TRANSFER TAXES are taxes imposed upon the gratuitous disposition of private
properties: or rights.
GRATUITIOUS TRANSFERS one that neither imposes burden nor requires
consideration from transferee or recipient.
The transfer of ownership is free because of the absence of financial consideration
Hence, gratuitious transfers are essentially donations
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 t to take effect upon death.
ESTATE TAX is a tax imposed on the act of : -passing on the ownership of property at
the time – of death and not the value of the property or right.
ACCRUAL: It accrues as of the death of the decedent, not with standing the
postponement of the actual possession of enjoyment of the state
FILING OF ESTATE TAX RETURN:
- Decedent died before 2018: within 6 months after deaths
- Decedent died upon/during effectivity of TRAIN : law. 1 year from date of death :
The accrual of the tax is distinct from the obligation to pay the same (filing period)
Under meritorious cases (to be determined by the BIR), filing of estate tax return may
be extended for a period of not more than 30 days.
Law to be applied: The law/statute in 1 force as of the date of death of the decedent.
SUCCESSION
It is 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 either by will or by operation of law
TYPES OF SUCCESSION
2. TESTAMENTARY — which results from the designation of an heir, made in a will
executed in the form prescribed by law.
3. LEGAL OR INTESTATE — which is effected by operation of law or transmission of
properties where:
-There is no will
- If there is a will, the same is void or lost its validity, or nobody succeeds in the will.
5. MIXED – which is effected party by a 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 the 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 WILLS:
1. Notarial or Ordinary or Attested Will -is one which is executed in accordance with
the formalities. It is a 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 witness and acknowledged by.
The presence of a notary public.
2. 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 witness. It
doesn’t need formalities because many people can recognize his handwriting and it
can be verified by a penmanship expert.
3. Codicil — a supplement or addition to a will, made after the execution – Of a will
annexed to be taken as part thereof.
ELEMENTS OF SUCCESSION:
a) DECEDENT – the person whose property is transmitted through succession,
whether or not he left a will.
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 the property, rights and obligations of a person which are
not extinguished by his death.
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.
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.
KINDS OF HEIRS:
1.Compulsory Heirs — They inherit with or without a will.
Primary Compulsory Heirs
• Legitimate children and descendants
• Illegitimate children
• Widow or Widower
Secondary Compulsory Heirs
• In default of legitimate children and descendants, legitimate parents and
ascendants.
The compulsory heirs are entitled to their legitimate, with or without a will, unless
validly “dis-inherited”.
2. Voluntary Heirs- They inherit only if they are in the will
INTESTATE HEIRS- The compulsory heirs in testamentary succession _are-also heirs in
intestate succession. They are entitled to their legitimate.
However, ‘as to the free portion of the estate, it shall be distributed to the following
intestate heirs as follows (order of priority):
A) Legitimate children
b) Legitimate parents
C) Illegitimate children
d) Spouse
e) Brothers or Sisters
f.) Relatives by consanguinity up to 5th civil degree
g.) state
GROSS ESTATE Consists of all properties and interests in properties of the decedent at
the time of his death as well as properties transferred during lifetime (only in form),
but in substance was only transferred at the time death.
COMPONENTS OF THE GROSS ESTATE
Properties existing at the time of death such as:
a.Real property and other tangible Personal Property
b.Decedents interest and Intangibles
• Decedent’s Interest — Refers to the extent of equality or ownership participation of
the decedent on any property physically existing and present in the gross estate,
whether or not in his possession, control or dominion.
c. Properties transferred gratuitously during lifetime, but in substance, transferred
upon death:
1. Transfer in contemplation of death – the thought of death must be there.
2. Transfer with retention or reservation of certain right – allows the transferor to
continue enjoying, possessing or controlling the property (beneficial ownership)
because only the naked title has been transferred.
3. Revocable transfer- decedent transfers the enjoyment of his property to another,
subject to his right to revoke the transfer at will, with or without notifying the
transferee, any time before he dies.
4. Property passing under General Power of Appointment (GPA).
5. Transfers for insufficient consideration — sale of property below fair market value
6. Proceeds from life insurance — the following are included in the gross estate: a.
Whether REVOCABLE or IRREVOCABLE, when the beneficiary is the:
- Estate of the deceased
- His executor
- Administrator
b. When the beneficiary is a third person, only if REVOCABLE.
2. Exemptions and Exclusions from Gross Estate
a) UNDER SECTION 85 AND 86, NIRC Capital or exclusive property of the surviving
spouse properties outside the Philippines of a non-resident alien decedent Intangible
personal property in the Philippines of a nonresident alien when the rule of Reciprocity
applies.
b) UNDER SECTION 87, NIRC
1. The merger of the usufruct (right to use) in the owner of the naked title.
2. The transmission from the first heir, legatee or done in favour of another
beneficiary in accordance with the will of the predecessor. This type of transfer is most
commonly known as “transfer under Special Power of Appointment (SPA)”. GPA vs
SPA
GPA = addition to gross estate
SPA = exclusion from the gross estate
1. The transmission or delivery of the inheritance or legacy of the fiduciary heir or
legatee to the fedeicomissary.
