Writing about estate planning sounds about as exciting as binary coding. You know what to expect, death and taxes, and zeroes and ones. Yet in binary coding, when all the zeroes and ones are combined, amazing feats of computing are achieved. In estate planning, when death and taxes intersect, amazing feats of malversation arise. That’s an admittedly cynical take, but it is a sad reality, particularly for the wealthy. It is also a necessary angle to illustrate the importance of estate planning.
More on money:
- Why you might be the fixed income assets type
- How to spend your Christmas bonus like a winner
- What if you win the lotto: Priceless wisdom on the billion peso question
- The breadwinner’s guide to the afterlife, or how to provide for your family after you’re gone
When my mother died in 2007, my father gathered me and my siblings in our dining room to discuss what would happen to her estate. My mother, god rest her soul, did not write a last will and testament. It was hard for the family to even think about estate planning, even though my mother was battling breast cancer. Sadly, that’s often the case with families here in the Philippines. The topic of planning for one’s death is too taboo to discuss, even when death is already knocking on the door. It’s as if writing down an estate plan is tantamount to surrendering to death. So after my mother’s passing, it fell to my father to decide how her earthly belongings would be divided. There was not much argument. We all quickly accepted how my father divvied up the assets. There wasn’t much to be divided to begin with since most of my mother’s holdings were also in the name of my father. Overall, the exercise felt like a cold formality. Still in mourning, my siblings and I chose not to act upon my father’s instructions until years after. That led to complications including headaches from penalties on unpaid estate taxes, and even some family tensions over documentation issues. Lesson learned.
However, even the best laid estate plans can go awry. The recent passing of well-respected banking tycoon George Ty helps to put this into perspective. The man behind Metrobank, Toyota Philippines, and GT Capital left behind a last will and testament. His companies professionalized early, and went public through the Philippine Stock Exchange. By all accounts, Ty’s empire had shed the stigma of family owned corporations, which includes uncertainties related to succession plans and ownership structure. Yet a scandal over Ty’s relatives fighting over his estate still erupted earlier this year, months after he passed away in November 2018. Ty had a plan for his estate, estimated at $2.5 billion, but fighting over his estate could not be avoided. That’s another reason not just to engage in estate planning, but to ensure such plans are done well, and entrusted to professionals for proper execution.
Problems with big business
Even actual estate planning can be troublesome, particularly for listed companies. Michael G. Tan recently sold a sizable chunk of his shares in the family’s holding company the LT Group. Two hundred thirty-three thousand shares sold at P15.32 each for a total of P3.6 million. He was left with 1,100 shares. This created some speculation in the stock market as to why he was unloading so much stock in the family business. It was later revealed the sale resulted in Tan having the same number of shares as his siblings, Vivienne K. Tan, and Lucio “Bong” K. Tan Junior. More importantly, Vivienne and Bong are the offspring of Lucio Tan and his first wife Carmen K. Tan, who herself has 2,200 shares in the holding company. It is tough to say what exactly is going on with the estate of the elderly Lucio Tan, who is midway through his 80s, but it’s safe to say everyone involved is jostling for a piece of the pie. Tan has an estimated net worth of $3.9B with companies including Philippine Airlines, The Philippine National Bank, Asia Brewery, and Philip Morris Fortune Tobacco. It should go without saying, but failing to plan for the distribution of Lucio Tan’s estate would be disastrous not just for his family, but for the thousands of employees of his companies as well.
Getting back to the topic at hand, the textbook definition of “estate” is “all the money and property owned by a particular person, especially at death.” Estate planning is simply the management of those assets, while minimizing estate taxes. Estate taxes are taxes on the net value of the estate of a deceased person before distribution to the heirs. There are professionals who specialize in tax avoidance, or the utilization of tax laws to minimize taxes paid out to government in transactions including estate planning. One such expert is Mon Abrea, consultant of the Bureau of Internal Revenue. Abrea is actually advocating for families that have not distributed the estates of long dead relatives to finally do so.
The reason, President Rodrigo Duterte has implemented an estate tax amnesty, allowing delinquent estate tax payers more lenient terms to settle their debts to government, and finally gain true ownership of assets still under the names of long gone loved ones. Abrea explains, “instead of the maximum rate of 20 percent, plus 25 percent surcharge, and 20 percent interest per year, the estate tax rate (under the amnesty) is only 6 percent based on the value at the time of death, and all interest and penalties will be waived. You have to start completing all the documentary requirements as the amnesty period will only last for two years from June 15, 2019.”
The amnesty however is not open to everyone. Abrea says you are qualified “if your loved ones died on or before December 31, 2017.” There is one big drawback with the Duterte Administration’s estate tax amnesty. Abrea says “the amnesty must be paid in full, no installment or terms of payment is allowed. In case the tax due is zero, a minimum of P5,000.00 will be due per transfer.” This is a real opportunity for families who have not distributed assets of long gone relatives due to delinquent taxes. Government also sees it as a way to unlock real estate all over the Philippines, long forgotten due to unresolved ownership issues and undistributed estates.
Before paying estate taxes, make sure there’s an estate to leave behind. Making a list of all assets is a good way to start an estate plan. It can also be a self-esteem booster, or a rude wake-up call. Either way, get it done. List it all down, figure out what goes where. This can include funeral plans, such as cremation or burial rights. There are also ways to pay for funeral expenses, to lighten the load for grieving family members. The larger funeral homes have lots of options, including fun tidbits like technicolored caskets.
A family lawyer, a close accountant, or a confidant will be needed to sort out the distribution of assets such as land, money, other financial assets, and jewelry and other valuables. This guardian needs to be a trusted person. Choose wisely. Executing documentation such as a special power of attorney or S.P.A. to empower guardians would also be wise.
When to update
Don’t forget to update it as well. I hope to update my will every year, because I really don’t have any plans on dying anytime soon. A good rule of thumb is to update estate plans after significant purchases like a house or a sizable long term investment. It’s also a good idea to update such plans after welcoming new family members. Children and grandchildren would be preferred. New spouses tend to be problematic.
Life insurance plans are one way to plan for death. Picking one of those out is another story altogether, but insurance plans are definitely the right way to go to ensure loved ones get specific amounts following an untimely demise. It is also a good way to go if the “listing down of all assets” step served as a rude awakening. For the optimistic, there are provisions for the owner of life insurance plans to get compensation, if the owner outlives the policy. Life insurance policies also ensure a professional will take care of loved ones left behind.
Aside from estate planning being a no brainer, a last will and testament could also serve as a personal farewell to loved ones, and this is often the case. I’ve heard a lot of stories wherein deep family wounds are instantly healed by sincere, hand-written words of either forgiveness or remorse. I’ve also heard a lot of beautiful stories wherein simple, relatively valueless items become powerful tools for catharsis, affection, and intimacy. Yes, these can also be included in an estate plan. Sometimes, the distribution of sentimental keepsakes with no real commercial value could mean the world to loved ones. An old and worn book, a favorite reclining chair, even a trusty set of pots and pans can and should be distributed to family. They would probably appreciate them more than the garbage collector. These kinds of things also help soften the blow from the death of a family member.
I don’t know if estate planning still sounds like a bore. At this point, it might even sound like a huge chore. For some, it may even still be taboo. But sitting down and writing something down to ensure no loved one is left with nothing is a worthy and smart endeavor.