Valuatión of Gross Estate (as amended by 3. Personal Property – Fair.

market value at the the Secretary of Finance upon

RA10963; RR 12-2018) time of death recommendation of the Insurance
Commissioner [Section 88(A)-NIRC].
The estate of the decedent shall be appraised
4. Shares of stock
at its fair market value at the time of his death.
1. Unlisted common share – Book value Exclusions under Section 87 of the Tax
Succession and the accrual of the
per share of the issuing corporation Code
corresponding estate tax takes effect upon
(Appraisal surplus shall not be
death.
considered, as well as the assigned
amount to preference shares, if any). 1. The merger of usufruct in the owner of
Specifically, the following rules shall apply in the naked title.
determining the valuation of the estate: 2. Unlisted Preference share – Par value
1. In General – Fair Market Value at the time of Usufruct = the legal right to use and enjoy someone
per share
else's property (e.g., live in it, earn income from it), but
death
not own it.
2. Real Property – The higher value between:
• FMV determined by the Commissioner 3. Listed shares: FMV shall be the Naked title = legal ownership of the property, but without
• FMV as shown in the schedule of arithmetic mean between the the right to use or enjoy it (because that right is with the
highest and lowest quotation at a usufructuary).
values fixed by the provincial and city
assessors (also known as assessed date nearest the date of death if none
is available on the date of death itself 2. The transmission or delivery of the
value or FMV for real estate tax
inheritance or legacy by the fiduciary
purposes).
heir (also known as the 1st heir)
5. Units of participation in any or legatee to the fideicommissary (also
For purposes of prescribing real property values, the CIR association, recreation or amusement known as the 2nd heir).
is authorized to divide the Philippine into different zones club – The bid price nearest the date
or areas and shall, upon consultation with competent of death published in any newspaper
appraisers, both from the private and public sectors, When a first heir (fiduciary) passes on the
circulation. or publication inheritance to the second heir (fideicommissary), it
determine the fair market value of real properties located
in each zone or area. If there is an improvement, the value is not taxed again.
of improvement is the construction cost per building 6. Right to usufruct, use or habitation,
permit or the fair market value per latest tax declaration. and annuity – In accordance with the
3. The transmission from the first heir,
3. latest Basic Standard Mortality Table
legatee or donee in favor of another
taking into account the probable life
predecessor (also known as "Transfer
of the beneficiary, to be approved by
under Special Power of Appointment").
 THE MERGER OF USUFRUCT IN THE 4. Amounts received from United States
If the first heir or donee transfers the inheritance to OWNER OF THE NAKED TITLE Veterans Administration.
another person as allowed by the original giver, it is 5. Payments from the Philippines of US
excluded from estate tax. government to the legal heirs of deceased
The decedent in this particular case
(known as donee-decedent or current of World War II Veterans and deceased
4. All bequest devises, legacies or decedent) only received from the prior civilian for supplies/services furnished to
transfers to social welfare, cultural and decedent (donor-decedent or prior the US and Philippine Army (RA136).
charitable institutions, no part of the decedent) usufruct over the latter's 6.Retirement benefits of
net income of which inures to the property. Usufruct pertains only to the right officials/employees of a private firm
benefit of any individual: Provided, or privilege to enjoy the use and (RA4917).
however, that not more than thirty advantages of another's property. Thus, the 7. Personal Equity and Retirement Account
percent (30%) of the said bequest, current decedent is not considered the (PERA) assets of the decedent-contributor
devises, shall be used by such owner of the property. Consequently upon (Sec. 14, RA 9505 - Personal Equity and
institutions for administration his death, the usufruct will be merged to Retirement Account Act of 2008).
purposes. the owner of the naked title, the intended 8. Compensation paid to private and public
beneficiary of the property. health workers who have contracted
These are tax-exempt as long as: COVID-19 in case of death, the said
• The organization doesn’t give profits to amount shall not be included as part of the
C. Exclusions under Special Laws
private individuals, and gross estate of the decedent subject to
• No more than 30% of the donation is used estate tax as provided under Republic Act
for administrative costs 1. Proceeds of life insurance and benefits No. 11494 or. the "Bayanihan to Recover as
received by members of the GSIS (RA728). One Act".
The government agency which is
empowered to determine the exemption is 2. Accruals and benefits received by COMPOSITION OF THE GROSS ESTATE
the BIR. To enable it to exercise such members from the SSS by reason of death
Generally, gross estate consists of all the
power, the transfer to social welfare, (RA1792).
property owned by a decedent or which the
cultural institutions should be included in decedent had an interest at the time of
the gross estate. An equal amount, 3. Amounts received from Philippines and death, such as:
however, may be taken up as a deduction. United States government for war damages
• Real property.
