Five steps to start securing your financial legacy

by Aneth Ng-Lim, 28 Oct 2019

As All Saints’ Day draws near, we are reminded not only of the family and friends we’ve lost, but also of our own mortality.

What have you done to secure your financial legacy?

To some, this can be a complicated process that involves many investments and properties. The more you have and own, the more you need to ensure that should anything happen to you, your wishes will be carried out to the letter.

But even if you have few or little assets, planning for unforeseen events is always wise. This is why a husband would buy an insurance policy after the wedding to protect his wife, especially if he is the breadwinner. Or parents would decide to protect their children when they start raising a family by signing up for educational plans to expanding their own life insurance to enrolling in forced saving plans.

Packing for a three-week trip with my younger daughter, I made a list for my husband that covered everything from breakfasts to paying the day cleaner to caring for our pocket garden. On a whim, I decided to also write out a list of our modest assets, where to find important documents, and who to call just in case.

It was a short list but it brought home the painful point that we both have a long way to go towards protecting our assets and securing our legacy and our daughters’ futures.

There are many ways we can provide for our loved ones when the time comes, and here are five of them that can get you started.

#1 Draft a Last Will and Testament.

You will need a lawyer’s help with this. A Last Will and Testament is a legal document that communicates what people want to happen when they pass away. While it mostly covers how assets will be distributed, some also include here how they wish to be buried.

This is not common among Filipinos for many reasons. Others defer to Philippine laws on what heirs can receive, covering spouses and legitimate and illegitimate children. Others feel they still have time to sort their affairs. Others choose to take action even when they are still living, which may be because estate distribution after death equals paying the maximum possible taxes. Also, Last Wills and Testaments require publication and can attract the wrong kind of attention. If you wish to guard your family’s privacy, you may want to explore the next option instead.

#2 Set up a Living Will.

Many prefer Living Trusts or Living Wills because it is a private document and do not require public disclosure.

Unlike the Last Will and Testament, this document details what a person wishes to happen before death. It usually involves three parties: the trustor (giver of the property), the trustee (can be a bank), and the beneficiary. A trust can be revocable or irrevocable.

Living Wills are also not just about money. Say in case of a medical emergency, while the concerned is still living, the families can refer to the Living Will for specific instructions. Some indicate for instance that they want DNR or Do Not Revive or Do Not Resuscitate if their heart stops or they stop breathing. A Living Will spares family members on what to do in times like these.

#3 Start Donation Proceedings.

Those who do not wish to wait until after their death choose to make donations. They may do so to anyone they want, not just family members. You can donate a house, a property, or shares in a company you own. Almost any asset can be donated, or you can liquidate and then donate.

If you decide to donate to your family, note the donee’s tax is around 15 percent so there’s a potential 5 percent saving from having a will and an estate tax. Donation to a non-family member stands the same at 20 percent. But check with professionals to confirm these tax rates and what works best your specific needs.

#4 How About A Sale?

Depending on the properties involved, a lawyer or financial planner may recommend a sale versus a donation. You can transfer properties to your children or other beneficiaries through a sale and possibly pay less taxes. On a direct sale, tax is about 6 percent plus documentary stamps of about 1 percent.

There are also many ways to qualify sales between families and non-family members: a sale can be direct, conditional or installment. Again, consult professionals to make an informed choice.

#5 Establish a Family Holding Co.

Others choose to form a corporation and leave equal number of shares to family members or their children. This actually makes the sharing quite fair but there are always loop holes so make sure that your document is airtight and binding. This way, no one ends up getting a bigger share than you intended. Legal professionals can help you in this regard.

You also need to make sure that the beneficiaries understand and can manage a family holding, so that all will remain in their best interests. Long-term governance can be an issue for many.

Whichever of these options interest you, the important thing is to plan and avoid family squabbles down the road. One of the interesting Last Will and Testament I read included a spendthrift provision, which meant a spendthrift child can’t withdraw prematurely against the inheritance. This resulted in a legal battle worthy of a telenovela, but that’s a story for another day.