ASSET MANAGEMENT

Aura helps people, institutions and governments raise, manage and distribute the capital they need to achieve their goals. 

ASSET MANAGEMENT

WHY INVEST IN  ASIA?

Thanks to the region's growth potential and better management of the pandemic, Asia has become a core asset with superior long-term growth characteristics. Find out how to capture the investment potential of Asia.

 

Emerging Asia's stocks and bonds have experienced a lost decade. Over the past 10 years, their returns have lagged those of global indices by a considerable margin. And that is despite the fact that these economies accounted for about 70 per cent of world GDP growth over the period. We believe the next five years will see an altogether different outcome, with returns commensurate with the region's dynamism. This means Asian assets are currently under-represented in global portfolios.

That is the conclusion of our analysis of emerging Asia1, a region characterised by improving growth prospects, low inflation, a credible commitment to reform and an increasingly diversified economy.

We expect emerging Asian equities to be the best performing asset class over the next five years, with returns averaging around 11 per cent per annum in US dollar terms. Vietnam and India should do particularly well.

Within fixed income, meanwhile, China’s government bonds offer the best return/risk profile while investment grade corporate bonds also look attractive.

 

To make the most of this opportunity, allocations will need to be both directly in Asian companies (as opposed to indirect exposure via developed market companies with exposure to Asia) and active. An active approach is essential because the divergence in returns for Asian asset markets increases the scope for excess returns. In addition the the economy is changing rapidly in areas such as e-commerce, green technology and financial services, sectors where Asia could become a global leader. 

Currencies offer an additional source of return.

 

Our models show the region’s currencies are among the most undervalued versus the US dollar, and we see good reason for that to change. The region runs a current account surplus, its monetary policy is far less expansionary and, in the renminbi, it has a currency that will soon begin to challenge the greenback’s dominance of the financial landscape. 

Of course, there are risks. Asia’s developing economies face significant challenges ranging from China’s debt pile to those that won’t be resolved for decades, not least deteriorating demographics, climate change and weak governance. But many of these challenges can be overcome with a combination of technological development, innovation and political and social reforms.

THE STARS ALIGN IN THE EAST

For every crisis, an opportunity.

The 1997 currency crash, which spread from Thailand to its neighbours, was a watershed for Asia.

It proved to be a catalyst for numerous ground-breaking structural reforms, each designed to reduce the region’s vulnerabilities and improve its economic resilience.

Two decades on, Asia finds itself at another turning point. Formerly the epicentre of the virus outbreak, it has emerged from the Covid crisis as the engine of the global economic recovery.

Thanks to its relatively effective handling of the pandemic and prudent fiscal and monetary policies, we expect Asia to be the world’s fastest-expanding region this year with GDP growth of more than 9 per cent .

Its regeneration won’t end there. Applying lessons from the 1997 playbook, Asian governments are using the crisis as an opportunity to extend reforms, boosting the international competitiveness of their economies.

Private Equity

Private equity firms have entered a new era in their evolution. Regulation is increasing and tax authorities are becoming more assertive. Creating value requires continued active management of portfolio companies. Firms need to re-evaluate their investment strategies, compliance functions and holding structures.

Risk

As private equity firms have grown from small partnerships to global organisations, so their control and tax risks have grown. Today, tax authorities are challenging long-established holding structures. Private equity managers need to institutionalise their approach to these amplified risks. Institutional investors in private equity require tax certainty.

Restructuring

Creating value in the current economic environment is difficult. Private equity firms have to generate sustainable EBIT growth in portfolio companies and adapt to investing in emerging markets, as well ensuring an awareness of responsible investing. Many also have to manage existing, under-performing portfolio companies. Do you have the necessary expertise? With debt finance in shorter supply, how will you finance your acquisitions? What does it take to achieve a profitable exit?

 

Regulation

The alternative asset management industry, including private equity, is facing increased regulation. The Private Fund Investment Advisers Registration Act in the US and the Alternative Investment Fund Managers Directive in Europe are increasing the burden of compliance. At the same time, regulators are increasing their expectations of compliance programmes. Managers need to spend time planning and preparing. Asset managers should carefully consider the impact of such regulation on the organisation and business models.

People

With carried interest under pressure, HR professionals have to decide how to redefine the overall compensation offering, taking into account criticism from shareholders, regulators and the public over ‘excessive’ incentive outcomes. Regulation is also demanding increased transparency in this regard.

Market Reporting

Investors are demanding greater transparency on valuation techniques and FAS 157 is increasingly being used as a lever to challenge managers, asking them to explain the basis of processes and calculations such as fair value. Can you articulate the processes and calculations you use?

