Estate planning isn’t just for the rich. Those working on their wealth and leaving a legacy need to start planning for it too.
“We must be able to plan for the efficient transfer of assets to your heirs,” said Camille D. Francisco, head of Insular Life’s InLife Learning Academy, in a recent financial literacy webinar.
A key advantage of an estate plan is its power to minimize the probate — or the process used to prove that a person’s will is valid and to supervise how their estate is handled — as well as its related expenses such as surcharges and court fees.
“If there is no plan [for how to divide the assets], then the government becomes your most favored heir. You don’t want that,” Ms. Francisco told the webinar audience. “The ones who should benefit are your loved ones.”
An estate plan also prevents conflicts, which can ensue even among the most close-knit of families.
“Sometimes, it’s not even about the monetary value, but the sentimental one,” said Ms. Francisco. “Who gets the grand piano? Who gets the vintage car collection?”
Leaving a legacy entails building, protecting, and transferring wealth with the value intact and according to an individual’s wishes.
Ms. Francisco said that nearly everyone has an estate, which is the economic valuation of all the investments, assets, and interests of an individual. It includes real properties such as land, and personal properties such as jewelry, artworks, and intellectual property rights.
WHO GETS WHAT
The following information are needed in estate planning, according to Ms. Francisco:
Property composition – Know what is rightfully yours, and what is communal property;
Family composition – Know who must and can receive your estate;
Desires and wishes – Know how much your heirs must have, versus how much can be given to whomsoever you like; and
Special instructions – Know where you can put all these instructions in mind.
Succession in the Philippines is done either by will (testate), or by operation of law (intestate). As defined by Article 774 of the Civil Code, testamentary succession has two components: the legitime, which are reserved for compulsory heirs, whether an estate-owner likes it or not; and the free portion, which can be given to whomever the estate-owner likes. Examples of compulsory heirs are legitimate children and the surviving spouse.
Intestate succession, on the other hand, takes place when an estate-owner dies without leaving a will. In this scenario, the relatives nearest in degree exclude the more distant ones, and relatives in the same degree inherit equal shares.
SETTLING TAXES
Under the Tax Reform for Acceleration and Inclusion (TRAIN) law, the estate tax is computed by multiplying the net estate by 6%.
Estate taxes are akin to a taxi meter and accrue penalties when not paid on time, said Ms. Francisco, who added that life insurance can prove to be useful in this instance, as it can provide heirs something to help settle tax obligations.
Heirs who are unable to settle estate taxes can opt to liquidate part of the estate or borrow money at interest. Estate-owners may choose to sell or donate properties to their heirs, but must realize the legal effects of such a decision, like a loss of control.
“A solution is to include an annotation to the title called a usufruct,” Ms. Francisco added. “[The estate-owners can indicate] the heirs can sell the property when they’re already gone, and that they, the estate owners, can live in the property as long as they’re still around.” — Patricia B. Mirasol