Book a Consultation

Category: Estate Planning

  • Cultivating Your Legacy: Understanding Probate and the Role of Wills in Estate Planning

    “Wills are trumped by legal titles to real estate or beneficiary designations on financial accounts, retirement plans and insurance policies.”

    – Jean Chatzky, President & CEO of HerMoney, Personal Finance Columnist

    By Realttorney®

    When it comes to estate planning, many individuals may assume that simply creating a will is enough to ensure that their assets are distributed according to their wishes. However, there is much more to estate planning than just executing a Last Will and Testament.

    One of the key considerations in estate planning is understanding probate and the role that will play in this process, especially in the context of the Philippine Law on Succession. Do you really need a Will or are there tools that are more appropriate to your current situation and circumstances?

    According to the Civil Code of the Philippines, there are two kinds of will – notarial and holographic. A holographic will is one which is entirely written, dated, and signed by the hand of the testator. According to Article 810 of the Civil Code, “It is subject to no other form, and may be made in or out of the Philippines and need not be witnessed.”

    Meanwhile, a notarial will is one which is signed and sworn to by the Testator (or signed for him/her by a person in his/her presence at his/her express direction), then likewise signed and sworn to by three credible witnesses all in each other’s presence and acknowledged before a notary public, who is not obligated to retain a copy of the notarial will being notarized.

    If you did execute a will, what happens next?

    Article 838 states that “No will shall pass either real or personal property unless it is proved and allowed in accordance with the Rules of Court.” In addition, the Testator may, during his/her lifetime, petition the court having jurisdiction for the allowance of his will. In such case, the pertinent provisions of Rule 76 of the Rules of Court for the allowance of wills shall govern.

    Therefore, the allowance or the presentation of a will is a legal process where a will is submitted to a court of competent jurisdiction to be probated. This is a mandatory process, and the probate of the will cannot be dispensed with. Therefore, unless the will is probated, the right of a person to dispose of his property may be rendered nugatory.

    However, the Supreme Court of the Philippines held that in the probate of the will, the authority of the Philippine court is limited to ascertaining the due execution or the extrinsic validity of the will as provided by Section 1, Rule 75 of the Rules of Court. Due execution is “whether the testator, being of sound mind, freely executed the will in accordance with the formalities prescribed by law, as mandated by Sections 805 and 806 of the Civil Code.” [In The Matter of the Petition for the Probate of the Will of Consuelo Santiago Garcia, G.R. No. 204793, June 8, 2020]

    Now you know that the probate process is overseen by a court and can be a lengthy and costly process, depending on the size and complexity of the estate. As an example, the case of the Probate of the Will of Consuelo S. Garcia was filed on August 11, 1997, was and decided with finality by the Supreme Court only on June 8, 2020. It took almost 23 years. Do you want your heirs to litigate for more than two decades?

    This is why informed individuals choose to engage in estate planning to help simplify the probate process and ensure that their assets are distributed according to their wishes, at the soonest possible time, and at the least possible cost. Although I normally dissuade clients from executing a will, this estate planning tool still has its merit.

    The Role of Wills in Probate. A will is a legal document that outlines a person’s wishes for the distribution of his/her assets after he/she passes away. As stated above, when a person dies, the will is presented to the court as part of the probate process.

    The will serves as a roadmap for the court and the executor of the estate (the person appointed to manage the estate during the probate process) to follow when distributing the assets. If the will is valid and there are no challenges or disputes, the assets are distributed according to the instructions in the will.

    If a person dies without a valid will (known as dying intestate), their assets will be distributed according to the Law on Intestate Succession under the Civil Code. I always say that the law on intestate succession is the estate plan of the State for those who did not create their own estate plan. The law on intestate succession distributes your assets to your relatives who you feel do not deserve to get a share of your estate.

    Even though I would dissuade clients from executing a will, I would be remiss not to discuss the process of creating a Will in the Philippines.

    For those who are convinced, creating a will is also an important part of estate planning, as it helps ensure that your assets are distributed according to your wishes. Here are some tips for creating a will:

    1. Work with an Estate Planning Attorney. An experienced estate planning attorney can help you create a will that is tailored to your specific circumstances and meets all legal requirements. They can also help you navigate the probate process and ensure that your wishes are carried out as intended.

