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Category: Estate Planning

  • How to Sell the Property of a Dead Relative

    “Death is inevitable. Yet, oftentimes difficult to accept.”

    – Ernesto C. Perez II, Real Estate Broker, Attorney and Blogger

    By Realttorney®

    Photo by Pixabay on Pexels.com

    Death. It is inevitable. It cannot be postponed or forestalled. It is a part of the “circle of life” and the ones left behind are tasked to continue on. The matter of organizing the affairs of the dead is a tedious and, oftentimes, emotional task for the loved ones left behind.

    Some decide to tackle it head-on and as quickly as possible. Others sweep it under the rug for a myriad of reasons. Most of the time, for lack of financial resources to pay whatever is due to the government, or no one has an idea of where to start and how to go about the entire process.

    I have previously written 4 articles on the topic of settlement of estate or estate settlement. It is the most widely read topic (apart from the topic of homeowner’s association) on the old website. It is the topic where I have engaged the most number of readers.

    In the article What does it mean to settle the estate of a deceased person in the Philippines? my main message here is that the settlement of the estate of a deceased person is an intricate process. It cannot be easily done by anyone without the assistance or guidance of an experienced professional. Articles that have been published in various blogs and websites cannot replicate a face-to-face meeting with the professional of your choice. Oftentimes, the process is really very complicated due to the presence of children with special needs, children from a previous marriage, illegitimate children, spendthrifts in the family, and in-fighting among the heirs, to name a few.

    As with the prior articles, this step-by-step guide will cover only the method of settling the estate of a dead person extra-judicially. If the deceased left a will before his death then that subject matter will be discussed in a future article to assist those who need it.

    Once the registered owner of real and personal properties passed away – just recently or a long time ago – such properties cannot be sold, transferred, or conveyed by the heir or heirs without undergoing a specific process known as the settlement of the estate of a dead or deceased person.

    The process of extrajudicial settlement of an estate is the same if the deceased died with just one property registered in his name or more than one. The only difference is in the amount of documentation that is prepared and submitted to the appropriate government agencies.

    An important reason why we need to settle the estate of a dead relative is because we need to pay the correct amount of taxes – in particular, the estate tax. I highlighted 3 reasons why paying proper estate tax is necessary in 3 Reasons Why You Should Pay the Correct Amount of Estate Tax. Making it appear that the registered owner of the properties – real or personal – is alive and signed the transferring document is a dangerous scheme in this day and age of a highly computerized Bureau of Internal Revenue (BIR).

    I have always dissuaded people who ask me if they could just sign a Deed of Absolute Sale or any conveyance document that would make it appear that the registered owner is still alive at the time of sale even though he or she has been dead for quite some time.

    This article is best read in conjunction with 6 Steps in Settling the Estate of a Dead Person in the Philippines. I have outlined my best tips for selling real properties registered in the name of a dead relative or parent.

    So, what is the first step to take when faced with a situation where a relative has passed away without a will, and several heirs want to sell the properties in the name of the deceased relative?

    1. Make sure that you know all the surviving heirs. You must know all the surviving heirs of the registered owner. If one of the heirs is not included in the extrajudicial settlement of the estate then the said document is subject to legal challenge once the excluded heir learns about the disposition of the property of his/her dead relative.
    2. Make sure that you negotiate with the surviving heir or the attorney-in-fact of the surviving heirs. This is important especially if the surviving heirs number more than four individuals. It is very hard to negotiate the purchase of a property if the person who is negotiating opposite you cannot bring all his/her relatives to an agreement on important provisions of the sale, like price and terms of payment. It is very frustrating when one or a few heirs change their minds as often as the sun rises and sets. The person negotiating for and on behalf of the heirs must be fully trusted by the surviving heirs themselves. Otherwise, the transaction may go to waste in the end when a dispute arises among and between the surviving heirs.
    3. Make sure that the surviving heirs can sign the necessary documents pertinent to the settlement of the estate and the eventual sale. Once you have accounted for all of the surviving heirs, it is important to know whether they can sign the necessary documents that are needed to make the estate settlement and eventual sale legal and above board. What documents are we talking about here? First, if the heirs are living in different localities and far away from each other, ask if they are willing to sign a Special Power of Attorney to appoint a person (preferably another surviving heir) who will sign any and all documents pertinent to the settlement of the estate and the sale of the property.

    Secondly, the surviving heirs and/or the attorney-in-fact need to sign and execute a Deed of Extrajudicial Settlement of the estate of a dead person. This is the document that will be submitted to the BIR for processing of the settlement of the estate, along with the payment of the appropriate estate tax. A few weeks later, a Certificate Authorizing Registration (CAR) will be issued by the BIR so that the properties can be transferred in the names of the surviving heirs.

    Thirdly, the surviving heirs and/or the attorneys-in-fact shall sign and execute a Deed of Absolute Sale of the property that is picked to be sold to the prospective buyer (assuming there are several real properties). This Deed of Absolute Sale is the transferring document that will be submitted to the BIR for processing of the sale transaction, along with the payment of the capital gains tax and documentary stamp tax and a copy of the CAR for the settlement of the estate. Thereafter, another CAR will be issued by BIR so that the property sold can be legally transferred in the name of the prospective buyer.

