Thy Will Be Done - Atty. Angelo Cabrera

THY BE DONE

UNDERSTANDING 1.'HE WHAT, WHY & WHEN OF ESTATE PLANNING Third Edition

By: ATTY. ANGELO

M. CABRERA, RFC

G) JNTRODLJCT!ON inevi table recd i ty cornes l{nock ing· nt the cloor, he vvill ha\'P the peace of 111i11d that his lo·vecl ot1es \vi11 no t be houn ded l))' ir1ti-a­

family co nfl ic t s, by tl1e unnecessarJ· depletio:ri of his e s tate du�

to death tax. or by simpl)' the sudden loss of income due to the

WHY P LAN AT ALL?

untimel.y death of tl1e bread ...vi11nt·r.

I hope this book beco1nes an effecti\.·e to ol tbr you a11d your fatn i ly in avoiding the p itfalls of ina de ri uate, \V rong ot, \VOr.· insta11ces, he is dl-advi�cd

This is 11ot to say that he i r s a1·e not in1portant.

No!

On t h e

contrary, \V}1ar good is ou r \veal th Vl'ithout heirs to pass it on to? What good is our fortune if it C�astro Continuv(I in its state - unsettled - ('\'(:'IJ as all three hclrs eventually· died, leaving· the SS-hectare propert}· to the tl1ird ge11eration.

b.Y the sot�. Beaining with pritle, l1e s11cprised his fath

r \.

Vitl1 an

announce1nent, "Dad, 1ny first 111a1or ;1l·con1plish1nent as a la.,,.v yer - the estate of .your client. n propert)' ,.,·as left idle and u111:iroducti\•e fOr th e 1nost part.

GENEROUS GRANDMOTHER

lt1terest cha rges and penalties continued to acCl"lHO'

for non-settle1ne11t of tl1e tax.

And si11ce all three heirs !1a"'e

died, tl1eir descn1e clue

the you11g t�1n1il)' than sir11F>l.Y he pa)'111ent of tuxes. F'or onL·, thf yot111g lnan d,1es 11ot usuall)' cnnsidci- transferring his proJJ l ica tio11s due tf> t_Yph{Jid. Ever_ythi11g f

drastic and pair1ful adjustment in lill·st:vle.

Fortu11atel)'. Y\"e nll k nO \V tl1e !1ap!J)' l'J1di11g to this stot')'· Gifted

eJlJO)"t•d \"a11isl1ed ir1s1 tntl.v. My father's empire

\\'\th a keen business acun1en con1hi11ed \Vith i11dustry and

'\Vas built on credit. Wl1e11 11e died, we lost

persistencP, John Goko11g·\vt:'i \Vent 011 to builcl ()!le busir1ess after

e·verytl1ing-011r big }1(Jt1se, our cars, our

another. Today, l1e o\vns anERSTANDABLEJ DESIRE OF ESTATE

heirs and, tl1erefore, any act of 0111itting t!1em in a V.'ill has

OWNERS TO HIDE SKEL.:::TONS IN THE CLOSET

the san·.e effect as the ornission of a legitimate child, that is,

It's one thing to ha\'e a child outside 1narriage. But it's another stor.y once tl1at child clain1s his share of inl1eritance \.\'hen

it nullifies the institution of l1L'irs. Tl1is i11eans that the dispositions in the '\.V ill in favor of all other l1eirs vvould b e

the ti1ne co1nes.

effectively nttllifie1ing,

Wl1at if your cl1ild r11arries and tl1e marriage does not \.vork out? Wl1at happens to yo u r pro1Jerty? You effectively lose as.;

much less acquiring ne-..v \.vealtl1. Again,

it is important to re1nembcr that estate pla11 n i ng

is

FOR YOUR BENEFIT, as 1nucl1 ·ing to your cl1ildren or to your favorite

Let neitl1er your son 11or -..vife, n�itl1er brother nor friend,

Don't get

111e

charity

or church is \.vhat gi'>'es you joy iri. your heart, let no one stop you. After all, doesn't tl1e Good Book say tl1at it is

better to give tl1an to receive?

have power O\'er you a;.; 1ong as you While breath of life is still in _\"{)lJ, let n o man have do min 1or1 over you.