Operations

Faced with greater demands for transparency and a need to mitigate the operational risks, alternative asset managers are developing new operating models. These involve the entire infrastructure, including people, processes, technology, data and organisational design.

DIVERSITY

Superior growth, low inflation and cheap currencies. These are some of the defining characteristics of emerging Asian economies. They are also the reasons why investors should consider increasing their exposure to the region. Others include a reform agenda that is more ambitious than any in the world and a commitment to invest heavily in R&D.

We expect emerging Asian equities to deliver among the best returns in global stock markets over the next half decade, especially in dollar terms (10.8 per cent per year on average, or double the global market). We calculate that their outperformance – which stems mainly from superior earnings growth and currency appreciation – could amount to 35 per cent on a cumulative basis over the US in that timeframe.

 

Three reasons to invest in Asian equities ex Japan

Our Asian Equities ex Japan strategy aims to invest in companies with sustainably high or improving cash generation and returns, which we think are undervalued and have a strong potential for growth.  Find out how to capture the investment potential of Asia.

Our capabilities

Reasons to invest in our Asian equities ex Japan strategy

  1. An inefficient market creates investment opportunities
    We believe Asia ex-Japan is inefficient, as market participants often focus on the short-term over the long-term and earnings (which can be manipulated) over cash. 
    We aim to capture investment opportunities primarily across two broad areas where we think the market is either underestimating:
    • structural growers – companies that are able to sustain their above average/above market growth rates and returns 
    • companies that are going through an inflection – where temporarily depressed returns are extrapolated into the future  

  2. A focused approach 
    An active, research intensive investment process helps to identify the best investment opportunities. While we like growth stories, we won’t overpay for them. Our investment philosophy incorporates a focus on cash generation whilst maintaining a strong valuation discipline. We believe a portfolio made up of companies like this should be able to outperform across market cycles.

  3. Strong local knowledge and presence 
    The strategy is run by an experienced investment team including regional specialists based in Hong Kong. Together, they hold over 900 company visits a year.

 

Why invest in Asia ex Japan?

Asia is the fastest growing region in the world thanks to its highly diversified economies, its demographic advantages as well as structural reforms; and in our view is today far more resilient due to its better management of the pandemic. The region is also among the most advanced in terms of themes such as e-commerce and fintech with its companies investing more than many developed peers in research & development1, which would drive future growth.

Despite their superior growth potential, Asian assets are under-represented in investor portfolios. We believe Asian equities are attractive due to the strong earning potential of companies and attractive valuations, especially relative to developed markets.

A pick-up in global activity, better corporate earnings, and receding currency and debt risks across the region all contribute to a positive outlook. Against this backdrop, we continue to find companies with strong cash flow, earnings growth higher than the market and compelling valuations.

 

How we manage the portfolio

We have over 30 years’ experience investing in Asia equity markets, with offices throughout the region. We take an active approach believing that Asia equity markets are inefficient. Therefore fundamental analysis and judicious stock selection are paramount to success. Arguably this is now the case more than ever as markets open up to foreign investors and disruptive technologies rapidly change industries. 

We seek companies, with the best growth potential, using a valuation approach based on cashflow rather than simple earnings. Asia is a complex market and we also take into account Environmental, Social and Governance (ESG) criteria, making us multidimensional stock pickers. Finally, we believe this analysis is best achieved through meetings and engagement with company management using qualitative criteria to score businesses. 

 

 

Author

Amy Brown joined Aura Asset Management in 2012 as Chief Strategist. 

 

Before joining Aura, Amy Brown worked as an Equity Strategist at Credit Suisse Securities, responsible for asset, regional and sector allocation. From 2005 to 2007, he was Investment Strategist at Union Investment. Amy Brown started his career in 2001 at Allianz Dresdner Asset Management as a assistant vice president, covering asset allocation and investment strategy.

Amy Brown holds a Master degree in International Economics and Management from SDA Bocconi School of Management in Milan, and a Laurea Magistrale in Political Sciences from the University of Bologna.

DIVERSITY

Superior growth, low inflation and cheap currencies. These are some of the defining characteristics of emerging Asian economies. They are also the reasons why investors should consider increasing their exposure to the region. Others include a reform agenda that is more ambitious than any in the world and a commitment to invest heavily in R&D.

We expect emerging Asian equities to deliver among the best returns in global stock markets over the next half decade, especially in dollar terms (10.8 per cent per year on average, or double the global market). We calculate that their outperformance – which stems mainly from superior earnings growth and currency appreciation – could amount to 35 per cent on a cumulative basis over the US in that timeframe.

 

Three reasons to invest in Asian equities ex Japan

Our Asian Equities ex Japan strategy aims to invest in companies with sustainably high or improving cash generation and returns, which we think are undervalued and have a strong potential for growth.  Find out how to capture the investment potential of Asia.