    The guideline discussed above is best used when the deceased registered owner has more than one real property and the prospective buyer is merely interested in the purchase of only one property. But, what happens when there is only one real property that is registered in the name of the deceased relative?

    In such a case, the surviving heirs and/or the attorneys-in-fact shall a Deed of Extrajudicial Settlement of Estate with Sale. This simplifies the documentation process. And, this document is allowed to be processed by the BIR after the payment of the estate tax, capital gains tax, and documentary stamp tax. The resulting CAR to be issued by BIR will be two – one for the settlement of the estate and the other for the sale of the property.

    Our office has done more than seventy-five (75) transactions, similar to this, since 2013 to the satisfaction of our clients (the surviving heirs) and the prospective buyer and eventual owner of the real property.

    A final important note should be made before we conclude from the prospective buyer’s viewpoint. Please make sure that the surviving heirs – whether they sign a Special Power of Attorney, a Deed of Extrajudicial Settlement of Estate, or a Deed of Extrajudicial Settlement of Estate with Sale – personally appear before the notary public for the notarization of these vital documents.

    Never proceed with the transaction where a surviving heir hands over a notarized SPECIAL POWER OF ATTORNEY purportedly signed or executed by all of the surviving heirs. As a prospective buyer, you have to be better than that. Part of legal due diligence is finding out if all the surviving heirs are still alive during the negotiation phase and the close phase of the deal. Take everything that is said by the representative of the heirs with a grain of salt.

    We expect transactions similar to the one we outline above to rise in the coming months due to the passage of Republic Act No. 11956 which extended the period to avail the Estate Tax Amnesty until June 14, 2025. We have numerous clients that have taken advantage of this law already.

    Briefly, the Rep. Act No. 11956 shall cover the estate of decedents who died on or before May 31, 2022, with or without assessments duly issued therefor, whose estate taxes have remained unpaid or have accrued.

    The estate tax amnesty rate is 6% based on the decedent’s total net estate at the time of death. This rate is similar to the new estate tax rate imposed by Republic Act No. 10963, otherwise known as the Tax Reform for Acceleration and Inclusion [TRAIN] Act, on January 1, 2018.

    For now, our call to action for everyone is to tell your friends, relatives, and loved ones to avail of the Estate Tax Amnesty. It is a law that has effectivity saved our clients a great amount of money instead of giving it to the government in the form of penalties, interest, and surcharges.

    ——-

    Atty. Jojo is a real estate attorney, an estate planning attorney, a licensed real estate broker, and a PRC-accredited Lecturer/ Speaker for Training Programs in Real Estate. He is a Chartered Trust and Estate Planning (CTEP®) professional who is committed to educating Filipinos about the value and importance of having an estate plan in their lives.

  • Now is the Time to Talk About Your Estate Plan

    “Making an estate plan is taking action from the heart. Estate planning is a gesture that comes from a place of love and caring for those who depend on you.”

    – Connie Aschenbrenner Estate Planning Attorney in the State of Alaska
    Photo by Mike Bird on Pexels.com

    By Realttorney®

    It is ten days before the end of the year. Typically, you will see on television programs the yearend reviews about the economy, and specific sectors or industries in the Philippines. Sadly, part of this yearend review consists of recalling personalities or celebrities who suddenly and unexpectedly passed away during the year.

    Think about your situation now. If you suddenly die tomorrow, what will happen to your immediate family – your spouse and children or your old parent living with you? How will be taken care of? Who will care for your children when they are not yet of legal age?

    Who will care for your child with special needs or an old relative depending on you for support, if this is applicable in your situation? What will happen to your properties – real and personal? Can your immediate family members continue your business venture?

    There are so many questions to ask. And the answers are very difficult to provide. But the questions can only be answered if you are willing to sit down and commit to talking about your estate plan.

    Talking about estate planning is always very difficult for a vast majority of people because most of us cannot imagine what things would be like after we die. But, I argue, that it is precisely what we should be doing – imagining what and how our loved ones would live after we are gone. We must look at and consider the different scenarios that will affect the quality of life of our loved ones when we pass away or become incapacitated for a long time.

    Every family situation is unique. Hence, every estate plan is very much different from the next. There is no one-size-that-fits-all plan when you want to set up one. Estate Planning is, according to one author, premature death planning. So, what exactly is an estate plan?

    Your estate plan is a tool where you communicate your wishes when you die or become incapacitated permanently or for a long time. It is a set of instructions to your loved ones on how you will be remembered and how they will be provided financially when you are no longer present or unable to dictate your wishes personally. It is also a road map on how your debts and other liabilities will be settled, as well as how the business will go on without you at the helm.

    Several days ago, the husband of a lady lawyer passed away. He was 31 years old. So much of life ahead but cut short. The couple had a two-year-old and a baby several months old, it seems. When I read the news, the first thing that came to my mind was the welfare of the children.

    The second thing was I hope the couple was savvy enough to get life insurance for each spouse and prepare a simple estate plan. Purchasing life insurance is part and parcel of an estate plan because it is one of the basic tools of estate planning.

