Welcome to the club share
If only my father had turned over his club memberships to us while he was alive, we would have saved so much money,” says a socialite, whose father’s membership is still under his name although he died 14 years ago. Convincing an elderly relative or someone dying to decide what to do with his club membership may be a dead-end conversation, but sometimes it has to be done.
Just S. Viray, an experienced broker of club memberships, says that she often starts the conversation by recommending that the client sell the club shares he is not using. “Even if I recommend for him to sell all his shares, if he is not open to accepting the fact that he will die soon, then he will not listen to me anymore,” she says. “My suggestion is for him to sell the club shares he is not using so he can save on the monthly dues.”
Based on interviews with other brokers, the consensus is that a person who is dying and still owns club shares has four options. The best way would be for him to transfer the ownership to a corporation. Most of the owners of club shares have companies that they run, so it is easy to transfer the shares to a family corporation by issuing a board resolution. Many clubs allow transfer of ownership between an individual and a family corporation. In this scenario, the corporate secretary would prepare a board resolution appointing an officer to be the authorized signatory.
For example, a share in the Alabang Golf and Country Club worth P1.1 million — if you can execute a deed of sale to transfer the share to a family corporation and have a board resolution to purchase, no money would be involved. It would be an internal agreement between the individual and the corporation. The cost to transfer would be the fees charged by a broker or corporate lawyer drawing up the documents.
A second option would be to sell the club share. This could also be a good decision because the cost would be only the documentation charges, broker’s fee and capital gains tax. Depending on when you bought your club share, you might not even have to pay capital gains tax if the shares have lost their value. If you do make a profit on your sale, the capital gains tax would apply. Using the Alabang share again as an example, a commission of five percent to the broker, plus documentation fees of about P10,000, would bring the total expenses to P65,000, exclusive of the capital gains tax. “Don’t even think of disguising the sale as a donation,” Viray says. “The BIR computation on tax payments for donations is very different from that of sales.”
The third option would be to transfer to heirs: member to daughter, member to son, member to spouse are some of the combinations that may occur with this form of transfer. The club would require you to pay a transfer fee, which is often discounted because it is transferred to a family member. The charge for the transfer to heirs is only a documentation fee of P10,000, exclusive of taxes based on the computation of the BIR.
The fourth option, and one which few would recommend, is for the member not to act on his share. If the person dies without transferring his share, the club share goes into his estate and the procedure to transfer ownership becomes very expensive. Sometimes this way is chosen because the member fears that when he gives up his club share, he will have no asset he can sell easily to raise cash to pay for his expenses. There are also families who would prefer not to further stress a dying relative. In the case of a person dying without a valid will, all his possessions are deemed to be “intestate” — a guide on the procedure needed before the heirs could benefit from the club share would involve settling his estate tax first.
The Estate Tax
If the person dies before he transfers his club shares, the procedure to follow is very involved since an estate is composed of the real and personal properties of the dead person, now known as a decedent. To settle this estate, the heirs have to either go to court to have a judicial settlement or have an extra-judicial settlement (EJS), which means “an agreement by the heirs reached outside of court.”
For our purposes, we will deal with the EJS needed to transfer the club shares of an individual.
For starters, the family would need to hire a lawyer to prepare the EJS. Depending on the lawyer, the fees would range from an hourly charge to a percentage of the value of the estate to be settled. The family would make an inventory of all the assets of the decedent. Know that these assets would also include a percentage of the properties that his spouse owns unless a pre-nuptial agreement is presented.
Then there is the list of heirs who will participate in signing the EJS. The identity of who the decedent’s surviving heirs are can often lead to legal battles, especially when legal spouse and illegitimate children are in conflict. It is advisable that the heirs include in the EJS that they give authority to an administrator so that the administrator can sign on their behalf. This will make the job a bit easier since only one person will be needed to sign future agreements and deeds of sale. Apart from getting all the heirs to agree to the provisions of how to divide the estate and who to appoint as their administrator, getting them to sign the EJS, notary fees and publication of this EJS for three consecutive weeks add to its transaction fees.
When the EJS is presented to the BIR to get the estate tax, the computation will be based on the total cost of the personal properties. By the time the heirs complete the documents needed to file this EJS, years can pass and penalties accumulate. Until the BIR accepts the EJS and agrees that all the supporting documents are in order, only then can the clearance from the BIR be released. This clearance is known as the Certificate Authorizing Registration (CAR). With the CAR, the heirs apply to the club, which will charge a transfer fee so that the share can be transferred to the administrator or the estate. Only after the club has approved the transfer can the heirs sell their membership club shares.
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E-mail: aurorawilson@gmail.com
