ESTATE TAX

CONCEPT OF TRANSFER TAXATION

Gratuitous Onerous
1. Donation inter vivos (during lifetime) 1. Value-added Tax
2. Donation mortis causa (death) 2. Other Percentage Taxes
3. Excise Tax*

Effectivity Type Tax Object of Taxation Nature

Donation Upon death of the donor Mortis causa Estate tax Privilege to transfer Excise tax**
During the lifetime of the Inter-vivos Donor’s tax gratuitously
donor and the donee
Note:

*Excise Tax is a tax on the production, sale or consumption of a commodity in a country.

**The excise tax imposed on privilege.

Definition of Estate Tax

• Estate Tax is a tax imposed on the privilege that a person is given in controlling to a certain extent, the
disposition of his property to take effect upon death.
• It is an excise tax imposed on the act of passing the ownership of property at the time of death and not on the
value of the property or right.
• Since estate tax accrues as of the time death, the right of the State to tax the privilege to transmit the estate
vests instantly upon death.

Accrual Vs. Due Date of Estate Tax

• Accrual: Right upon death of the decedent

• Due Date: Within one year from death
• The accrual of the tax is distinct from the obligation to pay the same.

Who is the Taxpayer in Estate Taxation?

• The estate as a juridical person

Who has the Personal Obligation to File and Pay the Estate Tax?

Order of priority:
1. The administrator or executor
2. Any of the heirs

Law to be applied
• The law/statute in force as of the date of death of the decedent.

Succession

1. Concept of Succession – a mode of acquisition by virtue of which the property, rights and obligations to the
extent of the value of the inheritance, of a person are transmitted through his death to another or others by
will or by operation of law.

Will – is an act whereby a person is permitted with the formalities prescribed by law, to control to a certain degree
the disposition of his estate, to take effect after his death. From the moment of death of the decedent, the rights to
the succession are transmitted, and the possession of the hereditary property is deemed transmitted to the heir.

Kinds of Will:
a. Notarial or Ordinary Will – one which is executed in accordance with the formalities prescribed by Art. 804 to
808 of the New Civil Code. It is the will that is created for the testator by a third party, usually his lawyer,
follows proper form, signed and dated in front of the required number of witnesses and acknowledged by the
presence of a notary public.
b. Holographic Will – is a written will which must be entirely written, dated and signed by the hand of the
testator himself, without the necessity of any witnesses.
c. Codicil – A supplement or addition to a will, made after the execution of a will and annexed to be taken as part
thereof, by which any disposition made in the original will is explained, added or altered.

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 2. Elements of Succession

a. Decedent – the person whose property is transmitted through succession, whether testamentary, intestate, or
mixed.
b. Heir – the person called to the succession either by the provision of a will or by operation of law.
c. Estate – refers to all property, rights and obligations of a person which are not extinguished upon his death.

3. Kinds of Succession

a. Testamentary – results from the designation of an heir, made in a will executed in the form prescribed by the law.

The descendent may dispose his properties in his last will and testament in the manner he wants, however, he
must reserve some for certain persons who are called by the law as compulsory heirs.

Compulsory Heirs - those who succeed by force of law to some portion of the inheritance, in an amount
predetermined by law, known as the legitime. They succeed whether the testator likes it or not. They cannot be
deprived by the testator of their legitime except by disinheritance property affected.

Executor (executrix) is the person nominated by the testator to carry out the directions and requests in the
decedent’s will and to dispose his property according to the decedent’s testamentary provisions after his death.

b. Legal Intestate Succession – transmission of properties where there is no will, or if there is a will, such is void or
lost its validity, or nobody succeeds the will.

In the intestate succession, the entire estate of the decedent is distributed to the heirs. The compulsory heirs in
testamentary succession are also the heirs in intestate succession. However, intestate heirs include brothers and
sisters, collateral relatives within the fifth degree of consanguinity and the state.

Administrator (administratrix) is the person appointed by the court, in accordance with the governing statute,
to administer and settle intestate estate and such testate estate as no competent executor designated by the
testator.

c. Mixed Succession – a transmission of properties, which is effected partly by will and partly by operation of law

4. Kinds of Successors
a. Legatee – an heir of personal property given by virtue of a will
b. Devisee – an heir of real property given by virtue of a will

Under testamentary succession, properties left by the decedent are classified into:
a. Legitime – portion of the testator’s property which could not be disposed freely because the law has
reserved it for the compulsory heirs.
b. Free portion – part of the whole estate which the testator could dispose of freely through a written will
irrespective of his relationship to the recipient.

Decedent’s Estate
1. Legitime is the portion of the testator’s property which could not be disposed of freely because the law has
reserved it for the compulsory heirs. (Art. 886 CCP)
2. Free portion is that part of the whole estate which the testator could dispose of freely through written will
irrespective of his relationship to the recipient.

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Compulsory Heirs

Compulsory heirs are:

1. Legitimate children and descendants,
which include legally adopted Primary Secondary
children
2. In the absence of legitimate
descendants, the legitimate parents
or ascendants*
3. Surviving spouse
4. Illegitimate child, both natural and
spurious

*Note: Legitimate parents or ascendants can

only inherit in the absence of legitimate
children or descendants. Brothers and sisters of
the decedent are not considered as
compulsory heirs; thus they cannot inherit
from the legitime of the decedent.
• Brothers and sisters of the decedent
are not compulsory heirs.
• But, it is not against the law if they
will be given inheritance as long as
the legitime of the compulsory heirs
is not impaired.

In the absence of compulsory heirs, the successors would be:

1. Relatives up to 5th degree of consanguinity
2. If there were no relatives, the government shall inherit the whole estate.
3. If there is a will, the decedent may name other persons to inherit the free portion of the net distributable
estate

Note:

What is the difference between ascendant and descendant? The ascendants are our ancestors, while
the descendants are our successors.

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 Collateral Relatives
Consanguinity The relation of persons descending from the same stock or common ancestors.
These person are known as blood relatives and are said to be related by blood
or consanguinity.
Lineal Which may be descending or ascending, is that which subsists between persons
consanguinity or whom one is descended in a direct line from the other.
Collateral Which subsists between persons who have the same ancestors, but who not
consanguinity descend (or ascend) one from the other.
Proximity of Determined by the number of generations. Each generation forms a degree.
relationship

Determining Blood Relationship

AB
CE DF

GK H I JL

M N

Note:
1. In the illustration, C and D are siblings. Their common parents are A and B.
2. G is the daughter of C and E; J is the son of D and F.
3. M is the son of G and K; N is the daughter of J and L.
4. A, C, G and M, in that order, are relatives in the descending direct line. From A to C is one degree; from C to G is
another degree and G to M is another degree.
5. N, J, D and B, in that order, are relatives in the ascending direct line.
6. C, G and M, are relatives of D, J and N in the collateral line.
7. G is the niece of D, D is the uncle of G; J is the nephew of C, C is the aunt of J.
8. H and I are first cousins; they are four degrees apart, H to C, C to AB, AB to D and D to I.
9. M and N are second cousins; they are six degrees apart.
10. Because of G’s marriage to K, K becomes H’s brother-in-law, H being G’s brother. They become relatives by
affinity. Affinity is the connection existing consequence of a marriage between each of the married spouse and
the kindred of the other.

Kinds of Heirs

1. Compulsory Heirs

They inherit with or without a will.

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Testamentary

A. Primary compulsory heirs

• Legitimate children and legitimate descendants

• Illegitimate children
(Note: An illegimate child shares only ½ of the share of a legitimate child since they are born outside
marriage)

• Widow or widower

B. Secondary compulsory heirs

• In default of legitimate children and descendants, legitimate parents and ascendant
• The secondary compulsory heirs are those who succeed only in the absence of the primary heirs; the
legitimate parents and ascendants are secondary compulsory heirs

C. Free Portion

Note: In the absence of compulsory heirs, the successors would be:

1. Relatives up to 5th degree of consanguinity
2. If there were no relatives, the government shall inherit the whole estate.
3. If there is a will, the decedent may name other persons to inherit the free portion of the net distributable
estate

2. Voluntary Heirs

They inherit only if they are in the will

3. Intestate Heirs

• The compulsory heirs in testamentary succession are also heirs in intestate succession. They are entitled to
their legitime. However, as to the free portion of the estate, it shall be distributed to the following intestate
heirs as follows (order of priority):

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 1. Legitimate children
2. Legitimate parents
3. Illegitimate children
4. Spouse
5. Brothers or sisters
6. Relatives by consanguinity up to 5th civil degree
7. State

• No Free Portion

Order of Succession

Guiding Rules
• The nearer excludes the farther. (Art. 962)
• Surviving spouse and illegitimate children are concurrent heirs with the legitimate descendants.
• The right of representation takes place in direct descending line, but never in the ascending line.
• A renouncer may represent, but may not be represented.
• An adopted child cannot represent, neither may he be represented.
• In the collateral line, the right of representation takes place only in favor of the children of brothers or sisters,
whether they be full or half-blood.
• Full-blood brothers and sisters share twice or double than that of half-blood brothers and sisters.
• Should there be more than one ascendant of equal degree belonging to the same line, they will divide the
inheritance per capita.
• Should they be of different lines, but of equal degree, one half shall go to the paternal while the other half to
the maternal ascendants.

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Disinheritance

Contents

• Articles 915 to 918 General Provisions on Disinheritance

• Articles 919 Reasons for Disinheritance of Children or Descendants
• Articles 920 Reasons for Disinheritance of Parents or Ascendants
• Articles 921 Reasons for Disinheritance of a Spouse
• Articles 922 to 923 Effects of Reconciliation on Disinheritance and Effects on Children of the Disinherited Person.

Article 915. A compulsory heir may, in consequence of disinheritance, be deprived of his legitime, for causes expressly
stated by law. (848a)

Article 916. Disinheritance can be effected only through a will wherein the legal cause therefor shall be specified. (849)

Article 917. The burden of proving the truth of the cause for disinheritance shall rest upon the other heirs of the testator,
if the disinherited heir should deny it. (850)

Article 918. Disinheritance without a specification of the cause, or for a cause the truth of which, if contradicted, is not
proved, or which is not one of those set forth in this Code, shall annul the institution of heirs insofar as it may prejudice
the person disinherited; but the devises and legacies and other testamentary dispositions shall be valid to such extent as
will not impair the legitime. (851a)

Articles 919 Reasons for Disinheritance of Children or Descendants

Article 919. The following shall be sufficient causes for the disinheritance of children and descendants, legitimate as well
as illegitimate:
1. When a child or descendant has been found guilty of an attempt against the life of the testator, his or her spouse,
descendants, or ascendants;
2. When a child or descendant has accused the testator of a crime for which the law prescribes imprisonment for six
years or more, if the accusation has been found groundless;
3. When a child or descendant has been convicted of adultery or concubinage with the spouse of the testator;
4. When a child or descendant by fraud, violence, intimidation, or undue influence causes the testator to make a will
or to change one already made;
5. A refusal without justifiable cause to support the parent or ascendant who disinherits such child or descendant;
6. Maltreatment of the testator by word or deed, by the child or descendant;
7. When a child or descendant leads a dishonorable or disgraceful life;
8. Conviction of a crime which carries with it the penalty of civil interdiction. (756, 853, 674a

Articles 920 Reasons for Disinheritance of Parents or Ascendants

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Article 920. The following shall be sufficient causes for the disinheritance of parents or ascendants, whether legitimate or
illegitimate:

1. When the parents have abandoned their children or induced their daughters to live a corrupt or immoral life or
attempted against their virtue;
2. When the parent or ascendant has been convicted of an attempt against the life of the testator, his or her
spouse, descendants, or ascendants;
3. When the parent or ascendant has accused the testator of a crime for which the law prescribes imprisonment for
six years or more, if the accusation has been found to be false;
4. When the parent or ascendant has been convicted of adultery or concubinage with the spouse of the testator;
5. When the parent or ascendant by fraud, violence, intimidation, or undue influence causes the testator to make a
will or to change one already made;
6. The loss of parental authority for causes specified in this Code;
7. The refusal to support the children or descendants without justifiable cause;
8. An attempt by one of the parents against the life of the other, unless there has been a reconciliation between
them. (756, 854, 674a)

Articles 921 Reasons for Disinheritance of a Spouse

Article 921. The following shall be sufficient causes for disinheriting a spouse:
1. When the spouse has been convicted of an attempt against the life of the testator, his or her descendants, or
ascendants;
2. When the spouse has accused the testator of a crime for which the law prescribes imprisonment of six years or
more, and the accusation has been found to be false;
3. When the spouse by fraud, violence, intimidation, or undue influence cause the testator to make a will or to
change one already made;
4. When the spouse has given cause for legal separation;
5. When the spouse has given grounds for the loss of parental authority;
6. Unjustifiable refusal to support the children or the other spouse. (756, 855, 674a)

Articles 922 to 923 Effects of Reconciliation on Disinheritance and Effects on Children of the Disinherited
Person

Article 922. A subsequent reconciliation between the offender and the offended person deprives the latter of the right to
disinherit, and renders ineffectual any disinheritance that may have been made. (856)

Article 923. The children and descendants of the person disinherited shall take his or her place and shall preserve the
rights of compulsory heirs with respect to the legitime; but the disinherited parent shall not have the usufruct or
administration of the property which constitutes the legitime. (857)

Purpose of Estate Tax

The following theories have been used to justify the imposition of estate tax:
1. Benefit received theory – under this theory, the estate tax is paid on return for the services rendered by the
state in the distribution of the estate of the decedent and for the benefits that accrue to the estate and the heirs.
2. State partnership theory – the tax is considered the share of the state as a “passive and silent partner” in the
accumulation of property.
3. Ability to pay theory – the tax is based on the fact that the receipt of inheritance creates an ability to pay and
thus the receipt of inheritance creates an ability to pay and thus to contribute to governmental income.
4. Redistribution of wealth theory – the tax is imposed to help reduce undue concentration of wealth in society
to which the receipt of inheritance is a contributing factor.

PROBLEMS-COMPULSORY HEIRS

Problem 1: (Legitime and Free Portion of the Estate) Mr. X died leaving a net hereditary estate of P50,000,000 to
this 5 children. Compute the legitime of each compulsory heir.

Required: Compute the Free Portion.

Net Hereditary Estate P50,000,000
Legitime of: 5 Children (50,000,000 x ½) (25,000,000)
Free Portion P25,000,000

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Each child will get P5,000,000 from the legitime (P25,000,000 /5)

Problem 2: Mr. X died leaving a net hereditary estate of P50,000,000 to his 5 children and his wife.

Required: Compute the legitime of each compulsory heir.

Net Hereditary Estate P50,000,000

Legitime of: 5 Children (50,000,000 x ½) (25,000,000)
Wife (25,000,000 / 5) (5,000,000)
Free Portion P20,000,000

Each child will get P5,000,000 from the legitime (25,000,000/5). The wife will get equivalent to a share of 1 child.

Problem 3: Mr. X died leaving a net hereditary estate of P50,000,000 to his 5 children, his wife, and his illegitimate son.

Required: Compute the legitime of each compulsory heir.

Net Hereditary Estate P50,000,000
Legitime of:
5 Children (50,000,000 x ½) (25,000,000)
Wife (25,000,000 / 5 ) (5,000,000)
Illegitimate Son (5,000,000 / 2) (2,500,000)
Free Portion P17,500,000

Each child will get 5 million from the legitime (25,000,000 / 5). The wife will get equivalent to a share of 1 child.

Problem 4: Mr. X died leaving a net hereditary estate of P50,000,000 to his 4 children, his wife, 2 illegitimate children,
parents and 3 siblings.

Required: Compute the Free Portion.

