Study Guide No.

12

Module 12:
Retirement and
Estate Planning
Presented by:
Janssen Gail V. Roca
Erika P. Romero
Angelo F. Saayo
Marinilla A. Sison
Ma. Angela Mae A. Suarez
Lyka P. Tibayan
Jeseica V. Viray
 Learning Objectives
At the end of this module, you should be able to:

 Determine your planned retirement income  Distinguish among various types of wills and
trusts
 Develop a balanced budget based on your
retirement income

 Identify the different retirement benefits

from Pag-IBIG Fund, GSIS and SSS

Topic 1: Planning for Retirement
Sub-topic 1.1: Saving Smart for
Retirement
 
Long-term financial security starts with
a savings plan. If you save on a regular
basis, you will have money to pay your
bills, make major purchases, meet your
living expenses during your retirement,
and cope with emergencies. Here are a
few tips on how to start saving early.
Start now. Don’t wait. Time is critical.
Start small, if necessary. Money may be tight, but even small amounts
can make a big difference given enough time; the right kind of
investments; and tax-favored investments such as company retirement
plans, IRAs, and SEPs.
Use automatic deductions from your payroll or your checking account
for deposit in mutual funds, IRAs, or other investments.
Save regularly. Make saving for retirement a habit.
Be realistic about investment returns. Never assume that a year or two
of high market returns will continue indefinitely. The same goes for
market declines
If you change jobs, keep your retirement account money in your former
employer’s plan or roll it over into your new employer’s plan or an IRA.
Don’t dip into retirement savings unless it is absolutely necessary.
Topic 1: Planning for Retirement
Sub-topic 1.2: Conducting a Financial Analysis

As we learned, an asset is any item of value that you own—

cash, property, personal possessions, and investments—
including cash in checking and savings accounts, a house, a car,
a television, and so on. Your liabilities, on the other hand, are
the debts you owe: the remaining balance on a mortgage or
automobile loan, credit card balances, unpaid taxes, and so on.
If you subtract your liabilities from your assets, you get your
net worth. Ideally, your net worth should increase each year as
you move closer to retirement. It’s a good idea to review your
assets on a regular basis.
 The following factors has important
effect on your retirement income:
Housing
 A house will probably be your most
valuable asset. However, if you buy a home
with a large mortgage that prevents you
from saving, you put your ability to meet
your retirement goal at risk. In that case
you might consider buying a smaller, less
expensive place to live. Remember that a
smaller house is usually easier and cheaper
to maintain. You can use the money you
save to increase your retirement fund
Life Insurance
 At some point in the future, you may buy life
insurance to provide financial support for your
children in case you die while they are still
young. As you near retirement, though, your
children will probably be self-sufficient. When
that time comes, you might reduce your
premium payments by decreasing your life
insurance coverage. This would give you extra
money to spend on living expenses or to invest
for additional income.
 The following factors has important
effect on your retirement income:

Other Investments
 When you review your assets, you’ll also want
to evaluate any other investments you have.
When you originally chose these investments,
you may have been more interested in making
your money grow than in getting an early return
from them. When you are ready to retire,
however, you may want to use the income from
those investments to help cover living expenses
instead of reinvesting it.
 Sub-topic 1.3. Estimating Retirement Living Expenses
Next you should estimate how much money you’ll need to live comfortably during your retirement years. You
can’t predict exactly how much money you’ll need when you retire. You can, however, estimate what your basic
needs will be. To do this, you’ll have to think about your spending patterns and how your living situation will
change when you retire.

 Don’t forget to take inflation

into account. Estimate high
when calculating how much the
prices of goods and services
will rise by the time you retire
 
To learn more, see Kapoor (2016)
on pages 459-464.
Topic 2: Retirement Benefits (Provident Benefits of Pag-IBIG Fund,
GSIS and SSS)
 Sub-topic 2.1. Retirement Pay

A. Coverage

1. Employees shall be retired upon reaching the age of sixty (60)

years or more but not beyond sixty-five (65) years old [and have
served the establishment for at least five (5) years].
2. This benefit applies to all employees except: 1) government
employees; 2) employees of retail, service and agricultural
establishments/ operations regularly employing not more than
ten (10) employees.
B. Amount of Retirement Pay
 
The minimum retirement pay shall be equivalent to one-half (1/2) month salary for every year of service, a
fraction of at least six (6) months being considered as one (1) whole year.
For the purpose of computing retirement pay, "one-half month salary" shall include all of the following:
Fifteen (15) days salary based on the latest salary rate;
Cash equivalent of five (5) days of service incentive leave;
One-twelfth (1/12) of the thirteenth-month pay. (1/12 x 365/12 = .083 x 30.41 = 2.5)
 
Thus, “one-half month salary” is equivalent to 22.5 days (Capitol Wireless, Inc. v. Honorable Secretary Ma.
Nieves R. Confesor, G. R. No. 117174, November 13, 1996). The COLA shall not be included in the computation of
retirement pay.
 
