Most decisive thing to do, BEFORE YOU DIE.

If you have properties, whether real or personal, it is critical for you to manage your estate before you die. We Filipinos never seem to realize the importance of estate planning. Traditional Filipinos do not usually talk about “mana” while parents are still alive, and consider this topic taboo, only to realize later on that the properties, should have been disposed of or transferred prior to any death.

The primary reason for estate planning is to ensure your family is properly cared for after your death. Often people only start thinking about transferring registration of property left by an estate to the heirs, when a prospective buyer shows interest on an estate property. But this is an extremely wrong practice. Sadly, the estate left by a deceased sometimes burdens rather than favors the heirs. Thus, it is always wise to do estate planning that will have your family and heirs thanking you even after you are long gone. Estate planning however does not always involved transfer of property before one's death, but planning the most efficient way to transfer property whether to take effect during one's lifetime or after death.

An example of an estate planning tool is, firstly, by establishing a trust fund for your children. If the designation of a child is irrevocable, this shall be considered as a gift and exempted from tax up to the amount of PHP  100,000.00. The designation of an irrevocable trust fund is however subject to donor’s tax.

If the designation is revocable, then the amount so designated shall be considered as part of the estate and subject to estate tax. For real properties, one can always transfer property to his children. It should however be studied which is more tax efficient in the transfer, whether it is through estate or gift tax.

Secondly, another estate planning tool is to secure life insurance policy because the proceeds thereof are exempted from estate tax for the estate and income tax for the recipient or heirs of the deceased.

Thirdly, an effective way of deferring payment of estate tax as an estate planning tool is by establishing a family corporation. If you have substantial number of properties, these properties can be converted to shares of stock by transferring the properties to a newly established corporation in exchange for the shares. As a tax free-exchange transaction, the law recognizes that no tax is imposable if property is transferred to a corporation by a person in exchange for stock or unit of participation in such a corporation of which as a result of such exchange said person, alone or together with others, not exceeding four persons, gains control of said corporation. This way the transferor or heirs still gain control over the properties via the corporation.

Lastly, one may consider selling properties to his heirs. The capital gains tax due on the sale transaction which is 6% may be a lot less than the estate tax due if these properties are part of the estate.

Lot of considerations have to be factored in in doing your estate planning such as the nature of the properties, intentions of the transferor and transferee etc. All these strategies have to be applied on a case to case basis and are crucial considerations in doing your estate planning. 

So before you die, do your estate planning.......