Retirement 3 MIN READ

Five common pitfalls in estate planning

Learning from the mistakes of others can help us do a better job at leaving a legacy for the people we care about.

August 26, 2022By Anthony O. Alcantara

Who doesn’t want to leave their loved ones happy when the grim reaper calls?

Our legacy is the only thing that will comfort those we leave behind. And part of that legacy is our estate, which, if we plan well, will benefit our loved ones according to our wishes.

Wanda Beltran, Metrobank’s Head of Account Management, who’s been taking care of the financial affairs of many shrewd and hard-to-please high-net-worth individuals, lists some common pitfalls.

1. Focus on the beneficiary and tax.

There’s just no way to escape taxes even when we pass on. And because we don’t want to pay more than we must, some of us may seek to avoid taxes, especially since we want our beneficiaries to get more from our estate.

Beltran said that some people do fall into this trap by transferring ownership of their assets to their beneficiaries too soon. One manifestation of this is when business owners decide to convey most of their shares to the next generation, thinking that their children will continue to honor them as the heads of their companies.

“That may not always be the case. There is nothing that will stop the children–who are now majority owners of the company–from booting out their parents if they want to,” said Beltran.

Another example is when parents buy properties and put them under the names of their children.

“But what if the children marry and the marriages don’t work out?” said Beltran. “It would have been better if the property was given after the children got married, because the property would be theirs even if their marriages failed.”

2. Focus on death.

Others focus on death, such that they only want their assets to be transferred when they die. Perhaps they subscribe to this improvident idea that what happens after they are gone is of no consequence to them.

After all, they won’t be around to witness the repercussions of their action or inaction.

There are certainly those who find it hard to let go. And with the TRAIN (Tax Reform for Acceleration and Inclusion) law now setting both the estate and donor’s tax at 6 percent, it may seem that there is no benefit to transferring assets within one’s lifetime.

What people fail to realize is that paying 6 percent for donor’s tax today is better than paying a 6-percent estate tax for property that would likely have gone up in value, such as real estate.

“Now for those who don’t care, they only need to read about the horror stories involving the dissipation of estates due to litigious family disputes,” she said.

3. Failure to consider present needs.

Sometimes we opt for what is convenient rather than what is appropriate. Beltran cited as an example the practice of using the “or” for certain joint bank accounts.

What if the person who put in most of the money gets sick or suffers from a stroke? The other joint account holder will be able to get all the money easily. When the patient wakes up, he is left with an empty bank account.

“It’s sad that people don’t think of their present needs without considering the risks,” said Beltran.

4. No further accumulation of wealth.

“If you plan to leave something behind to your heirs, shouldn’t you be concerned about the proper management of these assets?” asked Beltran.

Take the case of the husband who left a huge sum of money to his wife when he passed away, owing to a generous insurance policy. But then the wife had zero knowledge of investment. Soon the money was all gone, and nothing was left even for the education of the children.

If the family has no expectation of accumulating wealth or having a reliable income stream, there has got to be some plan to manage the assets.

5. Resort to tax evasion schemes.

There is a need to stamp out this mindset of tax evasion among some people. Perhaps it was because estate taxes were once as high as 15 percent. If you had a PHP 50-million estate, that would have been PHP 7.5 million in estate tax.

“Recently, however, people have become more compliant and law-abiding because of the TRAIN law,” said Beltran.

Knowing these pitfalls when planning for your estate is one thing; doing something about them is another.

If you want to do estate planning right, talk to your financial services provider, and start that conversation.

ANTHONY O. ALCANTARA is the editor-in-chief of Wealth Insights. He has over 20 years of experience in corporate communications and has a master’s degree in technology management from the University of the Philippines. When not at work, he goes out on epic adventures with his family, practices Aikido, and sings in a church choir. 

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