(RA227).
• Personal tangible property
 • Intangible personal property 2. Property NOT PHYSICALLY IN THE with any person, to designate the
✓ Shares of stocks ESTATE but are still subject to payment person who shall possess or enjoy
✓ Bank deposit of estate tax. the property or the income
✓ Dividends declared before his These properties have already been therefrom; except in case of a
death but received after death. transferred during the lifetime of the bonafide sale for an adequate and
✓ Partnership profit which have decedent, however, such properties full consideration in money or
accrued before his death. shall still form part of his gross estate money's worth.
✓ Usufructuary & rights because the transfers were either
intended to take effect only upon his If the decedent made transfers that are meant to be
Section 85 of the Tax Code enumerates the death or does not actually convey full enjoyed only after death or retained certain rights
composition of the Gross Estate. ownership over the property during life such as:
transferred. • The right to use or get income from the
1. Property owned by the decedent that
property, or
are actually and physically present in
a. Transfers in Contemplation of • The right to decide who will get the property
his estate at the time of his death such
Death [Sec. 85(B)] The Tax Code, as later),
as land, buildings, shares of stock,
amended, provides: then these properties are still part of the
vehicles, bank deposit, and the like.
gross estate.
To the extent of any interest therein Exception: If the transfer was a genuine sale for a
Decedent's Interest [Sec. 85(A)] of which the decedent has at any fair price, it’s not included.
The Tax Code provides that Decedent's Interest time made a transfer, by trust or
to the extent of the interest therein of the otherwise, in contemplation of or A transfer in contemplation of death is a
decedent at the time of death shall be intended to take effect in disposition of property prompted by thought of
included in the gross estate. possession or enjoyment at or after death.
Decedent Interest refers to the extent of equity death, or of which he has at any • Included within this concept is
or ownership participation of the decedent on time made a transfer, by trust or donation mortis causa. (gift in
any property physically existing and present in otherwise, under which he has contemplation of death)
the gross estate, whether or not in his retained for his life or for any period • The gross estate shall include the value
possession, control or dominion. It also refer which does not in fact end before of property transferred by the decedent
to the value of any interest in property owned his death (1) the possession or during his lifetime in anticipation of his
or possessed by the decedent at the time of enjoyment of, or the right to the death (transfer in contemplation of
his death (interest having value or capable of income from the property, or (2) the death) such as:
being valued or transferred). right, either alone or in conjunction
1. Transfer of property in favor of another terminated by the decedent. It is exercise of the power, whether or not
person, but the transfer was intended sufficient that the decedent had the on or before the date of the decedent's
to take effect only upon the transferor's power to revoke though he did not death notice has been given or the
death. exercise the power. Section 85(C) of power has been exercised. - In such
cases, proper adjustment shall be
2. Transfer by gift intended to take effect the Tax Code, as amended, provides:
made representing the interests which
at death, or after death, or under which
would have been excluded from the
the donor reserved the income or the (1) To the extent of any interest therein, of power if the decedent had lived, and
right to designate the persons who which the decedent has at any time for such purpose if the notice has not
should enjoy the income. made a transfer (except in case of a been given or the power has not been
3. Transfer with retention or reservation of bonafide sale for an adequate and full exercised on or before the date of his
certain rights. The decedent had consideration in money or money's death, such notice shall be considered
transferred his property during his worth) by trust or otherwise, where the to have been given, or the power
lifetime, but retained for himself enjoyment thereof was subject at the exercised, on the date of his death.
date of his death to any change
beneficial enjoyment of the thing or the
through the exercise of a power (in c. Transfers under a General Power of
right to receive income from the same.
whatever capacity exercisable) by the
Appointment [Sec. 85(D)]
decedent alone or by the decedent in
Section 85 of the Tax Code, as conjunction with any other person
amended, provides that there is no (without regard to when or from what Power of appointment refers to the
transfer in contemplation of death source the decedent acquired such right to designate the person or
when the transfer of property is a power), to alter, amend; revoke, or persons who will succeed to the
Bonafide(legitimate, genuine, in good terminate, or where any such power is property of the prior decedent.
faith) sale for an adequate and full relinquished in contemplation of the
decedent's death.
