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NATURE OF ESTATE TAX

ESTATE TAX – is a tax on the transfer of the net estate of the decedent.
The obligation to pay the estate tax accrues at the moment of death.
The object of estate tax is to tax the transfer of economic benefits and enjoyment of
property from a decedent person to the heir.
The state protects the rights of the individual on his property and supervises its
transfer from one generation to the next.
Consequently, the State, in the exercise of its sovereignty has always regarded
property transfer as appropriate object of taxation.
JUSTIFICATION OF ESTATE TAX
Estate tax is imposed on the properties left by a decedent person not only to
augment the revenue of the government but also to apply the fundamental
principles or theories regarding taxation such as:
1. Redistribution of wealth theory. This theory views that the inheritance
received by the heir contributes to the unequal distribution of wealth and
earnings because the heir has not actually worked for it.
The imposition of death taxes helps to distribute some of the economic
benefits which should have been solely enjoyed by the heir.
2. Benefit-received theory. According to this theory, the government
provides services for the transfer of the estate of the decedent, either by law
or will. Because of these services that the results to benefits received by the
estate and the heir, it is therefore fair that the government collects its
equivalent compensation in protecting individual persons and properties or
rights.
3. Privilege or state partnership theory. This theory asserts that the State
is a “passive and silent partner” in the accumulation of wealth as it protects
every individual within its territory. Hence, it has the right to collect the share
which is properly due to it.
4. Ability-to-pay theory. According to this theory, every inheritance received
by an heir is in the nature of unearned wealth. The effect of inheritance
increase the wealth of the heir thereby creating an ability to pay the tax and
thus contributing the government income.
EFFECTIVITY OF THE TRANSFER OF PROPERTIES
The law provides that the right to succession is effected from the moment of the
decedent’s death. The properties and the rights of the decedent are transferred to
his successor at the time of his death without any interruption.
In other words, the generating source of power to transfer the properties and rights
is death. The transfer accrues at the time of death of the decedent.
Consequently, the determination of the tax on property transferred is trace back to
the moment of death.

Effectivity of transfer of property 2. WILL – It is a document that determines the disposition of an inheritance. OTHER BASIC ELEMENTS 1. whether or not he left a will. and may be made without a witness. made after the execution of a will and annexed to be taken as a part thereof.” TESTATOR – is the decedent who made the last Will and Testament. rights and obligations to the extent of the value of the inheritance. rights. CODICIL – A supplement or an addition to a will. Basis of tax 4. 2. with the formalities prescribed by law. Exempt amount 5. BASIC CONCEPT OF SUCCESSION Succession is defined as a mode of acquisition by virtue of which the property. ESTTATE – The properties or property rights of the decedent. 2. to control to a certain degree the disposition of his estate. and may be made in or out of the Philippines. 3.000 and below Within six months from the decedent’s death. an act whereby a person is permitted. added to. HOLOGRAPHIC WILL – One entirely written.000 and below Within thirty(30) days after the date gift is made ESTATE TAX Upon the death of the decedent Estate of the deceased person The net estate Net estate of P200. which is the subject matter of succession. by any disposition made in the original will is explained. Taxpayer 3. dated and signed in the very handwriting of the testator himself and is subject to no required form. Filing and payment During the lifetime of donor and donee The donor The net gift Net gift of P100. . of a person are transmitted through his death to another or others either by will (testate) or by operation of law (intestate) BASIC ELEMENTS 1. DECEDENT – The person who died and whose property is transmitted through succession. 3. It also includes those which have accrued thereto since the opening of the succession. or altered.DISTINCTION BETWEEN DONOR’S TAX AND ESTATE TAX DONOR’S TAX 1. “Decedent is the general term applied to the person whose property is transmitted through succession. SUCCESSOR – The heir or the person to whom the property or property rights is to be transferred. INHERITANCE – includes all properties. and obligations of a person which are not extinguished by his death.

