Life Insurance as an Indispensable Tool in Estate Planning

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In a previous article, I talked about the importance of having a sound estate plan in securing your family’s future, not only in terms of material needs, but also in order to ensure peace after you leave them for the afterlife. Now, I am here to discuss one of the most important, if not the most important tools in estate planning: life insurance.

Several years ago, I used to think that all life insurance agents are just out to get people to buy their product, which they cannot even enjoy during their lifetime. For me, life insurance was just another unnecessary expense that will further diminish my hard-earned money in addition to my contributions for my social security, PAG-IBIG, Philhealth, and those darn taxes. I was even annoyed how these agents refer to themselves as ‘financial advisors’ when in truth and in fact; all they are are but salesmen. Hence, whenever, a financial advisor would contact me in order to talk about my ‘future,’ I avoided them like the plague!

However, when I began learning about estate planning in order to include it in my law practice, I discovered and was truly convinced that life insurance is indeed very important and that 21st century insurance agents, at least the ones I know, are real financial advisors in the truest sense. As is often said in the insurance industry: “Life Insurance is the only necessity that you can purchase today when you do not need it and something that you cannot purchase in the future when you need it the most.” In fact, it is indispensable to sound estate planning and personal finance in general. Now why would I say such a thing? Here are some of the reasons:

  • Estate Tax. We all know that taxes are a pain in the ass (Especially for men because they keep their wallets in their back pockets!) and would therefore do anything to legally avoid paying them. Imagine, if you leave behind an estate worth at least ten million pesos (P10,000,000.00), then your heirs would have to pay a whopping minimum of P1,215,000.00 plus 20% of anything in excess of P10,000,000.00 in estate taxes! Now what if the only property you left was the ancestral or family home worth P10 million? Where will your heirs get the money to pay the estate tax, which, by the way, should be paid within six months from the time of your death? The only solution left is for them is to sell their beloved ancestral house and lot and usually at a loss. That would be so sad! However, ample life insurance can quickly solve this problem for just a fraction of the amount of estate tax due that your heirs would need to pay. How? By first applying the life insurance proceeds to the payment of the estate tax due. In this way, your heir/s would be able to receive their inheritance wholly intact.

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  • Equalization of Inheritance. Contrary to what most people think, Filipinos do not have the absolute liberty to dispose of their properties as they deem fit. One example of this is in the area of wills and succession. The law reserves a certain portion of our estate to those who are referred to as ‘compulsory heirs.’ This reserved portion is called their ‘legitime.’ There are instances however that some people would want to give more to an heir, especially if they have illegitimate children because under the Civil Code of the Philippines, the same are only entitled to one-half of the legitime of the legitimate children. One of the ways a testator can equalize the share of his illegitimate children is by bequeathing to them a bigger share from the free disposable portion of his estate. The problem with that strategy however is that it can and will cause feelings of hurt and resentment in the hearts of the surviving legitimate family because in addition to the betrayal, their share in the estate of their deceased parent is even lessened due to the presence of illegitimate children; or when the free disposable portion is insufficient. But there is a better way, and that is through life insurance. By naming the illegitimate children as beneficiaries, they will be able to receive more than what the law provides for them, provided that only a sufficient and fair amount is given to them in such a way that they will not receive a larger inheritance than the legitimate children.

These are just some of the reasons why life insurance is an indispensable tool in estate planning. To be sure, there are more but those will be discussed in later articles. For now, suffice it to say that life insurance is definitely not a want or a luxury, but certainly a necessity for those who are responsible enough to take care of the needs of their loved ones even in their permanent absence. If you would want to know more about how estate planning works, consult a trusted lawyer, accountant or financial planner.

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.

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!