Maybe you are already planning your next long weekend vacation in 2023 since the list of holidays for next year was already released. Or maybe looking for the things you want to check out this coming 10.10 online sales. Or at least looking forward to having your latest smartphone this year. Many of us are fond of doing the necessary planning especially in view of something that we have been looking forward to having and achieving.
However, no one seems so forward looking to plan who will inherit their assets or “estates” when the time comes that someone passes away. In spite of being melancholic, many still avoid discussing matters concerning what will happen when this unfortunate but inevitable circumstance happens – especially what will happen after it. Further, it is no stranger to many that assets left by the deceased often cause families to go against each other. That is why Bria Homes will lay down some of the reasons why it is necessary for property owners to do estate planning in the Philippines to ensure what will happen to the estates or assets after the day of their passing.
What is Estate Planning?
There is more than meets the eye when we are talking about transferring of assets or estates to your loved ones after someone’s passing. Estate planning is making the necessary arrangements to what will happen to everything you own, especially knowing the right person to inherit it when you die. An estate may include real properties like residential units, vehicles, bank accounts, investments and insurance, furniture, jewelries, and other assets of value.
Aside from identifying the recipients of your estates, estate planning also should also include the steps on how to carry out your plan as easy and cost efficient as possible. Further, estate planning should also cover the possible circumstance if in case you become physically challenged and incapicitated.Hence, a good estate plan includes the following:
- instructions for your care and financial affairs if you become incapacitated before you die
- arrangements for disability income insurance to replace your income if you cannot work due to illness or injury, this also covers the long-term insurance to help you pay for your care in the occasion of a prolonged illness, and life insurance to continue to provide for your family even at your demise
- identify to whom you shall entrust your business at your retirement, disability, incapacity, or worst, death
- name a guardian for your minor children’s care and inheritance
- provide for family members with special needs
- minimize the tax to be levied, court costs, and other unnecessary legal fees, which may include funding assets into a living trust, completing or updating beneficiary designations, or otherwise aligning your assets with your estate plan
An important note is that estate planning is an ongoing process and must be updated from time to time. You should be able to review and update your estate plan depending on the situation and other important changes – this may include legal changes – over your lifetime.
Estate Tax in the Philippines
One of the things you need to consider in doing your estate planning in the Philippines is the estate tax levied by the government to the recipients of these estates. Though many other countries have started to eliminate their estate tax or inheritance tax, the Philippines still levy this kind of tax by virtue of Republic Act No. 10963 or Tax Reform for Acceleration and Inclusion (TRAIN) Law which was enacted on 01 January 2018. Prior to the enactment of the law, estate tax in the country ranged from five (5) percent to twenty (20) percent. However, with the tax reforms brought about by the law, estate tax now is fixed to six (6) percent of the net estate or the total value of all the estates of the deceased.
According to the Bureau of Internal Revenue, Estate tax is a tax on the right of the deceased person to transmit his/her estate to his/her lawful heirs and beneficiaries at the time of death and on certain transfers, which are made by law as equivalent to testamentary disposition. It is not a tax on property but a tax imposed on the privilege of transmitting property upon the death of the owner.
The heirs have up to one year to settle their estate tax responsibilities after the death of the decedent (original owner of the estates) by filing the BIR Form 1801 in triplicate. In some meritorious cases the BIR Commissioner may allow an extension of 30 days.
The return shall be filed with any Authorized Agent Bank (AAB) of the Revenue District Office (RDO) having jurisdiction over the place of domicile of the decedent at the time of the decedent’s death. In the event that the decedent has no permanent residence in the Philippines, the return shall be filed with the office of the BIR Commissioner (RDO No. 39, South Quezon City).
Good News! There is Estate Tax Amnesty!
For those having pending estate tax responsibilities and might have an accrued value due to penalties and interests, grab now the opportunity of the tax amnesty that the Philippines government is offering under RA 11213 or the Tax Amnesty Act of 2019 which was signed by former President Duterte in February 2019. With the enactment of this law, taxpayers were allowed to settle their outstanding balances without incurring penalties. The amnesty applies to estates of decedents who died on or before December 31, 2017, and whose estate taxes remained unpaid as of that date
The law was about to expire on June 15, 2021. However, the tax amnesty of the government was extended until June 14, 2023, as per Republic Act (RA) 11569.
How to Avoid Paying Estate Tax in the Philippines?
Another way of efficiently planning your estates is to look for avenues how to avoid or lessen the cost of these transfers. There are various ways to efficiently plan your estates in the Philippines and below are few of them.
Give Your Property To Your Beneficiaries
You may opt to transfer the owner of your well loved house and lot or other residential units like condominium while you are still alive. By doing this, you will have fewer estates under your name and will make the estate tax bill lower. However, this comes with a cost as well. You will be responsible for another form of tax which is the donor’s tax. This tax is calculated based on the total net gifts you made in a calendar year. The rate ranges from 2% to 15% of the total value of the net donations.
Read Also: Few Things to Know About Transfer Tax
Acquire an Insurance
Another efficient way of planning your estate in the Philippines is through purchasing an insurance policy. The very objective of estate planning is to lessen the burden to your heirs and various insurance policies surely address this matter.
By purchasing a life insurance, you may designate your heirs as the policy beneficiaries. In the event of your passing your assets will be transferred on to them and they can utilize the benefits of the policy to pay the estate tax. When you pass away, your insurance proceeds are fully distributed to your beneficiaries. If the beneficiaries are designated as irrevocable, they are likewise immune from estate tax.
Invest in your dream affordable house and lot with Bria Homes!
Bria Homes offers numerous affordable house and lot and condominiums located in various strategic locations. With its able and skillful agents and brokers, Bria Homes will surely help you to efficiently and effectively plan ahead for the management of your assets.