But if you decide to give, tt11less you are led by your faitl1 to

give up everything, prayerfully consider l{_eeping a -property or t\Vo for your self - to take care of your needs

li'\'e.

in case events

Gi'\'C

not

to another )'Our

lest then you ha-..'e

\-..·ea] th

to plead

with

therr1.

'A' J-!'r

r:;O\ THY WILL BE DONE '.:::v ATT-Y. ANGELO

M.

CABRERA

Far better that your cl1 il dre11 plead with you tl1an that you sl1ouid lool< to their gen erosi ty.

DO PROBLEMS AR15E?

CHAPTER.3

tYi"

�

Inheritance, by its very 11ature ant! clesig11, is mearit to be a post niortem t ran sfer.

6. INORDINATE 0ESlRE OF SOME ESTATE OWNERS TO EXERCISE

Keep co11trol over your affairs;

PARENTAL CONTROL

let no one tar11ish _vour glory.

Oftentimes, we parents try to control the lives of our children,

When your tew clays reuch their lim it,

which inadvertently creates znore p roble1ns tl1an what \Ve try

at the tnornent of {leath,

to solve. For i11stance, we dictate rope rty regime in tl1

�

absence

of an agreement a11d it requires that wh atevcrjs b ro u ght into

n arriage by eitl1er s,not1sc· beco111 e s part of tl1eir

I

community property b.y ope ration of lav.r.

�.rhe same is

tr11e with donations, v·:hen g;ive11 to tl1e donee before his

As already discussed, thi s n1ea11s that eitl1er spouse becoines

marriage- they wotild form j)art of the comn1unity property

a co-ovvner of \Vhatever tl1e otl1er n\vns 11pon marriage. The

t1por1 n1arriage.

complication is when the JJropert:; o,,.v ne rsh ip of one of the spouses in·volv·es an i11tere.st in a f°;.i111i1y business. J\1arriage

Therefore, timing is essential . If you \¥ant to give or donate

would in effect bring into the fa1ni l)' business a ne'>v owner -

a property to your cl1ild do it t\FTER lie gets married, not

the spouse- wl10 becomes a co-o\v11er of the decedent' s share

before, to insure that th' do n atec! property

\.v

o uld not be the

subject of con tentious separation proceedit1gs

in case the

marriage does not work ou t. And in making sttch donation,

' make sure that i t is Jonuted exclusively to your child and not to both

.s pou ses;

COUlffi\\11.\.ty.

otherwise, t\1e property will belong to the

in th e b u s iness by •'irtue of their 111arriage. Compl icate this

further with tl1e brealtdo,,vn of the i11 ur ria.ge and you will

h ave

a

hostile stockholder in tl1e fa111ily corporation.

For this reaso11, some families ha\·e resorted t1 CABRERA

CHAPTER6

is a contract whereby tl1e bride and the

groom

propert)' 1-egin1e to gover11 their· nlarriage. word prenuptial, it

agree on the

By the use of the

means tl1at atl)' 111arriage settle111ent

has

to

be done befOre marriage a11cl

canti()t be undone by mere consent of the parties after tnarriage. Ncitl1er can ·one or both parties

change

their property relations

-..

vi thou t judicial

r;.}\ �

A question may come to 1nind: {.:-; it possible to have a p artial

separation separ ation

of property?

of propert)' n1a)'

, the pror erty 11ot agreed upo11 as separate >

partial separation shall

tl1e law also provicles t11at a be total or partial. In case of

Ye:o:,

pertai11 to

the

absolute cnn1111u11ity.

Tl1us,

one can

choose to include only l1is or her in terest in the fa1nily business

order.

