Robert Wolff presented on issues of estate planning when a person has assets in both the US and Philippines. Some key points: - A person needs to consider probate processes and estate taxes in both countries which can be complex with assets in multiple locations. - Planning tools like wills, trusts, beneficiary designations can help distribute assets according to wishes and avoid probate. - Philippine law has compulsory heir rules so only half an estate can be freely distributed via will; trusts can help avoid this. - Estate taxes apply differently depending on citizenship and marital status so a person needs tax planning.

1. Presented by: Robert L. Wolff
P.O. Box 381
Dumaguete City, Negros Oriental
Philippines 6200
wolff2000@earthlink.net
NY (518) 325-6015
PH 09266485273

2. Disclaimer
I am not an attorney admitted to practice law in the Philippines.
I am an attorney admitted to practice law in New York. That and
35 pesos gets me a cup of coffee at McDonalds. fortunately I
have a friend who is a Philippine lawyer that can give advice.
∗The following is not legal advice, but rather comments and
observations.
∗For answers to legal issues raised by this presentation, you
need to consult an attorney admitted to practice law in the
Philippines.

3. Issues of Estate Planning
∗ Succession Issue – Who gets What, When and How
∗ Potential Probate Issues In The US and The Philippines
∗ Potential Estate Taxes In The US and The Philippines
Further complicated by:
∗ Complex family scenarios, potential challenges
∗ Asset protection planning for spouse, children, and grandchildren,
and maybe yourself
∗ Plus, our plans, objectives and needs change over time

4. Two Estates
∗Probate
∗Taxable Estate

5. Probate and Taxable Estate
Difference between probate estate and taxable
estate.
∗ The probate estate is limited to assets in the decedent’s
name that title can only be changed by executor or
administrator.
∗ The taxable estate includes probate and non-probate
assets, such as IRAs, Annuities and life Insurance.
∗ Note- your taxable estate passes out side of your probate
estate

6. Not understanding how your assets
will be distributed at death can result in an
estate catastrophe.
The Three Main Ways Your Estate is
Distributed:
Probate
Right of Survivorship
Contract

7. Disposition of Your Estate
With or Without a Will
∗ A person who dies without a will dies “intestate.” Statutory law will
determines how your assets are distributed, not you. Draw back is that
the estate may not be distributed in accordance with the decedent’s
wishes.
∗ With a will, you die testate, you control how your estate will be
distributed and who will administer your estate.
∗ It gives you control over how your estate will be disposed of after your
death. For example, you can create a so-called Inheritance Asset
Protection Trust for a spouse, children or other beneficiaries in the will.

8. Wills Disadvantage
∗ Does not avoid probate. But having a will dose
not cause probate.
∗ Typically your will needs to be updated as your
life situation changes.

9. Probate
∗ Probate is a court proceeding to supervise the orderly
distribution of a decedent’s property to his or her
creditors, heirs and beneficiaries.
∗ Advantages
∗ Court supervision
∗ Disadvantages
∗ Delay and inconvenience
∗ Cost, and if you have assets in both the U.S. and the
Philippines probate can be very costly and time
consuming to settle your estate

10. Testamentary Substitutes
Testamentary Substitutes Dispositions Are Not Controlled By
Your Will, But Typically Are Part Of Your Taxable Estate.
Testamentary substitutes are not subject to probate. The
more common testamentary substitutes;
∗ Trusts – which can also act as a will substitute
∗ Life Insurance
∗ Retirement plans and IRAs
∗ Joint accounts and survivorship estates
∗ Pay on death accounts (TOD)
∗ Totten Trusts ( in trust for accounts)
∗ Some buy-sell agreements

11. General Rule, Under U.S. Law You Can Leave Your
Estate to Whomever You Want Subject to The Rights
of a Surviving Spouse.
∗ Under New York you can leave your estate to whomever
you want, except that you must provide an elective share to
your spouse which is the greater of $50,000 or one-third of
your estate. Not so, under Philippine law.
∗ Net estate includes most Testamentary substitutes.
Irrevocable disposition of assets before marriage are not
Testamentary substitutes – not subject to a spousal right of
election.
∗ Waiver of right of election or Pre-Nuptial Agreements.

