3 ways to protect inheritance from estate tax

Sun Life Financial

Posted at Jul 31 2017 02:33 PM

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(Left to right) Sun Life Chief Marketing Officer Mylene Daez-Lopa, celebrity endorser Charo Santos-Concio, and Sun Life Head for Agency Distribution Support Jenny del Mundo talk about estate planning in a press conference held at the World Trade Center.

MANILA – We work hard to make sure that we will be able to provide for our families not just in the present, but also in the future. We aspire to leave something behind for our family, such as money, property, or jewelry. This is our legacy, and our way to make them feel our love even when we’ve passed on.

But not many of us know that our legacy can possibly inconvenience our intended recipients. This is because when we pass away, our heirs will have to pay estate taxes to the government before they can acquire the inheritance. Currently, estate tax is based on a graduated tax rate. If the net estate is below P200,000, there shall be no estate tax due. Over and above P200,000, the estate tax may range from 5% to as high as 20% of depending on the value of the net estate.

For instance, if you have a P30-million estate, your heirs will have to settle as much as P5.2 million in taxes. Moreover, this will have to be settled within six months from the date of your passing; otherwise, they are slapped with penalties. Should your family be able to pay the said amount on time, the original value of the asset would still shrink substantially.

Such a scenario can be prevented with proper planning. Here are three ways to protect inheritance from estate tax:


During your lifetime, you can decide to sell certain assets such as a condominium unit or a piece of land to your intended heirs. This approach would still require payment of taxes but it would be at a lower rate. For instance, when an individual (in his personal capacity) sells his assets during his lifetime, the sale will be subject to a 6% capital gains tax on sale of real property plus the applicable documentary stamp tax and local transfer taxes. You would incur the abovementioned taxes in lieu of the estate taxes that can go as high as 20%.

When using a sale as an estate planning tool, make sure that it is for an adequate consideration based on prevailing market values; and that the buyer-heirs have the capacity to pay. Don’t confuse this tax saving tool for simulated sales. Simulated sales are transfers of property made to look like a contract of sale but in reality are donations (where buyer pays nothing or buyer pays a price that is grossly inadequate). Simulated sales are illegal and will result to issues with the tax authorities.


Another way to ensure that the value of your legacy will be protected is by turning over your assets to your children while you are still alive. You will have fewer assets in your name, but this will translate to a lower estate tax. Donor’s tax would apply on the transfer by any person of the property by gift. This tax is based on the total net gifts made during the calendar year. Generally, a graduated donor’s tax rate of 2% to 15% of the value of the net gifts would apply, except if the gift is given to a stranger which would have a 30% tax rate.

A word of caution though: be careful with “disposing” your assets too soon and make sure to leave something for yourself. It would also be best to ensure that your heirs are already mature enough to manage your assets, or else they might end up mishandling it, leaving them with nothing by the time you pass away.


Life insurance is one of the keys to good estate planning. By getting a life insurance policy and making your heirs irrevocable beneficiaries, your wealth can easily be passed on to them when you pass away. The insurance proceeds can either be used to pay the estate tax on your assets, or may even be the inheritance itself. When the insured dies, the insurance proceeds can easily be transferred in full, and are exempt from estate tax, provided that the beneficiaries are designated as irrevocable. The proceeds are also exempt from income tax.

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One of the many people who have turned to life insurance to protect the wealth she has acquired over the years is former ABS-CBN president and CEO Charo Santos-Concio. She has availed of Sun Smarter Life, which provides double life insurance until age 100. This insurance product from Sun Life Financial also provides living benefits in the unfortunate event of terminal illness and emergencies.

“Sun Smarter Life makes wealth preservation easy. It also gives me peace of mind knowing that when my time comes, my assets will efficiently be transferred to my family,” Charo said. “By preparing early, utilizing the right instruments, and with the help of Sun Life, I am confident that my family will feel my love through the legacy I will leave behind.”

To know more about Sun Life’s products and services, talk to a financial advisor or visit www.sunlife.com.ph.


Sun Life Financial is a leading international financial services organization providing a diverse range of insurance, wealth, and asset management solutions to individuals and corporate clients.

It has operations in a number of markets worldwide, including Canada, the United States, the United Kingdom, Ireland, Hong Kong, the Philippines, Japan, Indonesia, India, China, Australia, Singapore, Vietnam, Malaysia and Bermuda.

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