[mjtfernandez]

How to maximize the use of SVULs
by: Mark Joseph T. Fernandez

Most investors use equity funds as a long term investment. In fact the common investment of most seasoned investors are stocks/funds and real properties. We look into how an SVUL, an insurance investment product much like a mutual fund but with a twist. SVULs are offered by insurance companies and governed by the insurance commission. Mutual funds are goverened by the SEC. Each type investment has its own purposes.

Investor invested in SVUL:
P1,000,000 gross investment
P0 sales load
P1,000,000 goes as net investment

Investor invested in MF
P1,000,000 gross investment
P10,000 goes as sales load
P990,000 goes as net investment

If SVUL Investor
If the fund value is lesser than the minimum guaranteed benefit (125% of the investment) for example the fund value is P1,050,000 the company will not give P1,050,000 to the beneficiaries but P1,250,000. The investment is also not subject to estate taxes (20%).    
   SVUL Initial Investment = P1,000,000
   Current Fund Value = P1,050,000
              Investor Dies
   Minimum Guaranteed Benefit = P1,250,000
   Gross Investment to be given to beneficiaries = P1,250,000
   Estate Tax to be paid = P0
   Net Investment to be given to beneficiaries = P1,250,000

If the fund is greater than the minimum guaranteed benefit (125% of the investment) for example the fund value is P1,350,000 the company will give the P1,350,000 not the P1,250,000.  Nevertheless, the investment is still not subject to estate taxes (20%)
   SVUL Initial Investment = P1,000,000
   Current Fund Value = P1,350,000
              Investor Dies
   Minimum Guaranteed Benefit = P1,250,000
   Gross Investment to be given to beneficiaries = P1,350,000
   Estate Tax to be paid = P0
   Net Investment to be given to beneficiaries = P1,350,000

If MF Investor
There is no minimum guaranteed benefit and the investments are subject to estate taxes. So if investment fund value is P1,050,000 and the person dies, the beneficiaries will only receive P1,050,000 less 20% taxes = P840,000
   MF Initial Investment = P1,000,000
   Current Fund Value = P1,050,000
   Minimum Guaranteed Benefit = P1,250,000
   Gross Investment to be given to beneficiaries = P1,250,000
   Estate Tax to be paid = P210,000
   Net Investment to be given to beneficiaries = P840,000
So if investment fund value is P1,350,000 and the person dies, the beneficiaries will only receive P1,350,000 less 20% taxes = P1,080,000
   MF Initial Investment = P1,000,000
   Current Fund Value = P1,350,000
   Minimum Guaranteed Benefit = P1,250,000
   Gross Investment to be given to beneficiaries = P1,250,000
   Estate Tax to be paid = P270,000
   Net Investment to be given to beneficiaries = P1,080,000

SVULs have an option that if the SVUL investor dies, the funds will not be liquidated to cash but transferred to another person as SVUL as is. So this will insure continuity of investment, no need to re-invest the money to reduce front end charges (sales loads) because of reinvestment. And no need to pay for the taxes because there was no transfer made but merely a change in the name of the owner of the SVUL.

SVULs have much easier ways for securing the transfer of the money to intended beneficiaries even without a will. If the SVUL investor has a specific child who he wants to receive the benefits of the SVUL, he can designate it even without a will. Mutual funds however will require you to create a will to be able to be sure that the benefits go to the intended beneficiary.

SVULs are used to secure your investment portfolio against estate taxes. The following illustration below shows how you can safely and legal reduce estate taxes.


http://img837.imageshack.us/img837/6242/svulscenario1.jpg


http://img209.imageshack.us/img209/3302/svulscenario2.jpg


http://img208.imageshack.us/img208/4205/svulsummary.jpg

[allanmm13]

SVULs are used to secure your investment portfolio against estate taxes. The following illustration below shows how you can safely and legal reduce estate taxes.


http://img837.imageshack.us/img837/6242/svulscenario1.jpg


http://img209.imageshack.us/img209/3302/svulscenario2.jpg

Will it be more advisable that the owner of a 100Million put his assets under a corporation instead of a SVUL?

Kasi kung mamamatay ang estate owner, he/she can transfer the stock ownership with lesser fees.

Wont the like of Henry Sys and Ayalas do this to most of their assets?