12. Inheritance Law in The Philippines
∗ The Philippine Inheritance Law has three types of heirs - Voluntary
Heirs, Compulsory or Force Heirs, and Legal or Intestate Heirs.
∗ Under Philippine Law, Filipino citizens cannot freely dispose of their
property. One half of the estate is reserved for primary and
secondary compulsory heirs. Put another way, compulsory heirs
have to inherit part of the estate unless properly disinherited.
∗ A problem area, if the title to your house is in your Filipino spouse's
name and she dies first, compulsory may inherit part ownership in
the house with you.compulsory heirs that have to inherit part of the
estate.
∗ A trust can be used to avoid this result.

13. The Good News, Foreign Wills and Trusts are
Allowed in the Philippines
As a general rule, property owned by foreigners in the Philippines will be
governed by the national or domiciliary laws of the their country – if they do a will
or trust governed by the laws of their country.
The will of a foreigner that is proven and allowed in a foreign country, in
accordance with the laws of that country, may be allowed, filed and recorded by
the Philippine courts.
∗A copy of the will and the decree of allowance issued by the proper authorities in
the foreign country, must be duly authenticated, and filed with a petition for
allowance before the Philippine courts.
∗The due execution of the will and the testamentary capacity of the decedent
need to be proven again. After hearing, the Philippine court decides whether the
will may be allowed in the Philippines.

14. Foreigners Can Make
A Philippine Will
If a foreigner decides to make a notarial will in the
Philippines, his/her presence in the Philippines is
required.
Need to follow the formalities under Philippine law to
have a valid will.
Better choice, create a Philippine trust to avoid
probate wherever your assets are located in the
world. The trust can hold assets located any place in
the world - for example in the Philippines, U.S.
England, etc.

15. Real Property
Private land in Philippines cannot be owned by a non-Private land in Philippines cannot be owned by a non-
citizen.citizen.
∗Non-Filipino citizens, can inherit land by hereditary orNon-Filipino citizens, can inherit land by hereditary or
intestate succession (without a will) but not by testamentaryintestate succession (without a will) but not by testamentary
succession (with a will)succession (with a will). The problem, heirs of the. The problem, heirs of the
deceased spouse may inherit part of the propertydeceased spouse may inherit part of the property
too.too.
∗Condominiums may be inherited by non-citizens throughCondominiums may be inherited by non-citizens through
testamentary or intestate successiontestamentary or intestate succession

16. Conjugal / Community Property
∗ Absent marriage settlements (pre-nups ) executed before
marriage, property of both spouses from before and after
the marriage becomes joint community property, except:
-Property acquired before marriage by either spouse who had
legitimate descendants from a prior marriage
-Property acquired during marriage by gratuitous title
-Property for personal and exclusive use of either spouse, except jewelry
∗ Spousal consent generally required to transfer or sell
property.

17. Trusts are Effective Will Substitutes,Trusts are Effective Will Substitutes,
Asset Management, and AssetAsset Management, and Asset
Protection ToolsProtection Tools
∗ A Trust is an arrangement whereby assets transferred to the
trust are held, administered and distributed by the Trustee
for the sole benefit of the person named as beneficiary of
the Trust, which can be YOU.
∗ The three parties to a trust are the Grantor or Settlor,
Trustee and Beneficiary. Under New York law and Philippine
you can be all three. If you don't want to, you don't have to
give up control over your assets. The only big change, the
assets are held in the name of the trust, not yours.

18. Trusts
Why do most people do a trust?
∗ Avoid probate.
∗ Asset management.
∗ Asset protection from the three Ds – death,
divorce and disaster-for themselves or heirs.
∗ Control after death.

19. Trusts
∗ Trusts can be divided into three categories.
∗ Self-settled trust, which is created by you and are either revocable or
irrevocable
∗ Third-party trusts are generally irrevocable trusts
∗ A testamentary trust is a trust created by the last will and testament of a
deceased person.

20. Trusts
∗ An Irrevocable Trust is typically created for estate planning and asset
protection planning.
∗ For oneself or a third party.
∗ Irrevocable Trusts for oneself can be used to protect assets from
the creditors, lawsuits, etc.
∗ An Irrevocable Trust for a child or grandchild can be designed to be
an inheritance asset protection trust to protect them from the
Three D’s.

21. Trusts
∗ Not all trusts are created equal.
∗ It is the drafting of the trust which
distinguishes between a trust that works
and a trust that doesn’t.