consideration in money or money's The power of appointment may be
worth. 1. General – when the power of
(2) For the purpose of this Subsection, the
appointment authorizes the done of
power to aner, amenu or revoke shall
b. Revocable Transfers [Sec. the power to appoint any person he
be considered to exist on the date of
85(C)] the decedent's death even though the pleases. The power may be exercised
exercise of the power is subject to a in favor of anybody including the
precedent giving of notice or even donee-decedent. The donee of a
It is a transfer where the terms of
though the alteration, amendment or general power of appointment holds
enjoyment of the property may be
revocation takes effect only on the the appointed property with all the
altered, amended, revoked or expiration of a stated period after the attributes of ownership thus, the
 appointed property shall form part of 2. By deed under which he has retained d. Transfers for Insufficient
the gross estate of the done for his life or any period not Consideration [Sec. 85(G)]
(beneficiary) of the power upon his ascertainable without reference to his
death. death or for any period which does not
When a sale or transfer (other than a bonafide
General power = the donee (person given the in fact end before his death.
or valid sale) was made for a price less than its
power) can give it to anyone, even themselves. 3. The possession or enjoyment of, or the
fair market value at the time of excess of the
Since they control it like an owner, the property is right to the income
fair market value transferred property at the
part of their estate when they die. 4. The right, either alone, or in
time of death over the value of the
conjunction with any person to
consideration received should be included in
2. Special Power of Appointment (SPA) – designate the persons who shall
the gross estate. For this purpose, the
exists when the done can appoint only possess or enjoy the property or the
following fair market values shall be used:
from a restricted or designated class of income therefrom.
persons other than himself. Property
Fair Market Values (FMV):
transferred under a special power of The power of appointment may be exercised by
appointment should be excluded from the donor-decedent through the following
the gross estate of the done of the • FMV of the property at the time of sale
modes:
power because the donee-decedent or transfer.
1. By will This is use to determine whether or not
only holds the property in trust. Refer 2. By deed to take effect in possession or
also to Exclusions under Section 87 of the consideration was full and
enjoyment at his death adequate. If the consideration received
the Tax Code as discussed in 3. By deed under which he has retained
illustration is substantially the same with the fair
for his life or any period not market value at the time of transfer,
ascertainable without reference to his such sale or transfer is considered a
Special power = the donee can only give it to certain people
(not themselves). Since they don’t truly own it, the property is
death or for any period which does not bona fide sale, hence, not subject to
not included in their estate. in fact end before his death. estate tax.
4. The possession or enjoyment of, or the • FMV of the property at the time of
The power of appointment may be exercised by right to the income death.
the donor-decedent through the following 5. The right, either alone, or in This is used to determine the amount
modes: conjunction with any person to to be included in the gross estate. If the
1. By deed to take effect in possession or designate the persons who shall consideration received is substantially
enjoyment at possess or enjoy the property or the lower or for less than full and adequate
income therefrom. compared to the fair market value at
the time of sale or transfer, such sale or satisfy, whether fully or partially, • His estate or executor/administrator
transfer was made for insufficient In his debts). A judicial declaration (revocable or not)
such cases, the excess of the fair of insolvency is not required but administrator/executor)
market value at the time of death over the incapacity of the debtor to • Any other person (other than estate or
the consideration received at the time provided that the designation is not
pay his obligation should be
of sale or transfer should be included irrevocable
proven. As a rule regardless of
in the gross estate of the decedent. If If the policy does not expressly say that the
there was no consideration received at
the amount the debtor is unable
designation of the beneficiary is irrevocable,
the date of transfer and such transfer to pay, the full amount of the
then it is presumed to be revocable. Also,
was made "in contemplation of death" claim against the insolvent
proceeds of life insurance under a group
(donation mortis causa), the fair person should be included in insurance taken by the employer are not
market value of the property at the date the gross estate of the subject to estate tax. The Philippine Insurance
of death, not at the date of transfer, decedent. The portion of the Code presumes that the designation of a
should be included in the gross estate claim which is not collectible policy is revocable in case the designation of
of the decedent. there was no should be allowed as a the beneficiary is not clear or silent. Section 11
consideration received at the date of deduction from the gross estate. of the Insurance Code (RA 10607) states that
transfer and such transfer was not "the insured should have the right to change
made "in contemplation of death", the beneficiary he designated in the policy,
such transfer shall be considered Proceeds of life insurance [Sec. 85(E)]
unless he has expressly waived this right in
donation inter-vivos subject to donor's said policy. Notwithstanding the foregoing, in
tax based on the fair market value of Proceeds of life insurance taken out by the by the event the insured does not change
the property at the date the donation the decedent on his own life should be beneficiary during his lifetime, the designation
was made. included in the gross estate if the following shall be deemed irrevocable."
requisites are present:
MISCELLANEOUS ITEMS
a. Claims against insolvent 1. It must be an insurance on the life of the
persons (Sec. 85) decedent; and
2. The beneficiary must be either of the
For estate tax purposes, an following;
insolvent is a person whose
properties are not sufficient to