DISCLAIMER: The following discussion is for general informational purposes only and does not constitute legal advice. Laws can change, and individual circumstances may vary. Always consult a qualified lawyer in the Philippines for specific guidance relevant to your situation.

1. Introduction

Estate planning—whether through a will or a trust—is a critical step for individuals who wish to ensure that their properties and assets are passed on to their intended beneficiaries with minimal conflict or delay. In the Philippines, creating a will or setting up a trust involves complying with the provisions of the Philippine Civil Code and other relevant laws. This article aims to provide an overview of key considerations, procedures, and legal requirements when establishing a will or trust in the Philippines for real property and other assets.

2. Key Legal Foundations

Civil Code of the Philippines: Governs the creation, execution, and probate of wills, as well as the rules of succession (testate and intestate).
Rules of Court (Rule 75 to 91): Provides procedural guidelines for probate proceedings.
Trust Regulations: While there is no standalone “Trust Act” akin to those in other jurisdictions, the Civil Code contains provisions on trusts (Articles 1440 to 1457). Banking laws and special regulations from the Bangko Sentral ng Pilipinas (BSP) govern trust arrangements offered by banks and trust institutions.

3. Wills in the Philippines

3.1 Types of Wills

Notarial Will (Ordinary Will)
- Prepared in writing (usually in English or Filipino)
- Signed by the testator (person making the will) on every page
- Witnessed by at least three credible witnesses
- Acknowledged before a notary public
Holographic Will
- Entirely handwritten by the testator
- Dated and signed by the testator
- Requires no witnesses at the time of writing
- Subject to a different set of probate rules

3.2 Essential Requirements for a Valid Will

Regardless of whether it is a notarial or holographic will, the following must be observed:

Legal capacity: The testator must be at least 18 years old and of sound mind at the time of execution.
Intent and free will: The testator must voluntarily execute the will without being subjected to fraud, intimidation, or undue influence.
Proper formalities: The will must follow the legal form (either notarial or holographic) prescribed under Philippine law.

3.3 Forced Heirship and Legitimes

Philippine law recognizes forced heirship, meaning certain relatives (called “forced heirs”) are entitled to receive a minimum share (the legitime) of the estate, regardless of the testator’s wishes. Forced heirs typically include:

Legitimate children and descendants
Legitimate parents and ascendants (in the absence of children)
Surviving spouse

The specific portion of the estate reserved for forced heirs depends on the combination of heirs surviving. A testator cannot freely dispose of these legitimes by will; any attempt to disinherit a forced heir must comply with strict grounds and procedures outlined in the Civil Code.

3.4 Probate of Wills

Probate is the legal process by which a will is validated in court. Key steps include:

Filing the petition: An interested party (often an heir or executor) files a petition for probate before the Regional Trial Court in the place where the deceased resided.
Court proceedings: The court examines the formal validity of the will (e.g., compliance with witnessing and signing requirements). If the will is contested, the court may hear objections and conduct trials on the authenticity of the will or the capacity of the testator.
Probate decree: If the court finds the will valid, it issues a decree of probate, after which the estate can be settled and distributed according to the will’s provisions.

4. Trusts in the Philippines

In the Philippine context, a trust generally refers to a legal relationship where one party (the trustor) entrusts property to another party (the trustee) for the benefit of a third party (the beneficiary). While the trust concept is recognized, it is less extensively codified compared to other jurisdictions, and much of the guidance is derived from the Civil Code and case law.

4.1 Types of Trusts

Express Trust
- Created by a clear and intentional declaration, often formalized through a written agreement or instrument.
- May be established during the trustor’s lifetime (inter vivos) or upon their death (testamentary trust via a will).
Implied Trust
- Arises by operation of law, often in situations where property is transferred under circumstances suggesting that the recipient is not intended to own the property outright (e.g., resulting trusts, constructive trusts).

4.2 Creating an Express Trust

Trustor: The person establishing the trust must have the legal capacity to contract and dispose of property.
Trustee: The individual or entity (e.g., a bank with a trust license) entrusted with managing the property. The trustee has fiduciary duties to act in the best interest of the beneficiary.
Beneficiary: The person or entity that will benefit from the trust property.
Trust Agreement: Commonly a written deed of trust or a provision in a will that specifies:
- The property placed in trust
- The trustee’s powers and duties
- The beneficiary or beneficiaries
- Any conditions or restrictions
- The manner of distribution of income and/or principal

4.3 Testamentary Trust

A testamentary trust is created through a valid will. Key points:

Must comply with will formalities under Philippine law (i.e., notarial or holographic requirements).
The will should have clear instructions outlining the creation of the trust, appointment of the trustee, identification of beneficiaries, and any conditions or terms for distributing the trust assets.
The trustee’s appointment becomes effective after the testator’s death and after the will is probated.

