpetually wealthy generations after the original creator of the wealth – unfortunately, it is hard to find many examples in Nigeria – look no further than Trust. The Rockefeller family in the US is a famous example of how Trust can help create, preserve and protect wealth. The Rockefeller progenitor, John D. Rockefeller, became the first American billionaire in 1914. Several generations later and over 104 years after the first billion, the Rockefeller family is still in the billionaire bracket today, according to Forbes’ American Wealthiest families, thanks to a number of Trust Funds John D. Rockefeller Jr. established for his children in 1934.
The late pop-star, Michael Jackson, was reported to have left almost half of his assets in a Trust for his three children. Jackson’s assets, estimated to be worth billions of dollars, are held in a Trust. His reported $400 million debt at death could not be deducted from the assets in his Trust. That is one of the beauties of a Trust; it can only be used for the purpose it was meant for. So, an Educational Trust for a child can only be used by the trustees for the child’s education and nothing else.
An Educational Trust like SET is also a particularly useful estate planning tool every parent needs to sign up for. While we all hope to live to be very old and in good health, sometimes people inexplicably suffer ill health or death suddenly strikes. When such happens, the Educational Trust immediately kicks in to ensure that the child does not miss a day of schooling in the event the parent is incapacitated or gone. Trust kicks in immediately because unlike Wills, Trust assets do not go through the probate process/courts, which could be cumbersome and time consuming.
And what is the role of a trustee in the process and beyond? A trustee has the competence to assess individual situations and then determine how best to structure an Educational Trust or a General Trust in a way to benefit the settlor and his loved ones, particularly the children, while the settlor is alive as well as when he is gone.
To establish a General Trust or an Educational Trust for a child, a parent/guardian needs to take stock of his or her assets and then determine which asset(s) will be put in the Trust. One can then approach a trustee, a corporate organization. Interestingly, Trust is not new in the country; informally, trusteeship is an old practice among various ethnic groups in Nigeria.
For instance, it is common practice for a man with young children to put his property in the care of a trusted friend or family member for onward transfer to his children, in the event he dies before the children come of age. This is Trusteeship. However, while a corporate trustee basically performs a similar role, trusteeship services provided by legal entities such as Stanbic IBTC Trustees adhere to strict corporate governance rules and practices. It is usually advised that a corporate entity like Stanbic IBTC Trustees be engaged to establish the Trust because it has competent professionals who are experienced and knowledgeable in these matters, and they are regulated by a government agency, the Securities and Exchange Commission (SEC), and a self-regulating organization, the Association of Corporate Trustees, to ensure ethical practices. Another unique benefit of SET is that it is covered by insurance via an education protection plan, to cover death or incapacitation of the settler.
Estate planning is a very important matter and one which people are highly encouraged to attend to. Awareness is gradually catching on, particularly with global and national events such as air crashes and the like. These events bring the issue of our mortality to mind as people are reminded that death is inevitable and no respecter of persons. Though slow going, people are realizing the benefits and importance of trusteeship services; with more people buying into the idea and consequently doing the right thing.
An important aspect of Trust, however, is funding and or the asset transfer. The Trust is expected to own something so having done the necessary background work, documentations and having obtained all the proper sign-offs, it is very important that the settlor transfers assets to the Trust because if a Trust is unfunded or does not hold any assets, it is not an executable legal entity. It is like opening a bank account to save money and yet the account remains empty as funds are not being deposited.
Too many people struggle to do the hard work but end up not activating the Trust by transferring assets to it. A settlor must determine how the Trust will be funded and then it is imperative that he transfers the most significant assets into the Trust as soon as he can.
If we truly desire that our children should have the best education, preferably from Ivy League schools, to give them the best chance at succeeding in life, then what we do now will determine that. It is a simple process of determining the cost of such education now, factoring in inflation for when the children will be ready for university education and putting the funding or asset equivalent in a Trust if you have such available, and if not readily available, the settlor can consistently fund the Trust as the years go by. A SET calculator will be useful in helping you know how much will be needed to train the child through school. Not many approved the lifestyle of Michael Jackson but it is hard to fault his love and dedication to his children when we consider that he was smart enough to think beyond the immediate by establishing a Trust that will help guarantee a level of comfort and financial stability for his children. Many of us tend to be too focused on the here and now that we sometimes inadvertently jeopardize the future of the very children we claim to love. You certainly don’t want to jeopardise the future of your children by leaving it to chance. Now is the time to do the smart and responsible thing by initiating the Educational Trust process.
Binta Max-Gbinije is the Chief Executive of Stanbic IBTC Trustees Limited, a member of the Stanbic IBTC Group.