Oftentir11es, couples \.vho resort to this choose the regi1nt' cf Separation of Property, i11fluenceU in 110 sm all \.\'B)' b)' the fanlily or fam ilies of either or botl1 the bride and the groom. Tht

order tll a\ oid tl1e abO\'e1nentioned complications or re1Jercu;;sions 1 >ll tl1e business in case the marriage goes wron g

as a separate property in

'

.

intentio11 is to keep the ownersl1i1J of properties >vithin their

Will tl1is regime affect one's i11heritance rigl1ts?

respecti\.'e families, especially \\'here family businesses are involved, or at tin1es \vhen tl1e size of the wealth of 011e or both f2milies becomes an iinpcrtant consicleratio11.

under tl1is regime, the- spouses r·L·n1ain as corn]JU} sory heirs of eacl1 other. The or1ly differencv is tl1at the hereditary mass of properties shall be based 011 their respective separate properties in case of total separati on and a combination of

Under the regime of Separati()J1 of Propert}� tl1e dictu1n, "What is yt1urs is yours, \vhat is rni11e is mine," could not have bee11 n1o re appropriate. The la\V provides that, "Each spouse shall own, dispose of; p age of 70. He \.Vrote a \Vill which coI1tained interesti11g ]Jro,:isions nut only about pro1Jerty , dispositions bt1t also specific instructions on how to 11andle his.

LLS

& SUCCESSION

CHAPTER 7

f'95'> \::::,J

ake would be. \Ve all decidell to grant him this \vish so we had

"departure."

The next one is interesting.

For instance, tu nla.kc it easy fi:1r us to inform people co11cerned about l1is de111ise, he attached a li.st of his friet1ds and relatives together \.Vith their co11tact nun1bers. That certainly proved very

"Should you decide to publisl1

an

OBITUARY NOTICE, put

;one i11 the Daily Inquire1· consisti11g of a space not more than one-sixth of a page. San1ple of the obituary is a t the

11elpful. And that's just for � tarters.

Notice

Here are sot11e of the 1nore interesting provisions of Take note of how detaiied he ''va.s.

specific he was. I t had g;ot to be t}1at partict1lar . ne\vspaper- and not any other claily. And we couldn't gu beyond one-sixth of a page - his prag1natisn1 111astament. This gift i s referred

of them, from the legiti111ate fa1nil.Y of h i s late father. Dean

to

as

, 1 cJe,:i c e and is also taken tl·o111 tl1e free por tio n . Here, ..

\Vhat is provided in th e \.v ill is the grant of

a

e.g., devisi11 g an old farn1house to a long time 7,

real 1)roperty,

died 'l\'ithout leaving· a last \.\'ill and t��stament. I t "'as a case

of an in testate succession.

'katiwala.' Unfortu11ately, the 11alf-siblings art· not co11siderec! by law as

The State� i 11 the absence of qualified heirs or relativ·es \Vithin . · the flftl1 degree, the State tah:es o\.rer as the last intestate

collateral heirs a11d were therefore disqualified to inherit from Dean.

heir, -

throug·l1 esc!1eat proceedin gs. Escl1eats refers to succession . by the State to property cor1siderecl ovvnerless (bona vacantia) for lack of r.:ompetent legal heirs. It rests on tl1e principle that

There exists a

legal barrier bet\.veen

the legiti1nate family

the on{' l1and, and illegitir£1ate fan1i ly.• on the other.

on

This i s

provided for i n Article 992 o f tl1e ( . iYil Code, vvhich says, ''.An

ultimately, i t is the State that O\Vns all property >vitl1in its

illegitimi.1.te child has no right to i11her it

territorial j urisdiction.

legitimate children and relati\.·es of his fatl1er or 1nother; nor

ab z"ntestato from

the

shall such children or reluti\'es i 1 1 h1�rit in the 1'ia1ne ma1111er

Here's an inte resti11g tru...: story' of a person dying '\Vithout

fron1 the illegitimate cl1ildre11 . "

qualified l1eirs, by virtue of a ]Jrovision in the c i·v il cot• oMld

The,

one-half of the legitime of one legitimate child. It can be lesser depending 011 tl1e number of legitimate However, the share of an

illegitimate child may also be increased through a provision in the v.:ill, JJro·vided that tl1e legitimes of·