This is the same with SPA above. The only difference is, in fedeicomissary transfer, the
relationship of the donor and donee is only one degree apart (i.e., from a Parent to
his/her son)
2. All bequests, devices, legacies or transfers to social welfare, cultural and
charitable institutions, provided:
No part of the net income of said institutions inure to the benefit of any individual;
Not more than 30% of such transfers shall be used for administration purposes.
c.) UNDER SPECIAL LAWS
-Proceeds of life insurance and benefits received by members of the GSIS (RA728).
-Benefits received by members from the SSS by reason of death (RA1792)
-Amounts received from the Philippine and United States governments for war
damages.
RECIPROCITY CLAUSE – No tax shall be imposed with respect to intangible personal
properties of a NRA situated in the Philippines:
1. When the foreign country, where such NRA is a resident and citizen, ‘does “not
impose transfer tax with respect to intangible personal properties of Filipino citizens
not residing in that country, or
2. When the foreign country imposes transfer taxes, but grants similar exemption
with respect to intangible personal properties of Filipino citizens Not residing in that
country.
VALUATION OF GROSS ESTATE
In General — fair market value upon death. Personal Properties – Fair market value
Real Property – the higher amount between: Fair Market Value
Zonal Value Shares of stock
a) Traded in the Local Stock Exchange (LSE) – mean between the highest and lowest
quotations nearest the date of death, if none is available on the date of death itself.
b) Non traded in the local stock exchange
1. Common (ordinary) shares – Book value 2. Preferred (preference) shares – Par
Value
Usufruct – based on latest Basic Mortality Table to be ae approved by the Secretary of
Finance, upon recommendation of the insurance Commissioner.
3. PROPERTY RELATIONSHIP BETWEEN SPOUSE
The Property relationship or marriage settlement of the spouses shall be determined
as follows (order of priority):
1. BASED ON AGREEMENT
If there was an agreement entered into by the parties before marriage, apply the type
of settlement entered into by the parties such as: Absolute Community of Property
(ACoP)
Conjugal Partnership of Gains (CPG)
Complete Separation
2. BY OPERATIONS OF LAW (New Family Code)
In the absence of an agreement, the marriage settlement will depend on the date of
marriage as provided under the law [New Family Code (NFC)] as follows:
Date: Before the effectivity of the NFC (Aug. 3, 1988), apply CPG
Date: On or after the effectivity of the NFC (Aug. 3, 1988), apply AC
3. BY CUSTOMS OR TRADITIONS ‘
CONJUGAL PARTNERSHIP OF GAINS (CPG)
1. Exclusive Properties: :
-That which is brought to the marriage as his or her own (properties before marriage)
-That which each acquires during marriage by gratuitous title
-That which is acquired by right of redemption, by barter or by exchange with property
belonging to any one of the spouses; and
- That which is purchased with exclusive money of the wife or of the husband.
2. Conjugal Properties:
- Those acquired by onerous title during marriage at the expense of the common fund,
whether the acquisition be for the partnership, or for only one of the spouses;
-Those obtained from labor, industry, work or profession of either or both spouses; .
-The FRUITS (or income), natural or industrial, or civil, due or received during marriage
from common property, as well as the net fruits from the exclusive property of each
spouse; :
Rule on Fruits under CPG: AFC — ALL Fruits (or income) are Common
ALLOWABLE DEDUCTIONS DEFINED
1.Deductions are items which the law on estate tax allows, as amended, to be
subtracted from the value of the gross estate in order to arrive at the net taxable
estate.
2.As a rule, deductions from gross estate are presumed to be common deductions
unless specifically identified as exclusive. 3.Refer also to the “FORMAT” of
computation for married decedents as shown in the preceding pages.
ORDINARY DEDUCTIONS
Classified as exclusive or common deductions
1. EXPENSES, LOSSES, INDEBTEDNESS, TAXES, etc. (ELITe)
- Funeral Expenses (repeated under TRAIN Law)
Requisites:
- Must be incurred prior to interment;
- Shouldered by the estate; and
- Not to exceed the limit set by law.
Amount Deductible:
-Actual funeral expenses
-5% of Gross Estate
-P200,000
Components of Actual Funeral Expenses:
- Expenses for the deceased’s wake, including food and drinks
-Publication charges for death notices;
Judicial Expenses (repealed under TRAIN Law
Requisites:
-Must be incurred during the settlement of the estate, but not beyond the last day
prescribed for the filing of the estate tax return (within 6 months);
-Must be essential to the collection of the assets, payments of debts or the distribution
of the estate.
Amount deductible — expenses incurred in: a) Inventory — taking of assets
comprising the gross estate
b) Their admission tax
c) Payment of debts of the estate
d.) Distribution of the estate among the heirs.
CASUALTY LOSSES
Requisites:
-Incurred during the settlement of the estate. Settlement period is the period allowed
by law to file and pay the estate tax as follows:
-Decedent died before 2018 — within six months (6) after death
-Decedent died on or after Jan. 1, 2018 — with on (1) year after death
-Arising from fires, storms, shipwreck, or other casualties, or from robbery, theft or
embezzlement:
-Not claimed as deduction for income tax purposes;
-Amount deductible — the amount deductible is the value of the property lost.
