1

GROSS ESTATE
(Atty. C. Llamado)

Gross Estate- depends upon the citizenship and/or residence of the

decedent
Decedent Real Property Tangible Intangible Personal
Personal Property
Property
Within Without Within Without Within Without
1. Citizen      

2. Resident      
Alien
3. Non- resident  X  x  X
alien X
(depends if
there is
reciprocity)

INTANGIBLE ASSET SITUS

1. Receivable Residence of the debtor
2. Bank deposit Location of the bank
3. Other intangible properties:
a. Franchises, patents, Where property is used or
copyrights, trademarks exercised
b. Investment in partnership Where partnership is established
c. Shares of stock (including
corporate bonds)
1. Domestic Corp Within the Philippines
2. Foreign Corporation Without the Philippines
EXCEPT:
(i) If >/= 85% of business Within the Philippines
is in the Philippines
(ii) If shares have Within the Philippines
acquired a business situs in the
Philippines

Illustration 1:
Identify whether the following are included in the gross estate of:
Properties: Citizen or Non-
Resident resident
Alien
1. Farm in the Philippines
2. Jewelry in the Philippines
3. Bonds issued by Philippine Corporation
4. Corporation
5. Bank deposit in the Philippines
6. Share of stock in Philippines
7. Investment in Partnership established
in the Philippines
 2

8. Copyright being exercised in the

Philippines
9. Franchise being exercised in the
Philippines
10. Car in USA

Properties included in the Gross Estate of a Decedent

- All properties, rights, and interests which the decedent owns at

the time of his death;

1. Properties owned by the decedent and physically present in his

estate at the time of death
2. Interest (whether legal or beneficial) in property owned or
possessed by the decedent at the time of death
3. Taxable transfers:
a. Transfer in Contemplation of Death- donation which takes effect
upon the death of the donor and therefore partakes of the nature of a
testamentary disposition
1. No transfer of title or ownership to the done
2. The donor retains ownership and remains in full control of the
property during his lifetime
3. The transfer is revocable by donor at will during his lifetime
4. The transfer is void of the done dies first
b. Revocable transfers- the transferor reserves the power to alter,
amend, revoke, or terminate the enjoyment of the property by the
transferee, or where such power is relinquished in contemplation of
decedent’s death
c. Transfer with retention or reservation of certain rights over the
income or enjoyment of the property transferred
d. Property passing under a general power of appointment (GPA)
- The decedent is a done
- The appointed property comes from a donor (of the power) with a GPA
for the donee (of the power). The donee is authorized to dispose of
the property by exercising his power of appointment in designating any
person who shall possess or enjoy the property and/ or its income
e. Transfer for insufficient consideration
Included in the Gross Estate = FMV of Property at time of death –
Consideration Received
f. Proceeds of Life Insurance taken out by the decedent upon his own
life shall be included in his gross estate when:
1. His estate, his executor or administrator is the beneficiary,
whether or not the designation of the beneficiary is revocable;
or
2. The beneficiary is any other person, but the decedent retains
the power to revoke the designation
4. Claims Against Insolvent Persons
5. Conjugal/ community property, if the decedent was married
 3

1. Conjugal or community property if the money used to pay the

premiums comes from the conjugal or community funds;
2. Exclusive property of the decedent, if the money used to pay
the premiums comes from the decedent’s exclusive properties;
3. Partly conjugal or community property and partly exclusive
property of the decedent if the premiums were paid partly from
the conjugal funds and partly from the exclusive funds of the
decedent

Illustration 2:
The life insurance of Mrs. Pa Thay designates her husband as the
revocable beneficiary. Upon the death of Mrs. Pa Thay, the insurance
company paid Mr. Thay P5, 000, 000 as the proceeds of Mrs. Thay’s life
insurance.
In addition, Mr. Thay, as a revocable beneficiary, received P1, 000,
000 as proceeds of life insurance from SSS of his wife. An amount of
P500, 000 as proceeds of life insurance was received by the estate
administrator designated as revocable beneficiary. What would be the
amount of proceeds of life insurance to be included as part of Mrs. Pa
Thay’s gross estate?