1·�..."'" "­ ·�·ndn"h

llleghlrnale l'•lf lf ''·•' '"•''"'!;' botweving:

to sell properties at a loss - a fire sale. And ma11y times, the good ones - because they are easier to sell - are the first to

1.

the fair market value as determined by the Commissioner; or

go. In the end, the potential loss to the family 1nay be a lot

2.

t h e fair market value a s shovvn i n the sched11le o f values

more than the 20 percent estate tax that it has to pay. Many

of tl1e provincial and ci �y assessors.

landed families are asset-ricl1 but casl1-poor a11d oftentin1es,

Equally burdensome aside from the estate tax itself are the following: I.

Estate Tax is payable in CASI-I - Ther-e can be no barter or exchanging a property for payn1e!1t of taxes. If at all, the property shall be auctioned aI1d tl1e proceeds thereof shall be used to settle taxes. If tl1c auction sale proceeds is less than tl1e tax due, the go·vern111ent will .still collect the deficiency, and if need be, auction off more properties of the decedent estate O\v11er until tl1e tax is fully settled.

2.

The estate tax return must be filed and paid within six months from date of deatl1 of tl1e estate owner. Such time frame is not very tnuch especiall.Y if death occurs in a11 untitnely manner such that family n1embers are left in an extended grief, shocked and u11able t'.) cope vvith all of its consequences, including the payme11t ot taxes. Tl1ankfully, the payment of taxes ca11 be extended, but onl;y• upon petitio11 by ti1e heirs

they don't have tl1e im111ediate liquidity necessar)' to settle ·

the estate tax obligations at the tin1e t11ey fall due. Failurl to file or pa_y on ti111e or filii ig the return -.vith a person of otlice other than tl1ose a u t h o rized will result i n a surcharge of 2.5 percent. That's stiff. Again, to «void this penalty, heirs are forced to churr: out 1noney b)' any means, -\vhich oftenti1nes results i11 rr1ore losses. The s urcharge may rttn to as hig·h as 50 percent in case of \Yillful neglect to file tl1e return or \·v hen a false or fraudulent return is filed. This ca11 easily eat up a substantial portion of the estate. One of tl1e reasons vvl1_y Project ItIP was co11cei·ved a11d launched by the BIR is to cornpl'l heirs to file estate tax returns I iy serving then1 11otice. B:;.· r1otif)'ing tl1e heirs about their 1-csponsibility to file ee>tate tax retur11s, the burden shifts

and subsequent findings and favorable ruling by the bureau

to the i1eirs to file and pay before tl1e deadline, or, in case of

that the deadline \vould impose undue 11ardship t1pon the

difficulty, at least ask for an e.'Cte11 .... ion. Failure to do either

estate or any of the !1eirs. I-Io\vev'er, such extension cannot

may be construed as deliberate 11011-filing or willful neglect

exceed 2 years for extra j udicial settlement cases and 5 years ;

vrhich may result in the increase in tl1e surcharg·e from 2.5 percent to 50 percent.

for cases involvi11g settlement b)' the courts.

=T HY WILL B E DONE

� ATTY. ANGELO M. CAllRERA

4.

For as long as the estate tax beco111es due and remains unpaid, imposed an additional penalty of 20 i: ercent annually shall be

on the unpaid tax liability, ri·om t11e due date to tl1e date of payment . Tl1us, this has tl1e effect of slowly eating into the

S ETTLEMENT OPTIONS

estate, depleting and diminishing the same until the heirs decide to settle.

"1f you owe taxes, pay taxes ..."

- Romans 13:7

Given the impact of estate tax, v.'hat options or tools are available for the estate ov:ner and his heirs? There are a number: 1.

