Democracy at Work or Constitutional Strife?

It started with the impeachment trial of former Chief Justice Renato Corona. Then came the PDAF scam, then the DAP scam, and now the looming BIR controversy.

Driven by the Corona impeachment in 2012, the BIR sent the Supreme Court (SC) a request for copies of the statements of assets, liabilities and net worth (SALN) of its respective justices. However, in a resolution dated June 17, 2014, the SC denied the said request “for lack of sufficient basis.”

Analysts say that one of the reasons, if not the main reason, PNoy went after CJ Corona was because of the recent decision of the SC involving Hacienda Luisita, which is owned by the President’s clan. Thereafter, the PDAF scam was brought into the fore thanks to the whistleblowing efforts of a certain Benhur Luy and caused by the social media posts of Janet Napoles’ daughter showcasing her expensive stuff and lavish lifestyle. Nevertheless, despite the overwhelming evidence for the guilt of a majority of the senators, only three have been issued warrants of arrest and incarcerated. In an ironic twist of fate, Senate President Juan Ponce Enrile, the presiding judge of the Corona impeachment trial, was among those arrested for the PDAF scam along with Senators Bong Revilla and Jinggoy Estrada. Why is that? Could it have anything to do with those three senators being opposition members; or that Enrile was once a crony of the deposed dictator, Ferdinand Marcos, and hence an enemy of the Aquinos? Of course, we already know by now that the legislature, which consists of the Senate and the House of Representatives, is basically controlled by the President.

But this is not the end of it. On July 1, 2014, the SC ruled on the controversial Disbursement Acceleration Program (DAP) of the Executive Department, declaring the salient point thereof as unconstitutional. In response to this decision, PNoy gave a national address relative thereto on July 14, 2014 defending the DAP and asking the SC to reconsider its decision.

Considering this background, and the apparent vengefulness of PNoy, it is quite understandable that the SC justices would deny the BIR its request for fear of “harassment.” And why wouldn’t they be careful considering what happened to CJ Corona and the three senators? Atty. Mel Sta. Maria, the new dean of the FEU Institute of Law and resident legal analyst of TV5, said that these things simply show democracy at work (my own paraphrase). Now, is it really just democracy and constitutionalism at work or is it a case of the three co-equal branches of government, or maybe just two, fighting against each other in the quest for supremacy? Only time will tell. The only thing we can do right now is be vigilant by knowing what the law says about these things. Remember, “Ignorance of the law excuses no one from compliance therewith” (Article 3, Civil Code of the Philippines).

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Real Pinoy Legal Horror Stories (No. 1)

Bobby, a successful iridologist and businessman, was married to Esperanza and they had a daughter named Queenie. They owned the house and lot they lived in located at White Plains, Quezon City currently valued at least P20,000,000.00. However, after a few years, Esperanza died. Bobby then allegedly married Dora who had children from a previous marriage named Luwalhati and Kiko. However, it was only Luwalhati who lived with Bobby and Dora in the house in White Plains. After several years, Bobby died leaving behind Dora and Luwalhati who continued living in their house in Quezon City. Luwalhati became a spinster who then adopted two children, one boy and one girl. The girl’s name was Tina and the boy’s name was Allan.

Afterwards, Dora died leaving the house to Luwalhati and her two adopted children. Unfortunately, after a few years, Luwalhati also died due to cancer leaving Tina and Allan to the care of her best friend, Suzy. During this time, Queenie has already been living in the United States with her family. When Queenie found out about the death of Luwalhati, she became concerned about their ancestral house as she is the only living legitimate child of the deceased patriarch Bobby.