PROPERTY REGIMES
1. Absolute Community of the Property (on or after August 3, 1988)
2. Conjugal Partnership of Gains (before August 3, 1988)
3. Separation of Property

CONJUGAL PARTNERSHIP OF GAINS ABSOLUTE COMMUNITY OF THE PROPERTY

Exclusive Properties:
1. Property owned before marriage 1. Property acquired during
marriage by gratuitous title
UNLESS the donor or testator
expressly provides that the
property shall form part of the
community property
2. Property acquired during 2. Fruits and income of exclusive
marriage by gratuitous title properties
3. Property acquired with 3. Properties for the personal or
exclusive money or exchanged for exclusive use except jewelry
exclusive property
4. Property designated as 4. Property acquired before
exclusive in a marriage settlement marriage who has legitimate
descendants from a previous
marriage
5. Property designated as
exclusive in a marriage settlement
Conjugal Properties: Community Property:
1. Properties acquired by onerous 1. All properties owned by the
title using the common funds spouses at the time of marriage
(except 4 above)
2. Properties obtained from the 2. All properties acquired
 4

labor or work of the spouse during thereafter

marriage
3. Properties acquired by chance 3. Fruits and income of community
such as winnings from gambling or properties
betting
4. Fruits (natural or civil) and
income of the conjugal or
exclusive properties

ACQUISITION OR TRANSMISSIONS WHICH ARE NOT INCLUDED IN THE GROSS

ESTATE OF A DECEDENT
a. Merger or usufruct in the owner of the naked eye of the property
b. Fedeicommisarry substation
c. The transmission from the first heir, legatee, or donee in favor of
another beneficiary, in accordance with the desire of the predecessor

Other exemption from the estate tax:

e. Proceeds of life insurance and benefits received by members of the
Government Service
f. Benefits received by members from the Social Security System by
reason of death
g. Amounts received from the Philippine and United States Government
for war damages
h. Amounts received from the United States Veterans Administration
i. Retirement benefits of employees of private pension plans approved
by the BIR
j. Intangible personal property located in the Philippines of a non-
resident alien decedent under the principle of reciprocity
k. Personal Equity and Retirement Account (PERA) assets shall not be
considered assets of the Contributor for purposes of estate taxes

VALUATION OF THE GROSS ESTATE

- Shall be valued at the time of death of the decedent

PROPERTY VALUATION
Usufruct, use, Value shall be used on the probable life of
habitation, the beneficiary in accordance with the latest
annuity Basic Standard Mortality Table approved by
the Department of Finance
Real Property FMV which is the higher of zonal value or the
assessor’s value
Personal Property Generally, FMV at the time of death of the
decedent
Stocks listed in Average of the lowest and highest quote on
the stock exchange the valuation date or day nearest to the
valuation date
Stocks not listed For common shares: 1. Net Asset value 2. In
in any local the absence of 1, Book Value
exchange
 5

For preferred share, par value

Notes, accounts FMV is the discounted amount of the unpaid
receivable principal plus interest

Illustration 3:
Mr. Ba Rayt died leaving the following real properties in Cavite City:
Fair Market Values by
Cavity City BIR
assessors Commissioner
House and Lot P10, 000, 000 P12, 000, 000
Subdivision lots 20, 000, 000 19, 000, 000
TOTAL P30, 000, 000 P31, 000, 000
In addition Mr. Ba Rayt left a car in which he had purchased for P1,
000, 000 five years ago. At the time of his death, the car has a book
value of P500, 000 but can be sold only for P400, 000. He left P110,
000 common shares from Jollibee Foods Corp listed in the local stock
exchange having the lowest sales prices of P140 and highest price of
P160 at the time of death.

How much should be included in Mr. Ba Rayt’s gross estate?

