ESTATE-TAX CHANGES UNDER TRAIN LAW

ON December 19, 2017, package 1 of the Tax Reform for Acceleration and Inclusion (TRAIN), otherwise known as
Republic Act (RA) 10963, was signed into law.

The law made several amendments to the National Internal Revenue Code of 1997 (Tax Code), specifically on
personal-income taxation, passive income, estate tax, donor’s tax, value-added tax, excise tax and documentary
stamp tax. The law took effect on January 1, following its complete publication in the official gazette. Below is a
brief discussion of the changes under estate taxation under the Train law.

I. Amendment of the Estate Tax Rate

Section 22 of the TRAIN law amends Section 84 of the Tax Code, which provides for the estate-tax rate. Previously,
a tax based on the value of the net estate of the decedent, whether resident or nonresident of the Philippines,
was computed based on a tax schedule where an estate worth P200,000 and over was taxed from 5 percent to 20
percent. Under the TRAIN law, it will now be subject to a flat rate of 6 percent.

II. Amendments on Estate Tax Deductions

Section 23 of the TRAIN law amends Section 86 of the Tax Code, which provides for the computation of the net
estate or, effectively, the deductions allowed to the gross estate of an individual.

The TRAIN law removes funeral expenses, judicial expenses and medical expenses as allowable deductions.

Instead, the law increases the Standard Deduction to P5 million, which previously only amounted to P1 million.
Only available to citizens (resident or nonresident) and resident aliens, TRAIN law now provides that nonresident
aliens can avail themselves of a standard deduction, although only up to P500,000.

Another TRAIN law significant change from the old tax rule is that now, family homes that are worth up to P10
million will be exempted from estate tax. Previously, only family homes worth P1 million are exempted.

III. Amendments on the Procedure for Estate Tax Settlement

A. Repeal of Filing of Notice of Death provision

Section 24 of the TRAIN law repeals Section 89 of the Tax Code. The repealed provision provides for when a notice
of death should be filed and the period to file the same.

B. Amendment on Filing of Estate Tax Return

Section 25 of the TRAIN law amends Section 90 of the Tax Code, which provides for the procedural requirements
for the estate-tax return.

The TRAIN law requires that estate-tax returns showing a gross value exceeding P5 million must be certified by a
certified public accountant. This is P3 million higher than the old tax rule, which only required CPA certifications for
estate-tax returns that exceed a gross value of P2 million. The TRAIN law has also increased the period for filing of
estate-tax returns from six months from the decedent’s death to one year.

C. Amendment of Payment of Estate Tax by Installment

Section 26 of the TRAIN law amends Section 91(c) of the Tax Code, which provides for the payment of estate tax by
installment.

Under the TRAIN law, payment by installment has been particularly simplified. However, the law has provided for
an implied limitation of two years for the payment of the full estate-tax liability, which was previously not
contained in the old tax rule.
 IV. Amendment on Withdrawals from Deceased’s Bank Account

Section 27 of TRAIN Law amends Section 97 of the Tax Code, which concerns allowable withdrawals from the
deceased person’s account.

Under the old Tax Rule, only withdrawals up to P20,000 are allowed. The administrator of the estate or any one of
the heirs may, when authorized by the commissioner, withdraw an amount not exceeding P20,000. However, the
Train Law has increased allowable withdrawals from the deceased person’s account to any amount, subject to a 6-
percent final withholding tax.

The amendments on estate taxes were enacted with the end in view of enticing the heirs to declare the real value
of their deceased kin’s estate and to pay the proper estate tax. Filing requirements have also been made simpler
and filer-friendly. It remains to be seen whether collection of estate taxes will improve.

Here are the 7 most important changes that TRAIN did for estate taxation in the Philippines:

1. Lowered the Rate of Estate Tax. TRAIN lowered the rate of estate tax to SIX PERCENT (6%), which makes it at par
with the capital gains tax for the sale, transfer or conveyance of real properties. The previous rates started from
the low 5% to as high as 20%, which included the payment of stated lump sum amounts under each bracket.
A word of caution though. This tax rate shall only be applied to persons who died on January 1, 2018 onwards. The
6% tax rate shall not apply to the estate of deceased persons who died prior to the effectivity of RA 10963. There
is no retroactive application of such a tax rate that was included in the TRAIN amendments to the Tax Code.

