In the event of one’s untimely demise, immediate family members often struggle with processing the loss. They also have deal with the complexities involved in funeral and estate management. Having an estate plan in place helps relieve loved ones of the hassle and burden of claiming inheritances other assets upon a person's death.
What is an Estate?
Estate is all the money and property of an individual, i.e., real estate, jewelry, or cars of an individual. As the term implies, estate planning s making all the necessary groundwork or preparations so that upon death, these assets or “estate” go to the right people. Estate planning also eases them of the tedious legal proceedings of transferring an estate. Anyone who has accumulated significant assets to their name, ideally, should consider estate planning.
When one dies, their estate will be passed on to the heirs. However, before heirs can transfer the said assets to their name, they will have to go through a legal process called “settlement of the estate.” As part of this process, heirs must pay the estate tax—a tax imposed on the transfer of property upon the owner’s death. It is not a tax on the property or asset itself but one applied to the handing over of a property.
In the Philippines, the Bureau of Internal Revenue (BIR) currently charges a six percent (6%) rate on the net estate of a deceased’s personal properties. Say the individual has accumulated an estimated Php15 million net estate. For the heirs to transfer such assets to their name, they will have to pay a hefty 6% estate tax amounting to Php900,000 pesos. The high tax rates become a burden to the heirs as it is usually an unforeseen expense on their part.
There are also times when heirs can't afford to pay for estate taxes within the given period, leading to penalties and charges.
Last Will & Testament
For those who seek to preserve their estate and ensure they get passed on to their rightful heirs upon death, may opt to write a last will and testament. Such a legally valid document can prevent potential disputes among family members in the future.
To create a will, an individual must be at least eighteen (18) years old and have a sound mind during the creation of the will.
In the Philippines, there exist two kinds of wills: holographic and notarial. In the simplest sense, a holographic will is a document written, dated, and signed by the creator of the will, also known as the “testator.” On the other hand, a notarial will needs to follow the requisites under Article 805 and Article 806 of the Civil Code of the Philippines to be legal.
Inheritance
The Philippine law provides conditions on how one’s estate should be distributed to his heirs. The law also identifies the “compulsory heirs” of the testator.
Whether they like it or not, compulsory heirs are entitled to estate shares. Compulsory heirs include the deceased’s legitimate children, spouse, parents, and illegitimate children if any. Half of the deceased’s estate shall be equally divided among the legitimate children, while illegitimate children receive half of the legitimate child’s share. The other half of the estates, regarded as the “free portion,” may be divided however they want to after all the compulsory heirs have been given their shares.
In the absence of a will, there will be no “free portion” to the estate and thus will be divided equally among the deceased’s spouse and legitimate children. Lastly, a legally binding will cannot remove or deprive an heir of receiving their estate with proper legal actions. Disinheritance in the Philippines may only be done through a court proceeding.
Planning ahead
Preparing for death remains a sensitive topic among Filipinos. However, estate planning helps one ensure a comfortable future for those who will be left behind. Since division of the estate among family members is often a cause of dispute, it might be best to educate heirs and family members as early as now of any plans regarding inheritance and wills to minimize disagreements or fallouts in the future.
Another thing one may consider in an estate plan is getting insurance. Upon death, life insurance may provide heirs with enough money to cover estate taxes and help sustain them for a while as they seek new or other sources of funds.
While there is no one-size-fits-all estate plan, knowing the basics of the law revolving around such matters can guide one in preparing for end-of-life.
Sources
5 Reasons Why Estate Planning is Important. (n.d.). Insurance Site. https://www.manulife.com.ph/en/individual/what-s-new/5-reasons-why-estate-planning-is-important.html
Britanico, A. F. (2018, November 3). Philippine inheritance and foreign wills. Lawyers in the Philippines. https://lawyerphilippines.org/2018/03/06/philippine-inheritance-and-foreign-wills/
Estate Planning in the Philippines | InLife. (n.d.). Insular Life. https://www.insularlife.com.ph/estate-planning
L. (2020, November 10). Who are compulsory heirs under Philippine law? Lawyers in the Philippines. https://lawyerphilippines.org/2019/02/08/compulsory-heirs-under-philippine-law/
Lawyers in the Philippines. (2018, October 27). The Philippine Estate Planning Primer (Everything and the Kitchen Sink). lawyerphilippines.org. https://lawyerphilippines.org/2018/10/27/the-philippine-estate-planning-primer-everything-and-the-kitchen-sink/
R.A. 386. (n.d.). The Lawphil Project. https://lawphil.net/statutes/repacts/ra1949/ra_386_1949.html