Illustration:
Minimum Retirement Pay = Daily Rate x 22.5 days x number of years in service
 
Other benefits may be included in the computation of the retirement pay upon agreement of the employer and
the employee or if provided in the Collective Bargaining Agreement (CBA).
C. Retirement Benefit under a Collective Bargaining Agreement or Applicable Contract
 
Any employee may retire or be retired by his or her employer upon reaching the retirement age
established in the collective bargaining agreement (CBA) or other applicable agreement/contract
and shall receive the retirement benefit granted therein; provided, however, that such retirement
benefit shall not be less than the retirement pay required under RA 7641, and provided further that
if such retirement benefit under the agreement is lesser, the employer shall pay the difference.
 
Where both the employer and the employee contribute to a retirement fund pursuant to the
applicable agreement, the employer's total contributions and the accrued interest thereof should
not be less than the total retirement benefit to which the employee would have been entitled had
there been no such retirement benefits’ fund. If such total portion from the employer is lesser, the
employer shall pay the deficiency.
D. Retirement Benefit of Workers who are Paid by Results
 
For covered workers who are paid by results and do not have a fixed monthly salary rate, the
basis for the determination of the salary for fifteen (15) days shall be their average daily salary
(ADS). The ADS is derived by dividing the total salary or earnings for the last twelve months
reckoned from the date of retirement by the number of actual working days in that particular
period, provided that the determination of rates of payment by results are in accordance with the
established regulations.
 
E. Retirement Benefit of Part-time Workers
 
Part-time workers are also entitled to retirement pay of “one-half month salary” for every year of
service under RA 7641 after satisfying the following conditions precedent for optional retirement:
(a) there is no retirement plan between the employer and the employee and (b) the employee
should have reached the age of sixty (60) years, and should have rendered at least five (5) years of
service with the employer. Applying the foregoing principle, the components of retirement benefit
of part-time workers may likewise be computed at least in proportion to the salary and related
benefits due them.
F. Retirement Benefit of Underground or Surface Mine Employees under Republic Act No. 8558, as
amended by Republic Act No. 10757
 
The retirement age of underground or surface mine employees has been reduced to a much
lower age. For this purpose, an underground or surface mine employee refers to any person
employed to extract mineral deposits underground or in the surface, or to work in excavations or
workings such as shafts, winzes, tunnels, drifts, crosscuts, raises, working places whether
abandoned or in use beneath or in the earth’s surface for the purpose of searching for and
extracting mineral deposits. Moreover, surface mine workers shall only include mill-plant workers,
electrical, mechanical and tailings pond personnel.
 
In the absence of a retirement plan or other applicable agreement providing for retirement
benefit of underground mine employees in the establishment, an employee may retire upon
reaching the compulsory retirement age of sixty (60) years or upon optional retirement at the age
of fifty (50) years, provided he/she has served for at least five (5) years as an underground mine
employee or in underground mine of the establishment
G. Retirement Benefit of Racehorse Jockeys
  The compulsory retirement age of professional racehorse jockeys who are duly licensed by the
Philippine Racing Commission (PHILRACOM) is fifty-five (55) years old, provided that he/she has
served for at least five (5) years as racehorse jockey and has paid additional premium to the SSS.

H. Retirement Benefit of Kasambahay and Persons in the Personal Service of Another

  Kasambahay and persons in the personal service of another are entitled to retirement benefit
pursuant to Department Order No. 20 s. 1994.
 
I. Other Benefits upon Retirement
  The retirement benefits under RA 7641 and RA 8558 are separate and distinct from those
granted by the Social Security System. Under the law, upon optional or compulsory retirement,
the employee is also entitled to the proportionate thirteenth-month pay for the calendar year
and to the cash equivalent of accrued leave benefits.
J. Coverage from Income Tax of Retirement Pay
   Exempted from taxation are the retirement benefits received under RA 7641 (now Article 302
herein) and those received by officials and employees of private firms, whether individual or
corporate, in accordance with a reasonable private benefit plan maintained by the employer:
Provided, That the retiring official or employee has been in the service of the same employer for
at least ten (10) years and is not less than fifty (50) years of age at the time of his retirement:
Provided, further, That the benefits granted under this subparagraph shall be availed of by an
official or employee only once.

