In its entirety, estate planning is unique based on the assets, relationships, beneficiaries and personal wishes of the grantor. It’s critical to preserving inheritance wealth you’ll give to your children. The planning includes leaving assets to heirs, settlement of estate taxes and debts, along with other considerations like education of minor children and the need to have prenuptial agreements on properties to keep them within the respective families of bride and groom particularly if big amount of family wealth is involved.
There are more prenuptial agreements forged between brides and grooms since the Family Code took effect on August 3, 1988. Under the Family Code, the Absolute Community of Property governs the property regime. More families now, on the practical side, have encouraged about to be married heirs to undertake prenuptial agreements. A prenuptial or marriage settlement agreement is a contract whereby the bride and the groom agree on the property regime to govern their marriage, thereby keeping ownership of respective properties within their respective families.
All told, an estate plan would likely avoid costly and potentially devastating family strife and legal fights and the settlement of estate taxes legally.
During the early years of my commercial and investment banking career, doing treasury/trust and private banking jobs in two big local banks, estate planning then was widely considered by many banks’ clients as something only for high-net-worth families. It has taken awhile, but now, estate planning is much better appreciated.
However, there are other points to consider. You should first figure out your loved ones’ long-term needs; then realistically assess your personal situation as regards your accumulated wealth, counting on its positive impact on the future lives of your beneficiaries.
As it is, computing the estate tax is no longer that complicated. Before, the estate tax rate was computed based on the value of the net estate of the decedent. Now, under the new TRAIN law, the estate is subject only to a flat rate of 6%. Under the old Tax Rule, withdrawals up to Php20,000 were allowed, but the new TRAIN law has increased allowable withdrawals from the deceased person’s account to any amount, subject only to a 6% final withholding tax. This represents a significant step in encouraging taxpayers to consider making an estate plan. After all, estate planning, as a whole, is all about transferring your assets to your loved ones plus paying smaller tax burden on the assets transferred.
This seems like the proper time to point this out. Every move in estate planning is only as good as its implementation. Take the case of the legendary investor Warren Buffett; he is very clear why he isn’t leaving lots of money to his children. He was quoted as saying “My kids are going to carve out their own place in this world, and they know I’m for them whatever they want to do.” But he believes that setting up his heirs with “a lifetime supply of food stamps just because they came out of the right womb” can be “harmful” for them and is “an antisocial act”. To him, the perfect amount to leave children is enough money so that they would feel they could do anything, but not so much that they could do nothing.
Warren’s best friend, Bill Gates, the majority owner of Microsoft, who like Warren is on the list of top 10 multi-billionaires in the world, has publicly expressed similar reason and sentiments like that of Warren as to the amount of limited inheritance to be given to their children. By the way, United States today has more than 400 billionaires.
A word of advice. Do not force yourself to go into estate planning, make an effort first to understand it better before you decide.
Atty. Abelardo “Billy” Cortez is formerly FINEX national president. He’s board director of IAFEI (International Association of Financial Executives Institutes) as well as independent board director at First Metro Investment Bank’s companies/subsidiaries (Metrobank Group). He’s an awardee of the Most Distinguished Bedan Alumnus in the field of banking and finance from San Beda College.
The views and opinions expressed above are those of the author and do not necessarily represent the views of FINEX.