    It does not matter whether you have a large or small estate, or you are just starting out in life; whether you are single or married; or whether you are separated or estranged from your legal spouse. Every Filipino of legal age, who is gainfully employed and has dependents – young or old – for financial or economic support must have an estate plan in place, as you as possible.

    WHERE DO YOU START? If you are now convinced that you need to take this estate planning seriously, how do you begin the process? Here are my suggestions for you to consider:

    1. Research on the topic exhaustively. The first thing to do is to go to Google, type in the words “estate planning in the Philippines” in the search bar, and press ENTER. There are multitudes of articles for you to start reading. When you read these articles, please take down copious notes so that you can go back to read them after going over the rest of the articles that Google suggested.

    2. Learn about the basic estate planning tools. In your quest for information, you must know what are the basic tools that are available and applicable to the Philippine setting. There are plenty of articles about basic estate planning tools that are written by authors from the United States. Again, you must take down notes so that you know what each tool can do and what are the best tools that are needed for your situation.

    3. Take note of your current family situation. You must take stock of where you are in life when you begin the process of planning for your demise. Are your children still minors? If yes, then you must think about who you will appoint as guardian if you die suddenly.

    This is also very much true if you have a child with special needs, like me. How will your child be cared for? Who will bring your child to therapy – occupational or speech, or both? How will the cost of the therapies be paid for?

    Do you get the picture? Do you get the sense of how to go about meticulously planning for this eventuality in your life? Take notes, make a mind map, or draw a flow chart. Whatever it takes to capture your thoughts on paper, or the computer will be worth it.

    4. Talk to your immediate family or nearest of kin. It is my opinion that an estate plan should not be made or crafted in secret. You must talk to your spouse or immediate family members whom you will rely on to execute your plan to perfection. Pick out the relatives who you can trust and make them involved in the process. Get their input and comments on certain things that you want done when you are gone. Again, take note of what they say positively as well as their objections to certain things.

    Now that you have more than a handful of notes, what do you do will all this information? Learn them by heart. And when you are ready, it’s time to reach out to a professional. Estate planning is a multi-disciplinary approach to crafting your plans after you have passed. These experienced professionals – estate planning attorneys, certified public accountants, life insurance brokers, licensed real estate brokers, registered financial planners, etc. – will guide you in preparing an estate plan that is tailored to fit your needs.

    Once you have made your estate plan, with the able assistance of various professionals, please remember that its contents are not set in stone. It can be changed and revised based on the changes in your family circumstances or life-altering events that affected your health or your business.

    In conclusion, Connie Aschenbrenner said, “Don’t wait until a crisis arises to begin the conversation. In a crisis, you may not have the time to fully consider your options. Or you may be incapacitated and unable to decide on anything at all.”

    Estate Planning is more than just premature death planning. It is a protection plan for the lives of your survivors, according to Ms. Aschenbrenner. Don’t wait before it is too late. Start the process of planning your estate now. The Google search bar awaits you.

    ——-

    Atty. Jojo is a real estate attorney, an estate planning attorney, a licensed real estate broker, and a PRC-accredited Lecturer/ Speaker for Training Programs in Real Estate. He is a Chartered Trust and Estate Planning (CTEPTM) professional who is committed to educating Filipinos about the value and importance of having an estate plan in their lives.

  • Securing Your Child’s Future: Special Needs Planning in the Philippines

    “The needs and concerns of the present oftentimes overshadow the necessity to plan for the future of children with special needs.”

    – Ernesto C. Perez II, CTEP®, Real Estate & Estate Planning Attorney
    Image source: https://www.buckscounty-elderlaw.com/blog/mistakes-to-avoid-when-drafting-a-special-needs-trust/

    By Realttorney®

    No one lives forever. We are not the Eternals. But, for a parent of a child with autism (or a child with special needs), this fact engenders much anxiety, worry, concern, and apprehension on what the future will bring when we are no longer alive to provide for and care for our differently-abled children.

    But, from the viewpoint of the disability being a lifetime condition, parents of children with special needs must recognize that they need to plan way ahead, regardless of financial status in life. Yet, the needs and concerns of the present oftentimes overshadow the necessity to plan for the future of children with special needs.

    This is the reality all Filipino parents of children with special needs face because of the numerous financial challenges they face daily. In the Philippines, parents of children with special needs have far more challenges compared with other parents.

    Sen. Sonny Angara, in his article entitled, Caring for Children with Disabilities said that raising a child with disabilities in the Philippines would entail expenditures 40 to 80 percent higher compared to raising a child without disabilities. This is due in large part to the additional costs for health expenditures considering the special needs of the disabled child. On top of this is the cost of education which could very well be higher than what is required from families with children without disabilities.

    Apart from the medical and therapy expenses, and educational costs, these are some other common financial challenges of families raising children with special needs: (1) assisted care and support services; (2) income reduction or loss of employment; (3) legal and administrative expenses; and (4) limited financial assistance from the government.

    Don’t get me wrong. The benefits provided by Rep. Act No. 10754 (An Act Expanding the Benefits and Privileges of Persons with Disability) are a big help to families living with a child with special needs.