DEDUCTIONS FROM THE GROSS ESTATE

I. ORDINARY DEDUCTIONS
A.) ELIT (Expenses, Losses, Indebtedness, Taxes, etc.)

National Internal Revenue Code of R.A No. 10963

1997 (RA 8424)
1. Funeral Expense Not deductible
- lower of actual expenses, 5% of
Gross Estate or P200, 000
2. Judicial Expenses Not deductible
3. Claims against the estate The same
4. Claims against insolvent person The same
-portion or the amount that cannot
be collected from the decedent’s
debtor
5. Unpaid Mortgages The same
6. Income Taxes and property taxes The same
- unpaid income taxes on income
due or received before the death
of the decedent
- real property taxes which have
accrued prior to the death of the
decedent
7. Losses The same but payment of estate tax
- not compensated for by insurance is within 1 year after death
- not claimed as a deduction in an
income tax return
- loss must incur not later than
 6

the last day for payment of the

estate tax (within 6 months after
death)

B.) Transfer for Public Use

1. Transfers made to the government or any political subdivision for
public purposes; or
2. Transfers to social welfare, cultural, and charitable institutions,
provided:
a. No part of its net income inures to the benefit of any
individual; and
b. </= 30% of the bequest, devise, or legacy is used for
administration purposes

Illustration 4:
Assuming that the executor of Ms. Im Nayeon, a Korean decedent,
reported the following deductions from gross estate upon her death on
November 25, 2018:

Funeral Expenses P100, 000

Judicial Expenses 300, 000
Donation to Korean Government 500, 000

In the report the properties of Ms. Nayeon in the Philippines amount

to P2, 000, 000 while her properties in Korea amount to P8, 000, 000.
The amount of deductible from gross estate located in the Philippines
would be?

C.)VANISHING DEDUCTION (Property Previously Taxed)

1. Conditions for Allowance of the Vanishing Deduction
a. The present decedent must have acquired the property by inheritance
or donation within 5 years prior to his death
b. The property acquired formed part of the gross estate of the prior
decedent, or of the taxable gift of the donor;
c. The estate tax on the prior estate, or the gift tax on the gift
must have been paid
d. The estate of the prior decedent has not previously availed of the
vanishing deduction

2. Percentage of Vanishing Deduction

More Than Not More Than Percentage
- 1 yr 100%
1 yr 2 yrs 80%
2 yrs 3 yrs 60%
3 yrs 4 yrs 40%
4 yrs 5 yrs 20%
5 yrs - 0
 7

3. Procedure in Computing the Vanishing Deduction

a. Determine the lower value of Property Previously Taxed
b. Deduct any mortgage or lien on the PPT which was paid by the
present decedent
c. Prorate the deductions and subtract from the net value
d. Apply the rate of vanishing deduction rate

Illustration 5:
Part of the gross estate of the decedent is a parcel of land with
present FMV of P1, 000, 000. The decedent received it 2 and a half
years ago from his father as an inheritance. At the date it was
inherited, the FMV was P500, 000 with a mortgage of P100, 000 which
was paid by the current decedent.
How much is the deduction allowed?

II. SPECIAL DEDUCTIONS

- Deducted only after the ordinary deductions have been deducted

from the gross estate

National Internal Revenue Code R.A No. 10963

of 1997 (RA 8424)
1. Family Home not to exceed Increased allowance for
P1, 000, 000 deduction of family home to
P10, 000, 000
2. Medical Expenses Not deductible
- must be incurred within 1
year of death of the decedent
-must be substantiated
-</ = P500, 000
3. Standard deduction of P1, Increased the standard
000, 000 deduction to P5, 000, 000
-only estates of citizens and -only estates of citizens and
resident alien resident alien
4. Amounts received by heirs The same
under R.A No. 4917
- Amounts/ benefits received by
the heirs from the decedent’s
employer as a consequence of
his death

III. SHARE OF THE SURVIVING SPOUSE IN THE NET CONJUGAL PROPERTIES

- Share of the surviving spouse is not subject to estate tax and
must therefore be deducted

Amount of Deduction = [Conjugal properties less obligations

chargeable to such properties (conjugal deductions)] / 2

CREDIT FOR FOREIGN ESTATE TAX PAID

- Available only to citizens or resident alien decedents

 8

- Subject to limits:
a. Net Estate (per foreign country) x Philippines Estate Tax
Entire Net Estate

b. Net Estate( in all foreign countries) x Philippine Estate Tax

Entire Net Estate

Rules:
1. If there is only 1 foreign country, only limit A is used
2. If there are 2 or more foreign countries, use both limits