 For purposes herein, the term 'reasonable private benefit plan' means a pension, gratuity, stock
bonus or profit-sharing plan maintained by an employer for the benefit of some or all of his
officials or employees, wherein contributions are made by such employer for the officials or
employees, or both, for the purpose of distributing to such officials and employees the earnings
and principal of the fund thus accumulated, and wherein it is provided in said plan that at no
time shall any part of the corpus or income of the fund be used for, or be diverted to, any
purpose other than for the exclusive benefit of the said officials and employees.

Read Chapter 15 on Retirement Pay pages 45-48 on http://bwc.dole.gov.ph/images/Handbook/2020Handbook_20Feb20.pdf

 Sub-topic 2.1. GSIS
o GSIS offers various retirement programs that retiring
members may choose depending on their age and
length of service.
Retirement under RA 8291
 Under RA 8291, retirees may avail of this option if he/she is 60 years old and had rendered 15
years of government service which need not to be continuous. The retiree should not be
permanent disability pensioners. One of two options may be chosen to acquire this retirement
packages. First option is 5-year lump sum and old age pension. They can get the pension five
years in advance that is equivalent to 60 months of Basic Monthly Pension (BMP). On the other
hand, option two is a cash payment on a monthly basis. The cash payment is equivalent to 18
times the BMP payable upon retirement up to one’s lifetime.
 Sub-topic 2.1. GSIS

Retirement under RA 660

 If the members are 52 years old and have rendered 35 years of service in the government,
they may avail of the retirement benefits under RA 660 or also known as Magic 87. To qualify, a
person may have entered service on or before May 31, 1977, the last three years of their service
must be continuous except in some cases, status must be permanent and must meet the age
and service requirement under the Magic 87 formula. The maximum pension for those above 57
is 80% of the Average Monthly Salary (AMS) and for 57 below shall be 75% of AMS. The
retirement package includes automatic pension, initial three-year lump sum and 5-year lump
sum.
 Sub-topic 2.1. GSIS

Retirement under RA 1616

 Another retirement option is the Take All Retirement Mode under RA 1616. This is applied
to retirees who entered government service on or before May 31, 1977, who have rendered
at least 20 years in service regardless of age and status. The last three years must also be
continuous except in some cases. The benefits include a gratuity payable and a refund of
retirement premiums consisting of personal contribution with interest and government
share.
 Sub-topic 2.1. GSIS

Retirement under PD 1146

 Those who were separated or retired from service before June 24, 1997 may avail of the
retirement under PD 1146. The following two choices are provided: (1) Basic Monthly
Pension (BMP) is available to retirees who are 60 years old and who have rendered 15 years
in service. They will be receiving a BMP guaranteed for five years. After which, retirees will
receive a basic monthly pension for life. (2) Cash payments are only available to 60 years old
retirees but have rendered at least three years but less than 15 years in service. They will
receive a cash payment equal to 100% of Average Monthly Computation (AMC) for every
year of service.
 Sub-topic 2.1. GSIS

Retirement under RA 7699 (Portability Law)

 When the retirees do not meet the requirements under PD 1146 and RA8291, they
may still avail of retirement benefits under Ra 7699 otherwise known as Portability
Law. Under this law, they may combine the years of service from the private sector,
through SSS, with their government contributions.
Subtopic 2.2 Page-IBIG Fund
Savings or Provident Savings Program is a fast, easy and affordable way for a member to save for
his future needs
 
Grounds for Membership Termination
Membership with the Fund shall be terminated anytime upon the occurrence of any of the
following grounds:
Membership Maturity Death
Retirement Any other reasons as may be
approved for by the Board of
Permanent Total Disability or Insanity Trustees
Termination from service by reason of
health
Permanent departure from the country
 Provident Benefit Claims of Pag-IBIG
Fund
Coverage
 Pag-IBIG members who are entitled to
withdraw their Total Accumulated Value
(TAV) anytime upon the occurrence of any
of the grounds for termination of Fund
membership as provided under RA 9679 or
the HDMF Law of 2009, and its IRR.
Optional Withdrawal
 Those who become members of the Fund
after the effectively of R.A. 9679 shall have
the option to withdraw his or her Total
Accumulated Value (TAV) on the fifteenth (15th)
year of continuous membership.
 Provident Benefit Claims of Pag-IBIG
Fund

