Estate Planning 101: Leaving Behind a Good Legacy To Your Family

Posted by Fitz Villafuerte under Personal Finance on November 1, 2013

There’s a joke that life insurance agents often tell…

They say that if you attend a wake and you see that the spouse is sobbing quietly, then the departed loved one most probably had life insurance.

But if the spouse is loudly wailing in tears every night, then not only did the deceased had no life insurance, but most likely left a mountain of financial debt to the family.

Kidding aside, the death of a loved one is always hard, and certainly – the last thing that we want to give our family when we die is a financial problem on top of their grief.

Fortunately, there is what we call Estate Planning.

What is Estate Planning?

It is simply, planning for your death. It involves many tasks, all of which ensures that your passing does not put financial strain on your family.

What are those tasks?

Estate planning has many elements. Lawyers, life insurance agents, financial planners, bank trust officers – each one will have their own list of tasks and requirements.

But for me, these are the most important things you must do:

  • Avail a memorial plan, which includes arranging and paying for the expenses that will be incurred at your funeral
  • Write a last will and testament, which clearly states how you want to distribute your assets to your family, friends, relatives and yes, even your creditors
  • Assign an executor of your will, which if possible, one who is NOT among your beneficiaries to avoid conflict of interest, thus it’s recommended to hire a trusted lawyer or an accountant for this


Why is it important to do Estate Planning?

There are three main reasons. First, to avoid strain in family relationships. You don’t want your spouse, children (both legitimate and illegitimate), and your other relatives fighting over who gets which, when you die.

Second, to lessen, if not eliminate, the financial implications of your death. You should know that all your assets become frozen when you die, and your family must pay the estate tax to be able to access your money and transfer ownership of your properties.

These assets include all your cash in banks, properties under your name, and all your stocks, mutual funds and other paper investments.

And third, having an estate plan allows you to leave behind a good legacy to your family. By preparing for your death, you are helping them to move on comfortably with the life you have dreamed and designed for them.


What are the tools used in Estate Planning?

Much of this depends on what and how big your estate is.

But in every case, life insurance is often the best tool to utilize as it can readily pay the estate taxes.

Setting up a trust fund for your children is also a good consideration. An irrevocable trust is considered a gift and has tax exemptions up to a certain amount.

Some people “sell” or “donate” their properties to their heirs or future beneficiaries before they die. While this will be subject to capital gains or donor’s tax, in most instances, the amount is lesser than the estate tax.

However, do remember that there is one problem in prematurely giving your assets to your heirs – they might squander it like in the Parable of The Prodigal Son.

Such is the case of someone I know who “donated” her house to his son, who immediately sold it to pay his gambling debts. Now, she’s living in a rented apartment instead of her dream house. It’s a tragic story, but it happens more often than you think.

Lastly, you can also set up and transfer your assets to a family corporation. This is especially good if you’ve acquired a substantial amount of properties (and businesses). Not only is the transfer tax-free, but you continue to have control over your assets through the corporation.

Later on, the shares of stock may be sold to the intended beneficiaries, which will be subject to lesser tax compared to estate tax.


In Conclusion

Preparing for our death is something that we, Filipinos, don’t like to talk about.

I know because I’ve had a hard time opening up the subject of estate planning to my parents, especially with my mother. There will be challenges, and you need to be patient but persistent.

Moreover, remember that there is no one-size-fits-all estate plan.

It should be customized according to your objectives and circumstances, by using a combination of the tools mentioned above and many more.

Lastly, it’s always best to consult a financial planner and a legal expert when it comes to these things because our laws, especially on taxes, change every so often.

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Photo credits: figgentravel and notarim


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9 Responses to “Estate Planning 101: Leaving Behind a Good Legacy To Your Family”

  1. Carlos says:

    Great article Fitz!

    I was hoping you could help me understand better the family corporation option. if you die, without selling your shares, I take it that it’s still subject to estate tax? And if I do sell, it’s subject to capital gains right, which would be 6%? (or donate piece by piece at 0% tax per year if less than 100k?

    And if I do have a family corporation, are there annual or regulatory requirements to comply with? And is it possible to have a family corporation that has no other assets or business other than holding my properties like houses, cars, or bank accounts?

    Sorry to lay it all on you. I tried searching for the info but almost always the answer is a few lines that it’s possible and the initial transfer is tax free…

    Thanks! ๐Ÿ˜€

  2. Fitz says:

    Hi Carlos, I’m also trying to learn about this.

