Basic Estate Planning

BASIC ESTATE PLANNING
October 12, 2012 Citystate Tower Hotel, Manila
ATTY. FROILAN G. AGATEP/ (0917)3520988
DISCUSSION OVERVIEW
Objective of Estate Planning Estate Tax (Rates, Inclusions, Deductions) Basic Estate Planning Strategies

Sale Donation Family Corporation Tax-Free Exchange Insurance
OBJECTIVE
The objective of estate planning is to manage the transfer of ones properties, personal and real, to the beneficiaries in an efficient way, either during a persons lifetime or upon his death. One of the main considerations in doing estate planning is the tax benefit. If the estate tax is not paid, the decedents title to land and certificates of shares of stocks will not be transferred to his heirs and the bank will not allow cash to be withdrawn from decedents account.
RATES OF ESTATE TAX
Without planning, the government can get more than 20% of a decedents net estate.
Over But Not Over P 200,000 P 200,000 550,000 The Tax shall be Exempt 0 5% P 200,000 Plus Of the Excess Over
500,000
2,000,000 5,000,000 10,000,000
2,000,000
5,000,000 10,000,000 And Over
P 15,000 8%
135,000 11% 465,000 15% 1,215,000 20%
500,000
2,000,000 5,000,000 10,000,000
INCLUSIONS IN GROSS ESTATE

In case of citizens and resident decedents, the value of his gross estate shall be determined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated. This includes: Decedent's interest in property Transfers in contemplation of death Revocable transfers Proceeds of life insurance Transfers for insufficient consideration
DEDUCTIONS
Capital of the surviving spouse of the decedent shall not form part of the gross estate. Allowable deductions to the gross estate include: Funeral expenses- 5% of gross estate but not exceeding P200,000 Medical expenses - incurred 1 year before death but not exceeding P500,000 Standard Deduction - P1,000,000
DEDUCTIONS
Family home not exceeding P1,000,000 of FMV Judicial expenses Claims against the estate Claims of the deceased against insolvent persons Unpaid mortgages or indebtedness Unpaid taxes Transfers for public use Property previously taxed (vanishing deduction)
BASIC ESTATE PLANNING STRATEGIES
If there are a few properties involved and the parent deems it best to already dispose of them amongst the children (provided they are already of legal age), a better alternative might either be a donation or a sale. Since the property is now vested in the names of the children, they can do whatever they want with the property.
SALE
Sale of real property is subject to capital gains tax of 6% if the real estate is capital asset. If real property is an ordinary asset, it will be subject to ordinary income tax (maximum of 32%) for individual taxpayers and 30% if the taxpayer is a corporation. Regardless of whether real property is capital or ordinary asset, there is DST of 1.5% and a possible VAT of 12% if property is an ordinary asset.
DONATION
Net gifts for the calendar year shall be subject to Donors Tax based on the following schedule:
Net Over But Not Over The Tax Plus Shall be Of the Excess Over
P 100,000
P 100,000 200,000 500,000 1,000,000 3,000,000 5,000,000 10,000,000 200,000 500,000 1,000,000 3,000,000 5,000,000 10,000,000
Exempt
0 2% 2,000 4% 14,000 6% 44,000 8% 204,000 10% 404,000 12% 1,004,000 15% P100,000 200,000 500,000 1,000,000 3,000,000 5,000,000 10,000,000
DONATION
When the donee is a stranger, the tax payable by the donor shall be 30% of the net gifts. A stranger is a person who is not a:
(1) Brother, sister (whether by whole or half-blood), spouse, ancestor and lineal descendant; or
(2) Relative by consanguinity in the collateral line within the fourth degree of relationship.
FAMILY CORPORATION
This exposes the stockholders/heirs to limited liability.

Decedent has achieved his purpose of excluding properties from his estate and at the same time allows him to retain control of the properties through the Corporation. Transfer of shares of stock is generally less expensive (i.e. 10% of net gain)
TAX-FREE EXCHANGE
No gain or loss shall be recognized if property is transferred to a corporation by a person in exchange for stock or unit of participation in such corporation of which as a result of such exchange said person, alone or together with others, not exceeding four persons, gains control of said corporation. Request for ruling must be filed with the BIR.
INSURANCE
Proceeds of life insurance is non-taxable where the designation of the beneficiary is irrevocable. Proceeds of life insurance may be used to pay-off funeral /burial expenses, estate taxes, etc. and allows heirs to maintain standard of living.
- THANK YOU -

Basic Estate Planning

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BASIC ESTATE PLANNING

October 12, 2012 Citystate Tower Hotel, Manila

ATTY. FROILAN G. AGATEP/ (0917)3520988

Sale Donation Family Corporation Tax-Free Exchange Insurance

RATES OF ESTATE TAX

INCLUSIONS IN GROSS ESTATE

BASIC ESTATE PLANNING STRATEGIES

This exposes the stockholders/heirs to limited liability.

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