4.4 Living (Inter Vivos) Trust

A living trust (also called an inter vivos trust) is established by the trustor during their lifetime. Some reasons people create living trusts are:

Avoiding lengthy probate processes for the trust assets
Privacy (since trust documents generally do not require court approval like a will does)
Continuity of asset management if the trustor becomes incapacitated

However, the forced heirship rules still apply, and one cannot use a living trust to circumvent the legitime due to forced heirs.

4.5 Trustee’s Responsibilities

The trustee must act in the best interests of the beneficiary, subject to any terms specified in the trust agreement. Duties include:

Fiduciary duty: Strict adherence to loyalty and care standards.
Proper administration: Maintaining separate records and accounts for trust property, managing assets prudently, and distributing benefits or income as directed in the trust instrument.
Reporting: Keeping beneficiaries informed if required by the trust instrument or relevant laws.

5. Ownership Restrictions for Foreigners

The Philippine Constitution imposes restrictions on non-Filipinos owning land in the Philippines. Generally, only Filipino citizens and, in certain situations, former natural-born Filipinos (subject to conditions), can own real property. Foreigners may own condominium units (subject to the 40% foreign ownership cap in a condominium corporation) or hold long-term leases. If you are planning a trust or will involving a foreign national, it is crucial to consult a lawyer for specific guidance on how these restrictions might affect the estate plan.

6. Tax Implications

Estate Tax: When the property is transferred upon death, the estate is subject to estate tax, governed by the National Internal Revenue Code, as amended by the TRAIN Law. The current estate tax rate in the Philippines (as of recent laws) is 6% on the net estate.
Donor’s Tax: If property is transferred during the trustor’s lifetime (inter vivos transfer into a trust), donor’s tax may apply. The donor’s tax rate is also generally 6% of the net gift for amounts exceeding the allowable exemption.
Capital Gains Tax / Documentary Stamp Tax: Depending on how the trust or will is structured, the transfer of real property may incur capital gains tax and documentary stamp tax.

Tax regulations can change, so it is essential to consult a tax professional or lawyer for up-to-date information.

7. Practical Steps in Setting Up a Trust or Will

Consult a Lawyer: Always engage an attorney experienced in wills, trusts, and estate law in the Philippines.
List All Assets and Beneficiaries: Prepare an inventory of your properties and decide how you wish to distribute them among your heirs and/or beneficiaries.
Determine the Type of Instrument: Decide whether you need a notarial will, holographic will, or a living trust, or a combination of these (e.g., a notarial will with a testamentary trust provision).
Draft the Document: Work with your lawyer to ensure it meets legal requirements (formalities for a will or trust).
Execute the Document Properly
- For a notarial will: Sign on every page before three witnesses, then acknowledge before a notary public.
- For a holographic will: Handwrite, date, and sign it personally.
- For a living trust: Execute a trust agreement in writing (preferably notarized for evidentiary purposes).
Store Your Documents Safely: Keep original signed copies in a secure place. Inform a trusted individual (often your lawyer or immediate family) about its location.
Update as Needed: Life circumstances can change. Review and update your will or trust if you marry, divorce, have or adopt children, or acquire major new assets.

8. Common Pitfalls and Challenges

Not Meeting Formalities: Any omission in signing requirements, witnessing, or notarization can invalidate a will.
Failing to Account for Forced Heirs: Overlooking the legitime can lead to legal disputes and possible invalidation of certain provisions in your will or trust.
Insufficient Clarity: Ambiguous or contradictory clauses in the will or trust instrument can trigger lengthy litigation.
Failure to Update: Significant life changes—marriage, children, or property acquisition—may not be reflected in older estate planning documents.
Overlooking Tax Consequences: Not planning for estate and donor’s taxes can cause financial strain on the estate or beneficiaries.

9. Conclusion

Creating a will or trust for property in the Philippines is an essential process for anyone wishing to manage the transfer of assets efficiently and in accordance with personal wishes. Philippine succession law ensures that forced heirs receive their rightful share, so estate plans must be made in compliance with these rules. When properly drafted and executed, both wills and trusts offer peace of mind by reducing conflicts and streamlining the transfer of property.

Given the complexities of Filipino inheritance law—especially around forced heirship, tax considerations, and formalities—it is always advisable to seek professional legal and tax counsel. Proper guidance can help you tailor a trust or will that respects your wishes while remaining valid, enforceable, and financially sound under Philippine law.