ESTATE PLANNING

One of the greatest gifts you can leave your survivors is an organized estate. The time you spend now will help your loved ones to cope later, and also will ensure your wishes will be carried out.

If you've been successful in managing your money throughout your life, you'll likely want to decide what happens to it when your life comes to its end. You need to plan your estate.

Estate planning means arranging how you will leave your money and property when you die and what you intend to leave for your spouse, children or other family members. It involves a variety of topics, including: writing your will and naming someone to be responsible for carrying out your wishes deciding who will look after your children if you die while they are minors distributing assets during your lifetime arranging your assets so that you will pay only the minimum taxes necessary arranging insurance to cover costs, provide for your survivors and pass on assets arranging who will handle your affairs if you become unable to manage them yourself, and giving them directions.

Estate planning is generally guided by three rational motivations 1. Provide adequately for family members and/or other loved ones 2. Ensure that your estate is distributed in the most timely manner possible after your death 3. Minimize taxes – during your lifetime and, equally important, for the beneficiaries of your estate

... and three emotional motivations 1. Gain comfort from knowing your loved ones are well looked after 2. Feel secure knowing that settling your affairs will not add more stress to those grieving for you 3. Rest assured that your estate will be distributed the way you wish

Creating your estate plan – Step by step Step 1: Consult and retain appropriate professionals. The complexity of your situation will determine the assistance you will require from professionals to create your estate plan. Your team may include an advisor, lawyer and tax planner.

Creating your estate plan – Step by step Step 2: Draw up a household balance sheet. A household balance sheet is a summary of your financial situation that ultimately determines your overall net worth. Your net worth is the value of your assets (what you own) minus your liabilities (what you owe). If you don’t already have one, work with your advisor to develop your household balance sheet.

Creating your estate plan – Step by step Step 3: Understand your life insurance needs. It’s important to work with your advisor or insurance expert to match your long-term financial objectives with your insurance needs.

Creating your estate plan – Step by step Step 4: Draw up your Will.

Creating your estate plan – Step by step Step 5: Establish power of attorney for property. At some point in the future you may be unable to make your own financial or personal care decisions. But you can prearrange for someone to make these decisions according to your wishes by having a lawyer draft a separate power of attorney for property and personal care.

Creating your estate plan – Step by step Step 6: Plan your funeral.

Creating your estate plan – Step by step Step 7: Name your beneficiaries.

Creating your estate plan – Step by step Step 8: Keep track of accounts and important information. One of the most difficult roles for an executor and family members is gathering the information required to settle the estate. Eliminate this concern by centralizing all household information from birth certificates, passports and other legal documents, to bank accounts and insurance policy numbers, to phone company and hydro account details. Once you have documented your important information, store a copy in a safe place and let someone close to you know where it is.

Creating your estate plan – Step by step Step 9: Give some of your property as gifts before your death.

Creating your estate plan – Step by step Step 10: Protect your business with succession plan.

Creating your estate plan – Step by step Step 11: Establish an irrevocable trust.

Creating your estate plan – Step by step Step 12: Transfer by sale.

Creating your estate plan – Step by step Step 13: Incorporate a family corporation.

Creating your estate plan – Step by step Step 14: Let someone know. After you have gone through all the steps of developing an estate plan, the final piece of the puzzle is communication. It’s really important to communicate your plans to a family member or close friend whom you can trust, and who is capable of working with your advisor to execute your estate plan.

Creating your estate plan – Step by step Step 15: Review and update regularly. Review and, if necessary, update all information at least once a year. By updating your estate plan, you’ll get a snapshot of where you are on an annual basis. This gives you the opportunity to trace your progress and, if need be, to revise your financial plan to get you where you want to go.

Applicable Taxes

Estate Tax is a tax on the right of the deceased person to transmit his/her estate to his/her lawful heirs and beneficiaries at the time of death and on certain transfers, which are made by law as equivalent to testamentary disposition. It is not a tax on property. It is a tax imposed on the privilege of transmitting property upon the death of the owner. The Estate Tax is based on the laws in force at the time of death notwithstanding the postponement of the actual possession or enjoyment of the estate by the beneficiary.