Net Hereditary Estate P50,000,000
Legitime of:
4 Children (50,000,000 x ½) (25,000,000)
The Wife (25,000,000 / 4) (6,250,000)
2 Illegitimate Children (6,250,000 / 2 x 2) (6,250,000)
Parents 0
3 Siblings 0
Remaining Balance (Free Portion) P12,500,000

PROBLEMS-INTESTATE HEIRS

Problem 1: Mr. X died intestate leaving a net hereditary estate of P50,000,000 to his 4 children.

Required: Compute the inheritance of each compulsory heir.

• All four will share the estate equally, P12,500,000 each.

• No free portion under intestate succession

Problem 2: Mr. X died intestate leaving a net hereditary estate of P50,000,000 to his 4 legitimate children, and 2
illegitimate children.

Required: Compute the inheritance of each compulsory heir.

The estate will be divided as follows:

Share of the Legitimate Children (4 x 2) 8
Share of the Illegitimate Children (2 x 1) 2
Total 10

Thus, P50,000,000 / 10 = P5,000,000

• Each legitimate child (4) will receive P10,000,000, while each illegitimate child will receive P5,000,000 each.

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Problem 3: Mr. X died intestate leaving a net hereditary estate of P50,000,000 to his 4 legitimate children, 3
illegitimate children and his spouse.

Required: Compute the inheritance of each compulsory.

The estate will be divided as follows:

Share of the Legitimate Children (4 x 2) 8
Share of the Spouse – Equivalent to 1 Child 2
Share of Illegitimate Children (3 x 1) 3
Total 13

Thus, P50,000,000 / 13 = P3,846,153.85

• Each legitimate child (4) will receive P7,692,307.69
• The spouse will receive P7,692,307.69
• Each illegitimate child will receive P3,846,153.85

Problem 4: Mr. X died intestate leaving a net hereditary estate of P50,000,000 to his 3 legitimate children, 1
illegitimate child, his spouse, and parents.

Required: Compute the inheritance of each compulsory heir

The estate will be divided as follows:
Share of the Legitimate Children (3 x 2) 6
Share of the Spouse – Equivalent to 1 Child 2
Share of Illegitimate Children (1 x 1) 1
Total 9

Thus, P50,000,000/ 9 = P5,555,555.56

• Each legitimate child (3) will receive P11,111,111.11
• The spouse will receive P11,111,111.11
• Each illegitimate child will receive P5,555,555.56
• The parents will receive nothing because the children are present.

Problem 5: (Degree of Consanguinity) Mr. X died intestate leaving a net hereditary estate of P50,000,000. The only
surviving relatives of Juan are Pedro, his second cousin, and Maria, his great-grand niece.

Required: Compute the inheritance of each compulsory heir

Maria – Fifth degree

Pedro – Sixth degree

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 PROBLEMS-DISHERITANCE
Problem 1: (Excluded heirs and disinherited children) A father died and left behind property. In his last will and
testament, he allotted all his property to his daughters. The father also left behind a son, but the son was not left anything
in the will. He was not even mentioned in the will.

Can the son question the will and have a rightful share of the property his father left behind?

Yes. The will should be opposed. This is a case of preterition which is not allowed by law.

A. FORMAT OF COMPUTATION (BIR Form 1801)

1. For married decedents (residents and citizens)

Exclusive Properties Conjugal/Community Total
Properties
Gross Estate Xx xx Xx
Less: Allowable Deductions
Ordinary (LITE) + TPU + VD (xx) (xx) (xx)
Net Estate before Special Deductions Xx xx Xx
Special Deductions***
• Standard deduction (xx)
• Family home (xx)
• Benefits received under RA 4917 (xx)
Net Estate Xx
• Share of the Surviving Spouse
(1/2 of the net
conjugal/community estate
before special deductions) (xx)
Net Taxable Estate Xx
Tax rate: 6%
Estate Tax Due Xx
Less: Estate Tax Credit (xx)
Estate Tax Payable Xx

2. For single decedents

Gross estate xx
Less: Ordinary Deductions (xx)
Special Deductions (xx)
Net Taxable Estate xx

Estate Tax Due xx

Less: Estate Tax Credit (xx)
Estate Tax Payable xx
Estate Tax

An estate tax is a tax on the right to transfer certain property at death and on certain transfers which are
made by law equivalent to testamentary disposition (in contemplation of death).

It is an excise tax (a tax impose upon the right or privilege), the object of which is the shifting of economic
benefits and the enjoyment of the property from the deceased to the living.

It accrues as of the time of death of the deceased.

The taxpayer in estate taxation is the estate of the decedent represented by the administrator, executor or
legal heirs.

B. ESTATE TAX RATE

There shall be levied, assessed, collected and paid upon the transfer of the net estate of every decedent, whether resident
or non-resident of the Philippines, a tax at the rate of six percent 6% based on the value of such net estate.

C. TAXABILITY OF THE ESTATE IN GENERAL

Taxability of the estate in accordance to the classification of a decedent and type of property
Classification of Properties located in the Philippines Properties located in a Foreign
Decedent Country

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 Tangible Tangible Intangible
Real Real
personal Intangible personal properties personal personal
properties properties
properties properties properties
Resident Citizen √ √ √ √ √ √
Non-Resident Citizen √ √ √ √ √ √
Resident Alien √ √ √ √ √ √
Non-Resident Alien √ √ √ (no X * (with X X X
reciprocity) reciprocity)

Real Properties Examples: Land and Building

Personal Properties Tangible personal properties. Examples: Equipment, furniture, machine, paintings,
jewelry items, and similar property.

Intangible personal properties. Means incorporeal property which do not have any
physical form, but represents rights and privileges. Examples include bank deposit,
trademarks, shares of stock, patents, copyrights, bonds, notes, interest in a
partnership.

Intangible Properties *What intangible properties are considered as situated within the Philippines?

1. Franchise which must be exercisable in the Philippines;

2. Shares, obligations or bonds issued by domestic corporations;
3. Shares, obligations or bonds issued by any foreign corporation, 85% of business

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 of which is in the Philippines;
4. Shares, obligations or bonds issued by any foreign corporation, if such shares,
obligations or bonds have acquired business in the Philippines;
5. Shares or rights in any partnership, business or industry established in the
Philippines.

Note:
Intangible Properties Situs
1. Receivable (promissory note) Residence of the debtor
2. Bank deposit Location of the bank
3. Other Intangible properties
a. Franchises, patents, copyrights, trademarks Where property is used or exercised
b. Investment in partnership Where partnership is established
c. Shares of stock (including corporate bonds)
(1) Domestic corporation Within the Philippines
(2) Foreign corporation Without the Philippines
Except:
1. If ≥85% of business is in the Philippines Within the Philippines
2. If shares have acquired a business situs in
the Philippines Within the Philippines

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 Rule of Reciprocity
1. Intangible personal property situated in the Philippines owned by
Properties non-resident alien decedent.
covered by
reciprocity Reciprocity can take place when the foreign country where the
nonresident alien was a citizen and resident:
- Does not have any kind of death taxes
- Has death tax but allows exemption to non-resident
Filipinos

2. Basic When there is reciprocity – The intangible personal property of

Rules non-resident alien situated in the Philippines are not included in
the gross estate
When there is no reciprocity – The intangible personal property of
non-resident alien situated in the Philippines are included in the
gross estate

Value of the Estate

1. Right to Usufruct, Use or Habitation, Annuity

There shall be taken into account the probable life of the beneficiary in accordance with the latest basic standard
mortality table, to be approved by the Secretary of Finance, upon the recommendation of the Insurance Commissioner.
2. Property Generally it is valued at its fair market value at the time of decedent’s death

Valuation of the Gross Estate

- Properties shall be valued at the time of death of the decedent.

Property Valuation
Usufruct, use, habitation, Value shall be based on the probable life of the beneficiary in accordance with the
annuity latest Basic Standard Mortality Table approved by the Department of Finance

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Real Property FMV whichever is the higher of zonal value or assessor’s value
If the property is a real property, the appraised value thereof as of the time of
death shall be, whichever is the higher of -

(1) The fair market value as determined by the Commissioner, or

(2) The fair market value as shown in the schedule of values fixed by the
provincial and city assessors, whichever is higher.

For purposes of prescribing real property values, the Commissioner is authorized to

divide the Philippines into different zones or areas and shall, upon consultation with
competent appraisers, both from the private and public sectors, determine the fair
market value of real properties located in each zone or area.

Personal Property Generally, FMV at the time of death of the decedent

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Stock listed in the stock Average (arithmetic mean) of the lowest and highest quotes on the valuation
exchange date (date of death) or day nearest to the valuation date.

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Stock not listed in any local For common shares: Book value on the valuation date (date of death), or on the
exchange date nearest the valuation date. In determining the book value of common shares
appraisal surplus shall not be considered as well as the value assigned to preferred
shares if there are any.

For preferred shares, par value

REVENUE REGULATIONS NO. 20-2020 amends certain provisions of Revenue

Regulations (RR) No. 06-2008 (Consolidated Regulations Prescribing the Rules
on the Taxation of Sale, Barter, Exchange or Other Disposition of Shares of
Stock held as Capital Assets).

In the case of shares of stock not listed and traded in the local stock
exchanges, the following rules shall apply:

a. For common shares of stock, the book value based on the latest available
financial statements duly certified by an independent public accountant
prior to the date of sale, but not earlier than the immediately preceding
taxable year, shall be considered as the prima facie fair market value.

b. For preferred shares of stock, the liquidation value, which is equal to the
redemption price of the preferred shares as of balance sheet date nearest
to the transaction date, including any premium and cumulative preferred
dividends in arrears, shall be considered as fair market value.

c. In case there are both common and preferred shares, the book value per
common share is computed by deducting the liquidation value of the
preferred shares from the total equity of the corporation and dividing the
result by the number of outstanding common shares as of balance sheet
date nearest to the transaction date.

d. For this purpose, the book value of the common shares of stock or the
liquidation value of the preferred shares of stock need not be adjusted to
include any appraisal surplus from any property of the corporation not
reflected or included in the latest audited financial statements, in order to
determine the fair market value of the shares of stock. The latest audited
financial statements shall be sufficient in determining the fair market value
of the shares of stock subject of the sale, barter, exchange, or other
disposition.

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Notes; accounts receivable FMV is the discounted amount of the unpaid principal plus interest.
Units of participation in any FMV is the bid price on the date of death or nearest the date of death published in
association, or amusement club any newspaper or publication of general circulation
(also called proprietary shares)
(such as golf, polo or similar
clubs)
Cash in bank in local or foreign The peso value of the balance at the date of death.
currency

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 REVIEW QUESTIONS

1. It refers to a mode of transferring & acquiring properties left by the decedent.

A. Estate transfer B. Donation C. Succession D. Execution of a will

2. The property, rights & obligations of a person which are not extinguished by his death & those which have accrued
thereto since the opening of succession.
A. Inheritance B. Estate C. Capital D. Devisee

3. The estate tax accrues from the moment of:

A. The filing of notice death
B. Expiration of a month after death
C. The death of the decedent
D. The filing of estate tax return

4. A person who inherits personal property through a will:

A. Devisee
B. Legatee
C. Heir
D. Successor

5. A person who inherits real property through a will:

A. Devisee
B. Legatee
C. Heir
D. Successor

6. Succession wherein the decedent did not leave any will:

A. Voluntary succession
B. Legal succession

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 C. Mixed succession
D. Testamentary succession

7. Which statement is false about succession:

A. The successor inherits all the transmissible property of a decedent including its liabilities.
B. The successor can be made liable for the obligations of the decedent beyond the value of the asset he received.
C. In succession, fruits and credits maturing after the death of the decedent pass to the heirs even if they were not
subjected to estate tax.
D. In succession, the successor can refuse the inheritance.

8. Statement 1: The estate tax accrues at the moment of death of the decedent.
Statement 2: In estate taxation, the taxpayer is the decedent.
Which of the above statements is correct?
A. Statement 1 only.
B. Both statements
C. Statement 2 only.
D. Neither statements

9. In 20X1, A gave a loan of P150,000 to B, his secretary. In 20X7, as an act of generosity, A condoned the debt of
sexy in his last will and testament. A died in 20X9. The condonation of the debt of B is
A. A donation inter vivos subject to donor’s tax.
B. A payment or compensation for the services rendered.
C. A deduction from the gross estate of A.
D. A donation mortis causa subject to estate tax.

10. In default of testamentary heirs, the law determines who are to succeed to the inheritance of the deceased. Which of
the following ranks first in the order of succession?
A. Legitimate children B. Legitimate parents C. Surviving spouse D. Illegitimate children

Problem 2: (Valuation of Gross Estate) The decedent devised to his four (4) children separate parcels of land with the
following data:
To A: 1,000 square meter lot in Sampaloc, Manila with the following valuation:
• Zonal value determined by the CIR, P25,000/sq.m.
• Assessed value as determined by the City of Manila, P18,000,000
• FMV as determined by independent assessors, P20,000,000
To B: 1,000 square meter lot in Q.C. with the following valuation:
• Zonal value determined by the CIR, P15,000/sq.m
• Assessed value as determined by the Q.C., P18,000,000
• FMV as determined by independent assessors, P20,000,000
To C: 1,000 square meter of lot in Makati with the following valuation:
• Zonal value determined by the CIR, P15,000/sq.m
• FMV as determined by independent assessors, P20,000,000
To D: 1,000 square meter of lot in Mandaluyong with the following valuation:
• Zonal value determined by the CIR, (No available valuation)
• Assessed value as determined by the Mandaluyong, P20,000,000
Gross estate

Required: Determine the gross estate of the decedent.

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Problem 3: (Valuation of Gross Estate) Mr. X owns a various shares of stocks from different companies during his
lifetime. At the time of his death, the following details were provided to you by his administrator:
100,000 shares of A Company’s ordinary shares, not traded
• Outstanding shares – 800,000 shares, P10 par
• Retained earnings – P3,000,000
• Revaluation surplus – P100,000
100,000 shares of B Company’s ordinary shares, listed shares
• Outstanding shares – 1,000,000, P10 par
• Retained earnings – P5,000,000
• Quoted price at the date of Mr. X’s death – P15
• Mean value of the shares in the stock exchange – P12
100,000 shares of C Company’s ordinary shares, listed shares
• Outstanding shares – 1,000,000 shares, P10 par
• Retained earnings – P5,000,000
• Mean value of the shares in the stock exchange – P12
Gross estate

Units of participation in any FMV is the bid price on the date of death or nearest the date of death published in
association, or amusement club (also any newspaper or publication of general circulation
called proprietary shares) (such as
golf, polo or similar clubs)

Problem 4: (Classification of Decedent and Valuation of Gross Estate) A decedent died leaving the following
properties. Determine the Philippine gross estate:
Resident NRA-No NRA-With
/Citizen Reciprocity Reciprocity
House and lot, USA, at the time of death Zonal value P4,000,000; 4,000,000
Assessed value P3,000,000; Cost, P2,000,000; Appraisal value P8,000,000
House and lot, Philippines, FMV, time of death, P2,500,000; Value per tax 2,500,000 2,500,000 2,500,000
declaration, time of death, P2,000,000
Golf club, Philippines, Bid price P1,500,000, Asked price P2,000,000 1,500,000 1,500,000 1,500,000
Car, Japan, purchase price, P1,800,000 1,800,000
Preference Shares, Philippines, sold for P300,000 1 day before death, FMV,
date of sale, P250,000 Par value, date of death, P350,000 (Reason of 0 0 0
death, car accident).
Bonds, issued by a Philippine Corporation, cost, P450,000 450,000 450,000
Ordinary shares of stock, issued by a foreign corporation, 80% of the 600,000
business is located in the Philippines, par value, time of death, P500,000;
book value, time of death, P600,000
Proceeds of life insurance, Philippines (the estate is the designated 1,800,000 1,800,000
beneficiary) , P1,800,000
Total 12,650,000 6,250,000 4,000,000

D. COMPOSITION OF THE GROSS ESTATE OF A DECEDENT

Gross estate (SEC. 85) - The value of the gross estate of the decedent shall be determined by including the value
at the time of his death of all property, real or personal, tangible or intangible, wherever situated: Provided,
however, that in the case of a non-resident decedent who at the time of his death was not a citizen of the

P a g e | 26
 Philippines, only that part of the entire gross estate which is situated in the Philippines shall be included in his
taxable estate.

