|Photo Credit: Orin Zebest|
It’s unfortunate that not many people realize how true this is. That’s why some are caught ill-prepared to face tax burdens on inheritance. Yup, you read it right. The government taxes people when ownership of properties changes because of death of the original owner.
Estate planning is supposed to solve this problem.
An estate is a net worth of an individual. It is the sum of all his assets minus all his liabilities. In case a person dies, his or her surviving family members will inherit his estate. Or someone else he or she specifies in a will may also be a recipient.
Whether or not a will is drawn up, transfer of estate to a surviving spouse or children or whoever is the beneficiary, there is a corresponding tax that needs to be settled. This is called the estate tax.
Estate tax rates in the Philippines are shown in the table below:
Effective January 1, 1998 up to present, if the Net Estate is:
Estate planning aims to maximize the value of the estate by minimizing taxes and other expenses. Given that estate planning is a legal and tax specialty, you should seek professional services to make sure you get it right.
To give you an idea, this process will involve setting up a will and planning how to settle the corresponding estate taxes when it is needed.
How to Prepare for Estate TaxesOne of the common ways which people use to make sure funds will be available for estate taxes is through life insurance. The beneficiaries will get the life insurance proceeds in the event of death of the estate owner. This amount should be planned to cover the expenses to be paid for estate taxes.
Why Most People Don’t CareSome of the more common misconceptions why people don’t seem to care about estate planning include:
- Most people underestimate their net worth which gives them the wrong idea that they do not need to worry about any estate tax at all.
- Most think personal properties such as savings accounts and financial investments can be claimed by surviving relatives easily without any tax obligations.
- Still others have the wrong impression that real properties ownership can be transferred without paying any taxes.
- Some think they are too young to be planning about estate tax obligations.
- More people are simply unaware about any of this. This has not occurred to them because no one told them about it.
Do You Need to Write a Will?In the absence of a will, a court decides the disposition of your wealth according to the laws of the land. If you have specific wishes on how you want your estate to be distributed, you need to create a will to do so. Consulting with trusted lawyers, accountants and registered financial planners will help you create a will together with a plan on how to manage estate taxes.
It’s something many of us need to do especially for the sake of our family and those that we love and care about.