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Participating life insurance can be another vehicle for estate planning by ensuring that your policy coverage is enough to cover estate taxes.
Can creating an estate exempt properties from inheritance taxes?
Your columns are interesting and relevant, especially your business advice and features. My question for Insular Life executives is this: What is the best estate planning? Life insurance is to help estate taxes. Is my plan okay, which is to put all my properties like real estate, money and even paintings into an estate, sort of like a corporation, and this estate shall have a board of directors, so I don’t personally own my properties anymore and if I die, my kids have no need to pay high estate taxes. Is this a good plan?
Christine Bersola Babao, 40 years old, mother of 2 kids, TV host & entrepreneur
Answer
On estate planning, everyone who accumulates wealth, whether in properties or other assets, should do a sound estate planning program in order to ensure that what they worked hard to acquire can be passed on to their loved ones. Estate planning’s objective is not to avoid the payment of estate or inheritance taxes. Rather, one does estate planning in order to implement strategies that lead to wealth preservation and transfer even after paying required taxes. One approach to estate planning is what Ms. Bersola-Babao described: incorporating the properties.
Here is the suggestion of our corporate secretary: “Before one sets up a corporation, he has to consider several important factors, especially if he intends to pool all of his properties into the proposed corporation. The matters of national government regulations (like those of the Securities and Exchange Commission), local government regulations (as those in securing business permits), management, bookkeeping, administration, taxation, etc., are some of them. While there are, of course, pros and cons in each of these, all of them should be considered before one can determine the feasibility of setting up the proposed corporation.
“However, putting up a corporation consisting mostly of one’s personal assets (in your example, real estate properties, money and/or paintings/artworks) may not help his/her heirs in avoiding the payment of the estate tax. The estate tax will still have to be paid if the property owner (now a major shareholder in the corporation) passes away. His/her shareholdings in the corporation (now comprising his/her estate) that will be inherited by his/her heir will still be subject to the estate tax as required by law before the ownership of the same can be transferred to the names of the said heirs.”
If the concern is the proper payment of estate taxes when one passes away, why not simply get enough life insurance to cover that obligation? Done properly, the insurance proceeds will be exempt from estate taxes and will provide the family sufficient funds to pay the estate taxes due. In such manner the entire estate can then pass on to the heirs intact. Whole life insurance for estate tax purposes only requires a very small annual premium outlay relative to the coverage. It is the least complicated solution.
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