Note:

Properties to be included in the Estate

1. Properties that are still owned by decedent at the time of his death, to the extent of his equity or interest
in such property, whether as exclusive owner, conjugal or community property owner.
2. Assets or properties owned by decedent during his lifetime but were no longer owned by him at the time
of his death.

1. Properties owned and possessed by the decedent

2. Properties transferred (Taxable Transfers)

• These are properties which at the time of the
death of the decedent are not part of the
decedent’s assets because these were already
transferred by him during his lifetime.
• The values of these properties will be included in
determining the value of the gross estate even
though such properties are not anymore the part
of the assets of the decedent.

A. Transfer in Contemplation of Death - is a

transfer of property motivated by the thought of
death, although death may not be imminent.

Examples of a transfer made in contemplation of

death
1. When the transferor of property is at an
advanced age.
2. When the transferor of property is terminally
ill or with incurable disease.
3. When a person concurrently makes a will
and transfer a property.

Examples of motives that preclude a transfer from the

category of one made in contemplation of death
(Motives associated with life)
1) To relieve donor from the burden of management
2) To save income or property taxes
3) To settle family litigate and un-litigated disputes
4) To provide independent income for dependents
5) To see the children enjoy the property while the donor is alive
6) To protect the family from hazards of business operations, and
7) To reward services rendered

B. Revocable Transfer. -A revocable

transfer is a transfer where the enjoyment
of the property maybe altered, amended
or revoked.

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C. Property Passing Under General Power of Appointment
Kind of Appointment Nature Tax Treatment
General Donor gives the donee the power to appoint Shall form part of
any person as successor to enjoy the property. the gross estate
Special Donor gives the donee the power to appoint a Shall not form part
person within a limited group to succeed in the of the gross estate
enjoyment of the property

D. Transfer with retention or reservation of certain rights (possession or enjoyment of, or the right to the
income from the property, or the right to designate a person who may exercise such right)

E. Transfers of Property for an Insufficient Consideration

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Transfers for Insufficient consideration – sale of property below fair market value (FMV) [ SP < FMV at the time

P a g e | 29
 of sale] under the cases in letter A to D:

Amount included in the gross estate:

FMV at the time of death X
Less: Selling price (X)
Included in the Gross Estate X

EXCEPTION: If the property sold is a real property classified as capital asset, even if it will be transferred for
insufficient consideration, it is not subject to estate tax.

Real property classified as capital asset is subjected to 6% CGtax based on (Selling price, Zonal value, Assessed
Value) whichever is highest

3. Interests

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a. Proceeds of Life Insurance

1) The amount receivable by the estate of the deceased, his executor, or administrator, as insurance under
policies taken out by the decedent upon his own life, irrespective of whether or not the insured retained the
power of revocation, or to the extent of the amount receivable by any beneficiary designated in the policy of
insurance, except when it is expressly stipulated that the designation of the beneficiary is irrevocable.

2) When the designation of the beneficiary is not stated or is not clear, the Insurance Code assumes
revocable designation.
When the designation of the Proceeds of Life Insurance (Taken out by the Decedent)
beneficiary is not stated or is Beneficiary Designation Gross estate
not clear, the Insurance Code Estate Revocable or irrevocable Included
assumes revocable designation. Executor Revocable or irrevocable Included
Administrator Revocable or irrevocable Included
3rd party (i.e. wife) Revocable Included
3rd party (i.e. wife) Irrevocable Excluded

3) The following are also not

taxable:
a. Proceeds/benefits
coming from SSS
b. Proceeds/benefits
coming from GSIS
c. Proceeds coming
from group
insurance

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b. Claims against insolvent persons

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1. Claims of the deceased against
insolvent persons where the
value of decedent's interest
therein is included in the
value of the gross estate
2. The full amount of the claims
is included in the gross estate.
3. The uncollectible amount of
the claims is deducted from
the gross estate.

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 c. Amount received by heirs under R.A. No. 4917
1. Any amount received by the
heirs from the decedent’s
employer as a consequence of
the death of the decedent-
employee in accordance with
Republic Act No. 4917. It shall
also be allowed as deduction
from the gross estate provided,
that such amount is included in
the gross estate of the
decedent.
2. R.A. No. 4917 is entitled ‘An
Act providing that retirement
benefits of employees of
private firms shall not be
subject to attachment, levy,
execution, or any tax
whatsoever’.

d. Family Home
The family home refers to the dwelling house, including the land on which it is situated, where the husband and the
wife, or an unmarried person who is the head of the family and members of the family reside, as certified by the
Barangay Captain of the locality.

Note:
Deduction:

Exclusive part (full value included in the gross estate) X

Conjugal/Community part (1/2 x value included in the gross estate) X
Total x

Item of Deduction Resident alien or citizen decedent Non-resident alien decedent

Family home Deductible (P10,000,000) Not Deductible

e. Prior interest/Decedent’s
Interest
Refers to the value of any
interest in property or rights
accrued in favor of the decedent
on or before his death which
have been received only after
his death. (Sec. 85 (A) NIRC)

As a rule, the interest must

exist at the time of the
decedent’s death to be
included as part of the gross

P a g e | 34
 estate.

Examples
1. Dividends declared on or before the death of the stockholder, and received by the estate after said
stockholder’s death.
2. Partnership’s profit earned prior to death of the partner, received by the estate after the partner’s death.
3. Accrued interest and rents on or before the time of death, but collection was made after death.

REVIEW QUESTIONS

Problem 1: (Taxable Transfer) Determine which of the following transactions are taxable transfers.
Transaction Answer
1) Property transferred inter vivos, transferor is of advanced age and died within 3 years after TT
the date of transfer.
2) Property sold for adequate and full consideration, transferor/seller died after one day because
of incurable disease.
3) Property sold for P1, 000,000. The FMV of the property sold was P 1,100,000. TT
4) Property transferred, transferor has the right to take back the property. TT
5) Property transferred, transferor has the right to take back the property. The transferor has
waived the right before he died.
6) Property transferred, the transferee has the power to appoint or transfer to anybody the said TT
property.
7) Property transferred, the transferee has the power to appoint or transfer to anybody the said
property as designated by the transferor.
8) Property transferred, the transferor has the right to the income of the property transferred TT
while he is still alive.
9) Property donated, Donor’s tax paid. In the deed of donation, the donor expressly reserved for TT Revocable transfer
himself the usufruct over the property (yes)

Problem 2: (Inclusion in the Gross Estate) For each of the following independent cases, determine the value of the
property in the gross estate:
1. A parcel of land inherited from the father was acquired by the decedent’s father then for a

P a g e | 35
 cost of P250,000. Upon inheritance, the fair market value was P200,000 as shown in the
schedule of values from the Assessor’s office and P230,000 as determined by the office of the
BIR Commissioner.
2. A property acquired for P1,000,000 was transferred in contemplation of death for a
consideration of P100,000. Fair market value at the time of transfer, P1,500,000, while at
the time of death, P1,200,000.
3. A property, acquired at a cost of P1,000,000, was transferred in contemplation of death for a
consideration of P1,200,000. Fair market value at the time of transfer, P1,500,000, while at
the time of death, P1,200,000.
4. The decedent was about to present to his girlfriend a brand new car worth P5,000,000 cash.
Installment price is valued at P6,000,000. On his way to meet his girlfriend, he met a car
accident and died.
5. On January 1, 20x3, Mr. Ty extended a loan worth P1,000,000 to Caloy due on January 1,
20x5. The latter executed a promissory note with an annual interest of 10%. Mr. Ty died on
June 30, 20x4.

Problem 3: (Insufficient Consideration) Determine the value to be included in the gross estate for each of the cases
below.
Case FMV, time of Consideration received FMV, time of Amount included in the
transfer death gross estate
1 P2,000,000 P 1,500,000 P1,700,000 P200,000
2 P2,000,000 P 1,500,000 P1,700,000 -
Assumed Real Property- classified as
capital asset
3 P2,000,000 P 2,000,000 P1,000,000 -
4 P2,000,000 None P1,700,000 P1,700,000
5 P2,000,000 P 3,000,000 P3,500,000 -
6 P2,000,000 P 1,500,000 P1,200,000 -

Problem 4: (Transfer of Insufficient Consideration) Determine the amount to be included in the Gross Estate of the
Transferor –Decedent from the following independent cases:
Particulars Inclusion in the Gross Estate
1. FMV at the time of transfer P5,000,000
FMV at the time of death 6,000,000
Consideration received 5,000,000

2. FMV at the time of transfer P5,000,000

FMV at the time of death 6,000,000
Consideration received 6,000,000

3. FMV at the time of transfer P5,000,000

FMV at the time of death 6,000,000
Consideration received 7,000,000

4. FMV at the time of transfer P5,000,000

FMV at the time of death 6,000,000
Consideration received 2,000,000

5. FMV at the time of transfer P5,000,000

FMV at the time of death 6,000,000
Consideration received Nil

Problem 5: (Proceeds from Life Insurance) Identify which of the following cases of proceeds of life insurance will be
included in the gross estate.

P a g e | 36
1) Proceeds of life insurance, daughter of the insured was irrevocably designated as beneficiary of the life insurance. N
2) Proceeds of life insurance, wife of the insured was revocably designated as beneficiary of the life insurance. I
3) Proceeds of life insurance, the beneficiary’s designation was not stated in the insurance policy. I
4) Proceeds of life insurance, the administrator of the estate was revocably designated as beneficiary of the life I
insurance.
5) Proceeds of life insurance, the executor of the estate was irrevocably designated as beneficiary of the life I
insurance.
6) Benefits received from SSS, beneficiary was irrevocably designated as beneficiary. N
7) Benefits from GSIS, beneficiary was revocably designated as beneficiary. N
8) Proceeds of life insurance, the estate was designated as beneficiary of it. I
9) Proceeds of life insurance from group insurance. N

Problem 6: (Proceeds of Life Insurance Premium) Determine the amount that should be included in the gross estate:
Particulars Inclusion in the Gross
Estate
1. The decedent took an insurance on his life for P10,000,000
2. The decedent took an insurance on his life for P20,000,000 and designated his estate as
the revocable beneficiary
3. The decedent took an insurance for his life for P5,000,000 and irrevocably designated the
administrator of his estate as the beneficiary
4. The decedent took an insurance on his life for P10,000,000 and designated his son as
beneficiary
5. The decedent took an insurance on his life for P10,000,000 and designated his son as
irrevocable beneficiary

Problem 7: (Classification of Taxpayers and Composition of Gross Estate) A decedent taxpayer died leaving the
following:
Resident Non- Resident Non- Non-
citizen resident alien resident resident
citizen alien with alien
reciprocity without
reciprocity
Family home (land and residential P8,000,000
house) in the Philippines
Parcel of land with vacation house 5,000,000
in Malaysia
Farm land in the Philippines, with a 3,000,000
mortgage in favour of the Philippine
National Bank for P600,000
Shares of stock of a domestic 2,000,000
corporation deposited in a bank
safety deposit in Malaysia
Shares of stock of a foreign 500,000
corporation the entire business of
which is in the Philippines,
deposited in a bank safety deposit
box in Malaysia
Receivable from a friend who has 300,000
no property whatsoever
Receivables under insurance
policies:
• Life insurance policy, 200,000
taken by the decedent on
his own life, with his
estate as revocable
beneficiary
• Life insurance policy, 300,000

P a g e | 37
 taken by the decedent on
his own life, with a
daughter as revocable
beneficiary
• Life insurance policy, 600,000
taken by the decedent on
his own life, with a son as
irrevocable beneficiary
• Life insurance (group) 150,000
taken by the employer of
the decedent, with the
estate as revocable
beneficiary
• Property insurance, for a 50,000
loss of property
• Accident insurance, for 50,000
injury sustained
Gross estate

Required: Determine the correct gross estate assuming the decedent was:
1. A resident citizen
2. Non-resident citizen
3. Resident alien
4. Non-resident alien with reciprocity
5. Non-resident alien without reciprocity

Problem 8: (Decedent interest) Based on the following data, how much is the value of the decedents interest if he
died March 31, 20x5?
Transactions Amount Decedent interest
Cash In bank, Joint account of the decedent and his wife P 254,000
Interest on the bank deposit (Jan 1 — June 30, 20x5) 9,000
Dividends from a domestic corporation 60,000
Date of declaration — April 5, 20x5
Date of record – April 15, 20x5
Date of payment — May 15, 20x5
Share in 20x4 net profit of partnership, distributed to 9,000
partners on April 15
Winnings in lotto (Bet, March 30; April 1; 20x4 draw) 500,000
Total

Cash in bank (254,000 / 2) 127,000

Share in partnership profit (9,000/2) 4,500

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Interest (9,000 / 2 x 3/6) 2,250
Lotto winnings (500,000 / 2) 250,000
Decedent's interest 383,750

The winnings in lotto is and the interest on bank deposit are presumed to be co-ownership of the spouses.

Problem 9: (Claims against insolvent) Carlo died with an existing collectible of P15,000,000 against Jose whose
properties are not sufficient to satisfy his debts. Jose’s properties are valued at P18,000,000 while his liabilities amounted
to P30,000,000.
Required:
1. How much should be included in the gross estate of Lito?
2. How much should be as a deduction from the gross estate of Lito?
3. Assuming that P6,000,000 of Jose’s liabilities are unpaid taxes from the government, how much should be included as
a deduction from the gross estate of Lito?

1. 15,000,000
2. 6,000,000 (18/30 x 15)=9 (15-9)
3. 7,500,000 (18-6)/(30-6) x 15 = 7.5 (15-7.5)

D. GROSS ESTATE OF MARRIED DECEDENTS

Rules in determining the property of relationship

1. Agreement on marriage settlement (Pre-nuptial Agreement)
2. If there was no prenuptial agreement and the date of marriage took place:
Before August 3, 1988 On or after August 3, 1988
Conjugal partnership of gains Absolute community of properties

1. Properties included in the gross estate of the married decedent

Conjugal partnership of gains Absolute community of properties
Exclusive properties of the decedent Included Included
Exclusive properties of the surviving Not included Not included
spouse
Common properties Included Included

Note:

General Assumptions:
• Property for personal and exclusive use of either the spouse shall be exclusive, however, jewelry shall
form part of the communal property.
• Property acquired in exchange of exclusive property shall be exclusive.
• Any property acquired during marriage are presumed to be communal, unless proven otherwise.

Conjugal Partnership of Gains Absolute Community Properties

Principal Fruits Principal Fruits
Gratuitous transfer
Before marriage E C C C
During marriage E C E E

Onerous transfer
Before marriage E C C C
During marriage C C C C

2. Common types of property regimes:

a. Absolute separation of property (ASP)- All properties of the spouses are separate properties, except those
properties which they may acquire jointly.
b. Conjugal partnership of gains (CPG)- All properties that accrues as fruit of their individual or joint labor and
fruits of their properties during the marriage will be common properties of
the spouses.
c. Absolute community of property (ACP)- All present properties owned by the spouses at the date of celebration
of the marriage shall become common properties of the spouses including
future fruit of their separate or joint industry or fruits of their common
properties.`

3. Separate property of the Husband and Wife

P a g e | 39
 Capital Property Property owned solely by the husband
Paraphernalia Property Property owned solely by the wife

Capital/ Paraphernalia Property (exclusive property) of surviving spouse – The capital/ paraphernalia of the
surviving spouse of a decedent shall not be deemed a part of the gross estate of the decedent.

