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TRAIN Law and Life Insurance

How will does this new tax law affect estate planning for Filipinos?

Efren L. Cruz

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The TRAIN Law only supplements the power of life insurance when it comes to estate planning.

The Tax Reform for Acceleration and Inclusion or TRAIN Law, which came into effect on January 1, 2018 had a significant effect on estate planning.

Previously, the three common methods of wealth transfers, namely sale, donation and inheritance were taxed differently.  As a consequence, many complex strategies evolved to minimize taxes on wealth transfers.

Under the TRAIN Law, the taxation of wealth transfers was made a lot simpler. For one, the three modes of wealth transfers now have a uniform tax rate of 6%. Further under donations, the amount of yearly donations except for donor’s tax was increased from PhP100,000 to Php250,000.  There is no more distinction between relatives and strangers as the donor’s tax of 6% on donations in excess of PhP250,000 per year is uniformly applied.

But let’s focus on estate tax. Under the TRAIN Law, the allowed deduction for the family home from the gross estate for determining the net taxable estate has been increased from Php1 million to Php10 million.  In addition, the standard deduction of Php1 million was increased to Php5 million.

So, for a person who owns no other asset but a family home worth Php30 million under the regime of absolute community property, and who wants to know how much inheritance taxes his estate needs to settle when he goes, his computation shall be: (for simplicity, other potential estate assets and deductions were ignored)


Family home




Deduction for family home (up to Php10 million of the share of the decedent in the family home)




Standard deduction




Sub-total deductions (2 + 3)




Share of spouse in gross estate (50% of 1)




Net taxable estate (1 – 4 – 5)



Please note that the computations will change if the main asset of the estate was not the family home. For actual computations, you will need to consult your friendly financial planner.

And as if the reduction in the estate tax were not enough, under the TRAIN Law, the cash portion of the estate kept in banks can be withdrawn and used to pay for estate taxes.  However, such withdrawals will be subject to the 6% inheritance tax and will not anymore benefit from the pertinent deductions before the computation of the net taxable estate.

Under the TRAIN Law, there is no more need for filing a notice of death, which previously had penalties for late filing.  Moreover, the deadline for the payment of estate taxes has been extended to one year from the time of death of the decedent versus the previous deadline of six months.

Of course, with the potential of enjoying no estate taxes, the question of whether life insurance will still be needed arises. Previously, the proceeds from the claim against a life insurance policy were positioned as liquid funds for the settlement of estate taxes and funding of other expenses of the beneficiaries while the assets of the estate remain frozen prior to estate tax settlement.

But the fact of the matter remains that life insurance is a great device for income replacement while the policy owner is still on his way to creating the size of the estate that he intends to leave behind.  And even if estate taxes can be settled with the more liquid assets of the estate, life insurance can and will serve as a tax-exempt wealth multiplier for the beneficiaries.

Clearly, the TRAIN Law only supplements the power of life insurance when it comes to estate planning.

About the Author

EFREN L. CRUZ is a Registered Financial Planner of RFP Philippines, personal finance coach, seasoned investment manager, financial planning trainer & consultant, newspaper columnist and bestselling author of four books.

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