CLAIMS AGAINST INSOLVENT PERSONS REQUISITES:
a)Value of the claims is included in the gross estate; and
b) The insolvency of the debtor must be established.
Amount deductible – the amount of claims/receivable that cannot be collected. E
Indebtedness or Claims against the Estate
Requisites:
1. Personal debt of the decedent existing at the time of his death;
2. Contracted in good faith;
3. Must be valid in law and enforceable in court;
4. Must not have been condoned by the creditors;
5. Must not have prescribed
6. Substantiation Requirements
Incase of Simple Loans Including Advances
A Duly Notarized Certification from the Creditor as the unpaid balance of the debt
including interest as the date of death. The Sworn Certification shall be signed by:
IF SAID LOAN IS CONTRACTED WITHIN THREE (3) years prior to the death of the
decedent: A Statement under Oath executor of the estate reflecting the disposition of
the proceeds of the loan.
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.
Amount deductible – the amount of debt that will qualify in the above requirements.
Unpaid Mortgage
Requisites:
The fair market value of the mortgaged property undiminished by the mortgage
indebtedness should be included in the gross estate
Contracted in good faith and
For an adequate and full consideration
Amount Deductible – amount of unpaid mortgage.
Unpaid Taxes e Requisite — the tax must have accrued before the death of the
decedent.
Amount deductible – unpaid taxes that accrued before the decedent’s death but not
including:
Any income tax upon income received after death
Property taxes not accrued before death; and
Estate tax from the transmission of his estate
2. TRANSFER FOR PUBLIC USE (TFPU)
E Requisites:
Given to the Government of the Philippines (National or local);
Must be testamentary in character; or
By the way of donation mortis causa executed by the decedent before his death;
Exclusively for public purpose.
Amount deductible – amount of all bequests, legacies, devises, or transfers to or for
the use of the Government of the Philippines, or any of its political subdivisions.
VANISHING DEDUCTION (PROPERTY PREVIOUSLY TAXED)
Requisites:
The decedent died within 5 years from receipt of the property from a prior decedent or
donor;
Property is located in the Philippines (this particular requirement was repealed under
TRAIN Law)
The property must have formed part of the taxable estate of the prior decedent or the
taxable gift of the donor and the transfer tax relative thereto had been paid;
The property on whichh vanishing deduction is being taken must be identified as the
one received from the prior decedent, or from the donor, or something acquired in
exchange therefore
No vanishing deduction on the property was allowable to the estate of the prior
decedent.
SPECIAL DEDUCTIONS
1.Standard Deduction
The amount deductible without any required substantiation is P1, 000,000 if the
decedent died before 2018 and P5, 000,000 if the decedent died on or after January 1,
2018.
A standard deduction of – P500, 000 shail also be allowed to nonresident alien
decedent beginning January 1, 2018.
3. Family Home Allowance
REQUISITES:
The decedent is married or head of a family;
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 Brgy. Captain of the locality the family
home is situated; alt is located in the Philippines;
The value of the family home is included in the gross estate
AMOUNT DEDUCTIBLE –
The LOWER between the Actual Interest and the Limit. The LIMIT provided by law are
as follows:
Prior to TRAIN Law = P1,000,000 TRAIN Law = P10,000,000
ACTUAL INTEREST
Purely Exclusive = 100%
FMV = Purely Common Property = 100%FMV/2 .
MIXE:Exclusive Property (100%)
P xx : Add: Common Property (100%/2) _xx – Total Pxx
4. Medical Expenses
(Repealed under TRAIN Law)
REQUISITES (Applicable only if the decedent died before 2018):
Incurred within 1 year prior to the death of the decedent
Duly substantiated
Not to exceed P500,000
5. Amount received by heirs under R.A. 4917
REQUISITES
Include such amount in the gross estate. Amount Deductible – amount received by the
heirs from the decedent’s employer as a consequence of the death of the decedent-
employee.
INSUFFICIENCY OF CASH FOR THE PAYMENT OF ESTATE TAX
Incase 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 corresponding terms and conditions (RR 12-2018)
1. Cash Installment, The cash instalments shall be made within two (2) years from
the date of the filing of the estate tax return
The frequency (1.e., monthly, quarterly, semi-annually, annually) deadline and the
amount of each instalment shall be indicated in the estate tax return, subject to the
approval by the BIR
Incase of lapse of two (2) years without the payment of entire tax due, the remaining
balance thereof shall be due and demandable subject to applicable penalties and
interest reckoned from the prescribed deadline for filing the return and payment of
estate tax; and no civil penalties or interest may be imposed on the estates permitted
to pay the estate tax due by instalment.
2. Partial disposition of estate and application of its proceeds to the estate tax due.
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;
The written request for the partial disposition of estate tax 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;
The computed estate tax due shall be allocated in proportion to the value of each
property.
Anelectronic 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 to be disposed to cover the total estate tax due, net of the
proportionate estate tax(es) previously paid under this option.
