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. - Life insurance. An insurance product designed for its intended purpose may be the safest way to leave a legacy.
Asset Master, an insurance-investment plan offered by AXA Philippines, helps ensure your loved ones enjoy the level of lifestyle you’d want for them even if you’re no longer around. Aside from the speedy release of the death benefit, proceeds from the insurance payout of irrevocable beneficiaries are tax-exempt. This disbursement may be used immediately to cover expenses related to the burial and transfer of titles.
The investment component of the insurance plan is also invested in the chosen funds of the policy owner while the policy remains active so that it can continue to assist in wealth growth before the policy terminates. - 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.
- 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.
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.