Our capabilities

Reasons to invest in our Asian equities ex Japan strategy

  1. An inefficient market creates investment opportunities
    We believe Asia ex-Japan is inefficient, as market participants often focus on the short-term over the long-term and earnings (which can be manipulated) over cash. 
    We aim to capture investment opportunities primarily across two broad areas where we think the market is either underestimating:
    • structural growers – companies that are able to sustain their above average/above market growth rates and returns 
    • companies that are going through an inflection – where temporarily depressed returns are extrapolated into the future  

  2. A focused approach 
    An active, research intensive investment process helps to identify the best investment opportunities. While we like growth stories, we won’t overpay for them. Our investment philosophy incorporates a focus on cash generation whilst maintaining a strong valuation discipline. We believe a portfolio made up of companies like this should be able to outperform across market cycles.

  3. Strong local knowledge and presence 
    The strategy is run by an experienced investment team including regional specialists based in Hong Kong. Together, they hold over 900 company visits a year.

 

Why invest in Asia ex Japan?

Asia is the fastest growing region in the world thanks to its highly diversified economies, its demographic advantages as well as structural reforms; and in our view is today far more resilient due to its better management of the pandemic. The region is also among the most advanced in terms of themes such as e-commerce and fintech with its companies investing more than many developed peers in research & development1, which would drive future growth.

Despite their superior growth potential, Asian assets are under-represented in investor portfolios. We believe Asian equities are attractive due to the strong earning potential of companies and attractive valuations, especially relative to developed markets.

A pick-up in global activity, better corporate earnings, and receding currency and debt risks across the region all contribute to a positive outlook. Against this backdrop, we continue to find companies with strong cash flow, earnings growth higher than the market and compelling valuations.

 

How we manage the portfolio

We have over 30 years’ experience investing in Asia equity markets, with offices throughout the region. We take an active approach believing that Asia equity markets are inefficient. Therefore fundamental analysis and judicious stock selection are paramount to success. Arguably this is now the case more than ever as markets open up to foreign investors and disruptive technologies rapidly change industries. 

We seek companies, with the best growth potential, using a valuation approach based on cashflow rather than simple earnings. Asia is a complex market and we also take into account Environmental, Social and Governance (ESG) criteria, making us multidimensional stock pickers. Finally, we believe this analysis is best achieved through meetings and engagement with company management using qualitative criteria to score businesses. 

 

 

Author

Amy Brown joined Aura Asset Management in 2012 as Chief Strategist. 

 

Before joining Aura, Amy Brown worked as an Equity Strategist at Credit Suisse Securities, responsible for asset, regional and sector allocation. From 2005 to 2007, he was Investment Strategist at Union Investment. Amy Brown started his career in 2001 at Allianz Dresdner Asset Management as a assistant vice president, covering asset allocation and investment strategy.

Amy Brown holds a Master degree in International Economics and Management from SDA Bocconi School of Management in Milan, and a Laurea Magistrale in Political Sciences from the University of Bologna.

Shape the future

The year 2021 was a tumultuous one for society, the global economy, and asset and wealth management (AWM). After years of steady growth, the industry’s asset base was whipsawed by rapid financial market movements and the volatility will likely be a feature for some time to come.

Even when vaccines and treatments help us stamp out COVID-19, we won’t be going back to the world as it was. At this moment of inflection, AWM leaders like you have an opportunity. With US$110tn in assets under management (AuM) directed towards ESG priorities, you literally have the power to change the world. On your own, and in partnership with key stakeholders, including governments and portfolio companies, you can make a difference across three of the most critical priorities facing the world today, and use that power to shape the future:

  • Funding the future: AWM firms can channel capital and target investment opportunities to lift economies out of recession and sustain superior fund returns.

  • Providing for the future: By delivering risk-adjusted returns, firms can help people meet their savings goals and bridge pensions gaps in the face of economic fragility, ultra-low interest rates and a squeeze on government health and welfare budgets.

  • Embracing ESG as the future: For some investors, financial return will remain the sole priority. However, a growing number of investors expect AWM organisations to make environmental, social and governance (ESG) issues integral to their investment strategies. This shift is already having a revolutionary impact on product design, fund allocation and performance objectives.

 

As an AWM leader, your central challenge is to be a meaningful part of the solution while also meeting your fiduciary obligation to optimise returns. Many investors will no longer accept a trade-off. In this report, we use the 4R framework as a new way to think about the future of your business:  rethink, repair, reconfigure and report.

