Why Filipinos need to change their mindset about ‘pamana’

MANILA, Philippines—In traditional and tight-knit Filipino families, talking about “pamana” or inheritance, remains a taboo. A child can be judged greedy the moment he asks about his parents’ wealth, while siblings are wary of the fights that may erupt over the distribution of properties.

It is time for Filipinos to change this mindset, Sun Life Financial Philippines suggests. The company understands that the issue of “pamana,” when not addressed properly, may not only cause rifts in the family, but also result in a burden in the form of estate tax.

Sun Life’s Head for Agency Distribution Support Jenny del Mundo shed light on the topic at a press conference held at the SMX Convention Center in Pasay City. According to her, people are “bound to accumulate assets that may come in the form of properties like land and houses or in the form of financial assets like investments and money in the bank.” At the time of their passing, their accumulated assets serve as inheritance to their loved ones and an assurance for a secure life even after the pass on. 

Sun Life financial adviser and expert Jenny Del Mundo helps shed light on the topic at a recent press conference held at the SMX Convention Center in Pasay City. Philstar.com/EC Toledo 

The inconvenient truth

Unfortunately, many Filipinos are still unaware that passing on a “pamana” is not as simple as handing out a gift, and this is why Sun Life was inspired to create a campaign educating Filipinos about proper estate planning.

“The inconvenient truth of leaving behind inheritance (is that) the heirs will have to pay taxes to the government, a percentage (of the inheritance) called the estate tax, or more popularly known as inheritance tax,” reveals del Mundo.

Just like income tax, estate tax is also tiered, ranging from as low as 5 percent to as high as 20 percent, depending on the sum total of the assets. Only estates worth P200,000 below are exempted from taxes.

“Buong akala mo nagtrabaho ka, nag-ipon ka, nagpakabait ka kaya mag-iiwan ka ng (You thought you worked hard, saved, and did good so that you will leave) P30-million worth of inheritance, not knowing that the heirs will have to cough up P5.2 million* first before all of those assets can be released,” del Mundo explains. 

Inheritance headaches

Truth hurts when it comes to estate tax and it doesn’t end there; three problems usually ensue, according to del Mundo.

“The settlement of tax is the number one issue—not just the amount but also the deadline. You have to comply within six months from the date of the death. And the government is really strict about this.If you fail to do that, then a second problem arises: you are slapped with penalties. Kailangan mong magbayad ng (you need to pay) interest, surcharge and penalties,” she explains.

This often happens because children who are left behind don’t usually have cash on hand. And here enters the third problem, which is having to borrow money to meet the deadline. Del Mundo says heirs often resort to this to ensure that they can convert the properties to cash or use financial assets to pay their lender. But what happens is that the actual value of the “pamana” decreases.

“The 'pamana' becomes a cost to the heirs,” the Sun Life executive notes. 

Much-needed solutions

Fortunately, these problems can be prevented with proper estate planning.

One option is to sell one’s estate to his family members. “During the lifetime of the owner, he can decide to sell the assets to his children, as long as they have the capacity to buy. They will still be taxed, but it won’t be as much,” Del Mundo says.

And if the inheritors don’t have the capacity to buy, then the parents can choose to donate their estate. It will still be subject to tax but donations made to a person other than a stranger will be subject to a lower tax rate.

However, del Mundo advises estate owners to be cautious of early “property disposal.” There are sad stories of heirs consuming their “pamana” long before their parents pass on. “Maybe the heirs are not mature enough to take care of their inheritance,” she notes.

Another reason for caution is that parents may not have assets available to them for their own needs, like sickness. “Always leave something for yourselves,”del Mundo adds. 

Better alternatives

Sun Life also recommends another solution: Life Insurance Protection.

“Remove the burden by trying to pay for your heirs’ taxes. How? Make money available to them. And the perfect solution to that is a life insurance policy. At the time of death, the life insurance policy that you have initially applied for provides a benefit amount that goes to the heirs, which they can use to pay for the taxes,” del Mundo advises.

A great option for this purpose is SUN Smarter Life, which also caters to retiring Filipinos in their 40s to 60s**. SUN Smarter Life offers insurance protection starting day 1 of coverage up until age 100. To maximize the benefit it provides, it is advisable to get a plan that is equivalent to the foreseen estate tax

“It’s affordable. You don’t have to set aside P5.2 million now. Just set aside around P345,000* every year, which is payable for 10 years,” del Mundo says.

If the policyowner dies without finishing the payment, the family still gets their P5.2-million insurance.

Moreover, SUN Smarter Life can also be the p"amana" itself. According to del Mundo, “It is an alternative that is available and affordable.” It also offers the convenience of being liquid and mobile, thus allowing heirs to bring their “pamana” wherever they may go.

“SUN Smarter Life therefore makes estate planning easy, allowing a very orderly transfer of one’s wealth to the real treasures of his life,” she concludes.

Start planning for your loved ones bytalking to a Sun Life financial advisor today.

*Php 345,602 is the annual premium payable for 10 years of a SUN Smarter Life Classic Peso 10 policy on a 55 years old, Non-Smoker Female insured with P2.6 Million Face Amount. It offers a Guaranteed Death Benefit of 200 percent of the Face Amount, or P5.2 Million in this case.

**This is subject to assessment, review and approval set by Sun Life. 

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