4. Conjugal partnership of gains

Exclusive Properties Conjugal Properties
a. Properties brought into the marriage as either of the a. Properties acquired by onerous title during the
spouse’s own. marriage at the expense of the common fund,
whether the acquisition is for the partnership or for
b. Properties acquired by gratuitous (or lucrative) only one of the spouses.
title during marriage.
b. Properties obtained from labor, industry, work or
c. Properties acquired by right or redemption or by profession of either or both of the spouses.
exchange with other property belonging to only
one of the spouses. c. The fruits, natural, industrial or civil, due or received
during the marriage from the common property, as
d. Properties acquired with the exclusive money of well as the net fruits from the exclusive property of
either spouse. each spouse.

d. The share of either spouse in the hidden treasure

which the law awards to the finder or owner of the
property where the treasure is found.

e. Properties acquired through occupation such as

fishing and hunting.

f. Livestock existing upon the dissolution of the

partnership in excess of the number of each kind
brought to the marriage by of either spouse.

g. Properties acquired by chance, such as winnings from

gambling and betting.

5. Absolute community of properties

Exclusive Properties Community Properties
a. Properties acquired during the marriage by gratuitous a. All properties owned by spouses at the time of the
(or lucrative) title by either spouse, and the fruits celebration of marriage or acquired thereafter.
as well as the income thereof, if any, unless it is
specifically provided by the donor, testator or grantor
that they shall form part of the community.

b. Property for personal and exclusive use of either

spouse, however, jewelry shall form part of the
community property.

c. Property acquired before the marriage by either

spouse who has legitimate descendants by a former
marriage and the fruits as well as the income, if
any, of such property.

Note:
Conjugal Partnership Absolute Community

I. Property acquired BEFORE Marriage

a. Gratuitous Exclusive Common

b. Onerous Exclusive Common

c. Where the spouse has a legitimate descendant from a previous Exclusive Exclusive
marriage

II. Property acquired DURING marriage

a. Gratuitous title Exclusive Exclusive

b. Onerous Title Conjugal Common

P a g e | 40
 c. In exchange of EXCLUSIVE property Exclusive Exclusive

d. In exchange of conjugal/ community property Conjugal Common

e. Fruits or income from EXCLUSIVE property Conjugal Exclusive

f. Fruits or income from conjugal/ community property Conjugal Common

• The highlighted rows are the differences between the two systems.
• Jewelries shall form part of the communal property (in case of absolute community).

Property for personal and exclusive use of either spouse Conjugal Partnership Absolute Community

Generally Exclusive Exclusive

Except JEWELRY under Absolute Community - Common

P a g e | 41
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P a g e | 47
 REVIEW QUESTIONS
Problem 1: (Conjugal Partnership of Gains vs. Absolute Community)Mr. Carlos, a married decedent left the
following properties. Determine the taxable gross estate of Mr. Carlos.
EXCL-CPG CONJ-CPG EXCL-ACP COMM-ACP
1. Cash owned by his wife before the marriage. P2,000,000 - - - P2,000,000
2. Cash owned by Mr. Carlos before the 5,000,000 P5,000,000 - - 5,000,000
marriage.
3. Real property inherited by Mr. Carlos during 6,000,000 6,000,000 - P6,000,000 -
the marriage.
4. Real property inherited by his wife during the 4,000,000 - - - -
marriage.
5. Personal property received by his wife as gift 400,000 - - - 400,000
before the marriage.
6. Personal property received by Mr. Carlos as 2,000,000 2,000,000 - - 2,000,000
gift before the marriage.
7. Property acquired by Mr. Carlos using his 600,000 600,000 - - 600,000
cash owned before the marriage.
8. Clothes of Mr. Carlos purchased with his 500,000 - - 500,000 -
wife’s exclusive money.
9. Jewelry purchased with the exclusive cash of 1,000,000 - - - 1,000,000
the surviving spouse.
10. Jewelry inherited during the marriage by the - - - -
surviving spouse. 1,000,000
11. Jewelry inherited before the marriage by the - - - 1,000,000
surviving spouse. 1,000,000
12. Unidentified property. 1,200,000 - P1,200,000 - 1,200,000
13 Cash representing the income earned during 2,000,000 - -
the marriage from the exclusive property of 2,000,000 2,000,000
Mr. Carlos.
14. Cash representing the income earned during 2,000,000 - - 2,000,000
the marriage from the common property of 2,000,000
the spouses.
Total P13,600,000 P5,200,000 P8,500,000 P15,200,000

Problem 2: (Property Relations) Classify the following as exclusive or conjugal property under absolute community of
property (ACoP) and conjugal partnership of gains (CPG). Write “C” in the space provided if the property is classified as
common property and write “E” if the property is classified as exclusive.
ACop CPG
1. Properties owned by the spouses before the marriage
2. Rental income on a property acquired before marriage
3. Property acquired during marriage
4. Income of property described in #3
5. Property acquired by gift before marriage
6. Income of property described in #5
7. Property inherited during marriage
8. Income of property described in #7
9. Property received as gift during marriage where the donor expressly provides that
the property is for the spouses
10. Income of property described in #9
11. Car purchased during marriage using funds derived from practice of profession
12. Property owned before marriage for personal and exclusive use of the decedent
when he was still alive
13. Jewelry items inherited by the decedent during marriage
14. Real property acquired during marriage with decedent’s own income
15. Car inherited during marriage

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Problem 3: From the records of the estate of a citizen-decedent who died in 20x8:
Properties – Land inherited from mother (during marriage) two (2) years before death; P24,000,000
valued at P15M when inherited
Other personal property owned before marriage 16,000,000
Other personal property acquired during marriage 5,000,000
Deductions claimed:
Casualty losses 500,000
Unpaid taxes 400,000
Claims against the estate 600,000
Funeral expenses 300,000
Medical expenses, incurred and paid within one year before death 400,000
Unpaid medical expenses incurred within one year before death 300,000
Judicial expenses 120,000

Required:
A. Determine the following under Absolute Community of Property:
1. Net exclusive property of the decedent
2. Net community property
3. Share of the surviving spouse
4. Net taxable estate

B. Determine the following under Conjugal Partnership of Gains:

1. Net exclusive property of the decedent
2. Net conjugal property
3. Share of the surviving spouse
4. Net taxable estate

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P a g e | 50
E. EXCLUSIONS AND EXEMPTIONS FROM THE GROSS ESTATE

• Under Section 85 and 86 of NIRC

1. Capital or exclusive property of the surviving spouse

2. Properties outside the Philippines of a non-resident alien decedent
3. Intangible personal property of a non-resident alien in the Philippines when the rule of reciprocity applies.

• Under Section 87 of NIRC (Acquisitions or Transmissions which are not included in the Gross estate of a
decedent)

4. Merger of usufruct in the owner of the naked title

The merger of the usufruct (right to use) in the owner of the naked title (without right to use).

a. When the same person becomes a

usufructuary and owner of the naked title, it
makes him/her the absolute owner of the
property.
b. USUFRUCT – the legal right to use and
enjoy the benefits and profits of something
belonging to another.
c. Two persons involved in usufruct:
 USUFRUCTUARY – the
person who has the right of
enjoying the use and the
fruits of the property
belonging to another.
 OWNER OF THE NAKED TITLE – the person who is vested the ownership, dominion, or title of the

P a g e | 51
 property under the usufruct agreement. He is NOT the absolute owner of the property with respect
to the right of the usufructuary.

5. Transmission or delivery of the inheritance or legacy of the fiduciary heir or legatee to the fideicommissary
The transmission or delivery of the
inheritance or legacy of the fiduciary heir or
legatee to the fideicommissary.
a. The transfers from fiduciary heir to the
fideicommissary
b. LEGACY– a gift or bequest by WILL of a
person.
c. DEVISEE – a TESTAMENTARY disposition of
real property.
d. LEGATEE –the person to whom a legacy in a
will is given of personal property.
e. FIDUCIARY HEIR – the FIRST HEIR of the
property.
f. FIDEICOMMISSARY – the SECOND HEIR
whose relationship to the fiduciary heir must be
one degree of generation (a parent and a child)

6. Transmission from the first heir, legatee or donee in favor of another beneficiary, in accordance with the will of the
predecessor
The transmission from the first heir, legatee, or donee infavor of another beneficiary, in accordance with
the will of the predecessor.
 The second transfer as desired by the predecessor
 There is only one transfer from the testator

Special Power VS. General Power of Appointment

Note: In the three (3) cases, there is actually one transfer involved. Such transfers were already subjected to estate
tax, and taxing these would amount to double taxation.

7. All bequests, devices, legacies or transfers to social welfare, cultural and charitable institutions, provided:
i. No part of the net income of said institution inure to the benefit of any individual;
ii. Not more than 30% of such transfers shall be used for administration purposes.

The government agency which is empowered to determine the exemption is the BIR. To enable it to exercise such power,
the value of transfer to social welfare, cultural and charitable institutions should be included in the gross
estate. While the Tax Codes includes this item in the exempt acquisition and transmissions, it is actually considered a
deduction from the gross estate.

• Under Special Laws

8. Proceeds of life insurance and benefits received by members of the GSIS (RA 728)

P a g e | 52
9. Benefits received by members from SSS by reason of death (RA 1792)
10. Amounts received from Philippine and United States governments for war damages
11. Amounts received from United States Veterans Administration
12. Retirement benefits of officials/employees of a private firm (RA 4917), provided they are included in the gross
estate.
13. Personal Equity and Retirement Account (“PERA”) asses shall not be considered assets of the Contributor for
purposes of estate taxes.
Furthermore, Qualified PERA Distributions received by the Contributor, or in case of the death of the Contributor,
received by his heir or beneficiaries, whether in a sump sum or pension for a definite period or lifetime pension shall
not be subject to estate tax.
14. Proceeds of life insurance when the beneficiary is not the estate, the executor, or the administrator and the
designation is irrevocable.
15. Amount withdrawn from the deposit accounts of a decedent subject to the 6% final withholding tax imposed under
section 97 of the NIRC.

REVIEW QUESTIONS

Problem 1: (Exemption and Exclusion from the Gross Estate) Determine whether the following is included or
excluded from the gross estate.
Included Excluded
1. Transfer with reservation of certain rights
2. Transfer for insufficient consideration
3. Transfer for an adequate and full consideration in money’s worth
4. Transfer in contemplation of death
5. Insurance proceeds from SSS and GSIS
6. Proceeds of group insurance taken out by a company for its employees
7. Transfer from the first heir to the second heir designated by the
predecessor
8. Donation to the national government
9. Merger of usufruct in the owner of the naked title
10. Legacy to a charitable institutions whose administrative expenses did not
exceed 30% of the legacy

Problem 2: (Multiple Choice Questions)

1. The following are transactions and acquisitions exempt from transfer tax, except
A. Transmission from the first heir or donee in favor of another beneficiary in accordance with the desire of the
predecessor.
B. Transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to the fideicommissary.
C. The merger of usufruct in the owner of the naked title.
D. All bequests, devisees legacies or transfers to social welfare, cultural and charitable institutions.

P a g e | 53
Transfers to social welfare, cultural or charitable institutions are exempt from estate tax if it is indicated that
not more ,than 30% of the donation is used for administration purpos5.

2. A devised in his will a piece of land; naked title to B and usufruct to C for as long as C lives, thereafter to B. The
transmission from A to B and C is subject to estate tax but the merger of the usufruct and the naked title to B upon
the death of C is exempt.

X devised in his will real property to his brother Y who is entrusted with the obligation to preserve and transmit the
property to Z, a son of Y, when Z becomes of age. The transmission from Y to his son Z is subject to tax

A. First statement is Correct, second statement is wrong.

B. Both statements are not correct-
C. Both statements are correct.
D. First statement is wrong, second statement is correct.

The transmission from C to B is a merger of usufruct in the owner of the naked title. It is not subject to estate
tax

The transmission of the real property from Y to Z constitutes fideicommissary substitution which is exempt
from estate tax.

3. One of the following is included in the gross estate

A. Benefits received from GSIS

B. Benefits received from U.S Veterans Administration.
C. Benefits received from damages during World War 2
D. Benefits received from a tax exempt employer as a consequence of death of the employee.

G. DEDUCTIONS FROM THE GROSS ESTATE:

1. Ordinary Deductions
Items of Deductions Resident alien or citizen decedent Non-resident alien decedent
a. Losses, indebtedness, taxes, etc Deductible Deductible:
(LITE) Phil. GE x ***LITE (World)
World GE

***
1. Claims against the estate.
2. Claims of the deceased
against insolvent
persons where the
value of the interest
therein is included in
the value of the gross
estate.
3. Unpaid mortgages, taxes
and casualty losses.

b. Transfer for public purpose Deductible Deductible

c. Property previously taxes Deductible Deductible
(Vanishing Deductions)

P a g e | 54
2. Special Deductions
Items of Deductions Resident alien or citizen decedent Non-resident alien decedent
a. Family home Deductible (P10,000,000) Not Deductible
b. Standard deduction Deductible (P5,000,000) Deductible (P500,000)
c. Amount received under R.A. 4917 Deductible Not Deductible

3. Others
Item/s of Deductions Resident alien or citizen decedent Non-resident alien decedent
a. Share of Surviving Spouse Deductible Deductible

H. DEDUCTIONS AMPLIFIED

1. Losses, Indebtedness, Taxes, Etc. (LITE)

Deductions Requisites for deductibility Amount Deducte
and items d from
deductibl
e
a. Losses a. It is incurred during the settlement of the estate (within one (1) year Value of Common
after death. the property if
b. It arose from fire, storm, shipwreck, or other casualties, or from robbery, property connected
theft, or embezzlement. lost to
c. It is not compensated for by insurance or otherwise. common
d. It must not have been claimed as deduction for income tax purposes in an
income tax return. Exclusive
e. It is incurred not later than the last day for the payment of the estate tax property if
connected
to
exclusive

b. a. The liability represents a personal obligation of the deceased existing at Debts or Common
Indebtedn the time of his death demands property if
ess b. The liability was contracted in good faith and for adequate and full of connected
(Claims consideration in money or money’s worth pecuniary to
against c. The claim must be a debt or claim which is valid in law and enforceable in nature common
the court which
estate) d. The indebtedness must not have been condoned by the creditor or the could have Exclusive
action to collect from the decedent must not have prescribed. been property if
enforced connected

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 Deductions Requisites for deductibility Amount Deducte
and items d from
deductibl
e
Claims against the estate or indebtedness in respect of property may arise against the to
out of the following sources: deceased exclusive
1. Contract in his
2. Tort lifetime
3. Operation of law and could
have been
e. If the claim was based on a debt instrument, such instrument must be reduced to
NOTARIZED. (Except loans granted by financial institutions where simple
notarization is not part of the business practice of the financial money
institution lender.) terms

f. If a loan was incurred within 3 years before the decedent death, the
administrator, or executor is required to render a statement showing
the disposition of the loan proceeds.

g. A verification as to the beneficiary of proceed must be made.

h. In case of accommodation (used) only, the amount must also be claimed

as receivable included in the gross estate.