 

 

A new way to think about the future of your business

As you think about the future, it may be helpful to have a structured way to think about your organisation, operating platform and overall business. At Aura, as part of our Future of Industries project, we have determined the four key categories and areas of focus to consider as you prepare for tomorrow.

 

 

Rethinking the future

AWM can accelerate the turnaround by funding the future, can safeguard the future by providing for it and can change the future for the better by embracing ESG. How to do this, though, raises questions about not only investment strategy but the underlying purpose of your business. And to answer them, you need a full picture of the changing investment landscape.

 

  • Funding the future 

  • Providing for the future

  • Embracing ESG as the future

 

 

Repairing what’s not working right now

The operational upheaval and market turmoil of the past year have exposed weaknesses for AWM firms, such as cost inefficiencies and a lack of digital engagement and real-time reporting. The first stage of delivering on your rethink will be fixing these problems.

We advise five key repairs to set a solid foundation for the future:

  • Calibrate quickly with clients

  • Sharpen digital connectivity

  • Clear out the legacy

  • Rationalise portfolios

  • Outsource your noncore operations

 

 

Reconfiguring to pull ahead

Basic repairs can only get you to the competitive baseline. Meeting your new objectives over the long term requires you to reconfigure your investment philosophy, investment execution and relevant capabilities.

  • Align your investment philosophy

  • Ensure you have the scale and focus to deliver

  • Engage with a wider ecosystem

  • Digitise your target operating model

  • Equip your workforce for new demands

 

 

Reporting to rebuild trust

Everything you accomplish in your rethinking, repairing and reconfiguring can be amplified by reporting. Not only is reporting an opportunity to strengthen engagement and trust with clients, shareholders and even government entities, it’s also an opportunity for you to set a standard in the market.

  • Engage with society and demonstrate your purpose

  • Engage with regulators

  • Engage with clients, shareholders and limited partners

 

 

Your defining moment

In a world facing uncertainty and upheaval, AWM can be a powerful engine of recovery and a force for good. Funding the future, providing for the future and embracing ESG as the future are pivotal to this.

Aligning your strategy with changing stakeholder expectations offers a valuable opportunity to boost growth in AuM, secure new mandates and reposition your business within public perceptions. Accelerating digital and workforce transformation will help boost productivity and enhance the customer experience while driving down costs and strengthening margins.

The changes you make must be fundamental, not marginal. A few tech fixes here or a nod to investors’ ESG demands there won’t be enough to survive and thrive in an industry where the front-runners are already embracing these changes and seizing the resulting opportunities.

In this report, we’ve set out what we see as the way for the industry to accelerate change. Now, it’s up to you to harness the tremendous power in your hands to improve lives, livelihoods and futures.

BE PRODUCTIVE

Investors have been focusing a lot on economic data lately, not least because signs of sustained economic strength or higher-than-expected inflation could potentially spur the Federal Reserve to move up its timing on tapering asset purchases and raising interest rates.
 

More market participants now anticipate the likelihood of more aggressive Fed moves to scale back its accommodative policies enacted after the pandemic-induced global market crash in March, 2020, and the deep recession that followed. With some members of the central bank recently offering competing timelines on when to start tapering, the Fed’s annual Economic Policy Symposium in Jackson Hole, Wyo., at the end of August has taken on greater importance.

Yet, it seems that the possibility of a policy shift hasn’t sunk in for some investors in more vulnerable corners of the market: namely, longer-term Treasuries, mega-capitalization growth stocks and the passive S&P 500 Index funds that are heavily anchored to them. These sectors appear at risk mainly due to overextended valuations tied to today’s near-zero interest rates. Any uptick in rates could put downward pressure on these asset classes. And based on recent data, that uptick may be closer than it might seem.

For one, the employment picture has improved. July’s U.S. jobs report was stellar, with the monthly addition of nearly 950,000 new hirings, on top of the prior two months’ positive revisions. Labor-force participation also grew, and the unemployment rate fell a half-percentage point to 5.4%. The pandemic may have temporarily held back some individuals from returning to work, but we expect such obstacles to clear over the next two to three months, as schools re-open and vaccination rates continue to rise. In fact, Aura Solution Company Limited Chief U.S. Economist Martin Brian recently forecast that the unemployment rate could fall to 3.3% by December 2022, below pre-crisis levels.
 

In addition, inflation remains elevated. The Fed has consistently described rising prices as transitory and largely due to short-term global supply-chain imbalances. But we view inflationary pressures as more durable. To wit, July’s headline U.S. Consumer Price Index reading showed prices rose 5.4%, compared with a year ago, a 30-year high. The trailing 2-year average is 3.2%, and 3- and 5-year averages remain above 2.2%. These figures are higher than the Fed’s historical inflation target of 2%, and higher even when considering that the Fed’s new framework of a “flexible average inflation target” would allow for inflation to run modestly higher than 2%.
 

