NOT a few people had the unfortunate experience of learning the hard way what horror can unravel when the estate owner gives up his properties in favor of his children without the benefit of a sound succession plan.
In cases like this, these words of an unknown author could not have been more true: “Some people did not plan to fail, they just failed to plan.”
In such “horror stories,” there are no gruesome monsters or creepy little girls like how it is in the movies. Instead, there are stories of family conflicts, shrinking estate, bickering siblings, and estate owners losing control of their own business and properties, among many other consequences of inadequate, wrong or no planning at all.
Today, I shall delve on one possible consequence of wrong planning—the estate owner’s loss of ownership, control, possession and, worse, even enjoyment of properties while still alive.
In my book, Thy Will Be Done: Understanding the What, Why & When of Estate Planning, I defined estate planning as “the detailed and systematic study of the personal and financial affairs of a person to help him adopt and carry out a plan, for the disposition of his properties and earnings, that can give the estate owner and his family maximum benefit and satisfaction.”
Note that the definition provides that estate planning is as much for the benefit and satisfaction of the estate owner as it is for his future heirs—his children.
Because many times, we are willing to part with our properties, upon advice from friends and relatives, if only to avoid the payment of death taxes in the future. Little do we consider our own welfare—that while we are still around, we have needs that cannot simply be taken for granted.
The unfortunate experiences of many will tell us that prematurely giving up our properties is not always the ideal thing to do because while it may benefit our children, it may render us incapable to use our hard-earned assets to our benefit when we need them most.
Take the case of an elderly businesswoman named Pilar Santos (not her real name) who, after years of building up her estate, ill-fatedly transferred it to her children’s names to escape the huge estate tax.
Pilar made her wealth successfully running a business with her husband. When the latter died, she continued to operate the business, this time with the help of her five children. As her children established families of their own and encountered financial difficulties, Pilar would always come to their aid.
She loved her financial independence, which enabled her to take care of herself even as a widow and come to the aid of her children and grandchildren in times of their need.
One day, a friend of Pilar’s told her how she would escape paying big estate taxes when she passes away—transferring the property titles under her children’s names.
Convinced, Pilar thought this was the best way to go as well, given her own experience of having to shell out money to pay for her husband’s estate taxes when he died. She instructed her lawyer to immediately distribute her properties and businesses to each of her five children as equally as possible.
Through a deed of sale, all her holdings were transferred to her children in no time. This is when the series of unfortunate events began to ensue.
First, the loss of control over her business. Her children and in-laws slowly but surely eased her out of the management, telling her that she needed to retire and leave the running of the business to them. There was nothing that she could do because, technically, she did not own the business anymore.
Through time, she realized that she didn’t have a regular source of income anymore as she became dependent on what her children would hand over to her.
She said, “Before I transferred my properties to them, they would come to me for help. Now I go to them begging for support.”
Some may think that’s an exaggeration, but it does reveal the pain that she goes through each time she is reminded of how she lost control of her source of livelihood and consequently her independence because of a mistake, a wrong move, wrong planning.
Many would say this could not possibly happen to them because they raised their children well and that they would take good care of them in the golden years. That is probably true for the most part.
Unfortunately, what we usually fail to consider is the influence of other people—in-laws included—which could very well influence or change the attitudes of our most beloved children. This is hard to accept, but is the bitter pill we have to swallow.
Our children or heirs may not necessarily intentionally plan to do us harm; they may not have become too greedy. Often, they don’t act as we expect they would out of need. Eventually, the children would face different financial challenges, which would affect their attitude toward other people concerning money matters—even toward their own mother to whom they owe their inheritance in the first place.
Had Pilar known the dire consequences her action may bring, she would have made a more informed and sound decision, which could have reduced her estate taxes while still retaining control over her business. I will discuss more of this in the coming weeks.
Don’t get me wrong. I am not saying that we should never give properties to our children while we are still around. No, far from it! There are instances when it is the right thing to do.
For instance, if giving is motivated by faith or love, by all means, go ahead and give. If giving to your children or to your favorite charity or church is what gives you joy in your heart, let no one stop you.
But if you give, consider leaving some properties to yourself to take care of you in case events turn against you. It does not make sense for you to be completely without properties when you have your own needs to consider. And it makes foolish sense to deprive yourself today just so your children can avoid paying death taxes tomorrow. There are other ways of addressing estate taxes without losing control of your properties.
I can’t make it clear enough: Ultimately, a good estate plan is one that provides maximum benefit and satisfaction to the estate owner first, and to his family next. Putting it another way: Even as we consider our children—our future heirs—in the planning process, it should never be at the expense or to the detriment of the estate owner.
Atty. Cabrera's book "Thy Will Be Done" is a Must Read Book.
Frightened but Enlightened.
