Organizing your affairs in order can be a complicated and expensive. Let's cover the basics in this article.
For some of us, the term “estate” may paint a picture of aristocrats or billionaires whose vast fortunes they intend to gatekeep for posterity. While it’s true that you need to have acquired a considerable amount of assets or wealth to leave a legacy to your family, estate planning isn’t a privilege limited to only the rich and famous.
If you’ve worked hard through the years, you have probably managed to acquire investments in various forms(real estate, cars, stocks, company shares, etc.) along the way. This is where estate planning comes in.
Planning your estate means your properties go to your intended beneficiaries and is done in a way to reduce the estate tax when your assets are transferred to their name. This is especially important since the estate tax in the Philippines is currently at 6%. It may seem like a small figure, but if your total assets amount to P15 million, for example, your heirs will have to pay P900,000 in estate taxes. This could put a financial strain on them.
The careful thought that went into the process may also eliminate the possibility of disagreements among family members. Its other benefits include having a fund, which may come from life insurance payout or death benefit – to spend for interment costs and other relevant expenses.
Who plans the estate and who shall be the heirs?
The owner of the estate is the one in charge of planning the estate. They are the creator or testator of the will, which must be either signed and notarized (with witnesses) or simply handwritten and signed upon completion.
That is why it is recommended to consult a lawyer or an expert in planning your estate if you’re unfamiliar with the legal details.
When it comes to heirs, Philippine estate laws mandate beneficiaries are entitled to certain percentages of your estate. You can allocate only the free portion of your estate to heirs of your own choosing. Otherwise, a will may be invalidated if a legal heir was found to have been left out. For example, the law protects an illegitimate child and can receive half of what a legitimate child is entitled to.
When does estate planning begin?
There are no hard and fast rules regarding what age to start planning your estate. A good indicator would be if you’ve already acquired a property to your name and are working to grow your assets. Hence, you don’t have to be at your prime to begin thinking about your legacy.
As you amass more properties and your wealth grows, you can revisit and amend your will to reflect the assets added to your possession. Planning your estate is a continuous process. Having sufficient time to work on it may inspire you to further grow your wealth and be mindful of decisions that may affect your estate and heirs.
How is an estate plan set up?
The planning starts with taking stock of the possessions that will constitute your estate. You will then need to know your compulsory heirs and their mandatory stakes in your estate. After which, research and decide on the estate planning instruments(e.g., life insurance, irrevocable trusts) you will use to transfer your estate. The specific steps and rules will vary depending on the instrument.
If you choose to get life insurance with an investment component, such as AXA Asset Master, you will only need to pay once. Instead of depositing your cash in a traditional bank, putting it in this instrument will allow your estate to grow and be invested in a diversified portfolio. What’s even better is that your designated beneficiaries are irrevocable by default. What they will receive when you’re gone is exempt from estate taxes.
Estate planning is a great opportunity to explore your options. Starting it early allows you to study your options and make an informed decision. At the same time, it gives you time to grow your wealth.
Know you can game plan your estate and allow it to grow to help secure your heirs’ future. Talk to an AXA financial advisor today to start planning for your legacy.