    Children with Special Needs (CSN) are exempted from 12% VAT on goods and services such as medicines, medical and dental services, professional fees, and educational supplies. CSNs are also entitled to a minimum of 20% discount on the regular retail price of basic necessities and prime commodities, including food, medicines, and essential household items. However, not all establishments comply with the provisions of the law and its Implement Rules and Regulations (IRR).

    Then we have Rep. Act No. 11650 (Instituting a Policy of Inclusion and Services for Learners with Disabilities in Support of Inclusive Education Act) that hopes to provide learners with disabilities the additional resources to support their holistic education needs that include, among others, inclusive learning resource centers featuring multidisciplinary teams of professionals, accessible materials, child find systems, public awareness raising, consultative mechanisms, family education, pre- and in-service professional development for teachers and child development workers, and an advisory council.

    Such loft goals indeed. However, in a recent article by the Philippine Information Agency, it said that according to the 2022 Country Report on Human Rights Practices in the Philippines by the United States Department of State, the law was not effectively enforced and that many barriers remain, including architectural barriers that made attendance difficult for persons with disabilities. Stakeholders and advocates have also lamented the non-issuance of the law’s IRR after more than a year since it was passed. The law was signed last March 11, 2022, by then-President Duterte.

    While government sorts out the budget of the policies crafted in existing laws designed to benefit the education of children with special needs (or disabilities), Filipino parents cannot wait. We know that it is essential for us to protect our children’s future and ensure their educational and financial well-being.

    While making sure that we can provide for the basic needs of our CSN today, Filipino parents should now look ahead and plan for the future of their family and how their CSNs will be cared for and provided for, when they (the child’s primary caregivers and financial provider) pass away. Would you delay this very important activity?

    Filipino parents cannot leave such eventualities to chance by being unprepared. The life of the CSN and his/her siblings relies on your Special Needs Planning today. In these uncertain economic times, it becomes even more crucial to take proactive steps to ensure the financial well-being of your CSNs after the parents die.

    This article will provide a comprehensive step-by-step guide to inspire and assist Filipino parents prepare a Special Needs Financial and Estate Plan. We hope that parents will be equipped with the adequate knowledge and tools necessary to navigate the process effectively.

    Step One. Assessing Financial Needs and Resources.

    Filipino parents – regardless of financial status – must conduct a thorough assessment of their child’s current and projected financial requirements, considering education, therapies, medical expenses, and quality of life.

    It is crucial for parents to determine the potential impact of future economic uncertainties on the CSNs’ financial needs and factor in contingencies for unexpected situations. So, how does one perform the assessment of the family’s current financial condition or situation and the resources available to the family?

    Initially, make an inventory of all the families’ property – personal and real – or assets. Thereafter, make a quick conservative valuation of all properties or assets. In addition, identify other valuable resources, including government benefits, insurance policies, and intellectual properties.

    Working with a registered financial planner or a certified public accountant is not mandatory here. But parents must be able to make certain computations to annualize monthly income from active and passive sources, if any. If a bit challenged, get as much information as possible through various modalities of learning on the internet like YouTube.

    Next, don’t forget to list down also the families’ current liabilities. Parents must be able to determine the net worth of the family, which must be reviewed often – annually or semi-annually. Net worth is simply total assets minus total liabilities.

    After this, make a monthly income and expense statement. This is crucial because it gives a written or concrete document that the parents can review often. And the review process – either monthly or quarterly – assists parents in keeping the financial health of the family top-of-mind.

    Step Two. Assemble Your Support Team.

    The extended family structure is a hallmark of the Philippine society. Filipino families may average seven to nine members in size living in one household. Of course, such structure brings with it added financial challenges, but these can be turned into a positive. Hence, we must take advantage of the extended family structure.

    Having said this, for Filipino parents, please be reminded that your parents (the grandparents of the CSN) are not your emergency fund. And your children (the income-earning siblings of the CSN) are not the source of special needs funds for the future. Let your other children build their own wealth and not be burdened by poorly planned eventualities in the future by the parents.

    So have a candid conversation with your parents and other children (of legal age) regarding the care and quality of life of the CSN if death or incapacity happens to you. And as such, plans should be drawn out and prepared.

    It is also important to seek guidance from professionals specializing in special needs financial planning, such as financial advisors, estate planning attorneys, and CPAs, familiar with the Philippine legal and financial systems. This is important if the estate is large, and the family dynamics complicated. There is no such thing as a DIY Special Needs Estate Plan.

    Finally, collaborate with local support organizations and advocacy groups to access valuable insights and resources tailored to the Philippine context. The connections and network within the local special needs community will give ample insights based on shared experiences, knowledge, and resources of other families similarly situated. For our family, we support and get in touch with the Autism Society of the Philippines.

    By building a support network, you can find solidarity, guidance, and potential collaborations to navigate the challenges and opportunities of special needs financial and estate planning in the Philippine context. You will know that you and your spouse are not alone in your journey of providing the best care and quality of life to your CSNs.

    Step Three. Understand Government Benefits and Support Programs.

    First, parents should familiarize themselves with the government benefits and support programs available for persons with disabilities in the Philippines, such as the Persons with Disabilities (PWD) ID, and educational assistance. We discussed the pertinent laws in the early part of this article above.