Substantiation Requirements:

In case of simple loans including advances:

• A duly notarized certification from the creditor as to the unpaid
balance of the debt including interest as the date of death. The
sworn certification shall be signed by:
Creditor Signatory
1. Corporation The President or
Vice-President or
Other Principal Office of the Corporation
2. Partnership Any of the general partners
3. Bank / Financial Branch manager of the Bank or Financial
Institution Institution which monitors and manages the
loan of the decedent-debtor
In any of the cases above, the one who should certify must not be
a relative of the borrower within the fourth civil degree, either by
consanguinity or affinity.

If the unpaid obligation arose from purchase of goods or services

• Pertinent documents evidencing the purchase of goods or service,
such as sales invoice, delivery receipts, official receipts.
• A duly notarized certification from the creditor as to the unpaid
balance of the debt including interest as the date of death.
• The sworn certification shall be signed by:
Creditor Signatory
1. Corporation The President or
Vice-President or
Other Principal Office of the Corporation
2. Partnership Any of the general partners
3. Bank / Financial Branch manager of the Bank or Financial
Institution Institution which monitors and manages the
loan of the decedent-debtor
In any of the cases above, the one who should certify must not be
a relative of the borrower within the fourth civil degree, either by
consanguinity or affinity.

c. Unpaid a. The tax must have accrued before the death of the decedent Unpaid Common
taxes taxes that property if
accrued connected
before the to
decedent’s common
death but

P a g e | 56
 Deductions Requisites for deductibility Amount Deducte
and items d from
deductibl
e
not Exclusive
including: property if
connected
a. Any to
income tax exclusive
upon
income
received
after the
death of
the
decedent,
or
b.
Property
taxes not
accrued
before his
death, or
c. Any
estate tax
d. Claims a. The value of the claims is included in the gross estate. Claims that Common
against b. The debtors are incapable of paying their debts. are not property if
insolvent collectible connected
persons to
common

Exclusive
property if
connected
to
exclusive
e. Unpaid a. The fair market value of the mortgaged property undiminished by such Amount of Common
mortgage mortgage or indebtedness has been included as part of the gross estate unpaid property if
b. The mortgage indebtedness was contracted in good faith and for an mortgage connected
adequate and full consideration to
common

Exclusive
property if
connected
to
exclusive

Note:

As a general rule, obligations contracted during the marriage are presumed to have benefited the
marriage, and are charges against the community/conjugal property (e.g. claims against the estate).

REVIEW QUESTIONS
Problem 1: (Losses) Mr. A, an American residing in Quezon City, shipped his car worth P1,200,000 from the United
States to the Philippines. The following day, he arrived in the Philippines via Northwest Airline. While riding a bus going
to Quezon City, he met an accident and died instantaneously. Two weeks after his death, the ship carrying his car sank
somewhere in the Pacific Ocean towards Philippines Islands. The insurance paid 50% of the value of the car.
a. Is the loss deductible from the gross estate of Mr. A? How much?
b. How about if the loss occurred ahead of Mr. A death?
c. How about if the loss occurred before he died, but discovered after Mr. A death?
d. How about if the entire amount was compensated by insurance?

a. Yes, because the shipwreck occurred after the death but before the deadline for filing the estate tax return.
As a rule, losses are deductible from gross estate if it occurred within a period of (12) months from the death of

P a g e | 57
 the decedent.
However, since the insurance company indemnified the 50% of the value of the car, only a loss P600,000 can
be claimed as deduction from gross estate.

b. If the loss occurred before Carperter's death, it is not deductible because the lost property should not also be
included in the gross estate.

c. The law uses the phrase "losses incurred during the settlement of the estate." Therefore, to be considered as a valid
deduction, the loss should occur after death irrespective of the time it was discovered.

d. If the value of the car lost was indemnified by the insurer, then the estate of Carpenter (the owner), did not suffer
any loss. Consequently, it cannot claim that amount as deduction from gross estate.

Problem 2: (Losses) Various types of losses incurred by a decedent/estate as follows:

• Loss due to typhoon, a day before the decedent’s death, P1,000,000.
• Loss due to shipwreck, two (2) months after the decedent’s death.
• Robbery loss, seven (7) months after the decedent’s death, P2,000,000. The decedent’s executor was allowed by
the Bureau of Internal Revenue to extend the filing (within the period allowed by the Tax Code) of the estate tax
return due to a meritorious reason.
• Swindling loss incurred 2 months before death, P800,000.
• Gambling losses before death, P2,250,000.

Required: Determine the deductible losses from the gross estate of the decedent. Assume further that the decedent’s
gross estate amounted to P25,000,000 as of the date of his death.

Problem 3: (Claims against the estate) Which of the following claims are deductible from gross estate?
a. Salary loan from Government Service Insurance System (GSIS), only 15% of which have been paid.
b. Indebtedness which had already prescribed.
c. Income taxes and property taxes that have accrued after the death of the decedent.
d. Court ruling that has become final and executor a day before the decedent’s death, requiring the decedent to
indemnify his victim in a car accident.
e. Balance of the purchase price on land which appears to have been bought by the decedent. The property was
actually inherited by him from a close relative.
a. The unpaid balance or 85% of the GSIS loan is deductible.
b. Not deductible because there is no more legal liability to pay the debt.
c. Not deductible. The taxes must have accrued prior to the death of the decedent.
d. Deductible. These are valid claims against the estate.
e. Not deductible. There is no valid claim against the estate because the property was inherited thereby imposing no
obligation on the decedent.

Problem 4: (Claims against the estate) Mr. B a resident decedent on November 1, 20X5. He availed of a P500,000
salary loan from ABC Company (his employer) by issuing a promissory note during his lifetime.

Required:
1. If all the requisites in order to be allowed as a deduction as claims against the estate were present, what amount
may be deducted from the gross estate?
2. If the obligation has prescribed as at the time of his death, what amount may be deducted from the gross estate?
3. If the loan document (promissory note) was not duly notarized, what amount may be deducted from the gross
estate pertaining to the claim?
4. If the loan document (promissory note) was not duly notarized as the same is not normally required by ABC
Company in granting salary loans to its officers and employees, what amount may be deducted from the gross
estate pertaining to the claim?
5. If the loan was contracted three (3) years ago and the executor cannot determine how the loan proceeds were
disposed of, what amount may be deducted from the gross estate pertaining to the claim?

P a g e | 58
1. 500,000
2. zero
3. zero. If the indebtedness arises from a debt instrument (i.e. loan document), it must be notarized to be deductible,
except for loans granted by financial institutions where notarization is not part of the business practice/policy of the
financial institution –lender.
4. zero. The exception on notarization of loan document is applicable only for loans granted by financial institutions. In
the cases provided, the creditor (ABC Corporation) is not a financial institution.
5. Zero. RR 2-2013, provides that if the loan was contracted within three (3) years before the death of the decedent, a
statement under oath (by the executor/administrator) must be excecuted and must be attached therewith a statement
showing the disposition of the proceeds of the loan.

Problem 5: (Unpaid taxes) Mr. X died on June 30, 20x5. Determine the deduction from the gross estate.
a. The real estate taxes that have accrued in the year of his death amount to P320,000.
b. His income tax on income earned from January to June 20x5 is P15,500.
c. The tax on the income of his estate from July 1 to December 31 amount to P7,350.
d. The total estate tax is P50,000, period covered (June 30, 20x5)

The entire real estate taxes of P320,000 is deductible provided that they are still unpaid as of June 30, 20x5. The
income tax on income earned from January to June, 200x5 of P15,500 is also deductible.
The tax on the income which have accrued after his death are not deductible.

Problem 6: (Unpaid mortgage) Danilo mortgaged his coconut land valued at P950,000 located in Cebu City for
P300,000. After a month, he died without paying the mortgage. Is the mortgage indebtedness deductible from gross
estate for purposes of computing the estate tax? What requisites are necessary for its deductibility?

The amount of unpaid mortgage indebtedness is deductible, provided (1) the value of the land in the amount of P950,000
is included in the gross estate of Danilo and (2) it was contracted bona fide and for an adequate and full consideration in
money or money's worth.

Problem 7: (Claims Against Insolvent Persons)

Case A Case B Case C Case D
Receivable from debtor P500,000 P500,000 P500,000 P500,000
Amount collectible 400,000
Debtor’s total assets 400,000 1,200,000 1,200,000
Debtor’s total liabilities excluding 1,200,000 800,000 800,000
tax
Upon taxes 800,000

Required: Compute the allowable deductions

P a g e | 59
Problem 8: (Claims Against Insolvent Persons) The following data were taken from the estate of Caloy:
• Claims against A (insolvent), P100,000, fully uncollectible
• Claims against B (insolvent), P200,000, 50% collectible
• Claims against C (a person who absconded), P300,000

Required: Based on the data provided, determine the allowable deduction from Caloy’s gross estate.

Problem 9: (Claim Against Insolvent Persons) The gross estate of Carlos includes P200,000 receivables which is duly
notarized from debtor (Pinoy) whose records show:
Assets P400,000
Liabilities 800,000

Pinoy’s liabilities composed of the following:

• Due to BIR for unpaid taxes, P200,000
• Due to Carlos, P200,000
• Due to other creditors, P400,000

Required: Determine the amount of allowable deduction from Carlos’s gross estate in relation to its receivable from
Pinoy.

P a g e | 60
2. Transfer for Public Use
a. Amount deductible Amount of all bequest, legacies, devises or transfer to or for the use of the Government of the
Philippines, or any political subdivision for exclusively public purpose.
b. Requisites for 1. The disposition must be
deduction a. testamentary in character (in the last will and testament) or
b. by way of donation mortis causa (should take effect after death)
c. executed by the decedent before his death.
2. In favor of the Government of the Philippines or any of its political subdivisions.
3. Exclusive for public purpose.
4. The value of the property given is included in the gross estate.
c. Deducted from Exclusive property

REVIEW QUESTIONS
Problem 1: (Transfer for public purpose) Mr. X died with the following donated stated in his Will. Determine the
amount of transfer for public use deductible from gross estate.
a. Donation to his church P100,000 X
b. Donation to the City of Manila P200,000 /
c. Donation to Japan Government P300,000 X
d. Donation to Kapuso Foundation P400,000 X
e. Donation by way of devise 200 square meter land owned by the conjugal partnership in the X
poblacion of Infanta, Quezon to said Municipality.

Section 125 of the New Family Code provides that neither spouse may donate any conjugal partnership property
without the consent of the other. However, either spouse may, without the consent of the other, make moderate
donations from the conjugal partnership property for charity or on occasions of family rejoicing or distress.
A donation of a 200-square meter lot in the poblacion of Infanta, Quezon is not a moderate donation.
Therefore, the donation is not binding. In this case, the value of the property is not deductible from gross
estate for estate tax purposes.

3. Property Previously Tax (Vanishing Deduction) - This is a deduction derived from a property that was previously
subjected to transfer tax.
a. Requisites for deduction
1. Death The present decedent must have died within five (5) years from the receipt of
the property from a prior decedent or donor.
2. Identity of the Property The property involved must have been a property transferred by a prior
decedent or donor to the present decedent or the property acquired in exchange
for the original property so received.
3. Inclusion of the Property The property must have formed part of the prior decedent’s gross estate
situated in the Philippines or been included in the total amount of the
gifts of the donor made within 5 years prior to the present decedent’s
death.
4. Previous taxation of the The estate tax on the prior succession must have been finally determined and
property paid by the prior decedent. The same applies to gifts, in that donors must
have taken care of the donor’s tax.
5. No previous vanishing deduction The vanishing deduction on the property must not have been claimed by the
on the property previous estate involving the same property.

P a g e | 61
b. Rates of vanishing deduction –The rates depend on the interval between:

1. The death of the present decedent, and the death of the prior decedent if the property previously taxes (PPT) was
acquired by inheritance or
2. The death of the present decedent, and the date of the gift, if the PPT was acquired by donation
More than But not more than The rate is
- 1 year 100%
1 year 2 years 80%
2 years 3 years 60%
3 years 4 years 40%
4 years 5 years 20%
5 years - 0%

c. Format of computation
Value to take*** Xxx
Less Mortgaged paid by the current decedent (xxx)
Initial basis Xxx
Less: Proportional Deductions Initial basis x ( LITE plus TPU) (xxx)
Gross estate
Final Basis Xxx
Multiply by Rate of Vanishing Deduction %
Vanishing Deduction Xxx

*** Value taken is the LOWER between the fair market value of the property in the gross estate of the prior decedent or
the fair market value of the gift and the fair market value of the same property in the gross estate of the present
decedent.

Note:
1. Under conjugal partnership of gains vanishing is a deduction from exclusive property.
2. Under absolute community of property, vanishing deduction may be deducted from exclusive property or
community property.

A deduction, whether against exclusive or community/conjugal estate follows the classification of the
property in the gross estate. If the property to which the deduction is related is exclusive property in the
gross estate, the deduction is against the exclusive gross estate. If the property to which the deduction is
related is community/conjugal property in the gross estate, the deduction is against the community/conjugal
gross estate.

REVIEW QUESTIONS

Problem 1: (Vanishing Deduction) Jepoy, a Filipino residing in Davao died on December 10, 20x4, leaving a gross
estate of P4,500,000 including a parcel of land valued at P1,125,000, which he inherited from his father who died on
October 5, 20x1; that the land was previously taxed with a fair value of P937,500 for estate tax purposes in the estate of
his father, that the land was subjected to a mortgage of P468,750 at the time it was inherited by the present decedent,
which amount was deducted from the net estate of the father, that the present decedent paid P187,500 of the mortgage
indebtedness and that the total deductions claimed for expenses, losses, etc. including the unpaid mortgage of P281,250
was P562,500

Required: Determine the correct amount of vanishing deduction, if any.

P a g e | 62
 Problem 2: (Vanishing Deduction) Mr. A died in 20x5 leaving one hectare of land worth P250,000 to his son, Ballan.
After one-and-a-half years, Ballan died. The value of the property at time of his death has assessed value to P300,000.
At the time of Mr. A death, the property was mortgaged for P60,000 of which Ballan paid P50,000 prior to his death. The
gross estate of Ballan was P1,700,000 not yet included the inherited property, while the total allowable deduction LITE
(losses, indebtedness, taxes and etc) was P400,000 (include the unpaid mortgage) and the transfer for public purpose
P100,000. Compute the vanishing deduction.

Lower value of property P 250,000

Less: Mortgage paid 50,000
Initial basis 200,000
Less: Deductions (pro-rated)

200,000 x (500,000 ) 50,000

2,000,000
Base 150,000
Rate (more than 1 year but not more than 2 years) 80%
Vanishing deduction 120,000

Problem 3: (Vanishing Deduction) Classify whether the vanishing deduction below is a deduction from exclusive,
conjugal, or community property:
Property Dates of acquisition (By Property Date of marriage Date of Classification of
Gratuitous Transfer) regime death deduction
A 12/10/x0 Conjugal 2/14/x2 6/12/x5 Exclusive
B 8/05/x1 Conjugal 3/20/x1 4/10/x5 Exclusive
C 4/25/x4 Community 6/12/x3 11/10/x5 Exclusive
D 12/12/x0 Community 3/15/x1 7/06/x5 Community
E 8/10/x2 Conjugal 9/25/x1 (Marriage has 2/14/x5 Exclusive
been annulled on April
4, 20x4)
F 5/05/x2 Community 9/09/x2 (Marriage has Exclusive
been annulled on April 9/16/x5
4, 20x4)

Problem 4: (Comprehensive Problem) Jun died leaving a gross estate of P7,800,000 including a land inherited from
his uncle 3 ½ years before his death and a car donated to him seven (7) years before his death. The following data
pertain to the two properties:
Unpaid Mortgage FMV upon receipt FMV upon death
Land P100,000 P1,800,000 P1,250,000
Car 50,000 300,000 400,000

The decedent was able to pay ½ of the unpaid mortgage on the land before his death.

