11/16/2017

By Atty.Edgar V. Mendoza, CTEP, RFP, CMA, CPA

Going through the estate planning process

Understanding its benefits

Selecting the Proper Estate Planning Devices for you

Developing your own estate plan

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Defining Marriage according to law

Distinguishing Void and Voidable Marriages

Knowing the grounds and effects of Legal Separation

Identifying the different Property Relations in Marriages

Classifying the different kinds of Paternity & Filiation

Planning for death and incapacity

Defining Succession

Differentiating Testamentary from Intestate Succession

Identifying the heirs and their rights

Dividing the inheritance

Addressing succession concerns and common issues

Understanding Settlement of Estate

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Exploring concepts about Wills and Succession

Understanding the Concepts of Wills and Succession

Understanding the nature of Trust

Applying the different kinds of Trusts in the Philippines

Managing problems and uses of Trusts

Applying trust into practice

Using Life Insurance as tool in Estate Planning

Exploring the advantages of use of Insurance

Understanding the role of taxation in Estate &

Financial Planning

Knowing how to develop key tax planning strategies

Knowing how to compare tax benefits of major

investment vehicles

Calculating the income tax

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Defining Estate Tax

Calculating the value of an estate

Computing your Estate Tax liability

Distinguishing donor’s taxation

Adv ise on the different ty pes of w ealth that may be transferred.

Deepen relationships with high net worth clients and become a partner in planning.
Consult on taxation and estate planning strategies.
Adv ise on the roles of Wills, Powers of Attorney, Living Wills and Probate in a w ealth
transfer plan.
Prov ide succession planning for small business and identify the appropriate solution for
each unique situation.
Ensure trust, probate and estate administration services are marketed appropriately;
Meet best practice in trust and estate administration;

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Estate planning is a systematic process of arranging or rearranging a

person’s properties, be it personal or real to accomplish the goals and
objectives that he has set for himself and his family during his lifetime and
even after death.

Estate Planning is the methodical building, conserving and transferring

of wealth with the least tax impact.

Estate Planning can also be thought of as a process with the following

actions:
• establishing lifetime objectives.
• deciding what you want to happen to your assets during life and at
death and;
• trying to make sure that what you want done, is done.

ESTATE
PLANNING
makes a
difference!

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Benefits of Estate Planning

It prevents inheritance conflicts.

It protects the inheritance

from potential problems.

It preserves the estate (or create wealth).

It minimizes taxes.

SUPER RICH

RICH
MIDDLE CLASS

LOWER CLASS

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M ake a list of all your property and debts.

Include anything of value.
Try to value each item at current fair market value.
Examine and assemble documents concerning property ownership,
including deeds, mortgages, life insurance policies and retirement programs.

Analyze your present state of affairs.

If you have a will, check to see what property will pass under it and
what will not.
Check your life insurance policies to see who the beneficiaries are.

M ake sure that you are getting maximu m return on your investments at
minimum cost.
This includes providing for sufficient cash funds to meet expenses at your
death so that your property does not have to be sold at distress prices.
M ake sure that your property will go to the intended beneficiaries and that
steps are taken to minimize taxes.

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Decide to…
change one or more of your investment,
restructure ownership of certain assets
sign a trust agreement
or buy more life insurance

You might want to…

change beneficiaries
sign an advance directive
or make some lifetime gifts.

Schedule a periodic review of your plans.

Take a regular financial inventory
Review all your documents to make certain that they still
reflect your goals.

selecting
the proper
estate planning
devices for you

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Wills

Trusts, testamentary or living

Outright Gifts

Life Insurance

Sales & Leaseback

Recapitalization of present holdings

In corporation of Family Assets

R ight of First R efusal

Foun dations

Deferred compensation, stock options &

retirement or pension plan agreement

Special Power of Attorney

M ortgages

R en tal/Lease Agreement

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A will is a document
stating the desires or
wishes of the decedent
as to what to do with his
properties and to
whom they shall be
given upon his death.
Characteristics of a Will
• Purely personal Act
• Free act, without violence,
fraud or deceit
• It disposes of property
• It is essentially revocable
• It is formally executed
• The testator has
testamentary capacity
• It is a unilateral act
• It is an act mortis causa
11/16/2017
The will as a vehicle of transferring
ownership can help the estate owner in
attaining his objectives of providing
optimum protection for each member of his
family, reducing transfer costs and
whenever possible, costs of administration.
A will also provides for an orderly
disposition of assets, providing cash
needed to pay for estate taxes and
administration expenses and choosing the
most reliable and competent persons to act
as executors and trustees for his estate.
Kinds of Will
• Notarial
• Holographic
• Testamentary
• Living will
Uses of the Will
Provides limitation to the state sponsored plan
Provides cure to inequitable results from a division of estate
based on mathematical equality.
Provides additional inheritance (more shares in the free
portion) to incapacitated or disabled heirs.
Provides substitutes for those w ho repudiate legacies or
devises.
Provides a non-intestate heir an opportunity to i nherit from
the testator i.e. school, faithful nurse etc.
Provides the opport unity to apply the concept of
fideicommissary sub stitution in order to save one
generation of tax .
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Requirements in Making a Will

Every will must be in writing and
executed in a language or dialect known to the
testator. (Art. 804)

Every will, other than a holographic

will, must be subscribed at the end thereof by
Who can make the testator himself or by the testator’s name
a Will? written by some other person in his presence,
and by his express direction, and attested and
• Natural persons subscribed by three or more credible witnesses
eighteen (18) years in the presence of the testator and of one
old or over another.

• Persons of sound The testator or the person requested

mind at the time the by him to write his name and the instrumental
will is made witnesses of the will, shall also sign, as
aforesaid, each and every page thereof, except
the last, on the left margin, and all the pages
shall be numbered correlatively in letters
placed on the upper part of each page.

