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Estate Planning 101: What It Is and What It Is Not

Estate Planning 101: What It Is and What It Is Not

Estate planning involves the protection and distribution of one’s assets. But while it is a good way to secure one’s possessions, there are false perceptions around it.  Foremost among these misconceptions is that estate planning is only for the rich and the privileged who own several properties and large amounts of money.

To correct this misconception, seasoned personal finance professional Aristides “Jong” Merida Jr. explained that an estate is anything one owns that has financial value which could be a small house, jewelry, and other items.

In a recent webinar presented by Insular Life (InLife), Merida who has provided professional guidance to family trusts, institutions, and foundations, said that accumulating, protecting, and conserving one’s wealth helps in having a successful financial journey and in stopping the cycle of dependency among Filipinos.

Retirement or Financial Independence?

The President and CEO of Insights TM Corp. noted that the benefits that people expect from retirement and financial independence include having a comfortable, financially secured and worry-free life.This is why one doesn’t have to wait to be in his or her 50s to start planting the seeds that would form one’s estate.

“It’s important to begin with the end in mind all the time. Always begin with a goal,” he advised, emphasizing that the first step to achieve financial freedom is to be very clear about what it will take to set you free.

“Retirement means you stop working, but it doesn’t mean that you stop living. When you stop working, for most people, income stops. But since you don’t stop living, expenses continue. So, there should be something, somewhere you can source income from to continue living long after you’ve stopped working and earning,” he said.

Merida advised accumulating capital (savings, investments, and insurance) while one is still actively working. He added that this capital will be one’s source of income, and will form one’s estate.  

“The successful financial journey is nothing more than the transition or crossover from supporting your life through labor income to eventually supporting it through capital income,” Merida said.

Build Your Estate While Still Young

People in their 20s don’t usually think about retirement, but would love to gain financial independence. Since both retirement and financial independence can provide the same benefits of a comfortable, secure, and worry-free life, you might as well start building your wealth or estate while you’re still young.

“It is imperative that you achieve financial independence in your productive years. If you cannot, and you’re not happy with your life right now, it can only get worse,” Merida cautioned.

He further said the ability to generate profit which is the foundation of wealth, requires learning to maximize your revenues while at the same time minimizing cost. 

He also advised people to accumulate enough money to see them through the remainder of their life, and even have enough money left to pass on to the next generation

“If you cannot leave wealth behind, do not leave debts, and the quickest way to do that is to buy insurance,” Merida said.

Utilizing Life Insurance in Estate Planning

Life insurance can be used to intentionally enlarge an existing estate, equalize the inheritance of heirs, and leave a legacy to strangers instead of taking the amount from the estate.

“Estate planning is there not merely to guarantee that the money is distributed properly. Of equal importance, it is there to prevent or avoid disputes among heirs,” Merida said. He explained that insurance proceeds do not form part of an estate because they will exist only upon the policyholder’s death. 

Having life insurance included in one’s estate planning can also help families maintain the ownership of a corporation among family members, buy out the shares of a partner in a partnership upon the death of the partner, and reduce the taxable estate and avoid estate settlement proceedings involving deposits or funds.

Investments or Insurance? Which is More Beneficial?

Some people are still wary about getting an insurance plan, thinking that their money will grow more if they are put into investments. Merida clarified that both, in fact, are important and offer benefits in wealth-building.

“Money in insurance is not supposed to grow as fast as an investment. It serves a different purpose. When you invest money, your intention is to maximize the growth of that money. When you buy insurance, your intention is to minimize cost or loss, and you need it just as much. So, you don’t compare. In order to build wealth, you need both,” he said.

Merida also emphasized the importance of savings.

“While you’re earning well, you must be able to put something for the rainy day. That money you’re putting away for the rainy day will take care of you someday,” he said.

You can learn more about estate planning and how you can start building your estate by talking to an InLife financial advisor today. For information on InLife’s other insurance products, visit www.insularlife.com.ph.

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