    2. Identify Your Assets. Before creating a will, it is important to identify all your assets and how you would like them to be distributed. This includes bank accounts, shares of stock (listed or unlisted in the stock exchange), real estate, vehicles, investments, and all other types of personal properties.

    3. Identify Your Compulsory and Voluntary Heirs. In general, when someone executes a will, their estate is typically composed of two main components: the legitime and the free portion. The legitime is a portion that is legally reserved for compulsory heirs and is distributed according to specific ratios outlined in the Civil Code of the Philippines. On the other hand, the free portion can be bestowed upon anyone (voluntary heirs), so long as the recipient is not legally prohibited from accepting an inheritance or a donation.

    4. Name an Executor. Name an executor in your will who will be responsible for managing your estate during the probate process. This should be someone you trust who is organized and responsible and must be a resident of the Philippines.

    5. Keep Your Will Updated. It is important to keep your will updated as your circumstances change. This includes changes in your assets, heirs, or executor.

    Estate planning is a dynamic process. If you so desire to execute your last will and testament, then you should understand that as your circumstances in life change for the better or worse, after the will is executed, then you have the power and the choice to amend your will or scrap the old and create a new will even.

    Avoiding Probate. If you are now having second thoughts about making or executing a will, then let me share with you why you should avoid probate at all costs. Here are several compelling reasons why you may want to avoid probate:

    1. Time-consuming process: Probate proceedings can be lengthy, often taking years or even decades to complete. During this time, the assets of the deceased are tied up or frozen in limbo, causing delays in distributing them to compulsory and voluntary heirs, if any.

    2. Costly: The probate process is an expensive endeavor, with various fees and costs associated with the process, including court fees, attorney fees, executor fees, and appraisal fees. These expenses can significantly reduce the overall value of the estate.

    3. Lack of privacy: Probate is a public process, which means that the details of the decedent’s assets, debts, and heirs become part of the public record. This lack of privacy may not be desirable for individuals who value confidentiality or privacy.

    4. Loss of control: The probate court oversees the distribution of assets according to the provisions or the terms of the will. However, when the estate is hotly contested the court has the final say in how the assets may be distributed, which may not align with the decedent’s desires or wishes. It is not outside the realm of the discretion of the Court to ask that the litigant-heirs enter into a compromise to put an end to the acrimonious litigation between formerly close relatives.

    5. Family conflicts: Probate proceedings can often lead to family disputes and conflicts. It is impossible to guarantee with complete certainty that an individual’s estate will smoothly transfer to the heirs without any conflicts, particularly when the involvement of in-laws comes into play. Typically, a perceived unequal distribution of the estates among compulsory heirs engenders disagreements or challenges to the will. This conflict can further delay the distribution of assets and create emotional stress for the family members involved.

    6. Business disruptions: If a decedent owned a thriving business, probate can disrupt its operations, especially if the court has to appoint a special executor to manage the business affairs during the probate process.

    To avoid these potential drawbacks, individuals often employ estate planning strategies such as creating living trusts, designating beneficiaries on retirement accounts and life insurance policies, and gifting assets during their lifetime. These strategies can help bypass probate or simplify the process, ensuring a smoother transfer of assets to intended beneficiaries while minimizing costs and maintaining privacy.

    Here are the options to consider avoiding probate through estate planning:

    1. Irrevocable Living Trusts. An irrevocable living trust is a legal document that allows you to transfer ownership of your assets to a trustee while you are alive. This can help avoid probate, as the assets remain in the trust after you pass away and are distributed to your beneficiaries according to your wishes. This can help avoid the probate process altogether.

    2. Gifting. This is commonly referred to as a donation. The National Internal Revenue Code allows for a PhP 250,000.00 tax-free donation by a donor to anyone. By planning for timely and regular donations to one’s heirs, the estate planner would shrink his/her gross estate so that when he/she passes away the estate will not be exposed to a high amount of estate tax.

    3. Beneficiary Designations. Designating beneficiaries for retirement accounts, life insurance policies, and other assets is an important tool to avoid probate because it allows certain assets to pass directly to designated individuals or entities without going through the probate process. Key-Man Insurance for the owner of the business, life insurance policies of the decedent designating his/her children and spouse as beneficiaries, and retirement account proceeds are some concrete examples of this.

    In summary, estate planning is an important process that can help ensure that your assets are distributed according to your wishes. Creating a will may be a part of this process, as it serves as a roadmap for the probate court and the executor of your estate.

