Estate Planning 101: Managing Your Assets Today and Even After Death

Estate Planning 101: Managing Your Assets Today and Even After Death 

I have been hounded lately with queries about what is estate planning (EP). After a closed door briefing with the expert in EP and my mentor, Atty. Angelo M. Cabrera, I’d like to share with you about this topic.  

So What Is Estate Planning? 

Estate Planning 101

Normally, regular individuals would see estate planning as the government itself (state). That’s not true at all. Allow me to expound on estate planning in this article. 

Estate planning is planning your estate. (How detailed could I be, huh?!) Kidding aside, it is a process of managing your personal and financial assets to help you prepare and plan for the disposition of your properties in accordance with your wishes and in a manner that will give you and your family maximum benefit and satisfaction. 

In layman’s term, Ang tama at nararapat na pag-aayos ng mga mana. Whenever this topic arises, most if not all of the Pinoys would react this way: “Wala naman akong ipamamana eh maliban sa kanilang edukasyon.” (I have nothing to give to my heirs except for their education.) “Bahala na silang mag-usap kung kanino mapupunta yan kapag wala na ako.” (It is up to my family to dispose what I have after my demise.)

The first statement shows our inability to see and understand the reality of the issue. The latter may end up seeing your family in courtroom battles over your acquired properties.  

What Is Included in My Estate? 

“Eh wala naman akong ipamamana eh.” (I have nothing to give in the first place.) Not really. Every earning individual has an estate to manage and protect. To name a few: 

1. Assets held in your name alone or jointly with others (including bank accounts, stocks and bonds, which includes your Citiseconline account); 

2. Real estate/properties; 

3. Furniture, appliances and clothing (that includes the baul your great, great, great grandmother gave you on your 25th birthday); 

4. Cars; 

5. Jewellery; 

6. Retirement accounts; 

7. Payment dues such as tax refund, outstanding loan or inheritance. 

The government is not taking this lightly. With Project R.I.P. (Rest in Peace) by the Bureau of Internal Revenue (BIR) headed by Commissioner Kim Jacinto-Henares, they intend to intensify assessment and maximize collection of estate tax by increasing awareness of the public on its proper payment. 

A recent memorandum came from Secretary Purisima of the Department of Finance mandating BIR to set a P50 billion Estate Tax Collection before President Aquino ends his term in three years. 

In addition, this will allow the legal heirs to know that after the death of a loved one, to comply with the law, they have a responsibility to pay for estate taxes corresponding to the value of the decedent’s estate.  

So How Does One Compute for Estate Taxes? 

Let’s say you own an estate worth P100 million (Wow, Bro! That’s a lot of money). The corresponding estate tax will amount to 19 million. The shocking reality is, it is payable only in cash. (Now that is a big amount of money indeed!).

Apart from this, your heirs will need to settle the estate taxes within six months from the date of your passing. Beyond six months, the following charges will be added on to the computed estate tax: 

• Twenty five percent as late filing surcharge up to 50 percent for deliberate non-filing or fraudulent return. 

• Interest rate of 20 percent per annum for continued non-payment. 

As you see, the longer you are unable to settle your estate taxes, you effectively diminish the size of the estate you have worked for.  

So What Are Your Options? 

Let me mention some ways on how to settle the estate tax.  

1. Liquidate the property. 

Given that we have to settle it within six months, we have to sell our properties such as real estate below the market value.  

2. Borrow money at interest. 

Borrowing large sums of money in such a short period of time will put the borrower in a difficult position, opening the possibility of paying higher rates.  

3. Donate or sell property. 

Accountants and lawyers would recommend either of the two, donate or sell. 

a. Donating the properties before demise will subject us to another form of tax, the donor’s tax. It will bring down your tax to 15 percent. 

b. Selling your estate will bring down the tax (also known as capital gains tax and the most widely used) to 6 percent. The effect of transferring properties during your lifetime is the loss of ownership, control and possible possession of the assets. 

4. Create a new estate. 

The best way to settle estate tax without giving up ownership and control is by creating a new estate that will produce the cash needed to settle the obligation at the precise time. 

“What Can I Do While Still Alive so That I Can Plan Well for the Estate That I Will Leave Behind?”

First, you have to create a new estate to pay your dues to the government. To do so, you have to get a good insurance policy, which will salvage your hard-earned properties. 

Next, write a last will and testament. You need a pen, paper and good lawyer to help you with this.I am just scratching the tip of the topic with this one. In fact, there are numerous topics that were not tackled like incorporation, co-ownership, income tax and other related issues, due to limited time and space. Again, being informed about this reality is in itself a key to financial freedom. 

As the old saying goes, “There are only two things that we cannot escape in our lifetime: death and taxes.” Might as well, face death paying your dues the righteous way. 

Source: Wrote By Pao Antonio, TrulyRichClub Wealthstrategy