2. Increased the Standard Deduction. Section 86 (A) (5) of RA 8424 pegged the standard deduction at P1 million
pesos. The good news is that now the standard deduction of estate of a Filipino or a resident in the
Philippines FIVE MILLION PESOS (PhP 5,000,000.00). Meanwhile, Section 23 of TRAIN added a new provision which
gives a standard deduction to estates of non-residents in the amount of FIVE HUNDRED THOUSAND (PhP
500,000.00).

3. Increased the Deduction for Family Home. The previous maximum amount of the fair market value of the Family
Home that can be deducted was only One Million Pesos (P1,000,000.00). Section 23, of RA 10963 has increased
the amount of deduction of the Family Home to TEN MILLION PESOS (PhP 10,000,000.00).
In addition, the same provision of TRAIN removed this phrase: “As a sine qua non condition for the exemption or
deduction, said family home must have been the decedent’s family home as certified by the barangay captain of
the locality.” Simply put, the documentary requirement of the certification from the Punong Barangay where the
family home is located is now dispensed with.

4. Removed the “Notice of Death” Requirement. As discussed in the beginning of this article, the legal requirement
for the submission of a written Notice of Death to the BIR has now been repealed by Section 24 of Republic Act No.
10963.
Prior to the effectivity of TRAIN, the BIR would impose a penalty in the amount of TEN THOUSAND PESOS (PhP
10,000.00), during the processing of the estate tax return if the filer cannot present the written Notice of Death
filed within 2 months after the death of the person to the BIR. Thus, filers of estate tax return will not be imposed
this penalty anymore.

5. Lengthened the Period to File the Estate Tax Return. Under Section 25 of RA 10963, the estate tax return shall
now be filed within ONE (1) YEAR from the decedent’s death. The previous period of filing the estate tax return
was six (6) months.
Interest and surcharges are imposed on the estate when the return is filed outside the 6 month period under the
provisions of RA 8424. Now, TRAIN has given a more realistic time period within which to file the estate tax return
in order to allow families enough space to grieve and settle the estate of their loved ones with the BIR.

6. Allowed the Withdrawal of Money From the Bank Account of the Deceased. Section 27 of RA 10963 now allows
the withdrawal of money in the bank account in the name of the decedent, or jointly with another, subject to a
final withholding tax of SIX PERCENT (6%).
Prior to the amendment, banks were not allowed to have the money deposited in bank account of the decedent
withdrawn by the heir unless a Certificate Authorizing Registration (CAR) has been duly issued by the BIR, if the
amount is over Twenty Thousand Pesos (P20,000.00). The new amendment took out the cap amount of PhP
20,000 and thereby allows the heirs to withdraw the entire amount in the bank account of the decedent subject to
the 6% withholding tax – which is equivalent to the new estate tax rate.
7. Finally, Allowed the Payment of Estate Taxes by Installment. Section 26 of RA 10963 has introduced a new
provision which allows the payment of estate tax by installment within two (2) years from the statutory date for its
payment without civil penalty and interest.
In simple terms, if a person dies on January 2, 2018 the heirs have until January 2, 2019 to pay the estate tax due
on the estate of the decedent. Under the new provision, if the heirs can prove that there is insufficient cash to pay
for the estate tax due, payment by installment shall be allowed. Hence, the heirs can pay by installment the estate
tax due until January 2, 2021 without incurring any penalty or interest thereon.
We will have to wait for the specific Revenue Regulation to be issued by the Department of Finance, upon
recommendation of the BIR, to determine how the installment payments can be made, how the heirs can prove
that there is insufficiency of money to pay for the computed estate tax due, and what are the specifics guidelines
in order to apply for such payment by installment.
To recapitulate, RA 10963 has provided us with several beneficial provisions covering the estate taxation regime.
We hope that this serves as an easy guide for everyone who are in need to settle the estate of their deceased
loved ones, in the near term or beyond.