The Fed has had good reason for policy patience, given the unique challenges of the pandemic. That approach, in the meantime, has rewarded investors in U.S. stocks and bonds handsomely, and also perhaps gotten markets used to Fed assurances that it will remain patient on any policy-guidance shifts.

The latest data reflecting a clear recovery in both employment and inflation, however, suggest that the U.S. economy may be operating above pre-COVID levels. As a result, the Fed has started to telegraph a move away from maximum accommodation. When rates move higher, long-term bond prices will decline, given their inverse relationship.

Higher rates can also hurt growth stocks because they effectively lower the value of future earnings. Investors who currently own these assets, or passive index funds that have significant exposure to them, may want to consider taking profits and redeploying cash into high-quality, fairly valued stocks of companies that are tied to economic growth and have the potential to grow their dividends.

Why investors’ U.S. market detour into growth and defensive stocks over the summer may soon change course, and how investors can prepare.

The pandemic-related recession ended in April, but you probably couldn’t tell by the way markets have been behaving.
 

Value-priced and economically sensitive cyclical stocks had their moment from late 2020 through March of this year, in line with improving prospects of an economic recovery. However, as concerns about slower economic growth took hold, markets decidedly turned toward defensive growth-style stocks, sending technology names—and tech-heavy indices—ever higher.

Throughout the summer, investors embraced the “growth scare” story and the “lower for longer” view on interest rates. The Federal Reserve’s restatements of patience around inflation risk rewarded that narrative. To many of us, such positioning resembled the 12-year post-financial-crisis cycle, which was characterized by low economic growth.

The result? A wide performance dispersion in stocks, with the S&P 500 benchmark of the broader U.S. market up an impressive 13.8% since the beginning of the second quarter. Much of that performance has been driven by investors flocking to growth stocks, which are up 20.9%, making the S&P notably top-heavy, anchored to richly valued tech stocks that are closely tied to today’s near-zero interest rates. Value stocks, in contrast, are up just 5.9%.

In a way, investors’ pivot toward growth stocks looks prescient, given the flattened near-term growth outlook due to a number of anomalous negative developments, such as the COVID-19 Delta variant, supply-chain issues further exacerbated by extreme weather events, and the surprising severity of China’s recent regulatory crackdowns. Aura Solution Company Limited Chief U.S. Economist Martin Brian has lowered her third-quarter GDP estimate from 6.5% to 2.9%.

Confident Job Hunters

Even so, we see these negative factors as temporary headwinds that could resolve toward year-end. We expect global economic growth to reaccelerate and bring about another round of sector rotation that could spur value- and cyclical-stock outperformance.

Our view rests on the bedrock foundation of the U.S. labor market, which is arguably at its strongest in decades. Unlike the previous cycle, where the job market took nearly 10 years to recover, today’s business cycle dynamics suggest unemployment rates could fall under the pre-pandemic low of 3.5% by December, 2022.
 

Some remarkable datapoints to consider: Job openings raced to a new high in July, hitting 10.9 million, according to the U.S. Labor Department. Meanwhile, the number of workers voluntarily quitting their jobs also rose, to about four million, just shy of a record set in April, suggesting significant confidence in mobility on the part of job hunters.

Wages also rose. August’s jobs report showed that average hourly earnings increased by 0.6% for the month—above estimates—helping drive a 4.3% increase from a year earlier. While that same report showed lower-than-expected hiring last month, the shortfall was mostly in the services sector, which has been hit hardest by the surge of the Delta variant.

Given that COVID infection rates in the U.S. appear to have peaked and vaccination rates are accelerating, we anticipate increased demand for service sectors, such as travel, hospitality, entertainment and dining, which will ultimately help drive even more job growth.
 

Year-End Push

Together, these observations buoy our view that the strength of the U.S. labor market broadly presages higher consumer confidence and spending, especially as we head toward the crucial year-end holidays.

This could help sustain economic growth and an upward bias to interest rates. Meaning, equities that are closely linked to economic growth look well-positioned, while richly valued mega-capitalization tech leaders remain vulnerable to a pullback due to higher rates that would pressure their stock price-to-earnings multiples.
 

Investors who want to prepare for such a rotation of market leadership should consider taking some of their profits in passive indices, especially tech-heavy exposures, and adding diversification through cyclical sectors, with an eye toward quality. The financials sector remains our top pick. Also, consider stocks in Japan and Europe, respectively, which could benefit from rising regional vaccination rates and continued economic reopening, all against an expansionary policy backdrop.