Now the question is: To whom does the house and lot go? Originally, the house and lot in Quezon City was under the name of Bobby who allegedly then donated an undivided share thereof to Dora and Luwalhati, thus including their names in the Transfer Certificate of Title. However, upon the death of Luwalhati, it was discovered that the property is now under the name of Dora and Luwalhati. Now, Suzy, being the one who took care of Luwalhati during her battle with cancer, claimed that she has in her possession the Last Will and Testament of the latter and that she was named executor therein. The problem is, she refused and continues to refuse producing the same for the other property claimants to see. On the other hand, Kiko does not believe that his sister wrote and executed such a will and also claims that he is a legal intestate heir of Luwalhati because Allan and Tina were not legally adopted by her. However, Queenie, on the contrary, claims that Luwalhati was never validly adopted by her father Bobby and that he and Dora were not even married although there was a time that the TCT of the subject property was named under Booby “married to” Dora. Hence, she is likewise claiming the subject property as a primary compulsory heir of her father Bobby and her mother Esperanza. To make things more complicated, the Registry of Deeds of Quezon City could not find any copy of the transfer documents concerning the house and lot putting into question the validity of the subsequent transfers from Bobby to Dora and Luwalhati. It seems like somewhere along the way, an irregularity was committed regarding the transfers of ownership of the subject property.

Presently, it is still unclear about what truly transpired and how the title to the subject property was transferred from Bobby to Dora and Luwalhati. But one thing is clear: All of these problems could have been avoided if only Bobby came up with a sound estate plan including a Last Will and Testament.

How to Protect Your Hard-Earned Assets

Have you ever wondered how a lot of big business owners in America managed to keep their empires afloat and their properties intact even after a major trial or setback?  With the help of highly capable legal and financial professionals, they have learned to master the art and science of sound asset protection planning.

Sadly however, here in the Philippines, most of our countrymen have been lax when it comes to  keeping their money and property safe. Usually, Filipinos have the following mindset when it comes to asset protection planning:

-“I don’t need those sophisticated asset protection stuff, anyway, I only have a simple sari-sari store! Let’s just leave that to the rich and famous like Henry Sy or John Gokongwei!”

-“Lawyers are expensive! Why would I need to spend so much when I only have so little?”

-“This business has been passed on and survived for many generations. So why would I need asset protection now when they didn’t need it before?”

The people who think this way, whether they know it or not, are actually more at risk of losing everything they have worked so hard for.

The goal of asset protection is to shield assets from the reach of creditors, especially the government in the form of taxes.

Asset protection should simply be about structuring the ownership of one’s assets to safeguard them from potential future risks. Most asset protection structures are commonly used business and estate planning tools, such as corporations, limited partnerships, trusts and the like. Properly implemented asset protection planning should be legal and ethical. It should not be based on hiding assets or on secrecy. It is not a means or an excuse to evade taxes.

Asset protection will not work to insulate the proceeds of crime. Only properties that have been legally acquired are covered by asset protection methods. If an asset protection plan is implemented, it should be for legitimate business purposes, not as an instrument to defraud creditors.

There is no one “magic bullet” in asset protection. The term “asset protection” encompasses a number of planning and structuring mechanisms that may be implemented by a practitioner to minimize a client’s exposure to risk. For each client the asset protection solution will be different, depending on (i) the identity of the debtor; (ii) the nature of the claim; (iii) the identity of the creditor; and (iv) the nature of the assets. These are four threshold factors that are either expressly or implicitly analyzed in each asset protection case. The analysis of these four factors determines what planning would be possible and effective for a specific client.

A.​ Identity of the Debtor

In analyzing the identity of the debtor, one should consider the following initial issues:

1. Is the debtor an individual or an entity?

a. If the debtor is an individual:

i. Does he or she have a spouse, and is the spouse also liable? For example, the spouse may be liable as a co-signor of a personal guarantee or as a co-owner of community property assets.

– If the spouse of the debtor is not liable, is it possible to file an action in court in order to transmute the assets from community property to the respective separate property of each of the spouses?

ii. Are the spouses engaged in activities that are equally likely to result in lawsuits, or is one spouse more likely to be sued than the other?

b. If the debtor is an entity:

i. Did an individual guarantee the entity’s debt?

ii. How likely is it that the creditor will be able to pierce the corporate veil, or otherwise get at the assets of the individual owners?

iii. Is there a statute that renders the individual personally liable for the obligations of the entity? Often, clients assume that if assets are placed within a limited liability entity, such assets are shielded from lawsuits. Another common assumption is that a lawsuit against such an entity cannot reach the owners of the entity. These assumptions are frequently erroneous.