PARTIES TO THE TRUST

•Trustor – the one who establishes the

Trust is a fiduciary
relationship with
respect to property
arising at the instance of
the trustor, where a
person, called a trustee
is designated to hold
property for the benefit
of the beneficiary
designated
by the trustor.
trust
•Trustee – the person in whom
confidence is reposed as regards the
property for the benefit of another
person.
•Beneficiary or cestui que trust – the
person for whose benefit the trust has
been created.

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Elements of a Trust

For a trust to be legally enforceable, the

following elements should be present:

The trustor must have legal capacity to

KEY ELEMENTS OF transfer title to the property to be placed in
trust;
THE TRUST
The trustee must have legal capacity to
• Assets contract, in case of a corporation it must have
express authorization in its articles of
• Equitable origin of incorporation to hold title to trust property;

the trust The beneficiary may or may not have legal

capacity because trusts are created to assist
• Duality of and guide those who cannot help themselves
such as minors, incompetent and even
ownership conceived but unborn children; and

The subject matter of the trust must be lawful,

definite and within the commerce of men.

Characteristics of Trusts
o It is a relationship.
o It is a relationship of fiduciary character.
o It is a relationship involving property, not merely
personal duties.
o It involves the existence of equitable duties upon
the holder of the title to property (trustee) to
deal with it for the benefit of another
(beneficiary).
o It arises as a result of a manifestation of intention
to create the relationship.

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For the donation to be valid, the

following requisites should be present:

• Donor must have capacity to make the

donation;
• Donor must have donative intent or “animus
donandi”;
• There must be delivery of the thing donated;
and;
Donation as an act of
• The donee must accept or consent to the
liberality whereby a donation.
person disposes
gratuitously of a thing Kinds of Donation
or right in favor of
another who • Donation inter vivos
accepts it. • Donation mortis causa
(Article 725 of the New • Donation propter nuptias
Civil Code of the
Philippines )

USES OF DONATION

• To permit the donor to make the necessary

adjustments to maintain the family harmony

• To provide oppor tunity for the donor to

gradually prepare his children to become
owners of the property

CAPACITY OF THE • To provide tax savings on gift or estate tax

PARTIES
• To take advantage of the inc ome tax
Donor implications
All persons who may
contract and dispose of
their property may make
FORMAL REQUISITES OF DONATION
a donation. (Art. 735, New
Civil Code) • Donation of movable property (Art. 748 Civil Code)
Donation of movable property may be done orally or in
Donee
writing.
All those who are not
especially disqualified
by law therefore may • Donation of immovable property (Art.749 Civil Code)
accept donations. In order that the donation of an immovable property
(Art. 738,New Civil Code) may be valid, it must be made in a public document
specifying therein the property donated and the value
of the charges which the donee must satisfy.

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PROHIBITED AND VOID DONATIONS

Prohibited donations (Art. 736, New Civil Code)

Guardians and trustees cannot donate the

properties entrusted to them.

Void donations (Art. 739 Civil Code)

• Those made between persons who were

guilty of adultery or concubinage at the time
of the donation.

• Those made between persons found guilty

of the same criminal offense, in
consideration thereof; and

• Those made to a public officer or his wife,

descendants and ascendants by reason of
his office.

The benefits of securing life

insurance are as follows:
• Protection against untimely death or disability

• Protection against undue erosion resulting from

illiquidity

• Economical source for the payment of estate tax

• Suitable alternative to gifts

• Favorable effect of the gift on the earnings of the

Insurance contract is an estate planner.
agreement whereby one
• Asset appreciates in value with no investment
undertakes for a management problems on the part of the donee.
consideration to
indemnify another • A gift of life insurance requires no formality.
against loss, damage
or liability arising • Heirs with inadequate share can be given the
from an unknown or insurance proceeds.
contingent event. KINDS OF LIFE INSURANCE
INSURANCE CODE,
Paragraph 2, Section 2 1.Whole Life 2.Term Policy 3.Endowment Policy

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Annuity is an aleatory contract whereby the

debtor binds himself to pay an annual pension
or income during the life of one or more
determinate persons in consideration of capital
consisting of money or property, whose
ownership is transferred to him at once with the
burden of the income. INSURANCE CODE, Par 2, Sec2

Annuities may be more advantageous over

life insurance for the following reasons:
KINDS OF ANNUITIES
• Enables the annuitant to eliminate from his gross
• Commercial annuity estate for estate tax purposes the assets used for
its purchase.
• Private annuity
• The periodic income received annually is not
subject to income tax (In case the annuity is
assigned for a valuable consideration, the excess
amount received over its costs is subject to tax to
the assignee).

• Provides security of income.

How funding with life

insurance works

BUY-SELL When using life insurance with a buy-sell

agreement, either the company or the

AGREEMENT
individual co-owners buy life insurance
policies on the lives of each co-owner
(but not on themselves).
The life insurance that
funds your buy-sell
If you were to die, the policy owners (the
agreement will create
company or co-owners) receive the death
a sum of money at
benefits from the policies on your life.
your death that will
That money is paid to your surviving
be used to pay your family members as payment for your
family or your estate
interest in the business. If all goes well,
the full value of your
your family gets a sum of cash they can
ownership interest.
use to help sustain them after your death,
and the company has ensured its
continuity.

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Advantages of using life insurance

• Life insurance creates a lump sum of cash

BUY-SELL to fund the buy-sell agreement at death

AGREEMENT • Life insurance proceeds are usually paid

quickly after your death, ensuring that the
buy-sell transaction can be settled quickly

• Life insurance proceeds are generally

income tax free

• If sufficient cash values have built up

within the policies, the funds can be
accessed to purchase your business
interest following your retirement or
disability

How to set up different types of buy-sell

BUY-SELL agreements

AGREEMENT In an entity purchase buy-sell ag reement, the

business itself buys separate life insuranc e polic ies
on the lives of each of the co- owners. The business
usually pays the annual prem iums and is the owner
and beneficiary of the policies.

