Preparing for our death is something that we, Filipinos, don’t like to talk about. However, just this afternoon my father asked me to call him because he wanted to discuss his plans about our house in our province as he mentioned that he is already of old age. It’s a topic that I don’t like to discuss but this made me realize the importance of preparing for the inevitable. Hence, let’s start with our topic for today.
Admit it or not, I believe that we work hard and dream to accumulate wealth in our lifetime. After accumulating wealth, we must also plan ahead on how to properly distribute our wealth to our heirs after our death. This is what we call “Estate Planning”, According to Wikipedia, Estate planning is the process of anticipating and arranging, during a person’s life, for the disposal of their estate.
Estate planning involves a lot things but I believe that these 3 things are the most important:
1) Avail a memorial plan, which includes arranging and paying for the expenses that will be incurred at your funeral
2) Write a last will and testament, which clearly states how you want to distribute your assets to your family, friends, relatives and yes, even your creditors
3) Assign an executor of your will, which if possible, one who is NOT among your beneficiaries to avoid conflict of interest, thus it’s recommended to hire a trusted lawyer or an accountant for this
Why is it important to do Estate Planning?
1) To avoid strain in family relationships.
You want to avoid fighting among our your spouse, children (both legitimate and illegitimate), and other relatives on who gets which, when we die.
2) To lessen, if not eliminate, the financial implications of your death.
When we die, our assets become frozen and our family needs to pay estate taxes to be able to access our assets such as our cash in banks, properties under our name, and all our stocks, mutual funds and other paper investments.
3) To leave behind a good legacy to your family.
By preparing for our death, we are helping our family to move on comfortably with the life we have dreamed and designed for them.
What are the tools used in Estate Planning?
This depends on what and how big our estate is. But in every scenario, I believe that life insurance is often the best tool to utilize as it can readily pay the estate taxes.
Other options include setting up a trust fund for your children as it has tax exemptions up to a certain amount.
You can also “sell” or “donate” your properties to your heirs or future beneficiaries before you die. Please remember that this will also be subject to donor’s tax which in most instances is lesser than the estate tax. However, keep in mind the Parable of The Prodigal Son and remember that giving your assets to your heirs early might tempt them to overspend recklessly. I’m sure you don’t want your family to sell your assets just to pay their debts in the end.
Lastly, you can set up a family corporation. This is good if you’ve acquired a substantial amount of properties (and businesses). The transfer will be tax-free, and you continue to have control over your assets through the corporation. However, your family needs to agree on what they will do to your assets before they can access it.
Remember, Estate planning should be made according to your objectives and circumstances, by using a combination of the tools above and many more.
Lastly, our laws, especially on taxes, change every so often, thus, it is essential to consult a financial planner and a legal expert when it comes to distributing your wealth.
“He who fails to plan is planning to fail.”
– Winston Churchill
I hope this article taught you something about how to achieve success.
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