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Tag: Estate Planning

  • 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.

    ——-

    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.

  • 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.

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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.

  • 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/

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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.

  • 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

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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.