Sound Strategies

If you think you’re not rich enough to need estate and tax planning, chances are, you probably do. Business lawyer and CPA Anthony Corcuera says why

How often have we heard that story: disaster strikes a family; the head of the family dies leaving a substantial amount of wealth for surviving members, but surviving family members are nevertheless financially wiped out by estate taxes because the head of the family didn’t plan ahead. How about stories of hard-working individuals who die without even knowing there is such a thing as an estate tax?

Anthony R. Corcuera has heard those stories often enough. As a tax and estate consultant, he has come across individuals and families with much the same experience that it makes his heart bleed. It doesn’t have to be the case, he says, because people can utilize various tools and strategies to manage their estate for the benefit of their loved ones, even long after they’re dead and gone.

Estate planning, much like tax planning, is an unspoken concern for most Filipinos who feel they’re not “rich” enough. But according to Corcuera, who is both a Certified Public Accountant and an attorney, most Filipinos don’t realize that they tend to accumulate enough assets over the years. Many of them eventually land in that category of “uninformed” individuals who may actually need to plan out their estates in the event of their demise, but fail to do so because, according to Corcuera, they simply lacked the proper advise or information. Without some planning, Atty. Corcuera says the pitfall is that a significant sum of your family’s wealth could go to the government in the form of federal estate taxes, which start at 37 percent and could go as high up as 55 percent.

For instance, take life insurance, he says. Most people don’t normally regard life insurance as part of their estate, but it is. One way to protect life insurance proceeds from federal estate taxes, he explains, is through a properly structured life insurance trust. Simply put, the trust owns your life insurance and because the trust owns it (not you), the face amount of the policy is removed from your taxable estate. When you die, your surviving family members will receive the amount, intact. Atty.Corcuera adds that you can also structure the trust so that proceeds are available to pay your federal estate taxes, as opposed to having your executor sell off precious assets or assets destined for your family.

Although there are other trusts that one can create to suit one’s needs, Atty. Corcuera says the living trust is the most “basic” tool in estate planning. Again, he emphasizes, you don’t have to be rich in order to think about setting up a living trust.

“There are three benefits to having a living trust,” Atty. Corcuera says. “The first benefit is that it avoids probate. For example, when you have a husband and wife who have a house, and the first spouse dies, the house automatically goes to the surviving spouse. There’s no problem there. The problem is when both parents die and leave the house to the kids. When you don’t have a living trust, the house has to be probated first, you have to go to court, in order to change the title, basically. But keep in mind that you have to put assets in that trust, because if you don’t put assets in that trust, it won’t do you any good.”

Atty. Corcuera cautions that just like any other legal document, the trust can be filled with legal and technical language that most people would not normally care to be bothered with. “You don’t really know what it’s saying so that some people don’t really know what kind of trust they have until they die, and by then, it’s too late,” he adds.

The second benefit of a living trust, according to Atty. Corcuera, is that “for a husband and wife, it shelters a net estate of up to $1.350 million.” This, he says, “includes all the assets that they own (less debts), including life insurance policies, even if it’s just term insurance. If your net estate is $1.350 million, with a living trust, you pay zero estate tax. Without a living trust, the tax could amount to some $240,000 on a $1.350 million estate. So if the husband and wife’s net estate is more than this, they need to create other trusts.”

He adds that most people with life insurance policies don’t realize that when they pass away, “from an estate tax standpoint, the proceeds go back to the estate of the person who passed away. He would still need to pay estate tax on those proceeds. So if the estate doesn’t have enough money to pay for the tax, the government will grab the proceeds from the beneficiary.”

Planning ahead by consulting an estate planner would avoid the dilemma and subsequent heartbreak for the beneficiaries, he says. “It’s just a matter of educating people because they have a lot of misconceptions about it. People know a lot about income tax, but most people know very little or nothing at all about estate tax. They’re surprised to find out there is such a thing as estate tax.”

The third benefit of a living trust, Atty. Corcuera says, is management and distribution of one’s assets. “In the language of the trust, you have the first trustee such as the husband or the wife. Upon their death, there has to be a contingency on the trust, who will be the successor to the trustee. Let’s say my brother was the successor trustee and my wife and I passed on and left minor children. My brother would manage the trust for my minor children according to our instructions, such as pay for their education, living expenses, or when they turn 21 to give them one-third of the assets, and so on and so forth.”

This, he says, provides flexibility, as opposed to a will which does not provide for management of one’s assets. “ Even if the children are no longer minors, a trust, with your instructions, can ensure that they won’t spend the money all at once.” These things happen, Atty. Corcuera says, and he says he knows whereof he speaks because that’s what he did with his inheritance when his father died.