    Second, if you are a single parent (or a solo parent, as it is popularly known in the Philippines) and raising your child with special needs, then you may what to check out Rep. Act No. 8972 (Solo Parent’s Welfare Act) and its IRR to determine if the provisions of the law are applicable to your current situation.

    Kindly learn about eligibility criteria, application processes, and potential impact on other benefits and services as it applies to your family’s current situation. This law was enacted to support solo parents in mind. But, having and caring for a CSN does not disqualify a solo parent from the coverage of Rep. Act No 8972.

    Step Four. Plan for Guardianship and Decision-Making.

    When your CSN has real property in his or her name, from a donation or inheritance, then Filipino parents should consider the need for legal guardianship to protect your child’s rights and ensure decision-making continuity.

    Is this really necessary? The answer is YES. That is why Filipino parents must learn and understand the Philippine legal framework for guardianship. Unfortunately, this necessity entails costs that are too much for Filipino parents with a not-so-large estate.

    When the disability of your child is a lifetime condition, the appointment of a legal guardian is critical knowing that we, as parents, may not outlive our children with special needs. There must be a structure already in place for this eventuality.

    Hence, consult with an estate planning attorney experienced in special needs planning to navigate the guardianship process effectively.

    Step Five. Develop a Comprehensive Financial Plan.

    Apart from our own estate and financial plan, Filipino parents must collaborate with a financial advisor experienced in special needs planning to design a comprehensive financial plan tailored to their child’s specific needs and circumstances.

    Does your child need constant care from a nurse or a healthcare provider? Is he or she immobile or bedridden? Is he or she non-verbal and therefore cannot express his or her needs well? What are the chances that your child will marry in the future?

    The answers to these questions will determine the type of investment options to consider, tax strategies to follow, and potential avenues for generating additional income to support your CSN’s financial future.

    Step Six. Establish a Special Needs Trust (SNT).

    If able, Filipino parents must explore the benefits of establishing a Special Needs Trust pursuant to local regulations and legal requirements established by law. The type of trust chosen should tailor to the specific needs and circumstances of the CSN and the entire family.

    Of course, with this decision, parents should understand how to set up an SNT and what the concomitant costs related to establishing the said trust. As such, the parent must seek advice from an experienced estate planning attorney specializing in special needs planning.

    Step Seven. Maximizing Tax Benefits.

    No estate plan is worth its weight in gold if it does not optimize the tax strategies and ensure compliance with relevant tax laws and regulations. Therefore, we encourage Filipino parents to learn and understand the tax implications of special needs planning in the Philippines and explore available tax benefits and incentives.

    Collaborate with a CPA and an experienced estate planning attorney to determine the best tax strategies available for your family’s current situation and needs. Ask them about tax deductions, tax credits, and tax-advantaged savings options applicable in the current investment climate and regulatory environment.

    Step Eight. Prepare the Estate Planning Documents.

    At this point in the planning process, your estate planning attorney should be drafting the essential documents that will form your entire estate plan. A comprehensive estate plan that includes a pour-over will, trust, powers of attorney, and healthcare directives.

    Part of your estate planning documents is a detailed letter of intent to provide guidance to future caregivers regarding your child’s care, preference, and routines, consistent with the local cultural, social, and religious context.

    Step Nine. Regularly Review and Update Your Plan.

    It should be emphasized that Special Needs Planning is part and parcel of your overall estate plan. This plan is greatly integrated and critical to the rest of your estate plan that covers the needs of your other children. It is not and should never be separate from the planner’s estate plan.

    But there may be instances when the Special Needs Trust can cause problems with the parent’s estate plan because it ties up funds that may be needed until the surviving spouse passes away. So, creating a separate SNT makes funds available immediately upon the death of a parent may be the right solution for your family’s situation.

    As such, regularly review and update your estate plan to reflect changes in personal circumstances, Philippine laws, and your child’s evolving needs and situation. Also, you must be keen on the financial challenges and opportunities presented by economic uncertainties in the Philippines in the coming years.

    Thereafter, assess the need for short-term contingency plans while keeping long-term financial goals in sight for your family, children, and most especially your child with special needs. This shows that the estate plan process does not end when a set of documents have been drafted, signed, and notarized. The process is a dynamic process – one that needs reviewing and revising when circumstance change or arise in the future that changes the assumptions when the first plan was set in motion.

    How regularly should you review and adjust your estate and financial plan? Annually may be the best bet. But if there are major changes in the Philippine economy and/or your personal circumstances then you should update immediately.

    In conclusion, as a parent of a child with autism in the Philippines, engaging in special needs financial and estate planning is paramount. Why? Because it ensures my child’s future security and well-being. In these times of economic uncertainties, it is essential to navigate challenges and seize opportunities to protect your child’s financial stability.

    In the Philippines, special needs planning is about empowering children with unique abilities to reach their fullest potential apart from securing a financial legacy to ensure a future where inclusion and opportunity thrive. We do this because we love them and want the best for them.

    By following this step-by-step guide, Filipino parents can proactively prepare a Special Needs Financial and Estate Plan to secure their children’s future. Remember, by assessing your financial needs and resources, assembling your support team, understanding government benefits, planning for guardianship, developing a comprehensive financial plan, establishing a Special Needs Trust, maximizing tax benefits, and preparing necessary estate planning documents, Filipino parents can navigate the complexities of special needs planning with confidence.