In a cross purchase buy- sell agreement, each

co-owner buys a life insurance p olic y on each of the
other co-owners. Each co-owner usua lly pays the
annua l premiums on the policies they own and are
the benefic iaries of the policies. If your c ompany
has a large num ber of co- owners, multip le p olic ies
must be purchased by each co-owner.

A wait a nd see (or hybrid) buy- sell agreement

allows you to combine fea tures from both the entity
purchase and cross purchase mod els. The business
can buy p olic ies on eac h co- owner, the individual
co-owners can buy polic ies on each other, or a
mixture of both methods can be used.

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The buy-sell agreement should be fully

BUY-SELL funded

The amount of insurance coverage on your life

AGREEMENT should equal the value of your ownership
interest. Then, when you die, there will be
enough cash from the policy proceeds to pay
your family or estate in full for your share of the
business.
But if all that is affordable is insurance coverage
for a portion of your interest, you might want to
go ahead and fund that amount. Later, the
company may be able to increase the amount of
insurance or use additional funding methods. In
the meantime, the agreement should specify
how your family or estate will be paid.

Keeping track of your buy-sell

agreement

BUY-SELL Each year, the premiums on the policies must

be paid, or the insurance will lapse. So monitor
AGREEMENT premium payments carefully. Your buy-sell
agreement should include a feature requiring
ongoing proof of payment. Also, review the
amount of insurance regularly.

The insurance coverage may have to be

increased periodically to reflect increases in
the value of the business. If additional
insurance is not possible, another funding
method should be established. Finally,
periodically check the financial rating of your
insurance company. The policies funding your
buy-sell agreement will do your family no
good if the insurer becomes insolvent.

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What Should be Included in a

Buy-Sell Agreement?

BUY-SELL IN GENERAL

In general, regardless of the triggering event, certain

AGREEMENT elements should be considered for inclusion:

· A specific definition of the triggering event. For

example, where disability is the triggering event, a
clear, verifiable definition of disability, often
coordinated with the definition used in the insurance
purchased to fund the buy-out, may be advisable.

· A peso value or a clear, verifiable valuation method

arbitrated by a pre-determined third party if
necessary.

· A clear definition of the manner in which the

purchase will be financed. Where financial contracts
such as life or disability insurance are to be utilized,
the requirement to purchase these contracts and a
reference to contract numbers or similar information
should be included.

What Should be Included in a

Buy-Sell Agreement?
ON THE DEATH OF A SHAREHOLDER
BUY-SELL Among the things to consider in the event of the

AGREEMENT death of a shareholder are the following:

· The beneficiaries of the deceased shareholder may

not want to become actively involved in the
business.
· The beneficiaries of the deceased are entitled to
the fair market value equivalent of the deceased’s
interest in the business.
· The surviving shareholders may not want the
beneficiaries to be actively involved in the business.
· The surviving shareholders may need a source of
funds with which to purchase the deceased
shareholder’s interest.
· The sale of the business interest may create taxes
and other expenses for the estate of the deceased
shareholder.
· Additional capital may be required to replace lost
cash flows, or to train or hire a replacement, if the
deceased shareholder was key to the business.

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What Should be Included in a

Buy-Sell Agreement?
ON THE LONG-TERM DISABILITY OF A
BUY-SELL SHAREHOLDER
Among the things to consider in the event of
AGREEMENT the long term disability or critical illness of
a shareholder are the following:
· The disabled shareholder may no longer be
able to make a contribution to the business.
The other shareholders may want to purchase
his or her interest.
· The disabled shareholder may want to exit
the business and realize the full market value
for his business interest.
· The other shareholders may need a source of
liqu idity to purchase the disabled business
owner's interest.
· Additional capital may be required to replace
lost cash flows, or to train or hire a
replacement if the disabled shareholder was
key to the business.

What Should be Included in a

Buy-Sell Agreement?
LIVING BUY-OUT
BUY-SELL (RETIREMENT, DISPUTE ETC.)

AGREEMENT Among the things to consider in the event of

the departure of a shareholder due to
retirement, dispute or similar reasons are the
following:

· In situations where the shareholder(s)

are contemplating succession amongst
themselves or an involved family member,
there should be provisions to allow for a
smooth transfer of ownership.

· The terms of the transaction and the

appropriate approvals of the other
shareholders should be stated.

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What Should be Included in a Buy-

Sell Agreement?
MARITAL BREAKDOWN
BUY-SELL Among the things to consider in the event of the marital
breakdown of a shareholder are the following:

AGREEMENT · The business interest is an asset that may be subject to

division of property regimes under matrimonial law.
· In some circumstances, the particular shareholder may
be required to provide an amount equal to a portion of
his/her business interest or even of the actual business
interest itself to his/her former spouse.
· The end result may be the addition of the former spouse
as a shareholder or the imposition of a significant debt
upon the shareholder because of the division of assets. In
either case, the expectations of this shareholder or former
spouse with respect to dividend policy or other business
policies may no longer align with those of the other
shareholders.
· Provisions can be added to the buy-sell agreement to
give the remaining shareholders the entitlement to buy out
the shareholder undergoing division of property and/or
that shareholder's spouse, should shares in the business
be awarded to that person under terms of the division of
assets.

What Should be Included in a Buy-

Sell Agreement?
BANKRUPTCY OR INSOLVENCY
BUY-SELL Among the things to consider in the event of the
insolvency of a shareholder are the
AGREEMENT following:

· Will creditors (the new shareholders) have the

right to seize or otherwise encumber the shares of
a shareholder in the event of that shareholder's
insolvency? If so, the creditor becomes the
shareholder and is afforded all the same rights.

· The creditors may be entitled to sell the shares in

the open market without prior approval of the
other shareholders.

· The creditors may force a liqu idating dividend in

order to satisfy claims. Other shareholders may be
powerless to prevent liquidation

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• A sale-leaseback transaction is where

property is transferred to another through
a sale agreement and then the seller would
rent the property for his own use, paying
monthly rent to the buyer/lessor.

