The document discusses estate planning issues for individuals with assets in both the United States and the Philippines. It summarizes key differences between probate estates and taxable estates, as well as inheritance laws and estate taxes in the two countries. The document also provides an overview of estate planning tools like wills, trusts, and beneficiary designations and how they can help achieve objectives like asset protection and avoiding probate.

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 overtime

4. Two Estates
Probate, and
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,
the 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 outside 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 does 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 he or she dies first, compulsory heirs may inherit part
ownership in the house with you.
 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 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 the Philippines cannot be owned by a non-Private land in the Philippines cannot be owned by a non-
citizen.citizen.
Non-Filipino citizens can inherit land by hereditary or intestateNon-Filipino citizens can inherit land by hereditary or intestate
succession (without a will) but not by testamentary successionsuccession (without a will) but not by testamentary succession
(with a will)(with a will). The problem, heirs of the deceased spouse. The problem, heirs of the deceased spouse
may inherit part of the property too.may inherit part of the property 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
and Philippine laws, you can be all three. This means
that if you don't want to, you don't have to give up
control over your assets. If you are the Trustee of
the Trust, the only big change, the assets are held in
the name of the trust, not yours. But you still
control the assets.

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 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 to protect assets.

22. 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.

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

24. Important Trust Powers andImportant Trust Powers and
ClausesClauses
 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.

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
 Death 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
 Death 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 UnitedEstate Taxes In United
StatesStates

38. U.S. Unified Estate and GiftU.S. Unified Estate and Gift
TaxesTaxes
The U.S. estate and generation-skipping transfer taxes for
2015 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 TransferGeneration-Skipping Transfer
TaxTax
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 2015.
 The GST tax rate for transfer made in 2015 is 40%.
 The GST exemption is not portable.

40. Marital Deductions Under U.S.Marital Deductions Under U.S.
Tax LawTax 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 2015 – Note this is only a problem if the
decedent's estate exceeds $5.34 million in 2015
 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 PhilippinesU.S. Citizens Living In The Philippines
Need to Do Estate PlanningNeed to Do Estate 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.First Step for Estate Planning with U.S.
and Philippine Assetsand Philippine 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 put your
property into a trust before you get married 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 2015 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.