    If you are convinced to make a will, then it is important to act immediately and work with an experienced estate planning attorney to ensure that your wishes are carried out as intended. Remember to identify your assets, identify your heirs, name an executor, and keep your will updated.

    But it is likewise important to consider ways to avoid the probate process, such as revocable living trusts, gifting, and beneficiary designations.

    Hence, by taking the time to engage in estate planning and understanding the probate process and its pros and cons, you can help ensure that your assets are distributed according to your wishes and provide peace of mind for you and your loved ones.

    ——-

    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.

  • Future-Proofing: Why Life Insurance is Crucial for Estate Planning, Even in Your 20s and 30s

    Insurance, in all its varied forms, is simply a method for handling risk. In order to plan an effective insurance program, consider the risks that you and your family are exposed to and how financial loss could affect you.

    – Acord & Fong Wealth Strategies, https://acordandfong.com/insurance.html

    By Realttorney®

    One of the primary reasons why life insurance is crucial for young people as an estate planning tool is to provide financial protection for dependents. Many young individuals have dependents, such as spouses, children, or elderly parents, who rely on their income for financial support.

    If a young individual unexpectedly passes away, it can have severe financial consequences for their dependents. The death benefit from a life insurance policy can provide much-needed financial support to cover living expenses, pay off debts, and ensure that the dependents can maintain their standard of living even in the absence of the insured individual’s income.

    For young parents, life insurance is particularly vital as it can safeguard their children’s financial future. Parents often have significant financial responsibilities, including mortgage payments for their house and vehicle, childcare expenses, and education costs.

    In the event of the untimely death of a parent, the death benefit from a life insurance policy can help cover these expenses and ensure that the children’s financial needs are met. It can provide a safety net for the surviving parent or guardian to continue supporting the children without experiencing financial difficulties moving forward.

    Life insurance can also serve as a valuable estate planning tool for young individuals who have financial responsibilities toward aging parents or other family members. Many young people find themselves in a position where they are financially supporting elderly parents, siblings, or other family members.

    In the event of their death, the financial support may come to an abrupt halt, leaving the dependent family members in a problematic situation. Life insurance can provide the necessary funds to ensure that the financial needs of these family members are met even after the insured individual’s death.

    In addition to protecting dependents, life insurance can also be used as a tool for wealth preservation and transfer. Young individuals who have accumulated assets, such as a business, real estate, or investments, may have concerns about the potential tax implications and liquidity issues upon their death.

    Life insurance can help address these concerns by providing the necessary liquidity to cover estate taxes, debts, and other expenses without having to sell the assets at a potentially unfavorable time. This can help preserve the value of the assets and ensure that they are transferred to the intended beneficiaries in a smooth and efficient manner.

    Furthermore, life insurance can also be used as a means of equalizing inheritances among beneficiaries. In cases where an individual wants to leave different amounts of assets to different beneficiaries, life insurance can be used to provide additional funds to beneficiaries who are receiving smaller inheritances. This can help ensure that each beneficiary receives a fair and equitable share of the estate, even if the assets are not equally distributed among them.

    Still unconvinced? Here are a few more points to entice young people to consider life insurance and estate planning early:

    Lock in Lower Premiums: One significant advantage of obtaining life insurance at a young age is that premiums are generally lower when you are young and healthy. By locking in a life insurance policy early, young individuals can secure lower premiums for the duration of the policy, potentially saving thousands of pesos over the life of the policy. Waiting until later in life to get life insurance may result in higher premiums due to increased risks associated with age and health conditions.

    Financial Protection Against Debts: Young people often carry various debts, such as consumer loans, credit card debts, or mortgages on vehicles and real estate. In the event of the insured individual’s death, these debts could be passed on to their loved ones, creating financial burdens. Having a life insurance policy can provide a financial safety net to cover these debts, preventing them from becoming a financial burden on surviving family members.

    Supplement Employer-Provided Coverage: Many employers (like BPO Companies) offer group life insurance coverage as part of their benefits package. However, these policies may not provide sufficient coverage to meet an individual’s specific needs. Additionally, group coverage typically ends when an individual leaves their job. By obtaining an individual life insurance policy early, young individuals can supplement their employer-provided coverage and ensure that they have adequate protection regardless of their employment status.