If estate planning is something most people are unfamiliar with, Atty. Corcuera says tax planning is just as unfamiliar to most people who venture into the world of business. Some people may think their businesses are too small, but in reality, their business challenges aren’t. Corcuera wants people to realize that no business is too small nor too big to benefit from tax planning done by consultants with the right expertise.

“Most people who set up business entities are experts in their line of work. The problem is that very often, they know very little about tax implications and the legal aspects, he explains.

The 38-year-old Whittier Law School and CSU-Long Beach graduate says what he brings to his clients are his experience and expertise, being both a CPA and attorney, and former tax auditor of the Franchise Tax Board from 1987 to 1994. As tax auditor, he performed state and franchise tax compliance audits of high net worth individuals and multi-state companies, acting as lead auditor on various team audits. He worked in the Board’s legal division, serving as litigation support expert for the Attorney General’s office in bankruptcy court, although he clarifies that he no longer does litigation these days.

In 1998, he was tax manager of KPMG, a big accounting firm in Los Angeles. As tax manager, he made his mark in the firm’s Strategic Tax Innovative Group and contributed significantly to the company’s design process, including co-authoring the Mission and Vision statements and Implementation plan.

Before his stint with KPMG, Atty. Corcuera worked as a consultant for the Creative Tax Service Group of Deloitte and Touche. With his Bachelor of Science degree in Accounting from CSU-Long Beach and a Juris Doctorate from Whittier Law School, coupled with his experience in two prestigious “Big 5” accounting firms where he developed “high value tax strategies,” he laid the foundation of a career that now counts him as one of the stalwarts in the estate and tax planning business.

“I have over 14 years of tax experience and I bring this extensive expertise to my clients. I educate clients because I want them to make informed decisions. Sometimes, people come to me and say they want to set up a Limited Liability company (LLC) because they’re really popular these days. Normally, an attorney would say, okay, you want an LLC, I’ll do an LLC for you. But what I do is first find out why the client wants or needs and LLC. And at the end of the day, maybe it’s not an LLC that the client needs, but perhaps another form of business entity. Sometimes, the most popular form of business entity may not be suited to a certain client’s needs,” Atty.Corcuera says.

He also emphasizes that he services both individual and corporate clients. “When people find out that I worked for two big accounting firm, they automatically think I just do corporate work. But I also service individuals. Estate planning is for individuals and tax planning is both for individual and corporate clients. These are related to business law, which is what I do, mostly.”

As a business lawyer, Atty. Corcuera says his services entail “business formation,” setting up and incorporating business entities such as LLCs, partnerships or sole proprietorships. “I recommend strategies specific to my clients’ needs and situations,” he emphasizes. As a consultant, he doesn’t do “books” which he says is the domain of accountants, and he does very little tax preparation work “unless the client wants me to do it for him in addition to the services I provide. I would also rather do sophisticated tax planning strategies myself, rather than have someone do it for me so I can make sure it’s done properly.”

Atty. Corcuera’s meticulousness in ascertaining his clients’ needs takes up most of his working hours when he meets with them either at his office in Huntington Beach or at the clients’ place of businesses. And because his weekdays tend to get filled up with appointments, he has made himself available to clients well into evenings and even on weekends. He doesn’t mind the long hours, nor the fact that because of his thorough method of determining his clients’ needs, he eventually ends up with just enough time for two or three clients in a single day.

“That’s okay,” the winsome lawyer says with a smile. “I’m not into volume work. I believe that if you’re going to do something, you might as well do it right. I spend a lot of time educating my clients first, then I sit down with them again to know their situation in order to give the right recommendation.”

When he’s not meeting clients or mapping out strategies, Atty. Corcuera spends his time babysitting his three-year-old son, Justin and and one-month-old daughter, Brianna. His wife, the former Aurora Arroyo is a full-time nurse, but at the rate his business is expanding, she may have to cut down on her own work hours to attend to their kids.

While he reaches out to the Filipino community in his attempt to provide information about estate and tax planning, Atty. Corcuera is also reaching out to other attorneys, CPAs, financial planners and insurance agents, hoping his efforts will lead to a symbiotic relationship between him and other professionals in the community.

Like a true strategist, the Philippine-born, California-educated lawyer-CPA lays out his plan: “There’s work that they can do, and there’s work that I can do. I’m basically trying to promote a team concept and hopefully, if we pool our services together, the Filipino community will have more access to those services and benefit more from them,” he says.

-- M.G. Abelgas