FILING OF NOTICE OF DEATH

National Internal Revenue Code R.A No. 10963

of 1997 (RA 8424)
Where exempt from tax, the Repealed
gross value of the estate
exceeds P20, 000
Filed within 2 months after
death or within 2 months after
the executor or administrator
qualify as such

FILING OF ESTATE TAX RETURN

National Internal Revenue Code R.A No. 10963

of 1997 (RA 8424)
Transfers subject to tax (net
estate exceeds P200, 000)
Estate tax return showing a
gross value exceeding P2, 000,
000 must be certified by a CPA
Within 6 months from death.
Time of Filing can be extended
for another 30 days in
meritorious cases.
All transfer subject to estate
tax, or regardless of the gross
value of the estate where the
said estate consists of
registered or registrable
property shall file an estate
tax return
Estate tax return showing a
gross value exceeding P5, 000,
000 must be certified by a CPA
Increased to 1 year from death.

Where filed?
a. If decedent was a resident- with the authorized agent bank,
Revenue district office, collection officer or duly authorized
treasurer of the city or municipality where decedent was
domiciled
b. If decedent was a non-resident-
1. With Revenue District Office where the executor/administrator
is registered
 9

2. If the executor/ administrator is not registered with the BIR,

with the RDO having jurisdiction over the legal residence of the
executor/ administrator
3. If there is no executor/ administrator, with the Office of the
Commissioner

Contents of the Estate Tax Return

1. Value of the gross estate
2. Gross estate outside the Phil. for non- resident alien
decedents
3. Deductions allowed and taken
4. Other supplemental data
5. For estate tax returns showing a gross value exceeding P2M, a
statement certified by a CPA as to assets, deductions and tax
due.

Payment of the Estate Tax

When paid? At the time the return is filed
Extensions of time to pay:
When the commissioner finds that the payment on the due
date of the estate or any part thereof would impose undue
hardship upon the estate or any of the heirs, he may extend the
time for payment of such tax or any part thereof not to exceed 5
years in case the estate is settled through the courts, or two
years in case the estate is settled extrajudicially.

RA 8424 specifies that any amount paid after the statutory due
date of the tax, but within the extension period, shall be
subject to interest but not to surcharges.

Payment by installment:
In case the available cash of the estate is not sufficient to pay
its total estate tax liability, the estate may be allowed to pay
the tax by installment. Certificates Authorizing Registration or
clearances shall be released only with respect to property on
which the corresponding computed tax has been paid.

RA 10963 An estate with insufficient cash is allowed to pay the

estate tax due by installment within 2 years from the statutory
date for its payment without civil penalty and interest.

Who pays the estate tax?

1. The executor or administrator
2. An heir shall be subsidiarily liable but only to the extent of
his share in the net estate

Payment of estate tax is a prerequisite to distribution

 10

Payment of estate tax is also a prerequisite to transfer shares,

bonds and rights

National Internal Revenue Code R.A No. 10963

of 1997 (RA 8424)
A bank shall not allow Banks, which has knowledge of
withdrawal from a decedent’s the death of the person, shall
bank account without the allow withdrawals from a
Commissioner certifying that decedent’s deposit account
taxes imposed thereon have subject to a 6% final
already been paid. withholding tax.

The administrator of the estate

or any one of the heirs may,
when authorized by the
Commissioner, withdraw an
amount not exceeding P20, 000
even without the certification
from the Commissioner that the
estate taxes have been paid.

Estate Tax Rates

National Internal Revenue Code of 1997 (RA R.A No. 10963

8424)
Over But not This Plus Of the Fixed 6%
over shall excess
be
- P200, 000 Exempt - -
P200, 500, 000 0 5% P200,
000 000
500, 2, 000, 000 P15, 8% 500,
000 000 000
2, 000, 5, 000, 000 135, 11% 2,
000 000 000,
000
5, 000, 10, 000, 456, 15% 5,
000 000 000 000,
000
10, And over 1, 215, 20% 10,
000, 000 000,
000 000
11