To avoid chaotic conflicts. 14. custody. The wealth left by the decedent should be actively used to provide economic benefit to the community. and devisees. his property becomes without ownership.4. if any. 8. notarized by a lawyer.ESCHEAT – A proceeding whereby the State. 10.SPECIAL PROCEEDINGS – A remedy by which a party seeks to establish a status. 9. heirs assume ownership of property left by the decedent because they have the primary rights over the inheritance. The principle of the natural law necessitates a person to provide for those who leaves behind. or a particular fact. upon the persons death.EXECUTRIX – a female executor. the heirs are protected by law to succeed the rights of the decedent. by virtue of its sovereignty.DEVISEE – One who is given real property in a will.ADMINISTRATOR – The person entrusted and assigned by court by the care. a property is claimed by the state of forestall an open invitation to self-service by the first comers. . 7. 3. 11. As a consequence of death. In the absence of a lawful owner. TESTATE ESTATE – An estate of a deceased person which is settled or to be settled with a valid will and testament. 2. PROBATE – A special proceeding to establish the validity of a Will. Implicit ownership. 12. the decedent’s wealth which he acquired during his lifetime is intended for the benefits of his heirs. which means that no Will passes either real or personal property unless it is proved and allowed in a property court. PPERSONS AUTHORIZED TO TAKE CHARGE OF THE ESTATE The actual transfer of the estate to the successors could not immediately be made because some formal proceedings should be complied first. Among the subject matters of special proceedings are escheat and settlement of estate of deceased persons. 6.ADMINISTRATRIX – a female administrator. Socio-economic. INTESTATE ESTATE – An estate of a deceased person without a will. a right. As a result. legatees. Public Order. steps in a claims the real or personal property of a person who dies intestate without heir. LEGATEE – One who is given personal property through a Will. BASIS OF SUCCESSION The principles that provide for the bases of transferring the decedent’s property to the heirs are the following: 1. 13. Probate is mandatory. Family Relations. 15. Immediately. 16. signed by a testator and witnesses.EXECUTOR – The person named in the will who is entrusted to implement its provisions. 5. 4. REPROBATE – A special proceeding to establish the validity of a will previously proved in a foreign country. NOTARIAL WILL – A Will written in public instruments. and management of the estate of a decedent until the estate is partitioned and distributed to the heirs. The successor should continue to utilize the resources left by the decedent in order that the wealth shall be preserved.

The heirs are not liable for the value of the decedent’s obligations existing at the time of death. The law has reserved to them a portion of the testator’s property.During the transition period. The successor to the inheritance are classified as the primary compulsory heirs and secondary compulsory heirs. Note: Legitimated and adopted children are deemed included in the term “legitimate children” 2. compulsory heirs shall not be compelled to accept the legitime. The following are the primary compulsory heirs: 1. This includes the properties. rights and obligations of the decedent which are not extinguished by his death. has to be transferred by operation of law or by virtue of a will to the successor(s). Both the natural and the spurious children are simply called illegitimate children having exactly the same rights. However. Surviving legitimate spouse (widow or widower). SUCCESSORS Successors are the parties who have the legal right to receive the estate. An Administrator is a person or trust company appointed by the court to administer and distribute the decedent’s estate if there is no Will. and has such. The estate. with respect to their legitimate parents and ascendants. However. An Executor is a person or trust company named in the Will of the testator to carry out its provisions. The amount of inheritance distributed to the heirs is the net estate after the payment of the decedent’s obligations and estate tax. there are no more spurious children. their share on the decedent’s property hall be less than the inheritance received by the legitimate children. Primary Compulsory Heirs are the successors to whom the legal portion of the estate is first reserved by the law. somebody must take charge to gather and distribute the properties left by the decedent. since they are born outside marriage. or if there is no executor named in the Will. or if the person named in the Will does not act or execute its provisions. the estate has to be taken over by either an executor or an administrator. Illegitimate children are given inheritance because they are considered innocent. They are called compulsory heirs because the testator cannot disregard them to obtain the inheritance. . Under the New Family Code. which is usually one-half of the shares of the legitimate child. 3. Illegitimate children and their descendants. Legitimate children and their descendants. which is the subject of succession.

Mina Las died leaving the following properties: One thousand square meters residential lot Second hand car Jewelry P1. Strangers are not compulsory heirs However. which should be disposed of as follows: 1. Nephews and nieces are not compulsory heirs.000 300. 887 of the Civil Code do not include parents-inlaw. Legitimate parents and legitimate ascendants – they inherit only in default of legitimate children and their descendants. If there were no relatives to receive the estate.000. In the case. ABSENCE OF COMPULSORY HEIRS In the absence of any compulsory heirs. if the testator desires it. ILLUSTRATION: Mrs. Secondary Compulsory Heirs are the successors to receive the estate in the absence of the primary compulsory heirs. Illegitimate parents (no other descendants) – they inherit only in default of surviving legitimate spouse and illegitimate children and their descendants. Mado. they are not entitled to the legitime. the government shall inherit the whole estate. there must be a recognition of the illegitimate relationship whether voluntary or compulsory recognition. Mrs. 2.000 200.Mado and Ric . Residential lot to her only son. it is not contrary to law in giving them share of the inheritance. the following are the parties (elements) in succession: Decedent – Mina Las Successors . If there is a Will. Ric Lamo. Brothers. The following are the secondary compulsory heirs: 1. the decedent may name other person to inherit the free portion of the net distributable estate. A widow is not a compulsory heir of a parent-in-law. 3. to administer the distribution of her properties upon her death. 2. the successors would be: 1. 2. The parents mentioned in Art. hence. They can become heirs only in the intestate succession. they may be called voluntary heirs. Las assigned her brother. sisters. The existing blood relationship is not enough. In the case above. as long as the legitime of the compulsory heirs is not impaired.000 In her last will and testament. The decedent’s relatives up to 5th degree of consanguinity.Being an illegitimate child does not automatically make one a compulsory heir. The car and jewelry to Ric.