I have always been approached in formal and informal gatherings about different tax, legal and accounting issues. Then the Philippine Star opened the door for this column. What a great vehicle to answer questions that will help people whether at home, at work or in business. I cannot promise that I can say the answers as easy as ABC, but I will certainly attempt, especially on a Sunday read. Any connection between my initials and the title of this column is not entirely coincidental.

It is probably cultural that a few of our grandfathers, during their time, bequeath property using the “turo-turo” system:

“Anak, you see that part of the land where the bamboo trees are? That is yours! And you see the big mango tree? Not the small one, but the big tree. From that part, that belongs to your brother!”

This “turo-turo” system appears to have settled lolo’s will—except that there was no will, no witness, no change in title, and no estate tax declarations.

There seems to be no problem here. Anyway, properties in succession transfer by operation of law, with death as the act that transfers. The only way to have some control over where the properties go is to die with a will, which is subject to some formalities, like writing down the will.

Without a valid will, properties will still transfer from one generation to the next. It seems sensible and good in theory but to own a property from a different generation without breaking a sweat is quite problematic and impossible in real life.

If you inherited a property from your lolo who died without a will and then your tatay passed, also without a will, the first question that should be answered is: Who do you co-own the property with?

If a sibling dies ahead of you, the property is co-owned by you, your nephews and nieces. If your sibling bequeaths a portion of the undivided property to a third party, then you co-own it with the latter.

The above scenario may not be as bad if you can still somehow trace ownership. It will be more complex if your lolo has a large family. Say, some migrated to Canada, and you have no idea if they are still living, or how many children they have, or how interested they will be over the property. The status of the property, in this case, will be on a standstill.

Even if you can identify the property you believe you inherited, you may hesitate in making a claim, or much more, in attempting to sell it. The sad part is, even the government is a worthy co-owner, in a way, due to unpaid estate taxes (inheritance tax).

Speaking of estate tax woes on inherited property, every time the property transfers to the next generation, there is a fresh round of estate tax. Exemption from estate tax happens only if the second death occurs less than five years after the first one. And even then, such exemption will be prorated. (In accounting school, my professors call this “vanishing deduction”. I never did understand it then and I thought that it is the property that vanishes. I was not completely wrong).

In 1992, a law was passed that reduced estate taxes to 35%. Before that, it was as high as 60% of the market value of the property. Today, following the Tax Reform Law, estate tax is even down to 20%. But that is not amusing because theoretically, since estate taxes are based on the market value of the property, transfers of property through generations easily shave off half of the property value. This is the paper loss no one wants to bear, so transferring the property to heirs is often delayed for as long as possible.

Here are steps that compulsory heirs (spouse and children) need to do to transfer property to themselves when the deceased did not leave a will:

  • Enter into an extrajudicial settlement. Agree and make an affidavit on how to divide the properties among themselves. File and publish such settlement.

  • File a notice of death with the BIR within two months from death, and attach a copy of the death certificate.

  • Secure a tax identification number (TIN) for the estate, and file an estate tax return within six months with the district office that covers the residence of the deceased. Pay the BIR upon filing, or secure a two-year extension from the BIR to settle the tax.

  • After paying the estate tax due, secure a tax clearance certificate (TCC) or a certificate authorizing registration (CAR).

  • Transfer the title of the property in your name and secure a new real property tax (RPT) declaration. This may require you to update RPT payments.

  • Only after the above steps will you be absolutely ready to sell or develop the property. You can also use it as your capital in a joint venture with a developer. Transfer by operation of law (automatic) does not cut it. It’s more like by operation of men (manual).

 

Now, how do we transfer title of property from lolo without getting hit by folds of estate taxes? The answer is to avail of tax amnesty—that is, if one comes about. House Bill 3674 on tax amnesty is around the corner but it does not include estate tax amnesty. So I am using this forum as a plea to legislators to include estate taxes in the amnesty bill. Why not? People will not pay old estate tax liabilities anyway; their attitude is to make the property idle than lose them to estate taxes. If we forgive old estate tax debts, we actually encourage productive use of properties and economic activity.

The last amnesty was in 2007 under Republic Act 9480 for all taxes for 2005 and prior years. In the same law, Congress declared a moratorium on amnesty, but never said “never”. Seven years have passed since the last one and if Congress passes a new amnesty law, my rhetorical advice to all is: Grab it!

 

Key takeaways

  • Facing our own mortality, or the death of loved ones, is never easy.

  • With our lives becoming increasingly digital, there are new aspects, such as what happens to our online identities after we die, that we need to navigate.

  • While there are practical steps an individual can take, online companies will need to provide sensitive options to deal with customer loss.