B. The Nature of the Claim

It is not sufficient to know the identity of the debtor. The practitioner will also need to know what type of a claim will be brought against the client. Here are some variables:

1. Are there any specific claims against the client, or is asset protection being undertaken as a result of a general fear of lawsuits and the desire to insulate the client from lawsuits?

2. Has the claim been reduced to a judgment? If the claim has been reduced to a judgment, what assets does the judgment encumber? For example, a lien will cover only those assets that are titled in the name of the defendant. If there is any variance, the judgment lien will not attach. Similarly, a notice for a debtor’s examination will impose an automatic lien only on those assets which are titled in the name of the debtor.

3. Has the claim matured to the extent that any transfer of assets will constitute a fraudulent transfer?

4. Is the claim brought against the debtor a tort claim? Tort claims are generally covered by liability insurance. To the extent that asset protection is desired, it is because the plaintiff will deem that the insurance coverage is not sufficient, and will seek to get the defendant to contribute to a settlement with the defendant’s own funds.

5. Certain debts are subject to pre-judgment attachment, if: (i) they arose in the context of the debtor’s business, and (ii) the amount owed is readily ascertainable. In this case the plaintiff does not need to wait until he obtains a judgment in order to encumber the asset. However, the amount of the debt must be evident from the face of the instrument sued upon, such as a promissory note or a liquidated damage provision.

6. An always relevant question is the dischargeability of the claim in bankruptcy. If the claim is dischargeable in bankruptcy, and the debtor’s debts are exempt or otherwise unreachable, then asset protection planning may not be warranted – a bankruptcy discharging the claim will be sufficient.

a. The fact that a claim is dischargeable provides leverage when negotiating with creditors.

b. Asset protection planning and bankruptcy planning usually go hand-in-hand. Often the goal of asset protection planning is to structure the debtor’s assets so that upon the filing of a bankruptcy the debtor’s claims are discharged and assets are retained.

7. What is the statute of limitations for bringing the claim?

8. What is the size of the potential claim? Creditors become more aggressive if the liability is greater. In addition, certain asset protection strategies are more expensive than others.

C. Identity of the Creditor

The third factor to be considered before implementing an asset protection strategy is the identity of the creditor. Here we are referring to certain creditor traits:

1. How aggressive/lazy is the creditor? How smart/knowledgeable is the creditor and the creditor’s counsel? Accurately answering these questions will help us determine the scope of collection activities that the creditor is likely to engage in. This tells us how much protection the debtor requires.

2. Is the creditor a government agency? Taxing authority? Some government agencies possess powers of seizure that other government agencies do not. For example, the Bureau of Internal Revenue and Bureau of Customs, with due process, have the power to seize assets that it deems are used to defraud the Government.

3. Is the potential creditor a spouse in an action for annulment of marriage or declaration of nullity of marriage that has not yet been filed?

D. The Nature of the Assets

The final factor that needs to be analyzed is the nature of the assets we are seeking to protect. This factor, to a much greater extent than anything else, will determine what may be done and what needs to be done to protect the debtor:

1. To what extent are the assets exempt from the claims of creditors?

2. How are the assets titled? If assets constitute community property, it is usually irrelevant that the assets are titled in the name of one spouse. The creditor can attach all of the community property, even if only one spouse is the debtor, provided that the debt inured to the benefit of the family. This may hold true even if the debt arose prior to the marriage.

Each of the issues presented above should be carefully considered by the legal counsel or financial planner before structuring and implementing an asset protection plan. Consult a specialist for adequate and sound asset protection planning.

Estate Planning for Every Juan

“A good person leaves an inheritance for their children’s children, but a sinner’s wealth is stored up for the righteous.” (Proverbs 13:22)

Both as a lawyer and a pastor, I have come across several people who are having problems with disposing certain properties which are still under the name of their long-deceased relative. The relative is usually a parent, a grandparent, an uncle, an aunt, or even a sibling. In other cases, I also encounter siblings quarrelling amongst each other or even with their surviving parent. Such situations are truly heartbreaking to say the least. These kinds of problems usually arise due to the failure of the surviving relatives, who are more often than not the legal heirs, to pay the necessary estate tax and settle the estate of the decedent. However, are the heirs the only ones to blame? Definitely not. The decedent, while living, likewise has a part, if not more parts, to play in ensuring that his descendants or heirs do not have a difficult time in acquiring the inheritance he had left for them to enjoy. Now, this is where sound estate planning comes in.