Other deductions claimed are as follows:

Expenses, losses, indebtedness, taxes P1,200,000 (excluding the unpaid mortgages above P1,200,000
but including actual funeral expenses of P300,000 and medical expenses of P600,000)
Standard deductions 1,500,000
Transfer to the Government, included above 300,000

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Death benefits from employer 200,000
Family home (included above) 2,000,000

Required: Determine the net following:

Decedent died after the effectivity of TRAIN LAW
1. Vanishing deductions
2. The net taxable estate

I. SPECIAL DEDUCTIONS

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 Citizen/Resident decedent NRA decedent
Standard deduction P5,000,000 P500,000
Family home P10,000,000 (maximum) Not Applicable
Benefits under RA 4917 As provided Not Applicable

1. Family Home - The family home refers to the dwelling house, including the land on which it is situated, where the
husband and the wife, or an unmarried person who is the head of the family and members of the family reside, as
certified by the Barangay Captain of the locality.

Head of the family

A head of a family is a single individual who actually supports and maintains in one household one or more
individuals, and whose right to exercise family control and provide for these dependent individuals is based upon
some moral or legal obligation. (Sec. 11, Rev. Reg. 2-40)

The following are the dependents of a head of a family:

1. Parents (ascendants or descendants)
2. Legally adopted children
3. Brothers and sisters, whether the relationship (legitimate or illegitimate)

Married
The term Married means those who are legally married.

RR 12-2018

Family home – The dwelling house, including the land on which it is situated, where the husband and wife, or a head of the
family, and members of their family reside, as certified to by the Barangay Captain of the locality. The family home is
deemed constituted on the house and lot from the time it is actually occupied as a family residence and is considered as such
for as long as any of its beneficiaries actually resides therein. (Arts. 152 and 153, Family Code)

For purposes of these regulations, however, actual occupancy of the house or house and lot as the family residence shall
not be considered interrupted or abandoned in such cases as the temporary absence from the constituted family home
due to travel or studies or work abroad, etc.

In other words, the family home is generally characterized by permanency, that is, the place to which, whenever absent
for business or pleasure, one still intends to return.

The family home must be part of the properties of the absolute community or of the conjugal partnership, or of the
exclusive properties of either spouse depending upon the classification of the property (family home) and the property
relations prevailing on the properties of the husband and wife. It may also be constituted by an unmarried head of a
family on his or her own property. (Art. 156, Ibid.)

For purposes of availing of a family home deduction to the extent allowable, a person may constitute only one family
home. (Art. 161, Ibid.)

Husband and Wife – Legally married man and woman.

Unmarried Head of a Family – An unmarried or legally separated man or woman with one or both parents, or with one
or more brothers or sisters, or with one or more legitimate, recognized natural or legally adopted children living with and
dependent upon him or her for their chief support, where such brothers or sisters or children are not more than twenty
one (21) years of age, unmarried and not gainfully employed or where such children, brothers or sisters, regardless of age
are incapable of self-support because of mental or physical defect, or any of the beneficiaries mentioned in Article 154 of
the Family Code who is living in the family home and dependent upon the head of the family for legal support.

The beneficiaries of a family home are:

1. The husband and wife, or the head of a family; and

2. Their parents, ascendants, descendants including legally adopted children, brothers and sisters, whether the
relationship be legitimate or illegitimate, who are living in the family home and who depend upon the head of the family
for legal support. (Art. 154, Ibid)

Conditions for the allowance of family home deduction from the gross estate:
a. The family home must be the actual residential home of the decedent and his family at the time of his death, as
certified by the Barangay Captain of the locality the family home is situated
b. The total value of the family home must be included as part of the gross estate of the decedent, and
c. Allowable deduction must be in an amount equivalent to the current fair market value of the family home as declared

P a g e | 65
 or included in the gross estate, or to the extent of the decedent’s interest (whether conjugal/community or exclusive),
whichever is lower, but not exceeding P10,000,000.

Deductible amount
Classification of family home Amount deductible
a. Exclusive property Full value included in the gross estate or P10,000,000 whichever
is lower
b. Conjugal/community property One-half (1/2) of the value included in the gross estate or
P10,000,000 whichever is lower
c. Partly exclusive property, partly
conjugal/community property Exclusive part (full value included in the gross estate) X
Conjugal/Community part (1/2 x value included in the X
gross estate)
Total x

• Total or P10,000,000 whichever is lower

2. Standard Deduction-
Amount deductible
• The amount deductible is P5,000,000 (citizen-resident/nonresident or a resident alien) P500,000 (nonresident
alien) without any required substantiation

3. Amount Received by Heirs Under R.A. No. 4917

Amount deductible and Requisites
• Any amount received by the heirs from the decedent’s employer as a consequence of the death of the decedent
employee in accordance with Republic Act No. 4917 is allowed as deduction provided that the amount of the
separation benefit is included as part of the gross estate of the decedent
Amount Received By Heirs Under R.A. No. 4917
1. RA No. 4917 is entitled “an act providing the retirement benefits of employees of private firms shall not be subject
to attachment, levy, execution, or any tax whatsoever”
2. The amount received by heirs from decedent’s employer as a consequence of the death of the decedent
employee is included in the gross estate of the decedent
3. The amount above is also allowed as deduction from gross estate

J. OTHER DEDUCTIONS

Share of the Surviving Spouse- applicable only to married decedents

Gross Conjugal / community properties Xxx
Less: Conjugal / community deductions (xxx)
Net conjugal/community properties (NCP) Xxx
Share of surviving spouse (1/2 x NCP) Xxx

Note:

Rules on Claimable Deductions per Decedent Classification

Resident or Citizen* Non-resident alien
Ordinary deduction √ √
Special deduction √ None, except standard deduction
Share of surviving spouse √ √

*Includes resident citizen, non-resident citizen and resident alien

K. DEDUCTIONS FROM THE EXCLUSIVE OR CONJUGAL/COMMUNAL RPOPERTY UNDER THE FAMILY CODE

a. Support of spouses, their common children and legitimate children of either spouse Conj/Comm
b. All debts and obligations contracted during the marriage by the designated administrator-spouse for Conj/Comm
the benefit of the conjugal partnership of gain or community, or by both spouses, or by one spouse
with the consent of the other.
c. Debts and obligations contracted by either spouse without the consent of the other to the extent that Conj/Comm
the family may have been benefited
d. All taxes, liens, charges and expenses, including major and minor repairs, upon the Conj/Comm
conjugal/community property
e. All taxes and expenses for mere preservation made during the marriage upon the separate property Conj/Comm
of either spouse used by the family
f. Expenses to enable either spouse to commence or complete a professional or vocational course, or Conj/Comm

P a g e | 66
 other activity for self-employment
g. Ante nuptial debts of either spouse insofar as they have rebounded to the benefit of the family Conj/Comm
h. Value of what is donated or promised by both spouses in favor of their legitimate children for the Conj/Comm
exclusive purpose of commencing or completing a professional or vocational course or other activity
for self-improvement
i. Expenses of litigation between the spouses unless the suit is found to be groundless Conj/Comm
j. Ante-nuptial debts of either spouse that did not redound to the benefit of the family Exclusive
k. Support of illegitimate children of either spouse Exclusive
l. Liabilities incurred by either spouse by reason of crime or quasi-delict Exclusive
m. Loss during the marriage in any game of chance, betting, Sweepstakes, or any other kind of gambling Exclusive
whether permitted or prohibited by law

REVIEW QUESTIONS

Problem 1: (Family Home) Determine the allowable family home deduction.

FMV at the Time of Death of the Decedent Deductible Amount
1. Exclusive family home P30,000,000 10,000,000
2. Exclusive family home P5,000,000 5,000,000
3. Common family home P30,000,000 10,000,000
4. Common family home P5,000,000 2,500,000
5. Exclusive family home (Decedent is single) P10,000,000 Zero
6. Exclusive family home (live in partner) P10,000,000 Zero
7. Exclusive lot P4,000,000 4,000,000
Common house P10,000,000 5,000,000

Problem 2: (Standard Deduction) Determine the allowable standard deduction from the following independent cases:
Case Particulars Standard
Deduction
A Decedent is single and a resident citizen of the Philippines
B Decedent is a head of the family and a resident citizen of the Philippines
C Decedent is a resident alien
D Decedent is a non-resident alien, reciprocity clause under the tax code is applicable
E Decedent is a non-resident alien, reciprocity clause under the tax code is not applicable

Problem 3: (Family Home) Determine the deductible family home deduction from the following independent cases:
Case Particulars Family home Family Home
Deduction
A Decedent is single P10,000,000
B Decedent is a head of a family 5,000,000
C Decedent is married. The family home is the exclusive property of the 8,000,000
surviving spouse
D Decedent is married. The family home is the exclusive profit of the 10,000,000
decedent
E Decedent is married. The family home is classified as conjugal 12,000,000
property
F Decedent is married. Fifty percent (50%) of the family home is 10,000,000
classified as conjugal property, the remainder is the exclusive property
of the decedent

P a g e | 67
Problem 4: (Ordinary and Special deductions) The heirs of a resident citizen decedent with a total gross estate of
P115,000,000 (60% located in the Philippines) provided the following data:
Receivable from Joy, a debtor P500,000
Amount collectible from Joy 400,000
Unpaid taxes on the estate before death 150,000
Unpaid taxes on the estate after death 50,000
Unpaid mortgage on the estate 200,000
Funeral expenses (paid) 182,000
Unpaid funeral expenses 37,000
Unpaid medical expenses 82,000
Judicial expenses 100,000
Unpaid loans arising from debt instrument (notarized) 125,000
Unpaid loans arising from debt instruments (not notarized). The debt instrument was issued 75,000
by a financial institution.
Unpaid loans arising from debt instruments (not notarized). The debt instrument was issued 100,000
by a non-financial institution.
Casualty losses 65,000
Losses due to decline in value of shares of stocks 50,000
Loan was incurred within 3 years before the decedent death, the administrator, or executor 200,000
cannot render a statement showing the disposition of the loan proceeds.
Amount Received by Heirs Under R.A. No. 4917 100,000
Transfer for public use 200,000
Vanishing deduction 300,000
Family home 15,000,000

Required:
1. Determine the total amount of allowable deductions from gross estate of the decedent.
2. Assuming the decedent is a non-resident alien, determine the total amount of allowable deductions from gross
estate of the decedent.

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 A. C itizen (Resident or Non-resident ) and Resident Alien

Ordinary Deductions:
LITE
C laims against estate (125,000 + 75,000) 200,000
C laims against insolvent ( 500,000 - 400,000) 100,000
Unpaid mortage on the estate 200,000
Taxes 150,000
Losses 65,000 715,000
Transfer for public use 200,000
Vanishing deduction 300,000 1,215,000

Special Deductions
Family Home 10,000,000
RA 4917 100,000
Standard deduction 5,000,000 15,100,000
Total Allowable deduction from the gross estate 16,315,000

B. Non-resident alien

Ordinary Deductions:
LITE
C laims against estate (125,000 + 75,000) 200,000
C laims against insolvent ( 500,000 - 400,000) 100,000
Unpaid mortage on the estate 200,000
Taxes 150,000
Losses 65,000
60% x 715,000 429,000
Transfer for public use 200,000
Vanishing deduction 300,000 929,000

Special Deductions
Family Home -
RA 4917 -
Standard deduction 500,000 500,000
Total Allowable deduction from the gross estate 1,429,000

Problem 5: (Comprehensive Problem) The following data were provided by the Estate of Eugenio Cruz, head of family,
a resident of Quezon City. Mr. Eugenio Cruz died intestate on September 30, 20x8.
Land and house (family home) P3,000,000
Agricultural land inherited from his father who died 2.5 years before his death 800,000
Other real properties 10,000,000
Other tangible personal properties 200,000
Bank deposit, PNB-Manila representing amoujnt received by heirs under RA 4917 500,000

Obligations of and charges against certain properties follows:

Medical expenses of last illness (unpaid as of the time of death, supported by bills and
statements from hospital) 600,000
Actual funeral expenses (30% paid for from the estate, 70% paid for by relatives) 500,000
Judicial expenses incurred within six (6) months after death 100,000
Claims against the estate other than unpaid mortgage 250,000
Unpaid mortgage on inherited agricultural land 30,000
Claims against insolvent persons 100,000
Unpaid real estate tax for the 4th quarter of 20x8 20,000
The agricultural land was inherited by the present decedent. Its value at the time of inheritance was P500,000. It had an
unpaid mortgage of P80,000.

Required:
1. How much was the vanishing deduction?
A. P262,603 B. P238,661 C. P250,714 D. P245,503

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2. How much was the estate tax payable?
A. P326,244 B. P296,244 C. P260,243 D. P360,243

Value to take, agricultural land 500,000

Less: Mortgage paid (50,000)
Initial basis 450,000
Less: Proportional deduction
(P450,000/ P14,600,000 x P400,000) (12,329)
Final basis 437,671
Rate 60%
Vanishing deduction 262,603

Deductions:
Claims against the estate 250,000
Taxes 20,000
Claims against insolvent 100,000
Unpaid mortgage 30,000 400,000
Vanishing deduction 262,603
Amount received under RA 4917 500,000
1,162,603

Personal property (200,000+500,000+100,000) 800,000

Real property (3,000,000+800,000+10,000,000) 13,800,000
Gross estate 14,600,000
Deductions (1,162,603)
Family home (3,000,000)
Standard deduction (5,000,000)
Taxable net estate 5,437,397

Tax due and payable (5,437,397 x 6%) 326,244

L. TAX CREDIT FOR ESTATE TAX PAID TO A FOREIGN COUNTRY

1. Who can claim? Only citizen or resident alien

decedent.
2. Amount Deductible, whichever is lower:
a. Actual estate tax paid abroad
b. Limit

3. Limitations on tax credit:

1. Only one country is involved

Net estate (per Foreign Country) x Philippine estate tax

Total net estate

2. Two or more foreign countries are involved

Limit A: per country

Net estate (per Foreign Country) x Philippine estate tax

Total net estate

Limit B: Total Foreign Country

Net estate (all Foreign Countries) _ x Philippine estate tax

Total net estate

Rules:
1. If there is only one (1) foreign country, only Limit (A) is used.

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 2. If there are ≥ two (2) foreign countries, used both limits

M. NET DISTRIBUTABLE ESTATE

1. Net distributable estate vs Net taxable estate

Net distributable estate Net taxable estate

The result after the reduction of the gross estate by actual The result of the application of the law under estate
expenses or payments taxation

Variance between them can be traced to deductions

which do not involve payment like vanishing deductions,
standard deduction, and family home. Where the actual
amount of payment or expenses is higher than allowed Net Taxable Estate Distributable Net Estate
like funeral expenses or medical expenses.
Gross estate:
Real or immovable property Included Included
Tangible personal property Included Included
Intangible personal property Included Included
Transfer in contemplation of death Included Not included
Revocable transfers Included Not included
Transfer under the general power of appointment Included Not included
Proceeds of life insurance Included Included
Exclusion such as SSS, GSIS, etc Not included Included
Allowable deductions:
Funeral expenses Not allowed Actual
Judicial Not allowed Actual
Unpaid taxes Actual* Actual
Claims against the estate Actual Actual
Claims against insolvent person Actual Actual
Losses Actual* Actual
Transfer for public purpose Actual Actual
Vanishing deduction As computed Not considered
Standard deduction P5,000,000/P500,000 Not considered
Family home With limit Not considered
Medical expenses Not allowed Actual
Amount received under RA 4917 Actual Not considered
Share of surviving spouse As computed As computed
NET TAXABLE ESTATE Pxxx
Estate Tax Due Pxxx (xxx)
DISTRIBUTABLE NET ESTATE Pxxx
* within the settlement period only

The rules in classifying property into conjugal and exclusive property are the same for purposes of computing the net
distributable estate. For net taxable estate purposes, standard deduction is a special deduction, which means that it is
neither conjugal nor exclusive deduction. For net distributable estate purposes, it is a conjugal deduction.

