Estate Planning 101: A quick guide

I had a conversation with a former high school classmate and schoolmate last year on personal finance and estate planning. Misconceptions about estate planning are common and considering the low awareness of personal financial planning in this country, awareness about estate planning is equally as low or even lower.

According to latest statistics, Filipinos still have a long way to go in terms of financial literacy and education. Most do not even have personal financial plan or even a simple retirement plan, so it is expected that most do not have an comprehensive estate plan.

What is Estate Planning?

It is the orderly process of arranging the disposal or distribution of one’s assets to beneficiaries or heirs.

However, it is often neglected that the process requires a muti-discipline approach. Estate planning can be divided into two parts, “Estate protection” and “Estate control and distribution.” The planning is done in order to protect, control and distribute according to what you want.

Breaking it down

One of the most common misconceptions is that a lawyer is all you need. In some cases, when knowledge of the law is needed, they are required to have their services but not all the time. Most lawyers only enter the scene when conflict arises, it is more reactive rather than preventive.

Estate planning has many elements. Accountant, bank trust officers, financial planners, lawyer, life insurance agents, real estate appraisers, stock brokers, tax professionals, are needed for a comprehensive estate plan.

Here are some key questions that needs answers:

• [Legal] Property relations between husband and wife; last will and testament, who is the executor? (ideally a non-family member)

• [Tax] How much Estate tax should be paid; any taxes or penalties not paid?

• [Death expenses] Medical expenses, and funeral costs (Memorial plans, lots,..etc.)

• [Financial] Debt and settlements; Investments transfer processes (Stocks, MFs, other paper investments).

• [Insurance] Inheritance, educational needs and living expenses of family

• [Real Estate] Are your properties titled? Are they divided properly and fairly?

• [Business] Have you crafted a plan for the sustainability of your family business?

Why is it important to do Estate Planning?

• To avoid strain in family relationships. You don’t want your spouse, children (both legitimate and illegitimate), and your other relatives fighting over who gets which, when you die. You can also avoid potential hatred and violence for the next generation too.

• Reduce, if not eliminate, the financial implications of your death. All your assets become frozen when you die, and your family must pay the estate tax to be able to access your money and transfer ownership of your properties and investments.

• To leave behind a good legacy to your family. By preparing for your death, you are helping them to move on comfortably with the life you have dreamed and designed for them. Whether that is laying the foundation for a proper succession, or simply living behind a will for them to get a certain amount and leave the rest to charity, YOU ultimately decide your legacy.

Remember that accumulating wealth also comes with the responsibility to protect and properly disposing it. I know that doing all of these things feels rather grim, but take the time and get these things done.

Flexibility in the estate plan is key. Plan now, but keep things flexible in case circumstances change.

“You can avoid jealousy and hatred, with one stroke of the pen.” - Gerald Sacks

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Vernon Joseph Go, RFP®, REB, is a Public Speaker, Content Producer and  Author of the book “A Lazy Investor’s Way”.