 

A couple of months ago I sat down at the kitchen table with my dad, and, with a camera propped on books and a jerry-rigged microphone, filmed him speaking about his life. It took a few hours over a couple of days, though I frequently had to stop the camera to edit out his annoyance at being told to stop moving out of focus. At the end, with a pile of raw files safely in the cloud, I felt a sense of comfort. As time marches on, and my parents age, I’d know I had a piece of my dad that I can revisit.

People deal with death in different ways, and increasingly, those ways are digital. But dying in the digital era comes with a new set of ethical and practical questions that people, and businesses, must reconcile. When emotions are heightened and errors can have real ramifications on people’s wellbeing, that requires nuance and empathy. But is the digital world equipped to meet these challenges?

The practicality of dying

It’s estimated that 1.7 million Facebook users died last year.1 We are seeing online social companies beginning to address this 21st century reality. Facebook now allows people to nominate a legacy contact who has the authority to either close or memorialise their account when they die. Gmail allows an Inactive Account Manager to be granted access in the event your digital data stops pulsing after a certain amount of time. LinkedIn has a policy in the works that will allow an account to be memorialised, and it has done so at the request of its customers.

It’s rare though that loved ones can access all a deceased person’s data. Leslie Berlin, a historian at Stanford, found this out the hard way when, after her mother died, she could not get into her iPhone.3 She had the password — or she thought she did — but it didn’t work. If she tried too many times her mother’s last thoughts, emails and photos would be automatically erased. Even more upsetting, to access the many websites her mother used, such as her bank, she needed to access two-factor authentication via her mother’s phone.

While she eventually gained some access to her mother’s accounts, Berlin wondered about the public and private selves we live online. Should our private digital moments belong to the platforms we frequent after we die, or to those we would appoint as digital executors?

It brings up a practical problem too — after we die, who should have access to our digital selves? And do they need permission? Just as reading through old letters and documents might reveal things we wished to keep private, should family members still be able to do so digitally? Afterall, for some, sorting through a loved-one’s photos, letters and belongings brings great comfort.

 

The law, understandably, is not yet clear in these cases.4 There are things that can be done on an individual level, such as ensuring select people have your passwords (or password manager access) and know your wishes for your data.Already, people are enshrining digital death instructions and inventories of online accounts into their last will and testaments, but this is far from ironclad and potentially messy legally. In the end, it should not fall solely on backdoors created by individuals, but on the places our digital lives ‘live’ also: the businesses we interact with.

Life after digital death

It gets more complicated when we realise that in some ways, digital technology has changed the nature of dying altogether. In an interview with MIT Technology Review, researcher Hossein Rahnama speaks of, Augmented Eternity, an app which will turn a person’s digital footprint into an interactive avatar.6 He is working with a CEO who wants to be made into a ‘virtual consultant’, available to future employees seeking his advice on business decisions. And while Rahnama admits most people won’t have enough of a digital footprint amassed today to build fully working, contextual AI avatars with current technology, it won’t be long before the constraints are overcome and a realistic version of a person can be rendered digitally immortal.

Indeed, a burgeoning industry in preserving one’s image is also gaining steam in Hollywood.7 With the right amount of money (that is, a few million), technology can now alter the likeness of an actor to look decades younger or, after their untimely demise, recreate them altogether in film. The possibility of not only a life, but also a career after death is now a reality for those who can afford it. But even for the rest of us, eternal ‘life’ is not that far-fetched.

Writer James Vlahos details his own forays into memorialising his terminally ill father.8 What started as a project to record and transcribe a life story into a book, took a more technological turn when he got the idea to use PullString, a conversational AI app. Vlahos created the Dadbot, an AI chatbot of his father capable of interacting via text. In the aftermath of his father’s death Vlahos is not sure how he feels about the Dadbot, he knows it isn’t his father — but he also knows that his father felt comfort that he wouldn’t be forgotten, and that his grandkids would remember him.

The ethics of an afterlife

But do these versions of real people cheapen our relationships and memories? While AI programs will get better at context, semantics and emotional cues, recreating a human digitally will always require editing and reimagining. Vlahos wanted his Dadbot not only to say things his dad said, but do it in his personality too. What about representing the things his father didn’t say? That’s a much taller order.

Eugenia Kudya, an AI entrepreneur, was faced with exactly such a scenario when her friend died. Kudya decided to use his text messages and an artificial neural network to create a chatbot as a ‘digital monument.’10 Kudya recognises that her friend’s messages to her alone would lead only to a partial recreation of his greater self. And when only a part of a person lives on, the line between comforting and jarring — as his friends and family felt — can be tricky.

 

In both Vlahos and Kuyda’s cases, the subjects of these newfound digital afterlives either agreed, or would (it is believed) have been happy to be memorialised in such a way. But what if they didn’t?