Death Benefits
 Upon death of a member, the heirs shall be
entitled to a death benefit in an amount
determined by the Fund’s Board of Trustees in
addition to the Total Accumulated Value (TAV) of
the member less any and all pending obligations
with the Fund.
 There are two types of retirement benefit:

Monthly Pension
 A lifetime cash benefit paid to a retiree
who has paid at least 120 monthly

Sub-topic 2.3: contributions to the SSS prior to the

semester of retirement

Social Security System Lump Sum Amount

.
 Granted to a retiree who has not paid
the required 120 monthly contributions.
It is equal to the total contributions paid
by the member and by the employer
including interest.

Monthly Pension
Benefit Computation
 The monthly pension
depends on the member's
paid contributions, his
credited years of service
(CYS), and the number of his
dependent minor children
that must not exceed five.
The monthly pension will be
the highest amount resulting
from either one of these
three pension formulae
The sum of P300 plus 20 % of the average monthly
salary credit plus 2% of
the average monthly salary credit for each credited
year of service (CYS) in excess of ten
years; or
Forty (40) % of the average monthly salary credit; or
P1,200, if the CYS is at least 10 but less than 20; or P2,400, if the
CYS is 20 or more.
The monthly pension is paid for not less than 60 months.
A member who retires after age 60 with a total of 120 monthly
contributions may be
qualified to a monthly pension based on whichever is higher of
the following:
the monthly pension computed at the earliest time the member
could have retired had been
separated from employment or ceased to be self-employed plus
all adjustments thereto; or
 • The monthly pension computed at the time when
Monthly Pension the member actually retires.
 
A pensioner who retires more than once shall be
entitled to the higher of:

• The monthly pension computed for the first

retirement claim; or
• The re-computed monthly pension for the new
claim
 Dependents Allowance

 The legitimate, legitimated or  Only five minor children,  If there are more than five
legally adopted, and beginning from the youngest, dependents, the legitimate,
illegitimate children, conceived are entitled to the dependents' legitimated or legally
on or before the date of allowance. No substitution is adopted children shall be
retirement of a retiree will allowed. preferred.
each receive dependents'
allowance equivalent to 10 %
of the member's monthly
pension, or P250, whichever is
higher.

Benefit Payment
The retiree-member has the option to
receive the first 18 months' pension
paid out in lump sum, but discounted at
a preferential rate of interest to be
determined by the SSS. The
member shall start receiving his pension
on the 19th month, and every month
thereafter.
Other Benefits:
 The retiree is entitled to a 13th month pension
payable every December.
 The retiree is entitled to a 13th month pension
payable every December. All retiree pensioners
prior to the effectively of RA 7875 on March 4,
1995 are automatically considered members of
Phil Health and, along with their legal
dependents, are entitled to Phil Health
hospitalization benefits. On the other hand,
retirees effective March 4,1995 up to the present
will be entitled to Phil Health hospitalization
benefits only if they have contributed 120
monthly Phil health/Medicare contributions. The
counting of 120 monthly contributions shall start
in 1972, when the Medical Care Act of 1969
started implementation.
 Topic 3. Estate Planning and its Legal
Aspects

Estate Planning
 Many people think of estates as belonging only to the rich or elderly. The
fact is, however, everyone has an estate. Simple defined, your estate consists
of everything you own. During your working years your financial goal is to
acquire and accumulate money for both your current and future needs. Many
years from now, as you grow older, your point of view will change. Instead of
working to acquire assets, you’ll start to think about what will happen to your
hard-earned wealth after you die. In most cases you’ll want to pass that
wealth along to your loved ones. That is where estate planning becomes
important.
Sub-topic 3.1. What is Estate Planning?

Estate planning is the process of creating a detailed plan for managing your
assets so that you can make the most of them while you’re alive and ensure
that they’re distributed wisely after your death. It’s not pleasant to think about
your own death. However, it is a part of estate planning. Without a good estate
plan, the assets you accumulate during your lifetime might be greatly reduced
by various taxes when you die.

 Estate planning is an essential part of both retirement planning and

financial planning. It has two phases. First, you build your estate through
savings, investments, and insurance.
 

 
 Second, you ensure that your estate will be distributed as you wish at the
time of your death. If you’re married, your estate planning should take into
account the needs of your spouse and children. If you are single, you still
need to make sure that your financial affairs are in order for your
beneficiaries. Your beneficiary is a person you’ve named to receive a portion
of your estate after your death.