• A sale-leaseback is a powerful tool for

estate planning because it frees up the
non-performing assets of the seller, which
is usually real property.

• Although the seller technically parts with

his property, he still has possession and
control over such property and he can
therefore still use it for his business.

• It freezes up the property for any

possibility of appreciation so that any
increase in value of the property would not
be included in the taxable net estate of the
seller.

Basic Characteristics
of a
Sale-Leaseback • There are basically two (2) separate
contracts involved in a sale- leaseback
agreement.
Agreement – CAVEAT: In the Philippines, it is better to
separate the two contracts involved in the
agreem ent to diminish any notion that it is an
equitable mortgage or a sale with a right of
repurchase (pacto de retro).
• The first contract is a sales contract,
where the owner of the property sells the
land to a third person.
– CAVEAT: The purchase price of the property
must not appear to be simulated, i. e. the
purchase pric e is too low to be fair; other wise
the courts may see this as a fictitious
contract and declare it void.
– CAVEAT: Sale of real estate property is
subject to at least three (3) different nationa l
and local taxes.

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Outright sale occurs when a seller

transfers all interest and title of a
property to a buyer, who in turn pays
the seller immediately for the full
purchase price.

An installment sale is a contract

where property is sold to another but
the purchase price is staggered into
several, usually equal, payments.

A sale-leaseback transaction is
where property is transferred to
another through a sale agreement and
then the seller would rent the property
for his own use, paying monthly rent to
the buyer/lessor.

EXEMPTION OF CERTAIN INDIVIDUALS

FROM THE CAPITAL GAINS TAX ON THE SALE
OR DISPOSITION OF A PRINCIPAL
RESIDENCE
In case you sell your principal residence, you may be
exempted from the capital gains tax but the following
conditions must concur before the exemption applies.

• Sale or disposition of principal residence by natural

persons;

• The proceeds of which is fully utilized in (a) acquiring or

(b) constr ucting a new principal residence within eighteen
(18) calendar months from date of sale or disposition;

• Notify the Commissioner within thirty (30) days from the

date of sale or disposition through a prescribed return of
his intention to avail the tax exemption;

• Can only be availed of only once ever y ten (10) years;

• The historical cost or adjusted basis of his old principal

residence sold, exchanged or disposed shall be carried
over to the cost basis of his new principal residence;

• If there is no full utilization, the portion of the gains

presumed to have been realized shall be subject to capital
gains tax.

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• The seller frees up his assets as it is not tied up to real

estate.

• The buyer acquires the property at less than its fair

Advantages of market value.

•
Entering into a
The buyer gets monthly amortizations in the form of
rent.

Sale-Leaseback • The real property is removed from the estate of the

seller, lowering his taxable net estate and thus

Transaction minimizing his tax liability.

• Any appreciation upon the property would not be

included in the estate of the seller, thus lessening his
estate tax liability.

• The seller can concentrate in operating the business

and use the amount he received from the transaction for
his core enterprise instead of it being attached to non-
liquid assets.

• The real property, and all encumbrances that may have

been attached to it, is removed from the portfolio of the
seller/lessee and is replaced with cash, making the debt
to equity ratio, and ultimately the business, more
attractive for investors.

Disadvantages
of Entering In case the business of the
into a Sale- seller/lessee becomes
unprofitable, he would still be
Leaseback liable for rentals for a non-
performing land.
The seller/lessee loses the
right to claim depreciation
deductions for income tax
liability, decreasing cash flow.
This, however, may be offset by
business rental expenses that
may be claimed as deductions.

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• Capital gains tax is the tax imposed upon the sale of

real property, at a rate of six percent (6 %) of the
purchase price or the fair market value (as determined
by the City Assessors or the BIR Commissioner),
whichever is higher.
• Documentary stamp tax is the tax imposed upon the
instrument itself, at a rate of P15.00 per P1,000.00 of the
purchase price or the fair market value, whichever is
higher.
• Local transfer tax is a local tax imposed by the province
where the property is located, at a maximum rate of ½ of
1 % of the purchase price or the fair market value,
whichever is higher.
–CAVEAT: The maximum tax rate for the local transfer tax may be
increased by 50 % by cities. (Sec. 151, in relation to Sec. 135 of the
Local Government Code)

• The second contract is a lease contract

where the buyer of the property leases
back the land to the seller so the seller
can still use the property.

– CAVEAT: The lease contract should be long

It is advisable that the
rental payments be a
percentage of the
purchase price with
an escalation clause of
two to three percent
(2 – 3 %) to
compensate for
inflation.
term, from ten (10) to twenty (20) years, to
recoup the losses incurred by the buyer/lessor
in buying property it does not enjoy.
– A triple net lease, where the seller/lessee
shoulders all expenses related to the property
such as taxes, maintenance and insurance, is
usually included in a sale-leaseback agreement.
– A triple net lease allows the seller/lessee to
control the mentioned variable costs without
being at the mercy of the buyer/lessor.

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• Some estate planners prefer that the

seller/lessee be granted a right of
first refusal in the lease agreement to
allow him to buy back the property
after a few years.

• To prevent the risk of the

seller/lessee still paying for rentals
when his business has already
become unprofitable, a clause can be
added on the lease agreement that
after a certain number of years
(about ten years), he can opt to have
the lease agreement cancelled.

• CAVEAT: Rental payments are

subject to withholding tax by the
seller/lessee at a rate of 5 % of the
gross rentals.

• The current fair market value of the

property should be determined to
Points to see if the sale-leaseback would be
advantageous.
Consider to
Determine if a • It is an essential factor to ascertain
if there is a possibility that the
Sale-leaseback property to be sold would
appreciate, and by how much.
is Appropriate
• The lease rate, or the price of
which the seller/lessee would pay,
is an important part of the lease
agreement.
– The main consideration for the
seller/lessee is the risk/reward
ratio.