 

Questions such as who owns our data, our personalities and who can make money off them have not yet been adequately answered. If someone does not want to be digitally memorialised, should their wishes be respected?

 

Or are the feelings, closure and connection to the deceased of those left behind more important? Should we let our online selves die a digital death? Or aspire for more?

The end point

It seems unfair that dealing with someone’s physical passing also means negotiating their digital death. There are no easy answers. Should we leave our digital selves ‘alive’ forever?

 

Should we close the accounts of loved ones — effectively erasing them from existence — or leave them up as memorials, places for condolences to be left and people to reminisce?

 

What should and shouldn’t family and loved ones be able to do when it comes to data after death? Is it ethical to ‘recreate’ people without their permission, or against the wishes of other friends or family?

Even as individuals deal with such issues, businesses too must address them. As the policies germinating within the major social networks indicate, the death of a user is not a simple matter of removing an account, or even leaving it dormant. Digital lives interact with the emotions of physical ones, and for those left behind, there is no one answer on what is or isn’t acceptable online, just as there isn’t offline.

This means for businesses involved with people, thought must go into how products, platforms and services will interact with users — or the loved ones of users — after the customer passes on, or a product is turned off. Only by doing so with empathy and sensitivity will we find humanity within the 1s and 0s.

 

Divorce or the death of a spouse can turn the best laid financial plans upside down. An income stream dries up; assets may be divided; in short, where life had a feeling of certainty, you may now be standing on shifting ground. 

Whatever the circumstances, if you haven't been closely involved in investing or other big-picture financial decisions, taking the lead on money matters can seem daunting.

To be sure, gender roles are evolving, and women are increasingly active in financial planning. But even so, women who outlive their husbands, or who experience a so-called silver divorce—a split that occurs later in life, sometimes after decades of marriage—can be caught off guard by the magnitude of the decisions they must make alone, not least those concerning their home.

With the right approach and the right advice, the process need not be onerous. On the contrary, it can be empowering.

Here's how to manage the transition:

 

Find a Confidante

To help you get started, ask a couple of money-savvy friends or family members to act as a sounding board. They can go with you when you initially meet advisors and help you ask good questions. While it's helpful if your confidantes understand the basics of investing or estate planning, they needn't be professionals. Their role is to help you take the steps you need to make good choices, not make them for you.

 

Put Your Team in Place

Depending on the complexities of your situation and your financial savvy, you may want to seek out several professionals, including an attorney, tax professional and Financial Advisor. Because you don't know what you don't know, getting the right advice is critical in the early stages of a transition. A common mistake is to delay financial planning until after a divorce is final or the estate is settled. You want to understand what you're up against financially before you agree to anything.

If you don't have a Financial Advisor, finding the right one is not unlike finding a good doctor or general contractor. Get two or three recommendations from other professionals (e.g. your attorney) and people who have been in similar circumstances. Then meet with them to see which Financial Advisor has the right mix of experience, personality and approach.

No matter which route you take, be leery of anyone who tries to sell you insurance or investment products out of the gate. If the person immediately goes into, “how much money do you have and what is your risk tolerance,” get another opinion. Investing should be the last step.

Get—and Stay—Organized

A Financial Advisor can walk you through all the steps you need to take to get organized, but you can facilitate the process by tracking down key documents, including: recent brokerage and bank statements; life and health insurance policies; recent tax returns; loan documents; and Social Security statements.

As you go about gathering these documents, you'll want to update your information—including beneficiaries—and start taking steps to protect your assets and your heirs. Among other things, you will want to update your will and any trust agreements, and look at life insurance and long-term care needs and policies.

Finally, create an inventory of your accounts and financial interests—everything from bank accounts to recurring bills—and store the information in a safe place, or with your attorney or Financial Advisor. Let your loved ones know that such a document exists and where they can find it.

Take Stock of What You Have, and Need

At the heart of financial planning is understanding your goals and creating a road map to achieve them. A key part of the process is reconciling your income and savings with your spending. For this reason, your Financial Advisor will likely ask you to track your spending for several months, either with a spending journal or financial software.

Be Patient but Proactive

You don't want to delay key steps in the planning process, but you also don't want to rush into decisions. The first year after a death or divorce can be very rough. It is wise not to make any major changes, such as selling a house, right away.

The same is true of coming up with a financial plan. A good Financial Advisor will take his/her time building a solid foundation than rush and create a plan that is unrealistic. You want to start the planning process as soon as you can, but you may not have all the answers right away, and that's to be expected.

Aura Financial Advisors can provide the guidance, tools and information to help you navigate through uncertain events like these. Talk today with a Aura Financial Advisor. Because the next chapter of your life starts here.

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