    As a final note, balancing present needs with future planning is a crucial aspect of the estate planning process. Knowing that this process is a dynamic process that continues until the passing of the planner, collaborating with estate planning professional, registered financial planners, certified public accounts, insurance agents, and other professionals is key.

    Think about it now. Knowing that you may pass away and leave your child with special needs without your company, what are you doing now to prepare your child for that eventuality?

    ——-

    Atty. Jojo is a real estate attorney, an estate planning attorney, a licensed real estate broker, and a PRC-accredited Lecturer/ Speaker for Training Programs in Real Estate. He is a Chartered Trust and Estate Planning (CTEP®) professional who is committed to educating Filipinos about the value and importance of having an estate plan in their lives. He is also a parent of a child with autism.

  • Unlocking the Power of Trusts: Why Filipinos Should Consider Them in Estate Planning

    “Estate planning is an important and everlasting gift you can give to your family.”

    – Suze Orman, New York Times #1 Bestselling Author

    By Realttorney®

    Estate planning is a crucial aspect of every Filipino’s financial and personal affairs. It involves the preparation and management of one’s assets during their lifetime and the distribution of those assets after they pass away. However, despite its importance, many Filipinos still overlook the need for proper estate planning, often leaving their families and loved ones with significant legal and financial challenges.

    One critical tool that many Filipinos may not be aware of when it comes to estate planning is the use of trusts. Loosely defined, a trust is a legal arrangement where assets are transferred to a separate entity whereby a trustee is identified, who is then responsible for managing and distributing those assets according to the terms and provisions of the trust agreement. Although trusts are commonly used in other countries, they remain a relatively foreign concept to many Filipinos.

    At its core, a Trust is a fiduciary relationship established between a Trustor (or Settlor) and a Trustee. The Trustor creates the Trust by transferring assets to a Trustee, who is appointed to manage those assets for the benefit of the designated Beneficiaries named in the Trust.

    The Trustee is responsible for ensuring that the assets in the Trust are properly managed and protected on behalf of the Beneficiaries. As such, the Trustee has a fiduciary obligation to act in the best interests of both the Trustor and the Beneficiaries. This fiduciary obligation requires the Trustee to act with the highest level of care and diligence in carrying out his/her duties.

    Essentially, the Trustee must operate not just as a “good father of the family,” but as a responsible and diligent custodian of the assets in the Trust. The Trustee must always act in good faith and carry out their responsibilities with the utmost care and attention, to preserve the Trust that has been placed in them by the Trustor and to protect the interests of the Beneficiaries.

    This article aims to persuade Filipinos to consider using trusts as an estate planning tool, highlighting its benefits, dispelling common misconceptions, and addressing common concerns.

    Benefits of Using Trusts in Estate Planning

    One of the primary benefits of using trusts in estate planning is that it allows for better control and management of assets. The Trustor, also known as the grantor or settlor, can set specific instructions on how their assets are managed and distributed, providing greater flexibility and control than traditional estate planning methods. This is particularly useful for individuals who have complex family relations or dynamics, business interests, or charitable objectives.

    Another significant benefit of trusts is that it helps to avoid probate. Under our Law on Succession, a Last Will and Testament must be probated before a court for its validity to be recognized prior to the distribution of the estate to the compulsory heirs, devisee, and legatees named therein. This can be a costly and time-consuming process, as it involves legal fees and potential delays in the distribution of the assets to the heirs.

    By contrast, using a Trust can avoid the need for probate entirely. Therefore, assets can be distributed more efficiently, and beneficiaries can receive their inheritance without the need to go to court. But how is this possible?

    When assets are transferred to a Trust, they become the property of the Trust and are managed by the Trustee for the benefit of the designated Beneficiaries. Since the Trust is a separate legal entity, the assets held in Trust can be distributed to the Beneficiaries without the need for court intervention.

    But it must be remembered that the legitime of the compulsory heirs must be respected and cannot be burdened with any condition. This means that the Trustor must ensure that the rights of compulsory heirs are respected and that they receive their minimum entitlements.

    The Trust Deed or Trust Agreement is the crucial document that outlines the Trustor’s instructions regarding who should benefit from the Trust, when and how they should receive those benefits, and under what conditions. If the Trust holds hard assets, the Trustor must also specify what those assets are and how they should be distributed. Similarly, if the Trust holds cash, the Trustor must specify how much each Beneficiary is entitled to receive.

    Overall, the Trust Deed or Trust Agreement serves as a critical blueprint for the Trust and should be drafted with the utmost care and attention to detail. By specifying his/her wishes in a clear and comprehensive manner, the Trustor can ensure that his/her assets are managed and distributed in accordance with their desires, while also protecting the rights of their heirs.

    So, after the Trustor passes away, the Trustee is responsible for implementing the distribution of assets to the Beneficiaries according to the Trustor’s instructions. In most Trust arrangements, the Trustor has the option to appoint a Protector or Overseer, who is typically a trusted family member or a close family friend. The Protector’s role is to oversee the Trustee’s actions and ensure that they are fulfilling their fiduciary obligations to the highest degree.

