It is inherent in parents to want to give to their children as much as they can. Some go to the extent of putting financial assets in the name of children even if they are still minors. The objective is to already separate such assets from the estate of the parents so that should there be an untimely death of the parents, such assets will not anymore be subject to estate taxes. At the very least, when the child reaches adulthood, he or she becomes the automatic owner of the assets. And the usual tact is to put the name of the parent in trust for (ITF) the child.
Unfortunately under the law, the assets in an ITF account get to be separated from the estate of trustor only if the corresponding donor’s taxes have been paid. Otherwise, the assets under an ITF account remain owned by the trustor.
The better tact is to donate to a child up to Php100,000 per year. Such an amount is exempt from donor’s tax provided that the donation is made by the donor to a donee within the fourth degree of consanguinity. With the deed of donation filed, the financial assets can now be placed under the name of the parents as guardians for the child.
Every year, parents can donate to their child and not pay any donor’s tax provided the donation is up to Php100,000 a year. Parents can also say to their relatives that instead of giving gifts in kind to the former’s child, the latter could just donate cash for purchase of financial assets. And provided the relative-donors are within the fourth degree of consanguinity in the collateral line of the child-donee, donations up to Php100,000 will again be exempt from donor’s tax.
So how do you determine the degree of consanguinity? You just go up or down the family tree. To determine the degree of consanguinity in the collateral line between a child and his aunt, we must count the levels of relationship. A child to one of his parents is one degree. The child’s parent to the child’s grandparents adds one more degree for a total of two degrees. Finally, the child’s grandparent to his aunt adds one degree for a total of three degrees.
Remember that a donation beyond the fourth degree of consanguinity is a donation to a stranger. And a donation to a stranger is taxed at the rate of 30%.
To be specific, a stranger is a person who is not a:
(Originally written by Efren Ll. Cruz, RFP at http://www.savingstips.com.ph)
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