Ecclesiates 3:1-2 “There is a time for everything and a season for every activity under heaven. A time to be born and a time to die, a time to plant and a time to uproar.
We know the fact that two things are inevitable in this world: Death and Tax. A lot of Filipinos are not aware about Estate Tax. What is Estate Tax? Estate tax is a tax on the privilege of the deceased to transmit property based on his gross estate or the market value of his properties at the time of death. What are included in the gross estate? All the properties owned by the estate owner at the time of death such as real property, bank accounts, stocks and other securities, personal property such as car, jewelry, works of art, life insurance proceeds and retirement benefits based on fair market value.
As a Financial Planner, I always suggest to my clients and friends that everytime that they will acquire an asset, they have to increase their Life Insurance Protection, 20% of the amount of their newly acquired asset to prepare for Estate Tax. Let’s say a person acquired a Ph5,000,000 condominium unit, he should have an additional Ph2,000,000.00 life insurance protection to not burden his family when he passes away to pay for the Estate Tax. Why would a person invest in Mutual Funds, Stock Market, Save in the banks,UITFs and a lot more? Acquire assets? It’s for himself and his loved ones and why would that person not prepare also to preserve his estate when death comes? That is why Estate Planning is important and Life Insurance is the best tool to prepare for payment of Estate Tax. What is Estate Planning? Estate planning is the process of arranging for the distribution of the owner’s estate according to his personal wishes and requirements. Estate planning is for everyone who wishes to make certain that their families and loved ones are provided for adequately. We have to understand that before all the acquired assets of a person can be transferred to his heirs when death comes, estate tax should be paid first. See below the table if how much would be the amount of Estate Tax to be paid once a person dies if he has estate that need to be transferred to his heirs.
I know a story shared to me by a friend that he had a client that had a lot of properties, money in the banks, investment in UITFs, Mutual Funds and businesses. When they assessed if how much would be the Estate Tax if he had died that night, his heirs must pay Ph20,000,000.00 to the Philippine government. To that, he asked the client if he had Ph20,000,000.00 that is not in the bank? The client said none. He asked him if what is he going to do if he died that night? Will he just save Ph20,000,000 for the next 5 years to 10 years hopefully nothing will happen to him soon or he simply buy life insurance protection of Ph20,000,000.00 and don’t need to pay Ph20,000,000.00 but a small amount of premium only. So, if death comes, his heir will receive Php20,000,000 to pay for the estate tax. What if he can insure himself more than Ph20,000,000.00 just to be sure?The client understood that it was wiser to get a life insurance protection than choosing other options to prepare for the estate tax. It was also my experience when my father in law died, that my wife and I had to have extra judicial settlement just to transfer the property to us and we paid the estate tax because he had no life insurance. It was so burdensome for us because we had to immediately shell out cash. I don’t want this to happen again and my wife and I now are covered by a life insurance which is a Variable Unit Linked that is investment and life insurance which eventually grows as well thus it can keep up with the market value of our property and our other assets. Life insurance plan is not covered by Estate Tax as long as the beneficiary is designated as irrevocable.
I believe that getting life insurance is the best tool to prepare for Estate Preservation. It is an instant fund that your heirs can get easily if death comes to pay for the estate tax rather than your heirs cannot afford to pay the estate tax, thus, it will result to selling it to lower price or even the government will get your hard-earned assets if you will not pay it. So my friends and readers, if you have already acquired assets like properties, money in the banks, investments in stock market,Mutual Funds, UITFs, businesses and a lot more, you should have considered as well to get yourself insured properly right away so that your estate will be transferred to your heirs without the burden of looking for money to pay for the estate tax when death comes. I suggest you also talk to a a lawyer to help you to create a will as well. Be prepared. As they say, if you fail to plan, you are planning to fail. Life insurance can give your beneficiaries money at the time that they needed it most.
Thank you for reading my blog. I hope that you learn something. God bless.
To learn more about Estate Planning, I suggest that you read also my references:
To learn more about Financial Literacy, you may contact me.
Archie M. Yuki
Associate Unit Manager/Financial Planner
The Insular Life Assurance Ltd. Co
Mobile Number: 0917-5769607
Email address: firstname.lastname@example.org