The last will and testament often comes to mind when discussing estate planning. This document stating the heirs and property distribution, however, needs to be validated by the court. Furthermore, it is only part of the equation.
How one’s assets will be transferred is among several topics to be addressed in estate planning.
Simply allocating your properties without proper planning and expert advice could burden your heirs with estate taxes and applicable obligations. For starters, the estate tax is 6% of the net estate since the Tax Reform for Acceleration and Inclusion (TRAIN) law was implemented. This has to be paid within a specified period.
Different rules and requirements also govern the handover of a specific property or asset. For example, transferring a real estate property such as an ancestral house to heirs is different from transferring stocks and bank accounts.
Consider beginning your succession plan as soon as you have amassed real and personal properties of considerable value. This will give you enough time to explore your options and set things in order. Remember: You need not be a billionaire or diagnosed with a terminal illness to get started on these matters.
Below are some of your options for transferring an estate:
- Single legal entity. Setting a one-person corporation (OPC) for each heir may be ideal for heftier estates that involve revenue-generating assets.
Here, the estate owner transfers specific properties to each OPC belonging to an heir. Although it’s not the easiest nor fastest solution as it requires SEC registration and BIR reporting, it may work in the long run because it would allow your heir to deduct business costs as they continue managing the assets they inherited from you. - Distribution of liquidated properties. Some estate owners may consider selling the properties (real estate, vehicles, and other valuable possessions) while they’re still alive to ensure that the seamless allocation of the properties is carried out in their presence. Instead of estate tax, though, other obligations such as capital gains tax and donor’s tax should be considered when going with this route.
- Inheritance planning solution. An insurance product designed specifically for inheritance and wealth transfer may be one of the safest and most efficient ways to leave a lasting legacy.
Legacy Steward, AXA Philippines’ dedicated inheritance planning solution, helps ensure that your pamana is passed on properly and peacefully giving your loved one’s reassurance when they need it the most. Built with the goal of making wealth transfer easier and optimized for Filipino families, it provides the liquidity and guidance your heirs may need during a difficult time, especially when it comes to settling estate tax. This is one of the biggest challenge most heirs are unprepared for, which sometimes forced them to sell inherited properties at lower prices just to cover the significant estate tax expenses under the Philippine law. But with an inheritance planning solution, like Legacy Steward, you can provide your loved ones with a lump-sum cash benefit that is tax-exempt to help pay for these transfer costs, allowing them to preserve your assets and avoid distress sales.
Beyond financial benefits, it also offers inheritance planning support, giving you access to certified advisors trained in trust and inheritance processes and the option to seek advice from partner legal experts when needed. This gives you and your family the guidance needed to navigate the complexities of inheritance planning with confidence. - Irrevocable trusts. As mentioned earlier, the insurance payout is exempt from estate tax if the beneficiary is irrevocable. But in lieu of the estate tax, the donor’s tax has to be settled for the irrevocable trustee to legally own the property.
Note that these are initial suggestions only. A topic as intricate as estate planning, of course, needs the guidance of an expert to spare your heirs from possible headaches, disputes, and unnecessary costs arising from a poorly planned estate succession.
Know you can game plan your estate planning strategy legacy today. Call an AXA financial advisor to know more about the right tools for planning your estate.
References:
Congress of the Philippines. (2017). Republic Act No. 10963: Tax Reform for Acceleration and Inclusion (TRAIN) law. https://lawphil.net/statutes/repacts/ra2017/ra_10963_2017.html
Bureau of Internal Revenue. (2018). Revenue Regulations No. 11-2018: Implementing the estate tax provisions of the Tax Reform for Acceleration and Inclusion (TRAIN) Law. https://bir-cdn.bir.gov.ph/local/pdf/Digest%20RR%2011-2018.pdf