    At present, all I know is that it’s the corporation that owns the properties, and you just own shares of it, which upon your death, can be transferred to your spouse without capital gains tax.

    However, this should be stated in the Shareholder’s Agreement of the company… that this will be done in case of death of a shareholder.

    So yes, the initial transfer is tax free.

    While this is a real advantage, a family corporation is still a corporation and would need to file regulatory requirements and pay fees for compliance.

    I’ve talked to a lawyer about this (but not in good detail), he says that a family corporation with P2.5M worth of assets or less would pay around P18k a year for the maintenance.

  3. Carlos says:


    So that’s the benefit – (possibly) tax free transfer upon death. 18K a year seems steep, though. 2.5M is like a 60sqm condo in a not-so-fancy location (or decent house and lot somewhere not so near the heart of the metro). It’s probably worth it if the business is actually making money, and the assets are really large.

    Thanks Fitz! ๐Ÿ˜€

  4. benjamin says:

    dear carlos & fritz,
    tax exempt transfer (properties for shares of corp) as contribution is provided in the tax code. however, it is not easy to get bir approval on this of late. once a corporation is formed, the reglamentary requirements follows, among others, monthly filing of vat or percentage tax, quarterly income tax, annual income tax, books of account, SEC annual report, etc. it is not totally tax free at time of death. the tax is lesser,though, i.e., 10% of the value of the shares based on the book value in most cases, unless market is determined. chances are the book value is lower than the market value. these are what i know. tax bracket for estate tax is 20% on excess over 10 mlln php.

    irrev trust needs to pay donor’s tax upon setting up. max rate 15%. advantage here is that the donor can set the conditions when the amount be released to beneficiary. the bank gets a fee for handling this.

    you need somebody to run around for you. if you consider filing of the required returns and reports, 18k per annum is quite reasonable.

  5. Ron Magsalin says:

    The transfer of properties to a corporation is tax-free. The estate owner no longer has any liability for the properties transferred to the corporation. However, what will be included in his gross estate when he dies would be the shares of stocks owned by him and is still subject to estate tax.

    Upon transferring, you can lower the value of the stocks much much lower than the value of the properties being transferred to the corporation.
    You can sell your shares of stocks to your family member with the same price or minimal gains so the tax to be paid for the sale is minimal or almost zero.

    Some disadvantages:

    Loss control over the properties

    Delayed Tax: although the transfer of the properties may be tax-free, when there’s a need to liquidate the properties of the corporation, the sale of the said property may subject to a higher tax.

    Shares of stocks still form part of the estate

    BIR requirements

    Distribution limitations

  6. carol says:

    I started a family corporation with the idea of putting all our properties under the corporations name. my family agreed to go with this idea because we really paid a lot in taxes when my dad died and the property was under his name. so we thought, it’s like we have to pay that much to bir everytime someone dies? how can my kids handle this if I die and they’re still young? so that’s how it started…i really dont know yet if im doing it right as it’s only been 6 months since we incorporated. but as i understand it you have to treat it like a business, and comply with all the requirements of the bir and sec even if you are not really making any money. the idea is protecting your wealth and assets long term. i havent really thought about what happens if one of the family member or incorporator dies in the corporation, but i guess you just replace the incorporator with another family member as it is with regular companies, and thereby avoiding any transfer tax…i guess i just want to say if you have a lot of properties you will inherit and you have siblings and kids.. best to go for the family corporation coz taxes are really a bummer when you have to transfer your estate. HIre an attorney and an accountant too!!!

  7. Ron says:

    Incorporation – Properties of the person are transferred or assigned to a corporation in exchange for shares of stocks, thereby the property is now owned by the corporation.

    Under the Tax Code of 1997, the transfer or assignment of property in exchange for shares of stock in a corporation are not
    subject to tax on the transfer therein.

    In exchange of property for shares of stocks, the owner loses title to the property, but now owns shares of stocks in the corporation.

    The owner of the shares of stocks have now the option to do the following : Sale, Donation, hold on to shares.


    Property is no longer in the hands of the owner no longer part of estate and no more estate taxes on the property.

    Certain Consequences

    Loss of control over the property. Liquidation of property is a hassle.
    Delayed tax transfer. Shares of stocks still form part of estate. Distribution limitations to family and children

  8. […] Estate Planning 101: Leaving Behind a Good Legacy To Your Family […]

  9. Xer says:

    Sir, Can the in trust fund of Col Financial be a tool against estate tax?

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