    Long-Term Savings and Investment Tool: Some types of life insurance, such as variable life insurance, not only provide a death benefit but also accumulate cash value over time. This cash value can serve as a long-term savings and investment tool that can be accessed during the insured individual’s lifetime. Young individuals – freelancers, solopreneurs, and digital nomads – can leverage this feature to build a source of tax-deferred savings that can be used for various purposes, such as supplementing retirement income or funding future financial goals.

    Protecting Insurability: Life insurance is typically easier to obtain when an individual is young and in good health. However, life circumstances can change, and health issues may arise, making it more difficult to obtain coverage in the future. By obtaining life insurance early, young individuals can lock in coverage and protect their insurability, ensuring that they have financial protection in place regardless of their health status later in life.

    Peace of Mind for Loved Ones: Planning for the unexpected is an act of love for one’s family and dependents. Knowing that loved ones will be financially protected in the event of the insured individual’s untimely death can provide peace of mind. Life insurance can offer a sense of security and comfort, knowing that loved ones will be taken care of financially, even if the insured individual is no longer around.

    In conclusion, life insurance is a crucial estate planning tool for young people that offers financial protection, wealth preservation, and peace of mind. It can provide a safety net for loved ones, protect against debts, and offer long-term savings and investment opportunities.

    Obtaining life insurance early can also result in lower premiums, protect insurability, and supplement employer-provided coverage. It is never too early to start planning for the future and protecting the financial well-being of oneself and loved ones.

    Taking proactive steps now to include life insurance as part of one’s estate planning can help young people build a solid financial foundation for their future and ensure that their loved ones are protected. We encourage consultation with a qualified financial advisor or insurance professional who can help young individuals understand their specific needs and explore the best life insurance options to suit their circumstances.

    Email us [attyjojo@realttorney.com] to get a free 30-minute consultation about your insurance and estate planning needs.

    Image source: http://www.epdv.com/

    ——-

    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.

  • Inheritance Wars: Understanding the Intricacies of Family Disputes in Estate Matters

    “The best inheritance a parent can give to his children is a few minutes of their time each day.”

    – M. Grundler, Author

    By Realttorney®

    Inheritance is often viewed as a means of passing on wealth and assets to the next generation, providing financial security and stability for future generations. However, what should be a straightforward process can sometimes turn into a contentious and emotionally charged situation, with families engaging in bitter disputes over inheritance.

    Inheritance disputes can arise for various reasons, and they can have a profound impact on family relationships and financial well-being. In this article, we will explore the complexities of why families fight over inheritance and provide insights into how such disputes can be prevented or resolved.

    The Emotional Dynamics of Inheritance

    Inheritance disputes are not just about money and assets. They often involve complex and deep-seated emotional dynamics that can intensify conflicts among family members. When a loved one passes away, the grieving process can be overwhelming, and emotions can run high, which stresses the relationship and cause a rift.

    The distribution of inheritance can bring up deep-seated emotions, such as feelings of entitlement, jealousy, resentment, and betrayal, which can ignite conflicts among family members. Additionally, unresolved family issues, past grievances, and long-standing sibling rivalries can resurface during the estate settlement process, further exacerbating tensions.

    Family members may also have different perceptions of what is fair and equitable when it comes to inheritance. Some may feel entitled to a larger share of the estate based on their contributions or sacrifices, while others may believe that the estate should be divided equally among all heirs. These differing views can lead to disagreements and disputes, as each family member may have their own perspective on what is fair and just. A case in point here is the settlement of the estate of the late Ricardo Yanson, Sr., former head of the biggest transportation company in the Philippines.

    Inheritance can also be tied to family dynamics and expectations. For example, if a parent promised a certain heirloom or piece of property to one family member but did not explicitly include it in the estate plan, it can lead to disputes and disagreements among heirs. Unmet expectations and unfulfilled promises can create disappointment, frustration, and tension within the family, and may ultimately result in legal battles over the inheritance.

    Financial Considerations and Unequal Distribution

    Another common reason for inheritance disputes is financial considerations and the unequal distribution of assets. In some cases, a family member may be designated as the executor or trustee of the estate, responsible for distributing the assets according to the terms of the estate plan. However, conflicts can arise if there are discrepancies in the distribution or if the executor or trustee is perceived to be favoring one beneficiary over others.

    Unequal distribution of assets can also occur when there are blended families, with stepchildren or step-siblings involved. In such cases, disputes may arise over how assets are divided among biological children and stepchildren, especially if there are different levels of closeness or relationship dynamics among the siblings. If one is part of a blended family then it is a must that he or she create an estate plan that will ensure family unity after the decedent passes away.