Tax Rates Effective January 1, 1998 up to Present If the Net Estate is Over But not Over The Tax Shall be Plus Of the Excess Over P 200,000.00 Exempt 500,000.00 5 % 2,000,000.00 P 15,000.00 8 % 5,000,000.00 135,000.00 11 % 10,000,000.00 465,000.00 15 % 1,215,000.00 20 %

Deadlines File the return within six (6) months from decedent's death. However, the Commissioner may, in meritorious cases, grant extension not exceeding thirty (30) days. When the Commissioner finds that the payment of the estate tax or of any part thereof would imposed undue hardship upon the estate or any of the heirs, he may extend the time for payment of such tax or any part thereof not to exceed five (5) years in case the estate is settled through the courts, or two (2) years in case it settled extra-judicially.

What are included in gross estate? For resident alien decedents/citizens: a) Real or immovable property, wherever located b) Tangible personal property, wherever located c) Intangible personal property, wherever located

What are included in gross estate? For non-resident decedent/non-citizens: a) Real or immovable property located in the Philippines b) Tangible personal property located in the Philippines c) Intangible personal property - with a situs in the Philippines such as: - Franchise which must be exercised in the Philippines - Shares, obligations or bonds issued by corporations organized or constituted in the Philippines - Shares, obligations or bonds issued by a foreign corporation 85% of the business of which is located in the Philippines - Shares, obligations or bonds issued by a foreign corporation if such shares, obligations or bonds have acquired a business situs in the Philippines ( i. e. they are used in the furtherance of its business in the Philippines) - Shares, rights in any partnership, business or industry established in the Philippines

What are excluded from gross estate? GSIS proceeds/ benefits Accruals from SSS Proceeds of life insurance where the beneficiary is irrevocably appointed Proceeds of life insurance under a group insurance taken by employer (not taken out upon his life) War damage payments Transfer by way of bona fide sales Transfer of property to the National Government or to any of its political subdivisions Separate property of the surviving spouse Merger of usufruct in the owner of the naked title Properties held in trust by the decedent Acquisition and/or transfer expressly declared as not taxable

Donor’s Tax Donor’s Tax is a tax on a donation or gift, and is imposed on the gratuitous transfer of property between two or more persons who are living at the time of the transfer. It shall apply whether the transfer is in trust or otherwise, whether the gift is direct or indirect and whether the property is real or personal, tangible or intangible.

Tax Rates Effective January 1, 1998 to present (Republic Act No. 8424) Net Gift Over But not Over The Tax Shall be Plus Of the Excess Over 100,000.00 exempt 200,000.00 2% 500,000.00 P 2,000.00 4% 1,000,000.00 14,000.00 6% 3,000,000.00 44,000.00 8% 5,000,000.00 204,000.00 10% 10,000,000.00 404,000.00 12% and over 1,004,000.00 15%

Donation made to a stranger is subject to 30% of the net gift Donation made to a stranger is subject to 30% of the net gift. A stranger is a person who is not a: brother, sister (whether by whole or half blood), spouse, ancestor and lineal descendants; or relative by consanguinity in the collateral line within the fourth degree of relationship.

Deadlines Within thirty days (30) after the date the gift (donation) is made. A separate return will be filed for each gift (donation) made on the different dates during the year reflecting therein any previous net gifts made during the same calendar year. If the gift (donation) involves conjugal/community/property, each spouse will file separate returns corresponding to his/ her respective share in the conjugal/community property. This rule will also apply in the case of co-ownership over the property.

Capital Gains Tax Capital Gains Tax is a tax imposed on the gains presumed to have been realized by the seller from the sale, exchange, or other disposition of capital assets located in the Philippines, including pacto de retro sales and other forms of conditional sale.

Tax Rates: 6%. Deadline Within 30 days after each sale, exchange, transfer or other disposition of real property.

Lessons’ Learned: It is important to have an organized estate plan. There are several ways and tools to create an estate plan depending on one’s goals. Taxes differ depending on the type of transfer of property that is used. An estate plan will secure that one’s property is properly taken care of and is distributed to those who will be left behind by the decedent.

Thank you.