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CAVEAT: The laws of the Philippines have provisions that

should be considered in tailoring a sale-leaseback
agreement.

Some CAVEAT: The purchase price must not appear to be

Sensitive simulated, in that it should not be absurdly lower or higher

than the purchase price.

Factors CAVEAT: The lease agreement, because it is long-term,

must be in a public instrument to have any enforceability.
to CAVE AT: It is also essential that in case another person with a

Consider Power of Attorney would be drafting and signing the

agreements for the seller/lessee, it m ust specifically
grant the power to sell the lands.

CAVEAT: The Power of Attorney must also be in a public

instrument.

CAVEAT: The repurchase price, or the price by which the

property is to be paid by the seller/lessor to buy back the
property, should not also be too low that it would seem like
the transaction was an equitable mortgage.

Installment An installment sale is a

contract where property is sold
Sales to another but the purchase
price is staggered into several,
usually equal, payments.

An installment sale, preferably

to a family member, is a vital
estate planning tool for
properties that the owner
anticipates would dramatically
increase in value.

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• Selling the property would typically

minimize the estate of the seller and
thus decrease his estate tax liability.
Advantages
of Executing • Any increase to the fair market value
of the property sold would not be
an Installment included in the estate of the seller, as
Sales it is only the deficiency of the
installment sale that is collated to the
Agreement estate of the seller.

• The exchange would be subject to

capital gains tax, but because it is
paid on installments, it is amortized
for the whole term of the sale.

Points to • The purchase price must be

reasonable and must be at
Consider arm’s length.
to Take
• It must be shown that the
Full Advantage family member to whom the
property was sold is capable
of an of buying the said property.
Installment Sale
• The installment payment for
the first year must not
exceed twenty five percent
(25%) of the purchase price
to allow the installment
payments of capital gains
tax.

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Points to • The seller must use the cash, and not

the accrual, basis of accounting for
Consider purposes of taxation.

to Take – If the seller uses the accrual basis, he

would have to pay the entire 6 % capital
gains tax upon the execution of the sales
Full Advantage agreement as the gains is already
presumed to have been realized.
of an • The sales agreement, when dealing
Installment Sale with land, must be in writing for
enforceability and must be in a
public instrument for registration.

• For personal properties, if the

purchase price exceeds Five
Hundred Pesos (P500.00), it must at
least be in writing for enforceability.

• The recapitalization of a company allows

owners to achieve personal liquidity without
sacrificing the operating control of the
company.
Through a recapitalization, a portion of an
owner’s equity is sold (either a minority or a
majority interest), while maintaining
operating and ownership control, if desired.

• A recapitalization is an excellent option to

facilitate the owner’s estate planning and
execute a succession plan to either the next
generation or management.
By selling a portion of the company, the
owners eliminate personal guarantees on
company debt, diversify net worth, and
continue to run the company, if they choose.

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-the transfer of your
NON-TAX BENEFITS
Limited liability of stockholders,
corporation with separate personality.
Transfer of property from estate
without losing control of its management.

assets into a
Corporation TAX BENEFITS
whose
stockholders Avoidance of estate tax and capital gains tax
Freezing of market value of
will be your highly appreciable assets
heirs as you Flexibility in income management
may elect.

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-A contractual right granted by an

owner of property. The owner
gives the holder of the right an
opportunity to enter into a
business transaction with the
owner according to specified
terms, before the owner may
enter into that transaction with a
third party. Rights of first refusal
often are entered into in real
estate transactions.

ADVANTAGES OF FOUNDATION

Tax free build up of capital

Flexibility of charitable deduction from income

taxes by donor

Exemption from donor’s tax

Accumulation of funds for major project

Gifts to indigents

Non-dispersal of ownership/control coupled with

charitable intent

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Republic Act No. 4917, as amended, provides that:

Retirement benefits received by officials and employees of private firms,
whether individual or corporate, in accordance with a reasonable private
benefit plan maintained by the employer, shall be exempt from all taxes
and shall not be liable to attachment, garnishment, seizure by or under
legal or equitable concerned to the private benefit plan, or that arising
from liability imposed in a criminal action.

The fringe benefits of deferred compensation, pension, gratuity, stock

options, bonus, and profit sharing plans commonly enjoyed by officials and
employees of private firms shall be tacked in to the retirement benefit to
maintain its tax free status.

Because most people cannot afford to buy real estate

A legal document by
which the owner (i.e., the
buyer) transfers to the
lender an interest in real
estate to secure the
repayment of a debt,
evidenced by a mortgage
note. When the debt is
repaid, the mortgage is
discharged, and a
satisfaction of mortgage
is recorded with the
register or recorder
of deeds in the county
where the mortgage
was recorded.
with cash, nearly every real estate transaction involves
a mortgage.
The party who borrows the money and gives the
mortgage (the debtor) is the mortgagor; the party
who pays the money and receives the mortgage (the
lender) is the mortgagee.
The mortgage must be executed according to the
formalities required by the laws of the state where the
property is located.
The mortgage note (promissory note), in which the
borrower promises to repay the debt, sets out the
terms of the transaction: the amount of the debt, the
mortgage due date, the rate of interest, the amount of
monthly payments, whether the lender requires
monthly payments to build a tax and insurance
reserve, whether the loan may be repaid with larger
or more frequent payments without a prepayment
penalty, and whether failing to make a payment or
selling the property will entitle the lender to call the
entire debt due.

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A long-term lease agreement (not to be confused

A contractual
agreement by which with a sale and leaseback arrangement) may be
one party conveys an used as a succession planning tool. Landowners and
estate in property to
potential farm successors thinking about
another party,
for a Limited period, alternatives to traditional financing options might
subject to want to consider a long-term leasing arrangement.
various conditions,
in exchange for Lease arrangements may include land, buildings
something of value, and/or equipment. Owners and successors may
but still retains choose to have multiple lease arrangements or a
ownership.
single inclusive lease.

