Do you know what happens to your stock investment when you die?
You must know the answer to this question. You don’t want your stock investments to become a burden to your loved ones just because they’re clueless on what to do with what you’ve left for them.
Will Your Stocks Be Frozen?
Your investments or shares in the stock market would be frozen when you die. For instance, the shares you have capitalized in different companies, along with mutual fund investments and other assets in your portfolio, will be frozen. This would also imply that your loved ones or someone whom you want to share the assets with would not be able to withdraw or even sell them. The ownership could not be transferred yet.
Will Your Family Get Your Stocks When You Die?
Yes, they can.
“But I didn’t write their name in the application form when I opened my online stockbroker’s account,” you may want to say. That is a valid argument.
Of course, you have also seen real life and movie-inspired situations where family members kill each other simply to obtain the full inheritance of their parents.
In the Philippines, your heirs may acquire your stocks, but they have to pay for the estate tax. If you want to settle this before you die, it is ideal to look for a lawyer, an estate planner, or a professional administrator.
Through any of these people, your stocks could be settled for your family in court. It is likely that thousands would be spent to employ assistance from the professionals, but this would be nothing if you have more than millions left for your family.
By hiring someone beforehand to assist your family during the said time would be convenient. You may as well assign someone to take care of the estate tax. Save for it, so your family would no longer have to worry about cash-on-hand.
What Is an Estate Tax?
The estate tax is defined as the levy to which the deceased person would be able to transfer his or her ownership of estate to his or her beneficiaries, family, or lawful heirs. The transfer of ownership is considered equivalent to testamentary disposition or through a will. It is clarified by the Bureau of Internal Revenue (BIR) that it is not a tax on a property. It is implemented on the transmission privilege upon the death of the owner. The estate tax is applicable at the time of the death of the owner in spite of the delays of the actual control of the heirs to the estate.
The estate encompasses shares or stocks of a company. In addition, other parts of the gross estate are shares, which are bonds or obligations provided by Philippines-constituted or organized firms. Moreover, the gross estate also covers the issued bonds or obligations by an international corporation whose business is located in the Philippines with a domestic allotment of 85 percent. Bonds or obligations issued by the foreign firm are also part of the gross estate if such assets are purchased by Philippines-based business. Lastly, shares enclosed in Philippine-established business, industry, or partnership rights would also be considered as a component of an estate.
How Much Would Be Your Stocks’ Estate Tax?
If at the time of your passing, you have a fair value of stocks at P200,000, you would be exempted from estate taxes. If your stock investment’s fair value is more than P200,000.00, you have to settle your estate tax according to the Bureau of Internal Revenue (BIR).
For example, if you have stocks valued at P15 million, you would have to pay BIR with P1.215 million plus 20 percent of P5 million. In total, you have to pay for P2.215 million estate tax. If you are not sure that your family has the amount given when you die, you should plan in advance.
Do You Need a Life Insurance?
Life insurance would allow you to set beneficiaries for your proceeds. You could write the name of your spouse, children, parents, and siblings among others. Through the insurance premium, your family would be able to pay the estate tax. There is no need for them to have a hard time to collect the fair value of your stocks. Nonetheless, always remember to check the coverage of life insurance to ascertain it includes future estate taxes.
Is Filing an Estate Tax Return Necessary?
To make the process of distributing your wealth to your family members less tedious, you should discuss with your spouse or trusted person the filing of estate tax return. BIR has certain requirements and procedures to provide for you to send your application.
If you want to ensure that everything would be planned accordingly, it is more ideal to ask for services of a lawyer or a Certified Public Accountant (CPA).
I highly advise that you share this post with someone you know who’s invested in the stock market. Help him or her to be in-the-know.
Note: This article was originally published on www.stocksignals.ph on December 26, 2016.
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