22. Important Trust Powers and ClausesImportant Trust Powers and Clauses
∗ In an irrevocable self-settled trust, important trust powers
for the grantor to keep are the power to change trustees
and power to change beneficiaries.
∗ Two important clauses in both self-settled irrevocable trusts
and third-party trusts for asset protection are the
spendthrift clause, and the discretionary distribution clause.
Both clauses used together offer the greatest asset
protection.

23. Asset Protection TrustAsset Protection Trust
*Asset Protection Trusts – can be used to protect:
∗ Your assets;
∗ An Inheritance Asset Protection Trust can protect heirs
inheritances from creditors, ex-spouses, or other types of
lawsuits.
∗ Protect heirs from themselves.

24. Trusts
∗ What can trust assets be invested in?
∗ Given the Trust Powers to do so, almost
anything you can invest in.

25. IRAs – The Forgotten Asset.
∗ IRAs and Retirement plans are often overlooked as
an estate planning asset.
∗ Annuities are an another common overlooked
asset.

26. IRA After Death Distribution Rules Are
Important To Understand
∗ How much must be distributed after death and when
the distributions begin depend on whether the
owner dies before or after the RBD
∗ Three possible options:
 No designated beneficiary
 A non-spouse designated beneficiary
 A spouse designated beneficiary

27. Estate Planning For IRAs
∗ Before RBD
∗ 5 Year Rule
∗ 1 Year Rule – Non - spouse designated Beneficiary
∗ Spouse
∗ Can wait until decedent would have been 70 ½
∗ Over the life of spouse – 1 Year Rule
∗ Spouse can rollover IRA
∗ After RBD
∗ At least as rapidly as under the method in effect before death
∗ Over life expectancy of non – spouse designated beneficiary
∗ Spouse can rollover IRA

28. It Is Important to Keep Your
Designation of Beneficiary Form Up to
Date
 As we age, often the beneficiaries of our estate change.
It is important that as the beneficiaries of our estate
change, we update our designated beneficiary selection
 The problem of having named an ex-spouse, a deceased
spouse or an ill spouse as a beneficiary.

29. You Need to Understand Who Can be a
Designated Beneficiary
 Only an individual or an individual who is a beneficiary of aOnly an individual or an individual who is a beneficiary of a
Qualified IRA Trust can be a designated beneficiary.Qualified IRA Trust can be a designated beneficiary.
 Your estate or an entity can be a beneficiary, but it is not aYour estate or an entity can be a beneficiary, but it is not a
designated beneficiary. General rule, it is bad planning todesignated beneficiary. General rule, it is bad planning to
name your estate as the beneficiary of your IRA, etc.name your estate as the beneficiary of your IRA, etc.
 Your designated beneficiary is important if you want toYour designated beneficiary is important if you want to
create a Stretched-Out-IRA, the gift that keeps on giving.create a Stretched-Out-IRA, the gift that keeps on giving.

30. The Stretched-Out IRA
Give a Tax Shelter Piggy Bank to Your HeirsGive a Tax Shelter Piggy Bank to Your Heirs
Minimum DistributionMinimum Distribution

31. The Power of the
Stretched-Out IRA
Age IRA Factor Total Distributions
1 81.6 $8.8 million
7 75.8 $6.0 million
18 65 $3.0 million
22 61.1 $2.4 million
40 43.6 $857,071.00
54 30.5 $415,949.00
80 10.2 $157,958.00
Assume $100,000.00 was invested at 8%Assume $100,000.00 was invested at 8%

32. Why Use Separate Accounts for IRAsWhy Use Separate Accounts for IRAs
for Multiple IRA Beneficiariesfor Multiple IRA Beneficiaries
 Oldest beneficiary rule.
 The problem of naming an entity, such as your estate, as one
of the beneficiaries of an IRA.
 Using separate accounts avoids the oldest beneficiary rule.

33. Assume a $300,000 IRA is left equally ($100,000 each) to a child age
54 and two grand children age 18 and 22, invested at eight percent.
No separate accounts.
IR A Account's
$415,949$415,949$415,949
C hild Grand child 1 Grand child 2
The Stretched-Out IRAThe Stretched-Out IRA

34. Same assumptions, except the separate account method is used.
IR A Account's
$2,400,000
$3,000,000
$415,949
C hild G rand child 1 G rand child 2
TheThe Stretched-Out IRAIRA

35. Why Name a Trust as
a Beneficiary of an IRA?
Control and Asset ProtectionControl and Asset Protection
Planning for the TrustPlanning for the Trust
BeneficiaryBeneficiary