When you die, your surviving spouse, children, relatives, and friends will face
a period of grief and loneliness. At the same time, one or more of these people
will probably be responsible for settling your affairs. Make sure that important
documents are accessible, understandable, and legally proper.
 Sub-topic 3.2. Legal Documents
 Birth certificates for you, your spouse, and
your children.
The important  Marriage certificates and divorce papers.
 Legal name changes (especially important to
papers you need protect adopted children).
 Military service records.
to collect and  Social Security documents.
 Veteran’s documents.
organize include:  Insurance policies.
 Transfer records of joint bank accounts.
   Safe-deposit box records.
 Automobile registration.
 Titles to stock and bond certificates
 
 Legal Aspects of Estate Planning

Sub-topic 3.3. Wills

Wills is the most important legal documents that every adult should have a written will that
specifies how you want your property to be distributed after your death.
 Legal Aspects of Estate Planning
Sub-topic 3.4. Types of Wills
Simple Will
 A simple will leaves everything to your
spouse. Such a will is generally sufficient for
people with small estates. However, if you
have a large or complex estate, a simple
will may not meet your objectives. It may
also result in higher overall taxation, since
everything you leave to your spouse will be
taxed as part of his or her estate.
Traditional Marital Share Will
 The traditional marital share will leaves one-
half of the adjusted gross estate (the total value
of the estate minus debts and costs) to the
spouse. The other half of the estate may go to
children or other heirs. It can also be held in
trust for the family. A trust is an arrangement
by which a designated person, known as a
trustee, manages assets for the benefit of
someone else. A trust can provide a spouse
with a lifelong income and would not be taxed
at his or her death.
 Legal Aspects of Estate Planning
Sub-topic 3.4. Types of Wills
Exemption Trust Will
 With an exemption trust will, all of your
assets go to your spouse except for a
certain amount, which goes into a trust.
This amount, plus any interest it earns, can
provide your spouse with lifelong income
that will not be taxed. The tax-free aspect
of this type of will may become important
if your property value increases
considerably after you die.
Stated Amount Will
 The stated amount will allows you to pass on
to your spouse any amount that satisfies your
family’s financial goals. For tax purposes you
could pass the exempted amount of $5.34
million (in 2014). However, you might decide to
pass on a stated amount related to your
family’s future income needs or to the value of
personal items.
 Legal Aspects of Estate Planning

Sub-topic 3.4. Types of Wills

Wills and Probate

 The type of will that is best for your particular needs depends on many factors,
including the size of your estate, inflation, your age, and your objectives. No matter what
type of will you choose, it’s best to avoid probate. Probate is the legal procedure of
proving a valid or invalid will. It’s the process by which your estate is managed and
distributed after your death, according to the provisions of your will. A special probate
court generally validates wills and makes sure that your debts are paid. You should avoid
probate because it’s expensive, lengthy, and public. As you will read later, a living trust
avoids probate and is also less expensive, quicker, and private.
Sub-topic 3.5. Format of Wills

Wills may be either holographic or formal. A holographic will is a handwritten will that you
prepare yourself. It should be written, dated, and signed entirely in your own handwriting. No
printed or typed information should appear on its pages. Some states do not recognize
holographic wills as legal.

A formal will is usually prepared with the help of an attorney. It may be typed, or it may be
a preprinted form that you fill out. You must sign the will in front of two witnesses; neither
person can be a beneficiary named in the will. The witnesses must then sign the will in front
of you.

A statutory will is prepared on a preprinted form, available from lawyers, stationery stores,
or Internet sites. Using preprinted forms to prepare your will presents serious risks. The form
may include provisions that are not in the best interests of your heirs. Therefore, it is best to
seek a lawyer’s advice when you prepare your will.
 Sub-topic 3.6: Writing Your Will
Writing a will allows you to express exactly how you want your property
to be distributed to your heirs. Writing a will is the only way to ensure
that all of your property will end up where you want it.

Selecting an Executer Selecting a Guardian Altering or Rewriting

 An executor is someone who
is willing and able to perform
the tasks involved in carrying
out your will. These tasks
include preparing an inventory
of your assets, collecting any
money due, and paying off
your debts. Your executor must
also prepare and file all income
and estate tax returns.
your will
 If you have children, your will
should also name a guardian to  Sometimes you’ll need to
care for them in the event that change the provisions of your
you and your spouse die at the will because of changes in your
same time and the children life or in the law. Once you’ve
cannot care for themselves. A made a will, review it
guardian is a person who accepts frequently so that it remains
the responsibility of providing current.
children with personal care after
their parents’ death and
managing the parents’ estate for
the children until they reach a
certain age.
 Sub-topic 3.7: A Living Will
 A living will is a document in which you state whether you want to be
kept alive by artificial means if you become terminally ill and unable to
make such a decision.

