TAXATION OF THE STATE DEPENDS ON THE TYPE

ESTATE TAX OF DECEDENT

THE CONCEPT OF TRANSFER TYPES OF TRANSFERORS AND EXTENT OF

TAXATION
• The transfer of property ownership to another
gratuitously or without any consideration; • Resident or Citizen
donation ✓ Global properties
• Non-resident Alien
RATIONALE OF TRANSFER TAXATION ✓ PH properties
• Tax evasion or tax minimization theory ✓ Except INTANGIBLE PERSONAL
• Tax recoupment theory PROPERTY under reciprocity rule
➢ Financial asset- cash,
• Benefit received theory
receivables, investments
• State partnership theory
➢ Intangible asset- patent,
• Wealth redistribution theory
trademark, franchise,
• Ability to pay theory
copyright
TYPES OF TRANSFERS
OUTLIERS ON TRANSFER TAXATION
INTER-VIVOS MORTIS
• Revocable transfers (with reservation of certain
CAUSA
rights)
Transferor Living donor Decedent
✓ Decedent waived the right to revoke
Nature Voluntary Involuntary
Reason Gratuity Death before death- at the point of death the
Scope of the Only properties All properties of property does not belong to the owner
transfer of selected by the the decedent at (not included in estate)
properties donor death ✓ Decedent revoked- the property
Property given Gift Estate belongs to owner if the property is still
Transferee Donee Heir existing
Transfer tax Donor’s tax Estate tax ✓ Not revoked- property belongs to
Timing of owner at the point of death
Date of
valuation of Date of death • Transfer in contemplation of death
donation
donation ✓ Death is imminent upon me
✓ Inspired by the thought of death
✓ Included in ESTATE TAX
SITUS OF TRANSFER
• Transfer intended to take effect at death
• Location of the property ✓ Subject to ESTATE TAX
• Inventory of property per country at the date of • Quasi-transfers
death ✓ no transfer of ownership
• Both inter-vivos and mortis causa ✓ NOT TAXABLE

VALUATION OF TRANSFERS QUASI TRANSFERS

• Real property • The merger of usufruct in the owner of the naked

✓ Default valuation under NIRC (Zonal title
Value or Assessor’s fair Value • The transmission or delivery of the inheritance or
whichever is higher) legacy by the fiduciary heir or legatee to the
• Stocks or Shares fideicommissary
✓ Traded- average of high and low traded • The transmission from the first heir, legatee, or
price (no trading day- nearest trading done in favor of another beneficiary, in
day value) accordance with the desire of the predecessor
✓ Not traded- Book Value in the latest (special power of appointment)
published FS closest to the date of
death
• Other properties
✓ FV in the secondary market
ESTATE TAXATION • Proceed of GSIS policy or benefits from GSIS
• Benefit received from SSS
Gross Estate xxx – total properties owned
• Personal equity retirement account (PERA)
Deductions xxx • Cash withdrawals subjected to 6% final
withholding tax (6% is the estate tax)
Net Taxable Estate xxx
TAXABLE TRANSFERS
Multiply: 6%
• Transfers in contemplation of death
ESTATE TAX xxx • Revocable transfers
• Transfers with reservation of certain rights
GROSS ESTATE FORMULA
• Transfers under general powers of appointment
Physical count of properties at death xxx
GROSS ESTATE OF A MARRIED DECEDENT
Less: properties not owned xxx
• Separate properties of decedent
Legally excluded xxx • Common properties of decedent

Taxable present property xxx PROPERTY RELATIONS

Add: taxable transfers xxx • Absolute Separation of Properties

• No common
GROSS ESTATE xxx- taxable • Conjugal Partnership of Gains
properties of the decedent + transfer in contemplation of • All gains common, not gain not
death common
NOT OWNED BY THE DECEDENT • Absolute Community of Properties
• All properties
• The merger of usufruct in the owner of the naked
title NOT TAILORED
• The transmission or delivery of the inheritance or
• Marriage BEFORE AUGUST 3, 1988-
legacy by the fiduciary heir or legatee to the
CPG
fideicommissary
• Marriage ON or AFTER AUGUST 3,
• The transmission from the first heir, legatee, or
1988- ACP
done in favor of another beneficiary, in
accordance with the desire of the predecessor CONJUGAL PARTNERSHIP OF GAINS
(special power of appointment)
• Separate property of the surviving spouse • Prospective from date of marriage
• Proceed of irrevocable life insurance policy ✓ What earned before marriage are
payable to beneficiary other than the estate, separate
executor or administrator • All fruit during marriage= common/conjugal
✓ revocable- included property
✓ not designated- presumed revocable • Gratuitous acquisitions of either spouse=
✓ revocable but not changed at the point exclusive (donated to both= common)
of death- presumed irrevocable ✓ Inheritance
✓ Donation

EXEMPTED PROPERTIES ABSOLUTE COMMUNITY OF PROPERTY

• All bequest, devises, legacies or transfers to • Retrospective, except for

social welfare, cultural and charitable institution, ✓ Properties of spouse with descendants
no part of net income of which inures to the by a prior marriage
benefit of any individual; provided, however, that ✓ Properties for exclusive use of their
not more than 30% of the said bequest, devises, spouse, except jewelry
legacies or transfers shall be used by such • Prospective, except for
institutions for administration purposes ✓ Fruits of separate properties
• Proceeds of group insurance taken out by a ✓ Properties acquired for exclusive use of
company for its employees either spouse, except jewelry
 ✓ Gratuitous acquisitions of either spouse

DEDUCTIONS FROM GROSS ESTATE

• Losses, indebtedness and Taxes (LIT) (common)

✓ casualties not compensated by
insurance
✓ loss must happen within one year from
the date of death to be deducted
✓ indebtedness and taxes before death
• Transfer for public purpose (government or any
political subdivision)
• Deductions for properties previously taxed
(Vanishing Deductions)
✓ There is donation to the
decedent within five years
before death
• Family home with maximum value deductible
not to exceed 10,000,000
✓ Separate 100% value of
family home vs. 10m
whichever is lower amount
✓ Common- 50% vs. 10m
whichever is lower amount
• Standard deductions for citizen or resident alien
decedent only of 5,000,000
• Retirement benefit received by employees of
private firms form private pension plan approved
by the BIR under RA 4917 (common
property)(married- multiplied by 50%)
• Net share of the surviving spouse in the conjugal
partnership property or community property as
diminished by the expenses properly chargeable
to such property shall be deducted from the
estate (net common property/2)

ESTATE TAX COMPLIANCE

• Filing of estate tax return and extension

• 1 year from date of death
• Attachment to the estate tax return- CPA
Certification (>5m)
• Payment- pay as you file or within two years, no
interest

NRA

• Prorate the LIT

• Total LIT within and without * PH gross estate/
gross estate world= deduct from PH
• Transfer for public purpose- deduct when
property is within
• Vanishing when property is part of gross estate
• 500,000 standard deduction
• Share of surviving spouse