Estate Planning and Life Insurance, part 3By Randell Tiongson on January 30th, 2010
For some reason, and despite the obvious importance of taxes in the daily operation of the state, it has exempted life-insurance proceeds from the ambit of tax laws, save for some exceptions, of course.
Our Tax Code recognizes the role and importance of insurance to the family of the person insured. It also exempts insurance proceeds from garnishment, attachment and execution of judgment-creditors. For those who have accumulated a hefty estate, life insurance can do wonders for them.
Most, if not all, estates left and brought into the inventory of the Bureau of Internal Revenue (BIR) are comprised of illiquid assets. If the typical Filipino would put it, the heirs are already in their advanced ages before they step into the succession, and the grateful recipients are not individually willing to shell out money for the settlement of estate tax and money claims of creditors. Others do not simply have the means.
In one case, the Supreme Court sustained the BIR when it assessed and collected the entire tax due from one of the heirs among several even if it means that all he had inherited would be dissipated in the process.
This need not happen unless we forget that life-insurance proceeds can be used to pay the taxes and claims and, in the process, keep the assets intact. A person can also use insurance proceeds to provide for his illegitimate descendant who may be left out of any shares in his estate. An illegitimate child gets the equivalent of half of the share of a legitimate child, and that share will be taken from the free portion, if any.
In other words, life insurance can promote “equitable” sharing. Most important, for a person with modest earnings, life insurance can provide an estate as big as his millionaire neighbor who did not believe in his insurance, the latter probably has very little or none at all.
Life insurance is just one of the tools for your estate plan. To emphasize its importance, Black’s Law defined estate planning as “the preparation for the distribution and management of a person’s estate at death through the use of wills, trusts, INSURANCE POLICIES and other arrangements, especially to reduce estate-tax liabilities.”
Do not just plan on the aspect of accumulation, plan for its conservation and distribution, for in the latter is where your absence will be.
Life insurance is not the only way to go about estate planning, it is just a tool among many. However, life insurance is a very powerful and cost-effective tool.
“A good man leaves an inheritance for his children’s children, but a sinner’s wealth is stored up for the righteous.” – Proverbs 13:22, NIV