ADVANTAGES
•Convenience
•Time savings
•Financial Savings

GROUNDS FOR TERMINATION OF THE SPA

•Revocation
A Special Power
of Attorney (SPA) •Withdrawal of the Agent
is an instrument •Death, civil interdiction, insanity or insolvency of
in writing by which
one person, as principal, the principal or the agent
appoints another •Dissolution of the firm or corporation which
as his agent and
confers upon him entrusted or accepted the agency
the authority •Accomplishment of the object/purpose of the
to perform certain
specified acts or Agency
kinds of acts on •Expiration of the period
behalf of the
principal.

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Below are the requirements for a valid extrajudicial settlement of

estate:
• The decedent left no will.
• The decedent left no debts, or if there were debts left, all had been
paid.
• The heirs are all of age, or if they are minors, the latter are
represented by their judicial guardian or legal representatives.
• The partition was made by means of a public instrument or affidavit
duly filed with the Register of Deeds.

The affidavit must be executed by the heirs and must contain the
necessary allegations to support a valid extrajudicial settlement of
estate. The affidavit shall be published in a newspaper of general
circulation, once a week for three (3) consecutive weeks.

A PROPOSED ESTATE PLAN

FOR

______________________________________
Client

Case No.___________________

We will hold in strictest confidence the information collected

And entered in this document, other documents, and computerized
Software programs. We will not share it except as authorized to do
so by the client named above or a represented by law.

________________________________
Signed

Code no.________________

Tel nos._________________
Fax:____________

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PERSONAL INFORMATION
Date:__________ Case No.________________
Name: ________________________________ ___
Gender: ______
Civil Status: ___________
Birth Date: ____________
Birth Place: ___________
Occupation:___________
Insurance Age:_________
Number of Children: ______
Prior Marriages (Y/N):_____
Residence Address:________________________ ______ __
Telephone number:____________________
Mobile Number:___________________
Fax number:_________________
E-mail Address:_______________________
Occupation:__________________________
Business Address:_________________________
Office Phone Number:_________
Employer:________________________
Employee:________________________

SPOUSE’S INFORMATION

Date:____________

Case No._________
Nam e:________________________________
Gender:________
Birth Date:_____________
Insurance Age:__________
Date Married:__________
Occupation:___________
Business Address:________________________________________
Telephone Num ber:__________________
Fax Num ber:_______________
E-m ail Address:___________________
Insurance Benefits:
____________________________________________________

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CHILDREN
Date:___________ Case No.____________

Name Birth Date Insurance Insurance Educational Health Legitimate? Insura nce
Age Plan Insurance Benefits

GENERAL INFORMATION
Circle yes or no for each question.

Yes No Do y ou hav e a will or trust now?

Yes No Are y ou expecting to receiv e property or money f rom:
Inheritance_______ Gif t_______ Judgment_______
Other________
Yes No Do y ou hav e any liv ing children? If so, how many ?______
Yes No Do y ou hav e any deceased children? If so, how many ?______
Yes No Are all y our children legally y ours? (e.g. adopted, stepchild)
Yes No Do y ou hav e any children under 18? If so, how many ?______
Yes No Do y ou hav e any children who require special care?
Yes No Do y ou hav e grandchildren? If so, how many ?______
Yes No Do y ou hav e any brothers and sisters still liv ing? If so, how
many ?_______
Yes No Does y our spouse hav e any brothers or sisters still liv ing? If so, how
many ?________
Yes No Do y ou hav e any grandchildren f rom a relationship other than with y our
current spouse?
Yes No Do y ou want to specif ically disinherit any one? If so, who?_______
Yes No Do y ou hav e long-term health care cov erage?
________________________________ ______ ______ ______ ______ ______ ______ _____

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SOURCE OF YEARLY INCOME

Date:_____________ Case No.__________

SOURCE ESTATE OWNER SPOUSE/FAMILY

FINANCIAL OBJECTIVES
Date:_______________ Case No._____________

• Provide financial security by maintaining ______% of current income

•Plan to retire at age______

•Would like to save about P____________ at retirement age

•Pay Settlement costs with money from estate? (Y/N):__________

•Distribute estate equally to forced or legal heirs?(Y/N):_________

_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________

Provide for the education and support of children? (Y/N):__________

Provide for gifts to____________________

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NON-OWNED LIFE INSURANCE COVERAGE

DISTRIBUTION
Date:___________ Case No._________

BENEFICIARY DEPENDENT (Y/N): AMOUNT

Grand Total:

INVENTORY OF ASSETS AND LIABILITIES

Date:___________ Case No._________

CURRENT
PARTICULARS CURRENT VALUE CURRENT LIQUIDITY LIABILITY

Grand Total:

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DETERMINATION OF GROSS ESTATE DEATH TAXES,

NET DISTRIBUTABLE ESTATE & ESTATE LIQUIDITY
Date:___________ Case No._________

A. To Determine Gross Estate:

Separate Property ---------------------------------------------

Conjugal Property---------------------------------------------
Gross Estate----------------------------------------------------

B. To Determine Death Taxes:

Debts and Expenses:

Debts:--------------------------------------------------------------
Funeral and last expenses------------------------------------
Administration Expenses-------------------------------------

Total Debts and Expenses---------------------------------------------

Adjusted Conjugal Estate---------------------------------------------
Adjusted Separate Estate--------------------------------------------

DETERMINATION OF GROSS ESTATE DEATH TAXES,

NET DISTRIBUTABLE ESTATE & ESTATE LIQUIDITY
Date:___________ Case No._________

Deductions

Marital Deductions----------------------------
Family Home------------------------------------
Other Deductions------------------------------

Total Deductions and Exemptions-------------------------------

Taxable Conjugal Estate-------------------------------------------
Taxable Separate Estate-------------------------------------------
Total Taxable Estate------------------------------------------------
Total Death-----------------------------------------------------------

