Estate Planning is not just about Estate Taxes

“Prosperity is a blessing from God, but it can also become a curse if not handled properly.”

We’ve had some interesting (and sometimes horror) stories from our clients with regards to estate planning. The usual top two problems in such a situation are (1) liquidity - where to get the money to pay the local transfer tax and estate tax due; and (2) securing a new Transfer Certificate of Title and/or tax declarations for the heirs when there are real properties involved.

With foresight, these can be avoided, here are some Estate Planningtools that may be considered in addressing the problems mentioned above:

·         Will – this is the commonly known tool even by the masses; it is basically a written document to identify what you like to be done with your assets upon death.

o   Pro – for young couples, this is sufficient or for those with few assets

o   Con – will still undergo probate and have corresponding fees

·         (Durable) Power of Attorney – designation of access and control of your financial assets

o   Pro – when children are young and require some guardianship.

o   Con – Blood is thicker than water, but money is thicker than blood.

·         Prenuptial Agreement – an agreement to separate assets

o   Pro – if you have significant personal assets; for second marriage

o   Con –culturally sensitive for Filipinos (What is mine is yours and yours is mine?)

·         Life Insurance – Life insurance planning discussions focus on estate tax mitigation, estate liquidity and estate equalization. And is commonly pushed by “Financial Salespersons.”

o   Pros – A way to pay taxes without having to disturb the actual assets to be passed on to heirs.

o   Cons – (1) too old (uninsurable/sickly); (2) Over-covered; (3) does not address other issues of the estate.

·         Gifting/Donation – Wealth can be transferred over-time to family members (others too)

o   Pro – I call this strategy “Dying a pauper,” wherein you potentially have zero assets upon death (if you give it all)

o   Con – (1) you pay donor/gift taxes while living (2) timing can be an issue; we don’t want you to give away your house early-on, only to be kicked out later and become homeless

·         Family (Holdings) Corporation – transferring of personal assets to a business entity

o   Pro – wealth can be kept within the family (excluding in-laws & the like)

o   Con – (1) set-up and transfer costs; (2) heir-rivalry later (3) loss of personal control

·         Business continuity and succession planning – Estate planning for business owners is significantly different than those who are not.

o   Pro – (1) train successor for business continuity; (2) Initiate harmony among heirs by equalizing ownership

o   If not done, (1) potential court litigation among heirs & costs; (2) broken families; (3) Death of business

There are more tools not included here. However, an “Estate Plan” shows you the bigger picture and encompasses all the tools mentioned above to determine the best path for you to take with regards to your objectives.

We often hear the phrase, “that will never happen to our family; we are all at peace with each other.” One should never assume that your heirs will live happily ever after when your time is up.

“The best way to predict the future is to create it.” – Abraham Lincoln

Disclaimer: This is for general information only and is not a substitute for professional advice.

--

The writer is an RFP® –Registered financial planner and helps people through CERTA, Inc.’s financial education programs, estate planning & investment advisory (www.certa.ph). He’s also a Real Estate Broker, author of the award-winning personal blog– www.vernongo.com; Vice Chair – www.cebucontentcreators.com