REVIEW QUESTIONS

Problem 1: (Tax Credit) Okoy, Filipino died, leaving the following:

Net estate –Philippines P900,000 ?
Net estate – USA 600,000 Estate tax paid P60,000
Net estate – Japan (100,000)
Net estate – China 600,000 Estate tax paid P50,000
Net estate – France 500,000 Estate tax not paid P50,000

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 Required: Compute the estate tax due after tax credit.

Net Estate Philippines 900,000

Net Estate USA 600,000
Net Estate Japan (100,000)
Net Estate China 600,000
Net Estate France 500,000
Net Estate - World 2,500,000
X Estate Tax Rate 6%
Estate Tax Due 150,000
Less: Tax Credit (72,000)
Tax payable 78,000

By Individual Allocated Foreign Tax Paid Lower

-
Net Estate USA 600,000 150,000 36,000 60,000 36,000
Net Estate China 600,000 36,000 50,000 36,000 72,000
Net Estate World 2,500,000

By Total
Net Estate USA 600,000
Net Estate Japan (100,000)
Net Estate China 600,000
Net Estate France 500,000
1,600,000 150,000 96,000 110,000 96,000 96,000
Net Estate World 2,500,000 Lower 72,000

Problem 2: (Net Distributable Estate) A resident alien, single died intestate on November 2, 20x5. The following data
were provided to you:
House and lot, USA (family home) P2,000,000
Investment in stock, Philippines 800,000
Investment in stock, USA 1,000,000
Investment in bonds, USA (85% of the business of the USA Corporation is in the Philippines) 700,000
Cash in bank, Philippines 300,000
Cash on hand, Philippines 50,000
Accounts receivable from a debtor who resides in USA (fully uncollectible) 200,000
Car, Philippines 800,000
Actual funeral expenses 150,000
Judicial expenses 300,000
Unpaid Philippine income tax for income in 20x4 120,000
Loss on December 31, 20x5 due to theft 10,000
Legacy in favour of Philippine National Red Cross 50,000
Devise to Quezon City for children playground 70,000
Medical expenses 500,000
Estate tax paid – USA 250,000

Required: Determine the following

1. Net taxable estate
2. Estate tax due after tax credit
3. Net distributable estate

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P a g e | 73
N. ADMINISTRATIVE PROVISIONS

1. Estate Tax Returns

a. Tax form

BIR Form 1801 – Estate Tax Return

b. Estate tax returns are filed

1. When the transfer is subject to estate tax; or
2. When the gross estate includes properties for which clearance from the BIR (Certificate Authorizing Registration (CAR)
is needed before transfer of ownership to the transferees/heirs can be effected (regardless of the value of the gross
estate)

Examples:
a) Real Property
b) Motor Vehicle
c) Shares of Stock

c. Person/s who will file the returns

1. Executor
2. Administrator
3. Any of the legal heirs

d. Contents of the Estate Tax Return

1. Value of the gross estate;
2. Gross estate outside the Philippines for non-resident alien decedents;
3. Deductions allowed and taken;
4. Other supplemental data;
5. For estate tax returns showing a gross value exceeding P5 Million, a statement certified by a CPA as to the assets,
deductions, and tax due.

e. Period when the returns are filed

Within One year after the decedent’s death

Note: Extension period for filing the returns

The commissioner can, in meritorious cases, extend the filing of returns for a period not exceeding 30 days
• Time of filing can be extended for another 30 days or less in meritorious cases. The application for the extension
of time to file the estate tax return must be filed with the Revenue District Office (RDO) where the estate is
required to secure its TIN and file its tax returns. The request shall be approved by the Commissioner or his duly
authorized representative.

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f. Returns to be supported with statements certified by a CPA
When the estate tax returns show a gross value exceeding P5,000,000

g. Contents of the statements certified by a CPA

1. Itemized assets of the decedent with their corresponding gross value at the time of his death, or in case of non
resident alien, of that part of his estate situated in the Philippines
2. Itemized deductions
3. The amount of tax due whether paid or still due and outstanding

h. Period when a certified copy of the schedule of partition and the order of the court ordering the same be
filed
Within 30 days after the promulgation of such order

i. Place where the returns can be filed

1) In case of resident decedent:
• The administrator or executor shall register the estate and secure a new TIN therefor from the RDO where the
decedent was domiciled at the time of his death.

• The administrator/executor shall file the estate tax return with:

(a) An Authorized Agent Bank (AAB), or
(b) Revenue District Officer or Collection Officer having jurisdiction over the place where the decedent was
domiciled at the time of death, or
(c) Duly authorized Treasurer of the city or municipality in which the decedent was domiciled at the time of his
death,

Whichever is applicable following prevailing rules and procedures on collection.

2) In case of non-resident decedent:

(a) With an AAB, or with the RDO where the executor/administrator is registered.
(b) If the executor/administrator is not registered with the BIR, with an AAB or with the RDO having jurisdiction
over the legal residence of the executor/administrator.
(c) If there is no executor/administrator, with the Office of the Commissioner (RDO No. 39, South Quezon City).

3) In case of “No Payment Return”, the return shall be filed with the Revenue District office (RDO) having
jurisdiction over the place of domicile of the decedent at the time of death. If the decedent has no legal
residence in the Philippines, the return shall be filed with the Office of the Commissioner (RDO No. 39, South
Quezon City).

2. Payment of Tax
a. Time of payment of estate tax
At the time the estate tax returns are filed (Pay as you File)

Payment by installment

In case the available cash of the estate is insufficient to pay the total estate tax due, payment by installment shall be
allowed within two (2) years from the statutory date for its payment without civil penalty and interest.

(RR 12-2018) Payment of the estate tax by installment and partial disposition of estate. – In case of
insufficiency of cash for the immediate payment of the total estate tax due, the estate may be allowed to pay the
estate tax due through the following options, including the corresponding terms and conditions:

Cash installment
1. The cash installments shall be made within two (2) years from the date of filing of the estate tax
return;
2. The estate tax return shall be filed within one year from the date of decedent’s death;
3. The frequency (i.e., monthly, quarterly, semi-annually or annually), deadline and amount of each
installment shall be indicated in the estate tax return, subject to the prior approval by the BIR;
4. In case of lapse of two years without the payment of the entire tax due, the remaining balance thereof
shall be due and demandable subject to the applicable penalties and interest reckoned from the prescribed
deadline for filing the return and payment of the estate tax; and
5. No civil penalties or interest may be imposed on estates permitted to pay the estate tax due by
installment. Nothing in this subsection, however, prevents the Commissioner from executing enforcement
action against the estate after the due date of the estate tax provided that all the applicable laws and
required procedures are followed/observed.

Partial disposition of estate and application of its proceeds to the estate tax due
1. The disposition, for purposes of this option, shall refer to the conveyance of property, whether real,
personal or intangible property, with the equivalent cash consideration;

P a g e | 75
 2. The estate tax return shall be filed within one year from the date of decedent’s death;
3. The written request for the partial disposition of estate shall be approved by the BIR. The said request
shall be filed, together with a notarized undertaking that the proceeds thereof shall be exclusively used for
the payment of the total estate tax due;
4. The computed estate tax due shall be allocated in proportion to the value of each property;
5. The estate shall pay to the BIR the proportionate estate tax due of the property intended to be disposed
of;
6. An electronic Certificate Authorizing Registration (eCAR) shall be issued upon presentation of the proof
of payment of the proportionate estate tax due of the property intended to be disposed. Accordingly,
eCARs shall be issued as many as there are properties intended to be disposed to cover the total estate tax
due, net of the proportionate estate tax(es) previously paid under this option; and
7. In case of failure to pay the total estate tax due out from the proceeds of the said disposition, the estate
tax due shall be immediately due and demandable subject to the applicable penalties and interest reckoned
from the prescribed deadline for filing the return and payment of the estate tax, without prejudice of
withholding the issuance of eCAR(s) on the remaining properties until the payment of the remaining balance
of the estate tax due, including the penalties and interest.

b. Extension of time of payment of estate tax

When the Commissioner finds that the payment of the estate tax or of any part thereof would impose undue hardship
upon the estate or any of the heirs, he may extend the time for payment as follows:

1) Estate is settled through the courts – not to exceed 5 years

2) Estate is settled extra-judicially – not to exceed 2 years

The application for extension shall be filed with the RDO where the estate is required to secure its TIN and file the
estate tax return. This application shall be approved by the CIR or his duly authorized representative. Where the request
for extension is by reason of negligence, intentional disregard of rules and regulations, or fraud, no extension shall be
granted.

If an extension is granted, the CIR may require the executor, or administrator, or beneficiary, as the case may be, to
furnish a bond in such amount, not exceeding double the amount of the tax and with such sureties as the
Commissioner deems necessary, conditioned upon the payment of the said tax in accordance with the terms of the
extension.

c. Extension of payment of estate tax not allowed

When there is:
1. Negligence
2. Intentional disregard of rules and regulations
3. Fraud on the part of the taxpayer

d. Liability for payment

1. The estate tax shall be paid by the executor or administrator before the delivery of the distributive share in the
inheritance to any heir or beneficiary.
2. Where there are two or more executors or administrators, all of whom are severally liable for the payment of tax.
3. The executor or administrator of an estate has the primary obligation to pay the estate tax but the heir or
beneficiary has subsidiary liability for the payment of that portion of the estate tax which his distributive
share bears to the value of the total net asset.

Who pays the estate tax?

1. The executor or administrator. Where there are 2 or more executors or administrators, all of them shall be
severally liable for the payment of the tax.
2. An heir shall be subsidiary liable but only to the extent of his share in the net estate.

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3. Acts Requiring Certification from the Commissioner that the Estate Tax has been Paid
Acts requiring certification
1. Delivery of
distributive shares to
the heirs.
2. Registration in the
registry of Deeds of
transfer of inherited
real property or real
rights.
3. Payments of debt by
decedent’s debtor to
the heirs, legatees,
executor or
administrator of the
creditor-decedent.
4. Transfer of inherited
shares, rights or
bonds.
5. Withdrawal from
decedent’s bank
deposit (it shall allow
any withdrawal from the said deposit account, subject to a final withholding tax of six percent (6%).
Description Tax rate
Final Withholding Tax on Amounts Withdrawn from Decedent’s Deposit Account 6%***
For this purpose, all withdrawal slips shall contain a statement to the effect that all of the joint depositors are still living at
the time of withdrawal by any one of the joint depositors and such statement shall be under oath by the said depositors.

Monthly The monthly remittance form shall be filed and the tax shall be BIR Monthly Remittance
remitted to the BIR on or before the 10th day following the Form Form
month when the withholding was made. 620 of Tax Withheld on the
Amount Withdrawn
This shall be filed for the first 2 months of each calendar quarter. from the
Decedent’s Deposit
This return shall be filed in triplicate by all banks which withheld Account
the final withholding tax of 6% from the deposit account of the
decedent.
Quarterly The quarterly withholding tax remittance return shall be filed and BIR Quarterly Remittance
the tax paid/remitted not later than the last day of the Form Return of Tax Withheld
month following the close of the quarter during which 1621 on the Amount Withdrawn
withholding was made. from Decedent’s Deposit
Account

***The bank shall issue the corresponding BIR Form No. 2306 (Certificate of Final Tax Withheld at Source)
certifying such withholding

PAYMENT OF TAX ANTECEDENT TO THE TRANSFER OF SHARES, BONDS OR RIGHTS AND BANK DEPOSITS
WITHDRAWAL ((RR 12-2018) )

• There shall not be transferred to any new owner in the books of any corporation, sociedad anonima, partnership,
business, or industry organized or established in the Philippines any share, obligation, bond or right by way of gift
inter vivos or mortis causa, legacy or inheritance, unless an eCAR is issued by the Commissioner or his duly
authorized representative.

• If a bank has knowledge of the death of a person, who maintained a bank deposit account alone, or jointly with
another, it shall allow the withdrawal from the said deposit account, subject to a final withholding tax of six
percent (6%) of the amount to be withdrawn, provided that the withdrawal shall only be made within one year
from the date of the decedent. The bank is required to file the prescribed quarterly return on the final tax
withheld on or before the last day of the month following the close of the quarter during which the withholding
was made. The bank shall issue the corresponding BIR Form No. 2306 certifying such withholding. In
all cases, the final tax withheld shall not be refunded, or credited on the tax due on the net taxable estate of the

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 decedent.

• The executor, administrator, or any of the legal heirs, withdrawing from the deposit account shall provide the
bank where such withdrawal shall be made, with the TIN of the estate of the decedent. For this purpose, the
bank shall require prior to such withdrawal, the presentation of BIR Form No. 1904 of the estate, duly
stamped received by the BIR,. Further, all withdrawal slips shall contain the following terms and conditions: (a) a
sworn statement by any one of the joint depositors to the effect that all of the joint depositors are still living at
the time of withdrawal; and, (b) a statement that the withdrawal is subject to the final withholding tax of 6%.

• In instances where the bank deposit accounts have been duly included in the gross estate of the decedent and
the estate tax due thereon paid, the executor, administrator, or any of the legal heirs shall present the eCAR
issued for the said estate prior to withdrawing from the bank deposit account. Such withdrawal shall no longer be
subject to the withholding tax imposed under this section.

DUTIES OF CERTAIN OFFICERS AND PERSONS

• No judge shall authorized the executor or judicial administrator to deliver a distributive share to any party
interested in the estate, unless a certification from the Bureau of Internal Revenue (BIR) that the estate tax has
been paid is shown.
• Register of Deeds shall not register in the registry of property any transfer of real property or real rights therein,
or any mortgage, by way of donation mortis causa, or inheritance, without a certification from the BIR of
payment of estate tax, and they shall immediately notify the BIR of non-payment of tax discovered.
• Any lawyer, notary public, or any government officer who, by reason of his official duties, intervenes in the
preparation or acknowledgement of documents regarding partition or disposal of donations inter vivos or mortis
causa, legacy or inheritance shall furnish the BIR with copies of such documents and any information whatsoever
which may facilitate the collection of the estate tax.
• A debtor shall not pay his debts to the heirs, legatees, executor or administrator of his creditor-decedent without
a certification from BIR that the estate tax has been paid, but he may pay the executor or judicial administrator
without such certification if the credit is included in the inventory of the estate of the decedent.

4. Civil Penalties and Interest

Subject to interest but Any amount paid after the statutory due date of the tax, but within the extension period,
not to surcharge shall be subject to interest but not to surcharge.
25% surcharge Penalty of 25% if there is no false or fraudulent intent on the taxpayer.
50% surcharge Penalty of 50% if there is false, malice, fraudulent intent on the taxpayer.
Interest Interest of double the legal interest rate per annum on the unpaid amount of tax from
the date computed until fully paid.

General interest on unpaid amount of tax is 12% (at double the rate of legal interest for
loans or forbearance of any money in the absence of an express stipulation as set by the
BSP; prevailing BSP-set legal interest is 6%).

