Everything in the world is uncertain. Although a hundred-million-dollar asset can cause problems without advance preparation, heritage is not just a matter of inheritance. It also involves a lot of arrangements, such as inheritance tax, gift tax, and liabilities included.
According to the law, everyone has to follow the same process, whether rich or poor. As a result, heritage planning is not only for rich people or those having a lot of assets, but it is for everyone.
There are 5 things you need to know about heritage planning:
1. Know assets and liabilities
Many people may have heard about household accounts, but as time passes, there might be more and more assets. Therefore, it is advisable to keep all scattered assets and liabilities recorded in one place to know what assets and liabilities you have, how much they are, where they are, and with whom they are. In addition to being able to plan when you can repay the debt, you also know how much money you will be able to spend after retirement until the end of your life.
The assets and liabilities can be divided into several forms:
1. Liquid assets
Cash: Where do you keep it?
Bank deposits: Which bank? How much?
2. Investment assets
Stocks, debentures, funds: Where do you buy them? Which bank broker? How much?
Real estate for rent: Map, title deed, rental and lease agreement, other necessary documents
Other rental assets: Rental and lease agreement
3. Private Assets
House: Title deed, Where do you keep it? In whose name?
Car: Where is a car registration manual?
Jewellery: Bookkeeping, take photos, price, place of purchase, warranty (if any)
1. Current liabilities: Short-term debts not exceeding 1 year
Credit card debts: Name of financial institution, card type, amount of money and financial institution
Informal debts: Name of creditor, amount of money and interest rate
2. Long-term liabilities: Debts over 1 year
Home, car and business debt: Name of creditor, amount of money, and interest rate
If there are other assets or liabilities, it is advisable to keep a systematic record in order to understand them correctly.
Recording all yours assets as mentioned above can make it easier for you to manage assets and liabilities , can help your family members understand their household’s financial situation, and can make it easier to share assets appropriately when necessary.
2. Know gift tax and inheritance tax
There are two types of taxes relating to gift and inheritance:
1. Gift Tax
Over 20 million Baht, pay 5% gift tax rate per person per year (in case of descendant, parents and spouse)
Over 10 million Baht, pay 5% gift tax rate per person per year (in case of third party)
Below the criteria, not subject to pay tax
2. Inheritance Tax
Over 100 million Baht, pay 5% inheritance tax rate per person per year (in case of descendant and parents)
Over 100 million Baht, pay 10% inheritance tax rate per person per year (in case of third party)
Below the criteria, not subject to pay tax (spouse is exempt from tax)
The assets that are subject to inheritance tax are real estate, securities under the law, deposited money, vehicle, financial assets.
Many asset owners choose to give some of their inheritance to their children while they are still alive and leave some inheritances to be given after they pass away. This is similar to splitting your assets to avoid inheritance tax. However, the government also knew that trick, so they launched a new tax scheme along with inheritance tax which is a "gift tax". Such tax requires that a recipient of an asset must be subject to pay 5% of the gift tax rate of the portion exceeding 10 million Baht. However, if the recipient of the asset is parents, descendant or spouse, the criteria is extended to the portion exceeding 20 million baht. Such recipient is subject to a 5% gift tax rate.
3. Know inheritance law
The principle of inheritance law, apart from tax and assets, is inheritance itself which should be based on a testator/ de cujus or a last will and rules for inheritance, for example, if a deceased has a spouse, his/her marital property must be divided in half before distributing to his/her heirs.
For those who wish to administer their heritage, they cannot forget about last wills, heirs, and distribution of heritage. In this regard, there 2 main recipients: statutory heirs and testamentary heirs.
A statutory heir can occur only when a person dies without making a last will or such last will has no effect as mentioned above.
There are 6 classes of statutory heirs which are entitled to inherit in the following chronological order:
Descendants (legitimate children, illegitimate children with certification and adopted children)
Brothers and sisters of full blood
Brothers and sisters of half blood
Uncles and aunts
Inheritance as a statutory heir takes the principle of "No right of lower class of heirs to inherit".
Not all 6 classes of the statutory heirs have the right to inherit. If the primary class of heirs are still alive, only the first to second class of statutory heirs have the right to inherit. The lower class of the heirs have no right to inherit the heritage of a de cujus.
4. Know handover of heritage planning
You can gradually handover or transfer assets each year at an appropriate amount, not exceeding the amount subject to gift tax. For example, if you have an asset of 200 million Baht and 2 heirs, the asset can be gradually handed over for 20 million Baht per year for 5 years. In this regard, you are not required to pay tax on an excess value of the asset to be inherited. However, in terms of heritage planning, related laws should be considered carefully. You should not name multiple heirs for one heritage because this might cause problems between the heirs, for example, naming multiple heirs for a single plot of land. In this regard, you should subdivide such plot of land and specify the heir’s name for each properly so as not to cause problems later. You can also transfer an asset before passing away in the event of not making a last will. Moreover, an heritage should not be handed over for fear of paying tax. This can cause trouble for a testator/ de cujus when the asset has been distributed.
5. Know how to handover heritage with tax benefits
For those who have a lot of assets which are difficult to be gradually handed over. A testator/de cujus might use the means to convert the asset into life insurance.
Buying an insurance is not taxable. It also takes less time to receive than the gradual handover of estate to heirs. In addition to the tax benefits, you do not have to worry that there will be a problem from force majeure which will cause you to pass away unexpectedly.
These are 5 things to know for heritage planning. The heritage management, taxes, laws, heirs and heritage handover with tax benefits are all essential. Heritage planning is, therefore, not just "for whom", but "how to effectively handover an inheritance" to heirs and future generations for your own peace of mind.