36. Benefits of Naming a Trust asBenefits of Naming a Trust as
IRA BeneficiaryIRA Beneficiary
 Spendthrift protection
 Creditor (asset) protection
 Divorce protection
 Funding special needs of a disabled child
 Estate planning
 “Dead-hand” control

37. Estate Taxes In United StatesEstate Taxes In United States

38. U.S. Unified Estate and Gift TaxesU.S. Unified Estate and Gift Taxes
The U.S. estate and generation-skipping transfer taxes for
2013 exemption amount (technically, the applicable exclusion
amount) is $5.34 million (as indexed after 2011) and the top tax
rate to 40%. The $5.34 million exemption is per person.
∗ Thus, there is a $10.68 million exemption for a married couple.
∗ There is also a portability feature that allows the unused portion
of the deceased spouse exemption to be used by the surviving
spouse.
∗ The gift tax is unified with the estate tax, with an applicable
exclusion amount of $5.34 million and a top estate and gift tax
rate 0f 40%

39. Generation-Skipping Transfer TaxGeneration-Skipping Transfer Tax
The Generation-Skipping Transfer Tax (GST) exemption for
decedents dying or gifts made is equal to the applicable exclusion
amount for estate tax purposes (i.e., $5.34 million as indexed)
∗ Up to $5.34 million in GST tax exemption may be allocated to a trust
created or funded during 2014.
∗ The GST tax rate for transfer made in 2014 is 40%.
∗ The GST exemption is not portable.

40. Marital Deductions Under U.S. Tax LawMarital Deductions Under U.S. Tax Law
∗ Transfers to U.S. citizen spouses during your lifetime or at death are fully
gift or estate deductible (caution-need to think about the second estate)
∗ A non-U.S. citizen spouse’s martial deduction is limited to $145,000 in
2014 – Note this is only a problem if the decedent's estate exceeds $5.34
million in 2014
∗ For larger estates a QDOT is often used to defer U.S. estate taxes

41. U.S. Gift TaxesU.S. Gift Taxes
∗ Annual Gifting
∗ $14,000 per year to each beneficiary. Husband and wife may gift up
to $28,000 per year to a single beneficiary. No limit for qualifying
tuition and medical gifts.
∗ Gifts may be assets other than cash, such as stocks or real property.
∗ Basis carries over.

42. Estate Taxes In Philippines

43. Philippine Estate TaxPhilippine Estate Tax
∗ If Subject to Philippine estate taxes, what is Philippine
estate tax payable on?
∗ Bank accounts, securities, IRAs and any other asset
owned at death.
∗ Located anywherein the world

44. Philippine Estate TaxesPhilippine Estate Taxes
The gross estate of a citizen or resident of the Philippines includes
the value of all property, real or personal, tangible or intangible, wherever
situated.
In the case of a nonresident decedent who at the time of his or
her death was not a citizen of the Philippines, only that part of the entire
gross estate which is situated in the Philippines shall be included in his or
her Philippine taxable estate.
If you spend a few months during the winter in the Philippines,
and go back to the U.S.-- your U.S. property is not subject to Philippines
estate taxes. If you move here, that is a different story.

45. Philippines Estate TaxPhilippines Estate Tax
∗ The Philippine Estate Tax graduated rates range from 5-20%.
∗ Philippine net estates over PHP10 million are taxed at a flat 20% rate on
assets located any place in the world, including the U.S.
∗ Yes, your U.S. estate may be subject to Philippine Estate Taxes if you are
a resident of the Philippines.
∗ For example, assume your net U.S. and Philippine taxable estate is 1.25
million. You would pay no U.S. estate taxes due to the 5.34 million
exemption, but your Philippine estate tax would be $230,375.

46. Rates of Philippine Estate Tax
OverOver
But NotBut Not
OverOver
The TaxThe Tax
Shall BeShall Be PlusPlus
Of theOf the
ExcessExcess
OverOver
₧₧200,000 ExemptExempt
₧₧200,000200,000 550,000550,000 00 5%5% ₧₧200,000200,000
500,000500,000 2,000,0002,000,000 ₧₧15,00015,000 8%8% 550,000550,000
2,000,0002,000,000 5,000,0005,000,000 135,000135,000 11%11% 2,000,0002,000,000
5,000,0005,000,000 10,000,00010,000,000 465,000465,000 15%15% 5,000,0005,000,000
10,000,00010,000,000 And OverAnd Over 1,215,0001,215,000 20%20% 10,000,00010,000,000
The Philippines standard deduction is
one million pesos ($1,000,000.00)
The tax is based on the value of a net estate, as computed in accordance
with the following schedule:

47. Donor’s(Gift) TaxDonor’s(Gift) Tax
∗ Graduated rates from 2-15% on amounts over
PHP15 million
∗ If transfer is to a stranger (not within 4 degrees,
in law are always strangers) transfer / donor’s tax
is 30%

48. U.S. Citizens Living In The Philippines Need to DoU.S. Citizens Living In The Philippines Need to Do
Estate PlanningEstate Planning
∗ Overlapping estate tax laws
-Note there is no U.S. – Philippine Estate Tax Treaty
∗ Consider using a trust
∗ Possibly avoid succession issues inheritance/intestacy in the U.S. and the
Philippines.
∗ Asset protection planning for heirs.
∗ Make sure assets pass properly to the heirs you want them to pass to.
∗ Need to plan to reduce or eliminate taxes.

49. First Step for Estate Planning with U.S. andFirst Step for Estate Planning with U.S. and
Philippine AssetsPhilippine Assets
∗ If you are moving to the Philippines, you need to do estate
planning to reduce potential Philippine estate taxes on your
U.S. assets before you become a resident.
∗ If you want to marry a Filipina, you may want to do estate
planning to avoid The Philippine Community Property Rules
and The Force Heirship Rules.
∗ Most likely, a trust will be part of your estate plan.

50. Estate Tax PlanningEstate Tax Planning
The U.S. Estate Tax Credit (often referred to as an exemption) for 2014 is 5.34 million
per person, 10.68 million for a couple. The Philippine Standard Deduction is 1 million
pesos.
∗One way is to look at it, The U.S. is a Tax Haven, when compared to the Philippines.
Therefore one would want their estate subject to U.S estate taxes, not Philippines.
∗If you don’t want to divest yourself of assets, you may want to create a trust, whose
assets will be subject U.S. estate taxes, but not Philippine estate taxes.
∗It appears that where a beneficiary’s interest in a trust is limited to income only
interest, the trust assets would not be included in the income beneficiary’s taxable
estate under Philippine Law. The trust assets would be included under U.S. estate tax
law.
∗An other possibility is a Income Defective Trust.

51. Summary of Tax IssuesSummary of Tax Issues
 The United States and the Philippines subject their citizens to estate
taxes on a world wide basis.
 There is a U.S./Philippines Income Tax Treaty which eliminates many
income tax issues, but there is no U.S./Philippines Estate Tax Treaty.
 If you are a U.S. or Philippine citizen, property, wherever located in the
world, is subject estate taxes.
 The U.S. is becoming more aggressive in identifying foreign assets and
taxing them. Who is to say the Philippines will not become more
aggressive in collecting estate taxes on property outside the Philippines
owned by citizens or residents of the Philippines.

52. WE CAN HELP
∗ IF you need help with your tax, estate, or retirement
planning in the Philippines or elsewhere in the world,
we can help.
∗ If are living in the Philippines or planning on retiring in
the Philippines, let Dumaguete Retirement
Consultans be you guide to a happy retirement.
∗ Email us at wolff2000@earthlink.net.

53. IRS Circular 230IRS Circular 230
Pursuant to Internal Revenue Service Circular 230, wePursuant to Internal Revenue Service Circular 230, we
hereby inform you that the advice set forth herein withhereby inform you that the advice set forth herein with
respect to U.S. federal tax issues was not intended or writtenrespect to U.S. federal tax issues was not intended or written
by the law firm of Robert L. Wolff to be used, and cannot beby the law firm of Robert L. Wolff to be used, and cannot be
used, by you or any taxpayer, for the purpose of (i) avoidingused, by you or any taxpayer, for the purpose of (i) avoiding
any penalties that may be imposed on you or any otherany penalties that may be imposed on you or any other
person under the Internal Revenue Code or (ii) promoting,person under the Internal Revenue Code or (ii) promoting,
marketing or recommending to another party any transactionmarketing or recommending to another party any transaction
or matter addressed herein. Taxpayers should seek adviceor matter addressed herein. Taxpayers should seek advice
based on the taxpayer’s particular circumstances from anbased on the taxpayer’s particular circumstances from an
independent tax advisor.independent tax advisor.