5. Attachments
1. Certified true copy of the DEATH CERTIFICATE;
2. Any of the following:
a) Affidavit of Self Adjudication;
b) Deed of Extra Judicial Settlement of the Estate, if the estate had been settled extrajudicially;
c) Court order if settled judicially;
d) Sworn Declaration of all properties of the Estate;

3. A certified copy of the schedule of partition of the estate and the order of the court approving the same, if applicable;
4. Certified true copy/ies of the Transfer/Original/Condominium Certificate of Title/s of real property/ies (front and back
pages), if applicable;
5. Certified true copy of the latest Tax Declaration of real properties at the time of death, if applicable;
6. “Certificate of No Improvement" issued by the Assessor's Office where declared properties have no declared
improvement;
7. Certificate of Deposit/Investment/Indebtedness owned by the decedent and the surviving spouse, if applicable;
8. Photo copy of Certificate of Registration of vehicles and other proofs showing the correct value of the same, if
applicable;
9. Proof of valuation of shares of stocks at the time of death, if applicable;
For listed stocks - newspapers clippings/certification from the STOCK EXCHANGE
For unlisted stocks - latest audited Financial Statements of issuing corporation with computation of book value per share
10. Xerox copy of certificate of stocks, if applicable;
11. Proof of valuation of other types of personal property, if applicable;
12. Proof of Claimed Tax Credit, if applicable;
13. CPA Statement on the itemized assets of the decedent, itemized deductions from gross estate and the amount due if
the gross value of the estate exceeds five million pesos (P5,000,000);
14. Certification of the Barangay Captain for the claimed Family Home;

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15. Duly notarized Promissory Note for "Claims Against the Estate" arising from Contract of Loan;
16. Accounting of the proceeds of loan contracted within three (3) years prior to death of the decedent;
17. Proof of the claimed "Property Previously Taxed";
18. Proof of the claimed "Transfer for Public Use".
19. Copy of Tax Debit Memo used as payment, if applicable.

These requirements must be submitted upon field or office audit of the tax case before the Tax Clearance
Certificate/Certificate Authorizing Registration can be released to the taxpayer.

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 PROBLEMS

Problem 1: (Administrative Provision) Determine whether or not notice of death, estate tax return or statement
certified by a CPA need to be filed (Yes / No)
Notice of Estate tax Statement certified by
death return CPA
1. Gross estate is P20,000 No N No
2. Gross estate is P30,000 No N No
3. Gross estate is P200,000 No N N
4. Gross estate is P150,000 comprising of car, land and No y N
shares of stock
5. Gross estate is P1,300,000; deductions are No Y N
P1,200,000
6. Gross estates is P5,000,000; deductions are P500,000 No Y N
7. Gross estates is P5,500,000; deductions are No Y Y
P1,000,000

Problem 2: (Non-resident alien) An unmarried non-resident alien, died intestate on November 2, 20x1. The following
data were provided by his estate:
House and lot, USA (family home) P2,000,000
Investment in stock, Philippines 800,000
Investment in stock, USA 1,000,000
Investment in bonds, USA (85% of the business of the USA Corp. is in the Phils.) 700,000
Cash in bank, Philippines 300,000
Cash on hand, Philippines 50,000
Accounts receivable from a debtor who resides in USA (fully uncollectible) 200,000
Car, Philippines 800,000
Actual funeral expenses 150,000
Judicial expenses 300,000
Unpaid Philippine income tax for income in 20x0 120,000
Loss on December 31, 20x1 due to theft of cash on hand 10,000
Loss on sale of a portion of investment in stock, Phils. 20,000
Transfer for public purpose to Quezon City Government for children's playground (included in Cash) 70,000
Medical expenses 500,000
Required:
1. How much was the Philippine gross estate?
2. How much was the total deductions from the Philippine gross estate?
3. How much was the net taxable estate in the Philippines?
4. How much was the estate tax payable in the Philippines?

House and lot, USA (family home) 2,000,000 2,000,000

Investment in stock, Philippines 800,000 800,000

Investment in stock, USA 1,000,000 1,000,000

Investment in bonds, USA (85% of the business of the USA Corp. is in the Phils.) 700,000 700,000

Cash in bank, Philippines 300,000 300,000

Cash on hand, Philippines 50,000 50,000

Accounts receivable from a debtor who resides in USA (fully uncollectible) 200,000 200,000

Car, Philippines 800,000 800,000

Actual funeral expenses 150,000

Judicial expenses

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 300,000

Unpaid Philippine income tax for income in 20x0 120,000

Loss on December 31, 20x1 due to theft of cash on hand 10,000

Loss on sale of a portion of investment in stock, Phils. 20,000

Transfer for public purpose to Quezon City Government for children's playground
(included in Cash) 70,000

Medical expenses 500,000

2,650,000 3,200,000

Investment in stock, Philippines 800,000

Investment in bonds, USA (85% of the business of the USA Corp. is in the Phils.) 700,000

Cash in bank, Philippines 300,000

Cash on hand, Philippines 50,000

Insolvent -

Car, Philippines 800,000

Gross estate 2,650,000 1

Unpaid Philippine income tax for income in 20x0 120,000

Loss on December 31, 20x1 due to theft of cash on hand 10,000

Accounts receivable from a debtor who resides in USA (fully uncollectible) 200,000 2,650,000

330,000 x 5,850,000

LITE 149,487
Transfer for public purpose to Quezon City Government for children's playground
(included in Cash) 70,000

Standard deduction 500,000

Total deductions 719,487 2

Gross estate 2,650,000

Total deductions (719,487)

Net taxable estate 1,930,513 3

Estate tax @ 6% 115,831 4

Problem 3: (Head of the family) The decedent is an unmarried head of the family with the following data:
Real and personal properties P5,000,000
Family home 10,900,000
Amount received by heirs under R.A. 4917 400,000
Claims against insolvent debtors 200,000
Ordinary deductions:
Funeral expenses (40% paid by relatives) 200,000
Judicial expenses (includes P50,000 incurred for the benefit of heir) 300,000

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 Losses (30% compensated by insurance) 100,000
Unpaid taxes (includes P5,000 income tax on income earned by the estate) 20,000
Unpaid mortgage on real property 30,000
Medical expenses 600,000
Required:
a. How much is the net estate?
b. Assuming the decedent is single (no dependents), how much is the net taxable estate?
a.
Real and personal properties 5,000,000 5,000,000
Family home 10,900,000 10,900,000
Amount received by heirs under R.A. 4917 400,000 400,000
Claims against insolvent debtors 200,000 200,000 16,500,000
Ordinary deductions:
Funeral expenses (40% paid by relatives) 200,000
Judicial expenses (includes P50,000 incurred for the benefit of heir) 300,000

Losses (30% compensated by insurance) 100,000 (70,000)

Unpaid taxes (includes P5,000 income tax on income earned by the
estate) 20,000 (15,000)

Unpaid mortgage on real property 30,000 (30,000)

Claims against insolvent
Medical expenses 600,000 debtors (200,000)

Standard (5,000,000)

Family home (10,000,000)

RA 4917 (400,000)
Net taxable 785,000

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Problem 4: (Married) The decedent is a married man with a surviving spouse with the following data:
Conjugal real properties P5,000,000
Conjugal family home 1,500,000
Amount received by heirs under R.A. 4917 1,000,000

Exclusive properties 12,500,000

Conjugal ordinary deductions :
Funeral expenses 150,000
Other deductions 1,300,000
Exclusive deductions 500,000
Medical expenses (including unpaid hospital bills amounting to P200,000 incurred two (2) years before
death) 500,000
Required: How much is the taxable net estate?

Conjugal Exclusive

Conjugal real properties 5,000,000 5,000,000

Conjugal family home 1,500,000 1,500,000

RA 4917 1,000,000 1,000,000

Exclusive properties 12,500,000 12,500,000 20,000,000

Conjugal ordinary deductions :

Funeral expenses 150,000

Other deductions 1,300,000 (1,300,000)

Exclusive deductions 500,000 (500,000) (1,800,000)

Medical expenses (including unpaid hospital bills amounting to P200,000 incurred two
(2) years before death) 500,000
18,200,000
Family home (750,000)
Standard (5,000,000)
(1,000,000)
RA 4917 -
Net estate 11,450,000

SSS 5,200,000 (2,600,000)

Net taxable estate 8,850,000

Problem 5: (Comprehensive Problem) Jerry, widower with two dependent children, physician of ABC Medical Center,
died in 20x8 leaving the following properties:
Cash in bank P2,350,000
Car 980,000
House and lot family home 10,500,000
Medical equipment 1,450,000
Land in QC per assessor (zonal value, P890,000) 2,465,000

The following deductions were claimed:

Cremation expenses P150,000
Cost of coffin 20,000
Expenses of the wake 60,000
Cost of burial plot and tombstone 22,000
Accountant’s fee 5,000
Loan notarized 80,000
Accrued taxes on salary 23,000
Hospitalization expenses 15,000
The land was inherited by Jerry from his wife who died 2 ½ years prior to his death. At the time of her death, the
property was valued at P420,000 and subject to a mortgage of P100,000 of which P30,000 was paid until his death.

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The entire accrued taxes on salary were withheld and remitted to the Bureau of Internal Revenue before death.
Required:
1. Compute the vanishing deduction
2. Compute the special deduction
3. Compute the estate tax

1. 232,022
2. 15,000,000
3. 141,779

Lower value 420,000

Less: Mortgage paid (30,000)
Initial basis 390,000
Less: Deductions (Pro-rated)
Loans 80,000
Unpaid mortgage 70,000
150,000
(390,000 / 17,745,000 x P150,000) (3,297)
Base 386,703
Rate 60%
Vanishing deduction 232,022

Cash in bank 2,350,000 2,350,000

Car 980,000 980,000
House and lot family home 10,500,000 10,500,000
Medical equipment 1,450,000 1,450,000
Land in QC per assessor (zonal value , P890,000) 2,465,000 2,465,000

Gross estate 17,745,000

The following deductions were claimed:

Cremation expenses P150,000
Cost of coffin 20,000
Expenses of the wake 60,000
Cost of burial plot and tombstone 22,000
Accountant’s fee 5,000
Loan notarized 80,000 (80,000)
Accrued taxes on salary 23,000
Hospitalization expenses 15,000

Unpaid mortgage (70,000)

Vanishing deduction (232,022)

Special
FM (10,000,000)
Standard (5,000,000)
Net taxable 2,362,978
6%
Estate tax 141,779

Problem 6: (Final withholding tax) The bank has knowledge of the death of a person who maintained a bank deposit
account alone, or jointly with another, it shall allow any withdrawal from the said deposit account. If the heirs withdraw
P500,000 from the said account. Assuming the total gross estate is P1,500,000 before the withdrawal of cash.
Required:
1. How much is the final withholding tax?
2. Per estate tax return, how much is the gross estate?

1. (500,000 x 6%) = P30,000

Withdrawal from decedent’s bank deposit (it shall allow any withdrawal from the said deposit account, subject to
a final withholding tax of six percent (6%).
Description Tax rate
Final Withholding Tax on Amounts Withdrawn from Decedent’s Deposit Account 6%

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For this purpose, all withdrawal slips shall contain a statement to the effect that all of the joint depositors are still living at
the time of withdrawal by any one of the joint depositors and such statement shall be under oath by the said depositors.

Monthly The monthly remittance form shall be filed and the tax shall be BIR Monthly Remittance
remitted to the BIR on or before the 10th day following the Form Form
month when the withholding was made. 620 of Tax Withheld on the
Amount Withdrawn
This shall be filed for the first 2 months of each calendar quarter. from the
Decedent’s Deposit
This return shall be filed in triplicate by all banks which withheld Account
the final withholding tax of 6% from the deposit account of the
decedent.
Quarterly The quarterly withholding tax remittance return shall be filed and BIR Quarterly Remittance
the tax paid/remitted not later than the last day of the month Form Return of Tax Withheld
following the close of the quarter during which withholding 1621 on the Amount Withdrawn
was made. from Decedent’s Deposit
Account

2. P1,000,000

Problem 7: Paolo Santos died intestate on September 30, 20x8. He was survived by his wife and his two children. He
left the following properties:
• Land (1,000 sq.m.) inherited from his father 15 months before Paolo’s death. Fair market value per tax
declaration at the time of Paolo’s death, P20,000,000. Zonal value at the time of Paolo’s death, P30,000 per
sq.m.
• House and lot (Family Home) acquired during the marriage, FMV P50,000,000.
• Other tangible personal proprieties (mode of acquisition unknown), FMV P22,000,000.

The following were considered as deduction from the gross estate:

• Actual funeral expenses, P480,000
• Judicial expenses, P1,000,000
• Other claims against the conjugal properties, P5,000,000
• Unpaid taxes, P1,200,000
• Claims against insolvent persons, P500,000
• Medical expenses, P1,200,000

The estate of the decedent’s father paid the estate tax on the land at the fair market value of P25,000 per sq.m. During
the marriage, Paolo mortgaged the inherited land for P7,000,000 for the benefit of the family. He paid P3,500,000 before
he died.

Required: Determine the following

a. Vanishing deduction
b. Net taxable estate
c. Estate tax due

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 PREPARATION OF ESTATE TAX RETURN

Mr. Pim Musay, Filipino and married, died in 2019, leaving this estate in favor of his surviving spouse. The following
information were made available:

Real property in Quezon City, acquired during marriage. Said property is supported by a barangay certification that the
spouses resided in this property at the time of Mr. Musay’s death. The fair market value of this property as per latest tax
declaration is P15,000,000 while the zonal valuation as of the time death is P20,000,000. Said real property was held as
a mortgage in a loan applied by the spouses. As of the time of death, the outstanding balance of the mortgage payable
amounted to P5,000,000.

Real property in Batangas, inherited by Mr. Musay during marriage, two and half years ago from his late father. The fair
market value per tax declaration as of his death is P8,000,000 while the zonal valuation is P12,000,000. Said property
was previously taxed at a value of P10,000,000 when Mr. Musay inherited the property from his father.

Real property in Cavite, donated to Mrs. Mahusay, 10 years ago (before marriage) by his parents-in-law. The fair market
value as per latest tax declaration as of the time of Mr. Musay’s death is P3,000,000 while the zonal valuation is
P4,000,000.

Other exclusive properties of Mr. Musay P1,000,000; Other properties of Mr. and Mrs. Musay P3,000,000. Funeral
expenses incurred by the estate during the wake and burial of Mr. Musay amounted to P1,900,000.

Required:

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1. Compute item 34 (Gross Estate) of BIR from no. 1801
A. P28,500,000 B. P32,500,000 C. P30,000,000 D. P40,000,000

2. Compute Schedule V (Ordinary deductions) of BIR Form No. 1801

A. P5,000,000 B. P10,250,000 C. P12,000,000 D. P8,500,000

3. Compute item 40 (Net Taxable Estate) of BIR Form no. 1801

A. P3,750,000 B. P13,750,000 C. P29,750,000 D. P0

4. Compute item 20 (Estate Tax Payable) of BIR form no. 1801

A. P225,000 B. P825,000 C. P1,785,000 D. P0

Exclusive Common Total

RP QC 20,000,000
RP Batangas 12,000,000
RP C avite 4,000,000
Other exclusive 1,000,000
Other common 3,000,000
Gross Estate 13,000,000 27,000,000 40,000,000
Ordinary Deductions:
Mortgage payable (5,000,000) (5,000,000)
Vanishing deduction (5,250,000) (5,250,000)
Net Estate before special deduction 7,750,000 22,000,000 29,750,000
Standard deduction (5,000,000)
Family Home (20M/2) (10,000,000)
Net Estate 14,750,000
Share of the SS (22M x 50%) (11,000,000)
Net taxable estate 3,750,000

Net taxable estate 3,750,000

Estate tax rate 6%
Estate tax due/payable 225,000

Value to take/initial basis 10,000,000

Proportional deduction:
10/40 x P5,000,000 (1,250,000)
Final basis 8,750,000
x 60%
Vanishing deduction 5,250,000

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