    Complex family structures, such as second marriages, or families with children from different relationships, can further complicate the distribution of assets and increase the likelihood of inheritance disputes. Moreover, different interpretations of the decedent’s wishes, unclear or ambiguous estate planning documents, or inadequate communication about the estate plan can all contribute to conflicts among family members.

    Lack of Estate Planning or Inadequate Estate Plan

    Another common factor that can lead to inheritance disputes is the absence of estate planning or an inadequate estate plan. In some cases, individuals may pass away intestate (or without a will) or other estate planning documents, leaving their assets to be distributed according to the Law on Intestate Succession under the New Civil Code of the Philippines. Most of the time, the provisions of the Civil Code may not align with the deceased’s wishes or the expectations of the heirs, leading to disputes over asset distribution.

    In addition, even when an estate plan is in place, it may not be comprehensive or up to date, leading to potential ambiguities or omissions that can trigger conflicts among family members. For example, outdated beneficiary designations, lack of clarity in the distribution of specific assets, or failure to consider all potential scenarios can all contribute to disputes over inheritance. Take note, inadequate estate planning can leave room for interpretation and misunderstanding, leading to conflicts among family members who may have different interpretations of the deceased’s wishes or intentions.

    Legal and Financial Complexities

    Inheritance disputes can also arise due to legal and financial complexities. Probate is a court process that involves the validation and administration of a testator’s will. Meanwhile, judicial settlement of estate happens when a person dies intestate or without executing a will. Both can be complex and time-consuming especially when numerous legal heirs of the estate are not in agreement as to the distribution of the remaining assets after payment of all debts and liabilities.

    These court proceedings involve various legal requirements, such as filing documents with the court, paying off debts and taxes, and distributing assets according to the will or the law on intestacy. Disputes can, and almost always, arise during this process, such as challenges to the validity of the will, allegations of undue influence or fraud, or disputes over the provisions of the will and the clear intentions of the testator.

    Moreover, high-value assets, such as real estate, investments, or business interests, can add further complexity to the estate settlement process. Valuation of such assets may be subjective and can be a source of disagreement among family members. In addition, disputes may arise over how these assets are to be managed or distributed, particularly if there are disagreements on their worth or the terms of their transfer.

    In some cases, family members may also have different financial needs or expectations from the inheritance. For example, some heirs may be in need of immediate cash for financial obligations, while others may prefer to keep the assets for the long term. These differing financial interests and priorities can create conflicts among family members and contribute to inheritance disputes, as it often does.

    Breakdown of Communication and Trust

    The breakdown of communication and trust can be another significant factor that leads to inheritance disputes. Communication is crucial in estate planning to ensure that family members have a clear understanding of the deceased’s wishes and intentions.

    However, if communication is lacking or inadequate, misunderstandings can and will arise, and family members may feel left out or excluded from the decision-making process. This can create a sense of mistrust and resentment, leading to disputes over inheritance.

    In some cases, communication breakdown may also be due to family dynamics, such as strained relationships, lack of open communication, or unresolved conflicts from the past. These underlying issues can resurface during the estate settlement process and may impact the ability of family members to communicate effectively and resolve disputes amicably.

    Legal battles and disputes over inheritance can further strain family relationships and erode trust among family members. The emotional toll of litigation, the cost of legal fees, and the public nature of court proceedings can create lasting rifts within the family and may result in severed relationships that are difficult to repair.

    Again, the case of the estate of the late Ricardo Yanson, Sr. is a great and shining example of how a poorly planned or lack of a comprehensive estate plan can lead to strained family relationships and deep resentment between siblings and the surviving parent. Harsh words have been exchanged publicly and smear campaigns on both sides went on for months on end.

    How to Prevent or Resolve Inheritance Disputes

    While inheritance disputes can be complex and challenging, there are steps that families can take to prevent or resolve them.

    Comprehensive Estate Planning: Having a comprehensive estate plan in place can minimize the likelihood of disputes over inheritance. This includes having a valid and up-to-date pour-over will, an irrevocable living trust, and other estate planning documents that clearly outline the deceased’s wishes and intentions. It is crucial to work with an experienced estate planning attorney to ensure that the estate plan is legally sound and addresses all relevant aspects, including asset distribution, the appointment of executors or trustees, and contingency plans for different scenarios.