Besides, if its an income producing assets like rental properties, business that produce cashflow.. converting it to an SVULs removes the Cashflow capability of the asset and replace it with Capital gains.. The question there, will the fund manager of the SVULs match the same capability of the old feature of the assets?

[mjtfernandez]

As I understand your question, when you create a corporation its like converting your assets to stocks. Let us remember that an SVUL is a investment that pools stocks of corporations from different industries. I don't see any difference when you convert your stocks of the corporation to an SVUL which is a combination of many stocks.

[allanmm13]

 I think you are referring to public listed stocks. it may be a family corporation, a nonpublic listed one.

[kithe]

How to maximize the use of SVULs
by: Mark Joseph T. Fernandez

Most investors use equity funds as a long term investment. In fact the common investment of most seasoned investors are stocks/funds and real properties. We look into how an SVUL, an insurance investment product much like a mutual fund but with a twist. SVULs are offered by insurance companies and governed by the insurance commission. Mutual funds are goverened by the SEC. Each type investment has its own purposes.

Investor invested in SVUL:
P1,000,000 gross investment
P0 sales load
P1,000,000 goes as net investment

Investor invested in MF
P1,000,000 gross investment
P10,000 goes as sales load
P990,000 goes as net investment

If SVUL Investor
If the fund value is lesser than the minimum guaranteed benefit (125% of the investment) for example the fund value is P1,050,000 the company will not give P1,050,000 to the beneficiaries but P1,250,000. The investment is also not subject to estate taxes (20%).    
   SVUL Initial Investment = P1,000,000
   Current Fund Value = P1,050,000
              Investor Dies
   Minimum Guaranteed Benefit = P1,250,000
   Gross Investment to be given to beneficiaries = P1,250,000
   Estate Tax to be paid = P0
   Net Investment to be given to beneficiaries = P1,250,000

If the fund is greater than the minimum guaranteed benefit (125% of the investment) for example the fund value is P1,350,000 the company will give the P1,350,000 not the P1,250,000.  Nevertheless, the investment is still not subject to estate taxes (20%)
   SVUL Initial Investment = P1,000,000
   Current Fund Value = P1,350,000
              Investor Dies
   Minimum Guaranteed Benefit = P1,250,000
   Gross Investment to be given to beneficiaries = P1,350,000
   Estate Tax to be paid = P0
   Net Investment to be given to beneficiaries = P1,350,000

If MF Investor
There is no minimum guaranteed benefit and the investments are subject to estate taxes. So if investment fund value is P1,050,000 and the person dies, the beneficiaries will only receive P1,050,000 less 20% taxes = P840,000
   MF Initial Investment = P1,000,000
   Current Fund Value = P1,050,000
   Minimum Guaranteed Benefit = P1,250,000
   Gross Investment to be given to beneficiaries = P1,250,000
   Estate Tax to be paid = P210,000
   Net Investment to be given to beneficiaries = P840,000
So if investment fund value is P1,350,000 and the person dies, the beneficiaries will only receive P1,350,000 less 20% taxes = P1,080,000
   MF Initial Investment = P1,000,000
   Current Fund Value = P1,350,000
   Minimum Guaranteed Benefit = P1,250,000
   Gross Investment to be given to beneficiaries = P1,250,000
   Estate Tax to be paid = P270,000
   Net Investment to be given to beneficiaries = P1,080,000

SVULs have an option that if the SVUL investor dies, the funds will not be liquidated to cash but transferred to another person as SVUL as is. So this will insure continuity of investment, no need to re-invest the money to reduce front end charges (sales loads) because of reinvestment. And no need to pay for the taxes because there was no transfer made but merely a change in the name of the owner of the SVUL.

SVULs have much easier ways for securing the transfer of the money to intended beneficiaries even without a will. If the SVUL investor has a specific child who he wants to receive the benefits of the SVUL, he can designate it even without a will. Mutual funds however will require you to create a will to be able to be sure that the benefits go to the intended beneficiary.

SVULs are used to secure your investment portfolio against estate taxes. The following illustration below shows how you can safely and legal reduce estate taxes.


http://img837.imageshack.us/img837/6242/svulscenario1.jpg


http://img209.imageshack.us/img209/3302/svulscenario2.jpg


http://img208.imageshack.us/img208/4205/svulsummary.jpg

Dun po sa summary at a glance, nagkabaligtad po yung mga figures niyo..