    By appointing a Protector, the Trustor can provide an additional layer of oversight and ensure that the Trustee is acting in the best interests of the Beneficiaries. The Protector serves as an independent voice and can intervene if the Trustee is not fulfilling their obligations, thereby providing an additional level of protection for the Beneficiaries.

    Overall, the role of the Trustee and Protector is critical in ensuring that the Trustor’s wishes are carried out in accordance with their instructions. By appointing trusted individuals to these roles, the Trustor can have peace of mind knowing that their assets will be managed and distributed with the utmost care and attention.

    All told, a Trust can provide significant benefits to those who are looking to protect and manage their assets in a more efficient and cost-effective way. By using a Trust, individuals can ensure that their assets are distributed according to their wishes without the added burden of a lengthy and costly probate proceeding.

    In addition to the two benefits already discussed, trusts can also provide tax advantages for estate planning. Depending on the type of trust and the individual’s specific circumstances, a trust can help to minimize or eliminate estate taxes and reduce donor’s taxes.

    What are the types of trust available to estate planners? A Trust can be revocable or irrevocable. Although they may share some similarities, there are significant differences between the two. Here are the three main differences:

    Control. The most significant difference between a revocable trust and an irrevocable trust is the level of control that the trustor has over the assets in the trust. With a revocable trust, the trustor retains full control of the assets and can modify or revoke the trust at any time. In contrast, with an irrevocable trust, the trustor relinquishes control over the assets and cannot make changes or revoke the trust once it is established.

    Tax implications. The tax implications of each type of trust are also different. With a revocable trust, the trustor continues to be the owner of the assets in the trust, and any income generated by the trust is taxed as the trustor’s personal income. In contrast, with an irrevocable trust, the trustor is no longer the owner of the assets, and the income generated by the trust is taxed separately from the trustor’s personal income. Additionally, assets placed in an irrevocable trust are typically exempt from estate taxes, while assets in a revocable trust are not.

    Creditor protection. Another key difference between revocable and irrevocable trusts is the level of protection they offer against creditors. With a revocable trust, assets in the trust are not protected from creditors since the trustor retains control over them. In contrast, with an irrevocable trust, assets in the trust are typically protected from creditors since the trustor no longer owns them.

    Common Misconceptions About Trusts

    Despite the benefits of using trusts in estate planning, many Filipinos still have misconceptions about trusts that prevent them from using them as a tool for their financial and personal affairs. Below are some of the common misconceptions about trusts and why they are not entirely accurate:

    Trusts are only for the wealthy. One of the most common misconceptions about trusts is that they are only for the wealthy. While it is true that trusts can be a useful tool for high-net-worth individuals, they can also be beneficial for individuals with more modest estates. A trust can help to avoid probate, minimize taxes, and provide greater control over how assets are managed and distributed, making it a viable option for individuals with a wide range of asset levels.

    Trusts are complicated and expensive to set up. Another common misconception about trusts is that they are complicated and expensive to set up. While it is true that trusts can be more complex than traditional estate planning methods, they do not have to be overly complicated or expensive. There are various types of trusts available, each with its own set of rules and requirements. By working with an experienced estate planning attorney, individuals can find a trust that meets their specific needs and budget.

    Trusts are only for the distribution of assets after death. A third common misconception about trusts is that they are only useful for the distribution of assets after death. While trusts are commonly used for this purpose, they can also be used for a variety of other purposes, such as protecting assets from creditors, managing assets for minor children, and providing for individuals with special needs.

    Addressing Common Concerns About Trusts

    Despite the benefits of using trusts in estate planning, many Filipinos still have concerns about using trusts as a tool for their financial and personal affairs. Below are some of the common concerns and how they can be addressed.

    Loss of Control. One of the main concerns individuals have about trusts is that they will lose control over their assets. While it is true that assets are transferred to an entity controlled by a trustee, the trust creator can set specific instructions on how those assets are managed and distributed. The trust creator can also serve as the trustee, providing greater control and flexibility over how the trust is managed.

    Trusts are Irrevocable. Another concern individuals have about trusts is that they are irrevocable, meaning that they cannot be changed once they are established. However, there are various types of trusts available, some of which can be changed or terminated if circumstances change. For example, a revocable living trust can be changed or terminated by the trust creator at any time during their lifetime.

    Lack of Understanding. Finally, one of the biggest concerns Filipinos have about trusts is simply a lack of understanding. Trusts are still a relatively foreign concept to many individuals, making it difficult for them to understand how they work and whether they are appropriate for their specific circumstances. By working with an experienced estate planning attorney, individuals can gain a better understanding of trusts and how they can be used in estate planning.

    Call to Action

    In conclusion, trusts can be a powerful tool for estate planning, providing greater control, flexibility, and tax advantages compared to traditional estate planning methods. While the concept of trusts may be foreign to many Filipinos, it is important for individuals to consider the benefits and explore whether trusts are appropriate for their specific circumstances.