    Clear Communication: Open and transparent communication among family members is key to preventing misunderstandings and disputes over inheritance. The estate planner must be open to this idea of talking about his or her mortality. It is important to have open conversations about estate planning, clarify the deceased’s intentions, and address any concerns or expectations that family members may have. This can help to build trust, minimize misinterpretations, and ensure that everyone is on the same page.

    Fair Distribution: Fair and equitable distribution of assets can also help to prevent disputes over inheritance. But, remember, fair does not mean equal. It is important to consider the needs and expectations of all heirs and strive for an equitable distribution that takes into account the contributions, sacrifices, and circumstances of each family member.

    This may involve seeking professional advice on asset valuation, setting up an irrevocable trust, and securing life insurance policies for other heirs in order to somehow “equalize” the distribution of the estate to the heirs.

    If you want to learn more about how life insurance serves as an estate planning tool, you can click on this link to read the article — Securing Your Legacy.

    Image source: https://washingtonpost.com

    ——-

    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.

  • Securing Your Legacy: How Life Insurance Empowers Young People as Estate Planning Rockstars

    “By failing to prepare, you are preparing to fail.”

    – Benjamin Franklin, Writer, Inventor, Statesman and Diplomat

    By Realttorney®

    Estate planning is a critical aspect of financial management that often gets overlooked, especially by young people who may perceive it as something only relevant for older individuals with substantial assets. However, estate planning is not just for the wealthy or elderly.

    It is a crucial process that should be considered by individuals of all ages, including young people. One essential element of estate planning that is often underrated among the younger generation is life insurance. Life insurance can serve as a valuable estate planning tool for young people, providing financial protection and peace of mind for themselves and their loved ones.

    Life insurance is a type of insurance where the insurance company pays out a sum of money after the death of the insured or a benefit on a specified date. It is a contract wherein the individual pays regular premiums in exchange for a death benefit that is paid out to their beneficiaries upon their passing.

    While the primary purpose of life insurance is to provide financial protection for loved ones in the event of the insured’s death, it can also serve as a powerful estate planning tool, particularly for young people who may have dependents or financial responsibilities.

    One of the key reasons why life insurance is important for young people as part of their estate planning strategy is to ensure that their loved ones are financially protected in the event of their untimely death. Young adults may have dependents such as spouses, children, or aging parents who rely on their income to maintain their lifestyle or meet financial obligations.

    In the absence of sufficient savings or investments, life insurance can provide a much-needed financial safety net to cover funeral expenses, outstanding debts, mortgage payments, and ongoing living expenses for loved ones. This can prevent financial hardships and ensure that their beneficiaries are taken care of during a difficult time.

    Moreover, life insurance can also be used as an estate planning tool to address potential estate tax liabilities. While the current estate tax rate has been lowered to six percent (6%) under Rep. Act No. 10963, the value of an individual’s estate normally appreciates over time, especially if they own valuable assets, such as real estate, investments, or a business.

    Young Filipinos who anticipate accumulating significant wealth over their lifetime can use life insurance to provide liquidity to cover potential estate taxes so that their beneficiaries do not have to sell valuable assets to pay taxes, which could lead to financial strain or the loss of assets.

    Another benefit of incorporating life insurance into estate planning for young people is that it can provide opportunities for wealth creation and accumulation. In the Philippines, there are typically two main types of life insurance: traditional life insurance and variable life insurance.

    Traditional life insurance focuses mainly on guaranteed death and/or living benefits. In contrast, variable life insurance is investment-linked, providing the policyholder with death benefits and also accrued cash value over time. The cash value can be invested and grow tax-deferred, providing an additional savings component that can be utilized during the insured’s lifetime. However, the cash values are non-guaranteed because the performance of the investment is affected by current market conditions.

    Still, variable life insurance can be particularly advantageous for young people who have a longer time horizon for investment growth and can benefit from the compounding effect of the cash value over time. The accumulated cash value can be accessed through policy loans or withdrawals, which can provide a source of tax-advantaged funds for various purposes, such as funding education, starting a business, or supplementing retirement income.

    Furthermore, life insurance can also be used as a succession planning tool for young business owners. Many young entrepreneurs may have started their own businesses and have aspirations to pass on their business to the next generation or a chosen successor. Life insurance can be utilized to fund a buy-sell agreement, which is a legally binding contract that outlines the terms and conditions for transferring ownership of a business in the event of an owner’s death.