Power of Attorney Letter of Last Instruction

 A power of attorney is a legal document
that authorizes someone to act on your
behalf. If you become seriously ill or
injured, you’ll probably need someone to
take care of your needs and personal
affairs.
 This document is not legally binding, but it can
provide your heirs with important information.
It should contain your wishes for your funeral
arrangements as well as the names of the
people who are to be informed of your death.
 Sub-topic 3.8. Trusts

3.8. Trusts
 Basically, a trust is a legal arrangement that helps manage
the assets of your estate for your benefit or that of your
beneficiaries. The creator of the trust is called the trustor, or
grantor. The trustee might be a person or institution, such as a
bank, that administers the trust. A bank charges a small fee for
its services in administering a trust. The fee is usually based on
the value of the assets in the trust.
 Sub-topic 3.9. Types of Trusts
Credit Shelter Trust
 A credit-shelter trust is one
that enables the spouse of a
deceased person to avoid
paying federal taxes on a
certain amount of assets left to
him or her as part of an estate.
Perhaps the most common
estate planning trust, the
credit-shelter trust has many
other names: bypass trust,
“residuary” trust, A/B trust,
exemption equivalent trust, or
family trust.
Disclaimer Trust
 A disclaimer trust is appropriate
for couples who do not yet have
enough assets to need a credit-
shelter trust but may have in the
future. With a disclaimer trust,
the surviving spouse is left
everything, but he or she has the
right to disclaim, or deny, some
portion of the estate.
Living Trust
 A living trust, also known as an
inter vivos trust, is a property
management arrangement that
goes into effect while you’re
alive. It allows you, as a trustor,
to receive benefits during your
lifetime. To set up a living trust,
you simply transfer some of your
assets to a trustee. Then you
give the trustee instructions for
managing the trust while you’re
alive and after your death.
  
Sub-topic 3.9: Types of Trusts  It ensures privacy. A will is a public record;
a trust is not.
 The assets held in trust avoid probate at
your death. This eliminates probate costs
A living trust and delays.
 It enables you to review your trustee’s
has several performance and make changes if
necessary.
advantages:   It can relieve you of management
responsibilities.
 It’s less likely than a will to create
arguments between heirs upon your
death.
 It can guide your family and doctors if you
become terminally ill or unable to make
your own decisions.
 
 Sub-topic 3.9. Types of Trusts

Testamentary Trust
 A testamentary trust is one
established by your will that
becomes effective upon your
death. Such a trust can be
valuable if your beneficiaries are
inexperienced in financial
matters. It may also be your best
option if your estate taxes will be
high. A testamentary trust
provides many of the same
advantages as a living trust.
 Sub-topic 3.10. Taxes and Estate
Planning
Estate Taxes
 An estate tax is a federal tax collected
on the value of a person’s property at
the time of his or her death. The tax is
based on the fair market value of the
deceased person’s investments,
property, and bank accounts, less an
exempt amount of $5.34 million in
2014; this tax is due nine months after a
death.
Estate and Trust Federal Income Taxes
 In addition to the federal estate tax return,
estates and certain trusts must file federal
income tax returns with the Internal Revenue
Service. Taxable income for estates and trusts is
computed in the same manner as taxable
income for individuals. Trusts and estates must
pay quarterly estimated taxes.
 Sub-topic 3.10. Taxes and Estate
Planning
Inheritance Taxes
 Your heirs might have to pay a tax for
the right to acquire the property that
they have inherited. An inheritance tax
is a tax collected on the property left by
a person in his or her will. Only state
governments impose inheritance taxes.
Most states collect an inheritance tax,
but state laws differ widely as to
exemptions and rates of taxation.
Gift Taxes
 Both the state and federal governments
impose a gift tax, a tax collected on money or
property valued at more than $14,000 (in
2014) given by one person to another in a
single year. One way to reduce the tax liability
of your estate is to reduce the size of the
estate while you’re alive by giving away
portions of it as gifts. You’re free to make such
gifts to your spouse, children, or anyone else
at any time.
Thank you!