Liquidate Part of the Estate

To raise mo11ey for taxes, tbe h cir.s can liquiJate part of the estate.

rhe disadvantag·e here is t h at usually, the good

properties go first because the)''re the easiest to sell. And as

earlier mentioned, the need to co1111Jly witl1 the pa;'ment of taxes \.Vitl1in a set deadline may resui t i11 tl1ese goo.fl_12roperties being sold at below their fllir ,,.alue. Thus, in t\1e end, mt1ch more is lost. But let us see tl1e impact of estate taxes on a huge property. Suppose the net estate left behind is \vortl1 P 1 00 million, how big is the tax bite?

-.; ETTLEMENT OPTIONS tJ.6J,\

r.;:;::., THY WILL B E DONE � ATTY. ANG[L()

M

CHAPTER 13 leJ

CABR[RA

Net Estate: Basic Tax: Excess:

Borrow Money at Interest

100,000,00()

If the estate involves a bu si11ess or an inco1ne earnlng asset and

1 . 2 1 5,00V 11ouse \vith ,.

\Vhether tl1e transfer is at death or J tiring the lifetin1e of the

and preference in getting its .share.

nice car to boot!

It's like

'.

, estate o"vner.

=T HY WILL B E DONE �

SETTLEMENT OPTIONS �

ATTY- ANGELL) ,\.\_ CAe;RERA

CHAPTER

13 o...:5'

Let's exa111ine the table of donor's tax: If Net Gift

But Not

The Tax

Over

Over

Shall Be

Plus Over

100,000

Exe111pt

1 00,000

200,000

0

2%

200,000

500,000

'2 ,000

4.q{i

500,00() 1 , 000,000

1 ,000,000

1 -1.,000

6%

.5,000,000

•1 on, caused the transfer of

A

deed

of sale would reflect the

'I'he fatl1er

amount of consideratio11 but there is no actual pa3rment. This :,

one fourth of his properties to tl1is son through a deed of

is ust1ally practiced betv.·een , nd arr1ong fiamily members to avoid

sale. A1 ·d so the son ·ve11tured

�

into

his ow11 business, wl1ich

estate or do11or's tax. \\Then a sale is fOund to be simttlated, the

unfortunately did not go very well.

transactiot1 can be i11validated �111d the property re\'erts to

years later.

The father died a few

the original owr1er - whicl1 the11 s u bjects it to estate tax. \Vould the so11 be entitled to a sl1a1·e in the i11l1eritance left by

'

Also, regardless whether a sale is real or i;imulated, capital ·

the fatl1er considering tl1at he alreatly "received" his portion?

gains tax has to be paid, based

The answer is yes and tl1at's because tl1e n1ocle of transfer

on the fair marl{et \'alue or the

assessed '>'alue, whichever is higher.

employed was a sale, which l1ad no effect on his inheritance rig·hts.

Had the mode been a do11ation, the son would no

What if a11 exchange of money ac-tually takes place, but the

longer have been entitled to anytl1i11g· because his inheritance

sale price is below the fair marlzet value? Tl1is is wl1at t11e Tax .:.

had been advanced by way of donation. Tl1e three siblings

Code calls transfers for insufficient c on!!lideration.

didn't realize "vhat hit the111.

It ;·:

provides that \Vhen tl1e selling price is below tl1e fair 1narket : valt1e, the clifference bet\vee1 t tl1e fair market value and the i'

So if you plan to give to an)' of your childre11 a11cl use sale as

selling price Rhall be included 11 tht.· determination of t11e gross

the mode of transfer, ren1ember that a sale is not an adva11ce

· .'. '

estate of the decedent-seller. Thus, v.;J1ile the sale n"Iay be valid, the property shall still be

.suqject to estate tax for tl1e clifference.

of inl1eritance. Create a New Estate

A n o t h e r in1porta21t t h i n g to ren1ember a b o u t selling 1:1 properties to your children is that, unlil�e a donation wl1ich is considered as an advance

:!.�

of inheritance, a sale is a transaction \�

which does not affect tl1e eventual inheritance right or share

,

of the buyer-heir.

One of tl1e reasons why a11 estate ow11er vvould consider transferring properties dtiring l1is lifetime is to a>'nid estate tax.