    By funding a buy-sell agreement with life insurance, young business owners can ensure that there is sufficient liquidity to facilitate a smooth transition of the business and provide financial compensation to the deceased owner’s family for their share of the business.

    In conclusion, life insurance is a valuable estate planning tool that should not be overlooked by young people. It can provide financial protection for loved ones, address potential estate tax liabilities, offer opportunities for wealth creation and accumulation, and serve as a succession planning tool for business owners.

    Hence, incorporating life insurance into an estate plan can provide peace of mind knowing that loved ones will be financially protected in the event of an untimely death, and can help young people achieve their long-term financial goals.

    So, when considering life insurance as part of an estate planning strategy, it’s important for young people to carefully assess their individual needs, financial situation, and long-term goals. Consulting with a qualified financial advisor or estate planning attorney can provide valuable guidance in selecting the appropriate type and amount of life insurance coverage that aligns with their specific circumstances and objectives.

    While it’s easy for young people to underestimate the need for estate planning, including life insurance, it’s a proactive and responsible approach to protecting their loved ones and safeguarding their financial future.

    In the end, by incorporating life insurance into their estate planning strategy, young people can ensure that their financial affairs are in order and provide a solid foundation for their estate plan as they continue to build their wealth and navigate life’s uncertainties. Planning for the unexpected today can help secure a brighter tomorrow for themselves and their loved ones.

    *The image in this post is courtesy of https://www.summitplanners.com/estate_planning/insurance-the-secret-tool-to-a-successful-estate-plan/

    ——-

    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.

  • Is Estate Planning for Rich People Only?

    “Sometimes the poorest man leaves his children the richest inheritance.”

    – Ruth E. Renkel, Author

    By Realttorney®

    Estate planning is often seen as a practice reserved for the wealthy, conjuring images of mansions, yachts, and enormous amounts of money. Many people assume that only the rich need to worry about estate planning, while others may feel that estate planning is a complex and unnecessary task that only applies to those with a large asset base.

    However, this common misconception could not be further from the truth. Estate planning is not just for the rich or “high-net-worth individuals”. Estate planning is a crucial process that everyone, regardless of wealth status, should consider to protect their assets, their loved ones, and their legacy.

    As a side note, a “high-net-worth individual” is someone whose net estate (where all assets such as real property/ies, businesses, investments, and cash, minus any liabilities) is estimated to be at least P100,000,000 or more. Now, this amount is a random number. It may go down as low as P50,000,000 or north of P150,000,000. But, the key here is liquidity.

    Estate planning offers many benefits, such as asset protection, planning for major life events, tax savings, and transferring of wealth. Through estate planning, individuals can ensure that their assets and wealth are distributed according to their wishes. It also helps them to prepare for potential life changes, such as retirement, incapacity or death. Additionally, estate planning can help to minimize taxes, making the most of the individual’s wealth.

    Contrary to popular belief, estate planning is not solely about money or the size of one’s estate. While wealthy individuals may have more complex estates with a higher value of assets to manage, estate planning is relevant for individuals of all income levels. Here are several key reasons why estate planning is not just for the wealthy:

    Protecting Minor Children: Estate planning allows parents to designate guardians for their minor children in the event of their death or incapacitation. This is a critical aspect of estate planning that applies to all parents, regardless of their financial status.

    Without proper estate planning, a court may appoint a guardian for the children, and it may not align with the parent’s wishes. Estate planning provides an opportunity for parents to name a guardian who will raise and care for their children according to their values and beliefs, in the event that both parents pass suddenly.

    Managing Healthcare Decisions: Estate planning also involves creating documents such as a health care directive or a living will that specifies an individual’s wishes for medical treatment and end-of-life care. This is not limited to the wealthy; it applies to everyone.

    Estate planning allows individuals to appoint someone to make healthcare decisions on their behalf if they are unable to do so. This can provide peace of mind and ensures that an individual’s medical treatment aligns with their values and preferences, regardless of their financial status.

    Avoiding Probate: Probate is a special proceeding mandatorily required for the purpose of establishing the validity of a will. It can be time-consuming, costly, and public. Estate planning can help individuals avoid probate or minimize its impact.

    This is relevant for individuals of all income levels, as probate proceedings are costly, and the complexity of probate depends on the size of the estate. If you have meager resources then the more it is important for you to consider estate planning to save on court costs, lawyer’s fees, and other expenses.

