You are on page 1of 2


As previously discussed, the estate client raised 2 main problems in the disposition of his
estate. First is the Payment of Estate Tax. Estate tax is a tax on the right of the deceased person
to transmit his/her estate to his/her lawful heirs and beneficiaries at the time of death. Simply
put, it is a tax on the “right of transferring the property.” The client is worried that his heirs will
so much be burdened by the “estate taxes” when he dies.
Benjamin Franklin once said “In this world, nothing is certain except death and taxes”.
No one can escape death, as well as taxes. When it comes to taxes, the best thing one can do is
use a Tax avoidance scheme. Tax avoidance is defined as the use of legal methods to modify an
individual's financial situation to lower the amount of tax owed. Atty. Angelo Cabrera, in his
book “Thy Will be Done” introduced several Tax avoidance scheme which the client can
consider to solve his problem.
a. Liquidate part of the estate
b. Borrow Money at Interest
c. Donate Properties Now
d. Sell your properties to the heirs
Among the four schemes, the members of the group believed that Donating the Properties
to the heirs could help the client resolve his problem regarding the payment of Estate taxes.
Donate Properties Now
One of the most preferred options is for the estate owner to start donating his properties
to his future heirs during his lifetime. This way, by the time he dies, there will be little or no title
under his name, and therefore, no properties will be subjected to estate tax.
However, in such a case, the estate owner will still have to contend with another form of
tax -the donor's tax. Sec 11 of the “Tax Reform for Acceleration and Inclusion (TRAIN) Law”
clarified that Donor’s tax is not a property tax but s a tax imposed on the transfer of property by
way of gift inter vivos. (Lladoc vs. Commissioner of Internal Revenue, L-19201, June 16, 1965;
14 SCRA, 292). It is intended to prevent the avoidance of the estate tax by imposing ore or less
the same burden of taxation, whether the transfer is at death or during the life time of the state

How would this help the estate client? Let us say for instance, if the client will donate all his
owned vehicles to his son, Shaun De Jesus (since he cannot donate to his wife pursuant to the
prohibition under Article 87 of the Family Code), a total of P3,660,000 will be excluded from the
computation of his Net Taxable Estate. Therefore, decreasing the “Estate Tax” to be paid by his heirs.

In this scenario, the client, who is the donor, will be subjected to a Donor’s tax which shall be six
percent (6%) if donations will be made on or after January 1, 2018. He will then be subjected to a total
of P219,600 Donor’s tax. More importantly, with this scheme, the burden to pay the donor’s tax is with
the client, unlike in estate tax wherein the burden is with the heirs.
Create a New Estate

Atty. Angelo Cabrera also introduce another solution to the problem of payment of the estate
tax. According to him, an estate owner may hold on to his properties and pass them to his heirs at a
proper time intact and undiminished if the estate plan will include an instrument which could generate
the estate tax money. This option will involve the introduction of “LIFE INSURANCE” as an estate
planning tool meant to provide the liquidity to address the cash needs at the time it is needed.

By insuring the estate owner with a coverage equivalent to the expected estate tax liability, cash
can be made immediately available at the precise time when the estate tax falls due – upon death of the
estate owner.

Many people do not realize the importance and value of life insurance because of their
preconceived notions. What is oftentimes taken for granted is that life insurance is the only product that
converts into cash at the time it is needed most - whether to provide for the needs of a family who just
lost its breadwinner or to provide cash for the timely settlement of estate tax. It is for reasons of
liquidity, immediacy and availability that life insurance finds value as a necessary component in estate
planning-to ensure that wealth is passed on to one's heirs intact and undiminished.

The client actually mentioned during the interview that he is considering applying for an
insurance policy so that his heirs will have sufficient means to pay for the “estate tax” when th time
comes, which the group members also believe to be the best solution to his problem.

As emphasized in the book “Thy Will be Done”, protecting the welfare of the estate owner is the
most important thing to be considered in any estate plan. Protecting him may mean allowing him to
retain control, possession and enjoyment of his properties, for as long as necessary and transferring
them at the proper time. But taking this course of action would necessarily require that the estate has
enough liquidity to pay for the estate tax when the same falls due. This is where life insurance becomes
an indispensable tool, an ideal solution -an instrument that delivers the right amount of money at the
right time.