    If you are considering using trusts in your estate planning, it is essential to work with an experienced estate planning attorney who can guide you through the process and help you choose the right type of trust for your needs. With the right guidance and information, you can ensure that your assets are managed and distributed according to your wishes, providing greater peace of mind for you and your loved ones.

    So, take the first step towards securing your financial and personal affairs today by exploring the benefits of trusts and discussing your options with an estate planning professional.

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    Atty. Jojo is a real estate attorney, an estate planning attorney, a licensed real estate broker, and a PRC-accredited Lecturer/ Speaker for Training Programs in Real Estate. He is a Chartered Trust and Estate Planning (CTEP®) professional who is committed to educating Filipinos about the value and importance of having an estate plan in their lives.

  • Understanding Joint Wills and the Alternatives for Couples in the Philippines

    “Some people decide all the estate planning they want is a will. They prefer the ease of using a will to the more complicated methods needed to avoid probate or reduce death taxes.”

    – Atty. Denis Clifford, Author of “Plan Your Estate with a Living Trust”

    By Realttorney®

    In the Philippines, joint wills, which are wills executed by two or more persons, are prohibited under Philippine law. Joint wills are wills that are typically executed by married couples, where they express their wishes for the distribution of their assets after their deaths in a single document. However, due to legal restrictions, couples in the Philippines need to explore alternative options to effectively execute their last will and testament. In this article, we will delve into the prohibition of joint wills in the Philippines and discuss the best alternatives for couples who wish to execute their wills.

    Prohibition of Joint Wills in the Philippines

    Under Philippine law, joint wills are not recognized and are considered null and void. Article 818 of the Civil Code of the Philippines provides that “two or more persons cannot make a will jointly, or in the same instrument, either for their reciprocal benefit or for the benefit of a third person.” This means that couples cannot create a single joint will expressing their joint wishes for the distribution of their assets after their deaths. This prohibition is rooted in the principle of freedom of testation, which allows individuals to freely express their own wishes and preferences in their last will and testament.

    Reasons for the Prohibition of Joint Wills

    The prohibition of joint wills in the Philippines is based on several reasons. One of the main reasons is to ensure that each person has the freedom to express their own individual wishes and preferences in their will. Joint wills can potentially create conflicts of interest between the parties involved, as their interests may change over time or after the death of one of the parties. Additionally, joint wills can also be vulnerable to undue influence or fraud, as one party may unduly influence the other in the preparation of the will.

    Best Alternatives for Couples

    Despite the prohibition of joint wills in the Philippines, there are several alternatives that couples can consider to effectively execute their last will and testament:

    Separate Wills: Couples can create separate wills, wherein each spouse executes their own individual will expressing their own wishes and preferences for the distribution of their assets. This allows each spouse to freely express their own wishes (or make specific bequests as each desires) without any conflicts of interest or potential undue influence.

    Mutual Wills: Couples can also consider executing mutual wills, which are separate wills that contain reciprocal provisions. Mutual wills are typically used by couples who want to leave their assets to each other and then to their chosen beneficiaries after both spouses have passed away. Mutual wills can include provisions that restrict the surviving spouse from changing the beneficiaries or the distribution of the assets after the death of the first spouse.

    Moreover, mutual wills typically contain an agreement not to revoke or alter the terms of the will without the consent of the other spouse. Mutual wills are often used to ensure that the surviving spouse is taken care of and that the agreed-upon distribution of assets to heirs or beneficiaries is carried out.

    Trusts: Another alternative is to create a trust or a series of trusts as part of an estate plan. Trusts can be established during the lifetime of the spouses or through their wills. A trust allows assets to be managed and distributed according to the specific instructions outlined in the trust document. It can provide for the surviving spouse’s needs while also ensuring that the assets are ultimately distributed to the intended beneficiaries.

    Family Arrangements: While not legally binding like wills or trusts, some couples may choose to rely on family arrangements. This involves open discussions and agreements among family members about the distribution of assets after the couple’s passing. While such arrangements may be informal, they can help guide the family and reduce potential conflicts. Just make sure that all the children are on the same page and will strictly follow the arrangements outlined by the parents.

    It is important to consult with a qualified attorney or estate planning professional in the Philippines to ensure that the chosen alternative aligns with existing laws and the Rules of Court. Experienced estate planning attorneys can provide personalized guidance based on the couple’s specific circumstances and help draft the necessary legal documents to establish an effective estate plan.

    Conclusion

    While joint wills are prohibited in the Philippines, couples have alternative options to effectively execute their last will and testament. Separate wills, mutual wills, and trusts are recognized under Philippine law and can provide couples with the flexibility to express their individual wishes and preferences for the distribution of their assets after their deaths. It is essential for couples to seek legal advice from a qualified estate planning attorney to ensure that their wills or trust agreements or documents are valid and comply with the legal requirements in the Philippines. Proper estate planning can provide peace of mind for couples and their loved ones, ensuring that their assets are distributed according to their wishes after their deaths.

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    Atty. Jojo is a real estate attorney, an estate planning attorney, a licensed real estate broker, and a PRC-accredited Lecturer/ Speaker for Training Programs in Real Estate. He is a Chartered Trust and Estate Planning (CTEP®) professional who is committed to educating Filipinos about the value and importance of having an estate plan in their lives.