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DETERMINATION OF GROSS ESTATE DEATH TAXES,

NET DISTRIBUTABLE ESTATE & ESTATE LIQUIDITY
Date:___________ Case No._________

C. To Determine Net Distributable Estate:

Total Gross Estate----------------------------------------------------

Total Debts&Expenses-----
Total Death Taxes-------------------------------
Marital Deductions------------------------------
Total Debts, Expenses, Death Taxes
And Marital Deductions------------------------
Collated Donated Properties------------------
Collated Non-Owned Life Insurance
Designated to Dependent------------------------
Net distributable Estate--------------------------

D.To Determine Estate Liquidity:

Total Debts, Expenses and Death Taxes--------

Liquid Assets in Estate------------------------------
Immediate Cash Required to settle Estate---------

INCOME NEEDS ANALYSIS

Date:___________ Case No._________

Income Objective for your Family

Current Income of Estate Owner and Spouse ---------------------------------

Income Objective After Estate Owner’s Death
100% of Current Income -----------------------------------------------------------
Estimated Total Annual Income Presently Provided
If Estate Owner Dies Today:

Sources Amount

Surviving Spouse’s Earnings ____________

Non-Owned Insurance Proceeds
Designated to Dependents at 10%
Interest Yield per annum ____________
Income from Excess Cash in Estate
(assuming 10% interest yield) ____________

Total Annual Income Available ____________

Less Income Objective ____________
Income Excess or Deficit ____________

Capital Needed to Provide P_____________ Additional Income Assuming 10% Interest Yield is
P___________

Cost of New Capital at age __________, Assuming Client is Insurable ---------------Appendix A

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SUMMARY OF OVERALL DISTRIBUTION OF

ESTATE UNDER INTESTATE SUCCESSION
Date:___________ Case No._________

Itemized Distribution:

Grand Total:________________

NET DISTRIBUTABLE ESTATE UNDER

INTESTATE SUCCESSION

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SUMMARY OF OVERALL DISTRIBUTION

OF ESTATE UNDER TESTAMENTARY SUCCESSION
Date:___________ Case No._________

Itemized Distribution:

Grand Total:________________

NET DISTRIBUTABLE ESTATE UNDER

TESTAMENTARY SUCCESSION
Date:___________ Case No._________

OVERALL DISTRIBUTION OF ESTATE

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APPOINTMENTS
The f ollowing questions ask whom y ou would like to serv e as Executor, Trustee, and
Guardian if necessary.
Executor
An Executor is the person or corporation named in y our will to administer the settlement of
y our estate. This appointment inv olv es signif icant responsibility and theref ore is
compensated as prov ided by the laws of the state where y our estate is administered.

Please f ill in who y ou would like to serv e as Executor:

________________________________ ______ ______ ______ ______ ______ ______ ____
________________________________ ______ ______ ______ ______ ______ ______ ____
________________________________ ______ ______ ______ ______ ______ ______ _____
If this person/bank predeceases y ou or f ails to qualif y, who would like to serv e as successor
Executor?
________________________________ ______ ______ ______ ______ ______ ______ ____
________________________________ ______ ______ ______ ______ ______ ______ ____

APPOINTMENTS

The f ollowing questions ask whom y ou would like to serv e as Executor, Trustee, and Guardian if
necessary.

Executor

An Executor is the person or corporation named in y our will to administer the settlement of
y our estate. This appointment inv olv es signif icant responsibility and theref ore is
compensated as prov ided by the laws of the state where y our estate is administered.

Please f ill in who y ou would like to serv e as Executor:

________________________________ ______ ______ ______ ______ ______ ______ ____
________________________________ ______ ______ ______ ______ ______ ______ ____
________________________________ ______ ______ ______ ______ ______ ______ _____
If this person/bank predeceases y ou or f ails to qualif y, who would like to serv e as successor
Executor?
________________________________ ______ ______ ______ ______ ______ ______ ____
________________________________ ______ ______ ______ ______ ______ ______ ____

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Trustee
The Trustee is the person/bank who would manage the asset held in trust when and if necessary. This
appointment also involves signification responsibility and therefore is compensated by the laws of the state
where the trust is held or by separate agreement. Please fill who you would like to serve as Trustee:
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________

If this person/bank predeceases you or fails to qualify, who would like to serve as successor Trustee?
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________

If this person/bank predeceases you or fails to qualify, who would like to serve as successor Trustee?
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________

Trustee
The Trustee is the person/bank who would manage the asset held in trust when and if necessary. This
appointment also involves signification responsibility and therefore is compensated by the laws of the state
where the trust is held or by separate agreement. Please fill who you would like to serve as Trustee:
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________

If this person/bank predeceases you or fails to qualify, who would like to serve as successor Trustee?
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________

If this person/bank predeceases you or fails to qualify, who would like to serve as successor Trustee?
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________

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Guardian
Your guardian is the person who would raise y our minor children in the ev ent y our spouse
predeceases y ou. Please f ill in who y ou would like to serv e as guardian.

________________________________ ______ ______ ______ ______ ______ ______ ___

________________________________ ______ ______ ______ ______ ______ ______ ___
________________________________ ______ ______ ______ ______ ______ ______ ___

If this person/bank predeceases y ou or f ails to qualif y, who would like to serv e as guardian in
def ault?
________________________________ ______ ______ ______ ______ ______ ______ ______ _
________________________________ ______ ______ ______ ______ ______ ______ ______ __
________________________________ ______ ______ ______ ______ ______ ______ ______ __

If this person/bank predeceases y ou or f ails to qualif y, who would like to serv e as guardian in
def ault?
________________________________ ______ ______ ______ ______ ______ ______ ______ _
________________________________ ______ ______ ______ ______ ______ ______ ______ _

________________________________ ______ ______ ______ ______ ______ ______ ______ _

DISPOSITIVE PROVISIONS
Gifts:
Do you w ant to make a gift to a charity, foundation, religious or fraternal
organization? If so, please list the organization and the dollar amount?