Every will must be written and made in a language or dialect known to the testator. Illegitimate children and their 2. Any person who is 18 years old and above and of a sound mind may take a valid last will and testament for the disposition of his properties. Oral will should be tape-recorded will. In can arise only when the decedent left a written valid Will or through a Codicil which may be notarial or holographic. A Will translated to the dialect of an illiterate testator will not cure the defect of the Will. made in a Will and executed in the form of prescribed by law. Legitimate children and their descendants Concurring primary heirs In the absence of the decedent’s child the secondary compulsory are 1. which should take effect upon his death. 2. KINDS OF SUCCESSION The Civil Code classifies succession as (a) testamentary.Testator – Mina Las Compulsory heir – Mado Las Estate – Land. Illegitimate parents( no other descendants (legitimate or ascendants) illegitimate) NOTE: The relatives mentioned are those of the testator. Legitimate parents and legitimate ascendants. 1. car and jewelry Devisee – Mado Las Executor – Ric Lamo Legatee – Ric Lamo TABLE OF COMPULSORY HEIRS PRIMARY COMPULSORY HEIR SECONDARY COMPULSORY HEIR 1. . (b) legal or intestate or (c) mixed TESTAMENTARY SUCCESSION Testamentary succession is that which results from the designation of an heir. Oral will (or Noncupative Will) made by the testator in contemplation of death and in the presence of credible witnesses is not allowed. Surviving spouse (legitimate) 3. The Will remains void. They inherit only on default of No.

except in case expressly specified by law. the value of the property left at the death of the testator shall be considered. Even if the testator does not want to make a compulsory heir to inherit. the legitime is ascertained to protect the children and the surviving spouse from the unjustified distribution of properties. the mass of properties left by the decedent may be classified into legitime and free portion. A donation is collectible if its value is imputable into the hereditary estate of the donor at the time of his death. The net value of the hereditary estate shall be increased by the value of all donations made by the testator that are subject to collation at the time of donation.Under the testamentary succession.000. The testator cannot deprive his compulsory heirs of their legitime. he cannot do so because this limitation is imposed upon him directly by law. deducing all debts and charges. LEGITIME The legitime is the portion of the testator’s property which could not be disposed off freely because the law has reserved it for the secondary compulsory heirs. The debts and expenses related to death including estate tax to be taken from the gross estate amounted to .000. Specifically. To determine the legitime. which shall not include those imposed in the Will. Thus the formula would be: Property left Pxxxx Less: debt and charges xxxxx Net value of the hereditary estate Pxxxx Add: Collationable donations xxxx Total hereditary estate Pxxxx ILLUSTRATION: The gross available estate is P5. this is a free portion of the decedent’s estate in excess of the legitime. In other words. Any compulsory heir to whom the testator has left by any title less than the legitime belonging to him may demand that the same be fully satisfied. FREE PORTION A free portion of the estate is that part of the whole estate which the testator could dispose of freely through a written will irrespective of his relationship to the recipient.

000 TESTAMENTARY DISTRIBUTION OF NET ESTATE Art. natural children (NC) & illegitimate children (IC) ½ (Art.½ of LC Code) IC. Illegitimate children and surviving spouse 7. Surviving spouse alone 10. Legitimate children (LC). ½. surviving spouse & illegitimate children ½ (Art. 903) LC-1/2 NC. SS ¼ (Art. 176 of Family SS= legitimate of 1LC (Art.000 Net hereditary estate P4. The net hereditary estate is computed as follows: Gross available estate P5.800.000 Add: Donation to heir 400.000 Total hereditary estate P4.900) Ascendants. 888 to 903 of the Civil Code of the Philippines SUCCESSOR LEGITIME 1. 889) ½ or 1/3 (Art. Two or more legitimate children. Parents or ascendants alone 9. 892) 1/3.Ascendants. Two or more legitimate children & surviving spouse 6. 893) As=1/2 SS= 1/8 IC = ¼ (Art.892) 8. SS=1/4 (Art. 899) .000 Less: Debts and charges 600. 894) LC= ½ IC= ½ of the LC (not to exceed the free portion) SS= same as LC ½ (Art. Legitimate children or descendants 2.½ of LC (Art.1/3 (Art. Illegitimate children alone 3.400.P600.000 donations in the contemplation of death to his legitimate son. During his lifetime. 897) ½ (Art.Ascendants (A’s) & surviving spouse 11. One legitimate child and surviving spouse (SS) 5. illegitimate children & surviving spouse LC=1/2.888) 4.000.000. the decedent had given P400.