Regarding po sa Estate tax, pwede lang maging tax exempt ito kung ang beneficiary mo ay gagawin mong irrevocable..

The net estate of the dead person is subject to tax at the following rates:
1.) Php200,000 -exempt
2.) Between Php200,000 and Php500,000 -5% of the excess over Php200,000
3.) Between Php500,000 and Php2 Million -Php15,000 + 8% of the excess over Php500,000
4.) Between Php2 Million and Php5 Million -Php135,000 + 11% of the excess over Php2 Million
5.) Between Php5 Million and Php10 Million -Php465,000 +15% of the excess over Php5 Million
6.) Php10 Million and up -Php1,215,000 + 20% of the excess over Php10 Million

Sa life insurance po, hindi ang insurance company ang magbabawas ng estate tax, ( if subjected)
Kung mamatay po ang insured at may 10M siya na insurance coverage, ibibigay po lahat ng insurance company ang 10M.. Pero nakareport po ito sa BIR..
So, ang family po ng namatayan ang magpa file ng estate tax sa bir, nasa kanila po yung desisyon..
Pero kung ang designated beneficiary ay irrevocable beneficiary, yun po ang exempted sa estate tax..

[mjtfernandez]

Dun po sa summary at a glance, nagkabaligtad po yung mga figures niyo..

Kithe! Thanks for pointing it out!
Post Merge: Aug 04, 2012, 07:49 AM

I think you are referring to public listed stocks. it may be a family corporation, a nonpublic listed one.

I see, you mean the family corporation created for the purpose of evading taxes? Well the properties are  still exchanged for shares of stocks. A corporation should be created for the purpose of doing commercial activities. If it is created as such, it may create problems in the future as in the case of co-ownership. The shareholder owns everything in that corporation to the extent of their percentage shares. It's okay to create a corporation if the properties are identical but if they are not then it will create problems.

[kithe]

Marami na ang gumagawa na gawing corporation (family corporation) ang kanilang business, to lessen the taxes, but not to avoid it..
It can be divided into equal percentage, (minimum of 5), or depend sa gusto nilang set up..
Kung sole proprietorship kasi all of his asset will be subject to estate tax, kaya yung iba, lalo na kung malaki na yung business, they apply to become a corporation..

[BatmanBeyond]

Marami na ang gumagawa na gawing corporation (family corporation) ang kanilang business, to lessen the taxes, but not to avoid it..
It can be divided into equal percentage, (minimum of 5), or depend sa gusto nilang set up..
Kung sole proprietorship kasi all of his asset will be subject to estate tax, kaya yung iba, lalo na kung malaki na yung business, they apply to become a corporation..

Yes, I agree with you Kithe. Others are just using the name of one of their family members just to come up with 5 incorporators which is the minimum in accordance with our law. I think most are giving just 1 share for the 4 and what is left are subscribed by the 5th. This is legal. It is just to minimize the taxes but no to evade them.

[allanmm13]

I see, you mean the family corporation created for the purpose of evading taxes?

MJT, actually it was created to minimize the taxes. Magkaiba kasi ang tax treatment if kung generated siya as individual income (high tax) and corporation income (high tax but you can deduct first some expenses bago pa i-tax ng govt).

Tax evading is a different case, you are avoiding paying the correct tax base on how you are "seen" by the BIR i.e. as individual income earner or a corporation (either publicly listed or family/private corporation)


Post Merge: Aug 13, 2012, 03:41 PM

A corporation should be created for the purpose of doing commercial activities.

Your point is correct here, they can still do commercial activities pero ang difference dahil hindi sila publicly listed (not part of PSE), the full control of ownership ng mga rental properties or business nila is nasa family pa rin.
Unless me ibang investor ang gustong bilhin ang buong corporation nila na di dadaan sa PSE. Most of the time retail investor or institutions cant buy these.

Yung mga corporation sa PSE, almost anyone can buy kahit fraction of ownership using a broker (for retail investor ) and of course mga institution investors like SVULs, UITF, MFs can participate here.

[leonine_zafiro]

same with VUL

[BatmanBeyond]

same with VUL

What do you mean by this one Bro? You posted just 3 words here also, http://www.pinoymoneytalk.com/forum/index.php?topic=17337.0