Organization Amount
_______________________________ __________________________
_______________________________ __________________________
______________________________ __________________________
_______________________________ __________________________

Who do you w ant to receive the remainder of your estate?

Name of Person (relationship to you) Percentage

_______________________________ __________________________
_______________________________ __________________________
_______________________________ __________________________

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DISPOSITIVE PROVISIONS

LIVING WILLS

Executing a living will is a directive to your family and doctors to withhold

artificial life support equipment or heroic measures if your medical
condition is irreversible.

Are you considering executing a living will? Who would you appoint as
your agent to follow your directive?
___________________________________________________________
___________________________________________________________
___________________________________________________________
__________________________________

DISPOSITIVE PROVISIONS

POWER OF ATTORNEY

Executing a power of attorney authorized a person who you select

to carry on with your financial affairs in the event that you should
become unable to do so yourself.

Who do you want to appoint to be your attorney in fact?

_____________________________________________________
_____________________________________________________

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Module 1
Exercises for Batch 11

Marcus Zuckerberg, after attending an Estate Planning

seminar, got excited to apply what he learned. As he
starts the Estate Planning process, which of the following
do you think is the most logical order of steps he must
take?
1. Identify his beneficiaries.
2. Take a regular financial inventory.
3. Make a list of all his property and debts. Include
anything of value.
4. Set goals. Make sure that his property will go to
the intended beneficiaries and that steps are
taken to minimize taxes

a. 1,4,3,2
b. 4,3,2,1
c. 1,2,3,4
d. 3,1,4,2

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Elena Cruz, widow, 57 years old, died intestate

leaving all of her properties to her three children
namely: Juan who is 27 years old, Maria who is 25
years old, and Mateo who is 16 years old. The
three executed an Extra Judicial Settlement of
Estate. Which of the following would invalidate the
extrajudicial settlement of estate?
a. The partition was made by means of a public instrument or
affidavit duly filed with the Register of Deeds.

b. Elena has no unpaid debts left.

c. Mateo represented himself in the execution of the extrajudicial

settlement of estate.

d. None of the above

Jose Bonifacio, 77 years old and was diagnosed

with colon cancer, planned to execute a
holographic will. Which of the following actions by
Jose Bonifacio will render his will valid?
a. Jose Bonifacio chose to write the will in Filipino since it’s the only
language he knew.

b. Jose Bonifacio wrote the will entirely, instead of accepting the offer
of his granddaughter to write the will for him since he cannot write
ver y legibly .

c. Jose Bonifacio had the will dated and duly signed by him.

d. all of the above

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Benny was legally married to Patty with whom he had six children.
However, Benny met Emmy and fell in love with her. Eventua lly, Benny
started living with Emmy and had a son with her although he was
still lega lly married to Patty and had not legally separated from her.
While living in with Emmy, Benny obtained a life insurance policy in
which he d esignated Emmy as b eneficiary. A year later, Benny died
in a car accident. Emmy was disqua lified from b ecoming the
beneficiary of Benny. Why do you think so?

A. Emmy, guilty of adultery, is forbidden to receive any donation from Benny

under Article 739 of the Civil Code

B. Emmy cannot be named beneficiary of the policy pursuant to Article 2012 of

the Civil Code which states, “Any person who is forbidden from receiving any
donation under Article 739 cannot be named beneficiary of a life insurance
policy by the person who cannot make any donation to him.”

C. Both A and B.

D. Neither A nor B.

Annuities may be more advantageous over

life insurance for the following reasons
except one:
a. Enables the annuitant to eliminate from hi s gross estate for
estate tax purposes the assets used for its purchase.

b. The periodic income received annually is not subject to income

tax (In case the annuity i s assigned for a valuable
consideration, the excess amount received over its costs is
subject to tax to the assignee).

c. Asset appreciates in value with no investment management

problems on the part of the donee.

d. Provides security of income.

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CTEP ASSIGNMENTS
(13th Batch)
O A Couple in their 50’s
ABEL and RACHEL SANTOS are in their 50’s. They live in a gated subdivision in Quezon City. They
have two children, Isaiah and Rebecca. Isaiah is married and has two young children, one of
whom has a severe physical handicap. Rebecca, 18, is attending college.

Th e i r property: The Santoses share ownership of all their property. Their estate consists of a
house & lot in QC worth P 10,000,000.00, PLDT stocks worth P500,000.00 as of February 14,
2015 and savings worth P3,000,000, life insurance on each spouse which pays P2,000,000 on
death, and their one-third ownership of the R-S corporation, a family business. It’s hard to
determine exact value for their business interest. As a rough guess, they decide it’s worth
P5,000,000.

Th e i r estate planning goals: The Santoses want to plan now to avoid probate and reduce estate
taxes. They also realize that their net estate is worth more than P10,000,000, and that the estate
tax would eat a lot of money from their estate.

P r e pare an E state Plan for them.

O B. A Widow in Her 60’s

IDA CRUZ, a widow, lives in Pasig City. She wants to leave the bulk of her
estate to her one child, Carla. She also has a four-year-old granddaughter
whom she loves very much and whom she wants financially protected
until she graduates from college. Finally, she wants to make a number of
small gifts to friends and charities.

H er property: Mrs. Cruz’s estate consists of house that she and her
husband bought in 1957 for P5,000. It now has a market value of
P5,000,000 now solely under her name. Mrs. Cruz has household
furnishings worth P2,000,000, a car worth P1,000,000, and savings of
P4,000,000. She lives primarily on interest from her savings and pension.

H er estate planning goals: Mrs. Cruz values simplicity. She wants to

transfer her properties by the simplest means possible and protect her
granddaughter, but she also wants to avoid probate and reduce taxes.

P repare an Estate Plan for her.

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