Before going any further, it is imperative that we first clarify some key terms because most people are confused between “estate” and “real estate.” On the one hand, an “estate” is the accumulation of all the property, real or personal, tangible or intangible, wherever situated, of a person at the time of his death (Sec. 85, National Internal Revenue Code). On the other hand, “real estate” is property consisting of land and anything permanently fixed to it, including buildings, trees, sheds and other items attached to the structure (Art. 415, Civil Code of the Philippines). Hence, from the above definitions, we can infer that “real estate tax” is different from “estate tax.”

Contrary to what most people think, estate planning is not only for the rich and famous. For as long as you own something, anything, you have an estate! Most of the time, family members don’t even fight among themselves over a piece of expensive property but over those which have sentimental value such as trinkets, paintings, jewelry, books, etc. As a famous saying goes: “There are only two certain things in life, death and taxes.” Of course, in reality, there are more than those two. Still, for some people, when they hear of estate planning, what comes to mind is the Last Will and Testament. Although indispensable thereto, the latter is merely one of the tools used in estate planning. Simply put, Estate Planning is basically transferring your properties to your heirs in the best way possible while avoiding unnecessary costs, especially on taxes.

It is never too early to start planning your estate. Death comes like a thief in the night, to borrow Jesus’ words. Therefore, in order to avoid the hassles and problems that you may leave your loved ones as illustrated by the true to life cases given above, show them that you care by planning ahead. Remember, failing to plan is planning to fail! In the following weeks, I will be sharing more real life horror stories of people who failed to plan their estates resulting in heart-wrenching family feuds or squabbles. So what are you waiting for? Consult your lawyer, accountant or financial planner today!

The Importance of Having a Retained Counsel

Most people have heard of a “retainer fee” or “legal retainer.” There are times that when a problem concerning the law comes up, their friends would advise them to “retain an attorney.” So what exactly does it mean to retain the services of a lawyer and what are its advantages?

A “retainer” is a fee paid to the lawyer, often monthly or annually, to retain or keep the lawyer available to the client. This type of fee is often paid by corporations and other business organizations to make sure they have access to their lawyers whenever they need advice or representation. A true retainer is usually non-refundable. In most cases, the lawyer shall provide the prospective client a Retainership Proposal that outlines the services the same is entitled to by virtue of the retainer fee such as, but not limited to, legal consultation and document review.

Now, how is this different from “legal fees” and “costs?”

On the one hand, legal fees are paid to a lawyer for his advice and services or advice and services provided by his firm while costs, on the other hand, are other expenses, such as filing fees, copying costs, or expert witness fees that the lawyer is paying to others on the client’s behalf. Usually the client is required to pay all costs as they are incurred or as part of a regular billing. In several cases, lawyers may likewise require a deposit called a “mobilization fund” from which he shall charge any and all of the said out-of-pocket expenses that may be incurred relative to the client’s cause. Any excess therefrom may either be reimbursed to the client or be deducted from the legal fees due to the lawyer.

Having a retained legal counsel on hand provides clients with a sense of security that whenever they would require the services of a lawyer, the same is available. Moreover, entering into a retainer also ensures that legal fees for services not covered by the retainership agreement shall be charged at a significantly discounted rate as opposed to those that have not entered into a retainer.

From my own personal experience, I have encountered several prospective clients who only seek the advice and assistance of a lawyer when their problems have already blown up on their faces. I usually tell them that they should have sought the counsel of a competent attorney even at the onset of their new business endeavor, as in from the time they incorporate their corporations or establish their business partnership. It is quite similar to having periodic check-ups with the physician or dentist so as to detect and deter any developing sickness rather than doing so only when the disease has already become terminal.

So just as it is important for everyone to have a regular family or personal physicians, whether general practitioners or specialists, it is no less true when it comes to securing the services of an attorney in order to protect your rights and interests in this dog-eat-dog world.