    By creating a trust or implementing other estate planning strategies, individuals can ensure that their assets pass directly to their heirs outside of probate, allowing for a smoother and more private distribution of their estate.

    Preserving Family Harmony: Estate planning can help avoid conflicts among family members that may arise after an individual’s death. Disputes over assets, inheritance, and distribution can often strain family relationships and cause irreparable damage.

    Estate planning provides an opportunity for individuals to clearly outline their wishes and intentions, minimizing the potential for conflicts among family members. This is important for all families, regardless of their wealth or financial status, as family disputes can occur at any level of income.

    Protecting Assets from Creditors or Lawsuits: Estate planning can also help protect an individual’s assets from creditors or lawsuits. This is not limited to the wealthy, as anyone can face potential liabilities or legal claims. Through estate planning techniques such as irrevocable trusts, individuals can safeguard their assets from potential creditors or legal actions. This can be particularly important for individuals who have valuable assets such as a home, investments, or a business, regardless of their level of wealth.

    Charitable Giving: Estate planning provides an opportunity for individuals to leave a legacy by supporting charitable causes that are important to them. Charitable giving is not limited to the wealthy; individuals of all income levels can incorporate philanthropy into their estate planning.

    Through various estate planning tools such as charitable trusts or bequests in a will, individuals can make a meaningful impact and leave a lasting legacy by supporting charitable organizations and causes that align with their values and beliefs.

    Business Succession Planning: If an individual owns a business, estate planning can be crucial for ensuring its smooth transition to the next generation or a designated successor. This applies to small business owners and entrepreneurs, not just large corporations.

    Business succession planning can help preserve the continuity and success of a business, protect the interests of other shareholders or partners, and ensure that the business continues to operate according to the owner’s vision and wishes after he/she passes away.

    Tax Planning: While tax planning may seem like a concern only for the wealthy, it is an essential aspect of estate planning that applies to individuals at all income levels. Proper estate planning can help minimize the tax implications of transferring assets to heirs or beneficiaries, regardless of the size of the estate.

    Strategies such as gifting, setting up trusts, or creating a charitable remainder trust can help individuals reduce their estate tax liabilities and maximize the number of assets that pass on to their loved ones.

    Planning for Incapacity: Estate planning also involves planning for incapacity, which can happen to anyone regardless of their financial status. In the event that an individual becomes mentally or physically incapacitated and is unable to make decisions for themselves, estate planning documents such as powers of attorney and living trusts can ensure that their financial and healthcare decisions are managed according to their wishes.

    Planning for incapacity is important for all individuals to ensure that their interests are protected and their healthcare and financial affairs are managed in their best interests. A case in point is the situation of Avelino “Samboy” Lim.

    The Skywalker collapsed on the bench during an exhibition game in November 2014. He fell into a coma for five weeks due to cardiac arrest. He is currently wheelchair-bound and unable to speak and see. Of course, this incapacity was unplanned and sudden.

    Peace of Mind: Lastly, estate planning provides peace of mind, knowing that one’s assets, loved ones, and wishes are protected and accounted for. It can be a source of comfort for individuals at all income levels to know that their affairs are in order, and their loved ones are taken care of according to their wishes.

    Estate planning allows individuals to have control over their legacy and provides them with the assurance that their assets and wishes will be managed according to their intentions, regardless of their level of wealth.

    In conclusion, we reiterate that estate planning is not just for the wealthy. It is a critical process that applies to individuals of all income levels. Remember, estate planning is not solely about money or the size of one’s estate.

    Estate planning allows individuals to have control over their assets, legacy, and wishes and ensures that their loved ones are taken care of according to their intentions. It encompasses various aspects such as protecting minor children, managing healthcare decisions, avoiding probate, preserving family harmony, protecting assets, charitable giving, business succession planning, tax planning, planning for incapacity, and providing peace of mind.

    By taking the time to plan, individuals can rest assured that their estate is in order when the inevitable happens. Therefore, it is never too early to start estate planning, regardless of one’s level of wealth. In fact, the earlier one starts, the more time they have to develop a comprehensive plan that aligns with their changing circumstances and goals.

    Finally, it is important to consult with a qualified and experienced estate planning attorney or financial professional to help navigate the complexities of estate planning and create a customized plan that meets one’s specific needs and objectives.

    ——-

    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.