But ""'hat

if

money can be n1ade available to pay tl1e

estate tax liability when the time ccH11es? Wl1at if the estate plan includes an instrument which could generate the estate

I am ren1inded of a story of a i11an who had four children.··

tax money? Wouldn't it allow the estate owner to hold on to

Mucl1 lil{e the story of the biblical prodigal son, this man·

his properties and pass then1 on to h i s heirs at a proper time

SETTLEMENT OPTIONS

�T HY WILL B E D O N E

� ATTY. ANGELO

M.

ti7"

CHAPTER. 13 �

CAl>R�RA

- intact and undiminisl1ed? Would11 't it allow him to conti11ue

millio11 in death benefits and the estate ow11er shall have

to control his properties anVhich

that I have a ne>v brethrer1 ir1 C1"1rist and shall pray for you.

captures this 111essa_ge.

=T HY W I L L BE D O N E � ATTY. ANGELO /\.\. CABRERA

We'repilgri11i:; on thejourne)' Of the narrou.• road And those who "ve gone before us line the wa_v

Clu:ering oJi tilefaithful, enrouraging the weary Their lives a stirring testament to Govivel and visitors' cl1airs) a11d office equipment located in tl1e study room o'.' hl)' house in Ayala Alabang. 4.

7.

111_y

I

and

In the event tl1ere is

photographic '>vorks not

110

r11oney left in tl1e banks at the

to n1eet the legacies I maWLEDGMENT BEFORE ME, a Notary• Public fOr and in the Cit)' of Muntinlupa, Metro Manila, Philippines, tl1is 24/11 da)' of May,

2000, personally appeared:

SAMPLE HOLOGRAPHIC WILL (Must be \.vritten in its entirety' in the l1andv.,•riting of the testator)

The testator, Andres M. Villegas, with Residence Certificate no.

1 2.345

issued at Mut1tinlupa, Metro Manila on Dear Joshua and Kina:

January 4•, iOOO; Witness, Manuel Rama, '\Vith Residence Certificate

i10.

254456 issued at Mal(ati City, Metro Manila, on January 6, 2000;

Tl1is is my last will and testa111ent whicl1 in letter form so

I

I have opted to put

can exi1. ress ffi}'.self more intiinately to you, as

I always did, whenever we had tlie cl1ance to engage in private

Witness, Fidel Osmena, with Residence Certificate no.

54667 issued at Paranaque, Metro j\fanila, on January

14·, 2000;

conversation. I am addressing this to you because your mother and you are n1y only principal heirs.

and By the tin1e you read tl1is, I \.\'ou1d have gone to the mansion Witness, Ramon Garcia, with Residence Certificate no.

456 7 8 issued at San J�an, Metro N1anila, on Januar;' 5,

2000.

The will consists of four ( 4) JJages, including tl1e page on

that my Fatl1er prepared for tne in heaven.

I v-:rite this vvith full

confidence that I will be v.:cl..::omed hy tl1e Lord \.vitl1 that l1ea�1enl:y salutatio11. "Well done, good and faithful servant." My co11fide::;:-� comes not from any good deed that I J-1ave done which earned for

which this ack11owledgeme11t is written, and has been signed on

me a place in heaven.

the left margin of each and every JJage thereof by the testator

finished work of Jesu.'l Christ, i11 \\'ho1n I put my faith and trust

and l1is witnesses, and sealed with Dl)' notarial seal.

for my sal'1ation. Thus, my prayer for each of you, if you do not yet have t11e assurance in )'Olir hevhat she considers to be in m;r best interest tal{ing into co11sideration 111}' views and personal values wl1icl1 I inay have previously exprl''lsed.

T

�T HY WILL B E D O N E

� ATTY. ANGELO

M.

CABRERA

I

I discl1arge my family, the hospital, and any doctors, nurses and other medical perso11ncl involved in my care from any civil or criminal liability for f()llo\ving m:y wishes contained in this docu1nent.

r sign this document this at

------

__

day of

____, __ ---

after careful consideration and full

understanding of its meaning and consequences.

SIGNATURE

\VlTNESSES

lI