Estate Tax

Onerous Contracts – may kapalit

Gratuitous Contracts – walang kapalit

2 Types of Gratuitous
1. Estate Tax – inheritance
2. Donor Tax – donation

3 Types of Asset Intangible Asset Includes:

1. Real Property 1. Patent
2. Personal 2. Franchise
3. Intangible Asset 3. Copyright
4. Trademark
5. Goodwill
6. Computer Software
7. Bank Deposit
8. Receivables
9. Investment in shares
Gross Estate
Less: Deduction
Net Estate
x TR 6%
Estate Tax

Gross Estate

Citizen or Resident Non-resident Alien

(All Included)

Outside the PH Inside the PH

(All Excluded)

Intangible Real or
Personal
(Included)

With Reciprocity Without

(Excluded) (Included)
Gross Estate
Included:
1. Assets physically in the interest
2. Decedent’s interest – w/out physical substance ex: Receivables, Investment
3. Asset not physically in state.
 Transfer in contemplation of death
 Transfer with retention of rights
 Revocable transfer
 Transfer w/ general power of appointment
A→B→C Special appointment – (di kasama)
A → B → anyone General appointment – (kasama)
 Transfer for insuficient consideration
Formula:
FV time of death
Consideration Rec. (SP)
Insuficient (Gross Estate)
 Claims against insolvent person
 Proceeds of life insurance

Excluded:
1. Exclusive property of surviving spouse
2. Group insurance
3. Page 41 & 43 (in the book)

Life Insurance

beneficiary

 Estate Others (3rd person)

 Executor (may will of T)
 Administrator (no will)
(Included)
Revocable Irrevocable
(Included) (Excluded)
Deductions
1. Ordinary
a. CLIT
 Claims against Insolvent
 How much?
Amount Collectible ✔ (amount na hindi makukuha isasama sa deduction)
Not the total Receivable X ( sa gross estate sinasama yung buo)
 Requirements:
1. Incapacity – di talaga kaya magbayad 3. Not Illegal
2. Good Faith 4. Included in Gross Estate
 Losses
 Casualty Losses How much?
 Included in gross estate - value of asset loss
 Not insured
 Not claimed as deduction for income tax
  Happen during settlement buhay X patay ✔ bayad estate tax

 Indebtedness
 Personal obligation How much?
 Good faith - value of debt
 Not illegal
 Taxes
 Not include taxes incurred after death
 Before lang mamatay pwede yung deduction
 Not include estate tax
b. TP (Transfer for Public use)
 Asset donated to government effective on date How much?
 Included in gross estate - value of asset transferred
c. Vanishing deduction
 Requirements:
1. 5 years 4. Included in gross estate
2. Identified 5. Previous estate tax is paid
3. Inside PH 6. No vanishing deduction on previous estate tax

 How much? - 5 STEPS

STEP 1 : Value to Take
FV death of previous owner (SELECT LOWER)
FV death of present owner

STEP 2 : Compute Initial Basis

Value to take (STEP 1)
Less: Mortgage assume (Utang ; ex: di pa tapos bayaran yung tricycle)
Initial Basis

STEP 3: Compute Second Deduction

Initial basis (STEP 2) X CLIT + TP = 2ND DEDUCTION
Gross estate

STEP 4: Compute Final Basis

Initial basis (STEP 2)
Less: Second deduction (STEP 3)
Final Basis

STEP 5: Compute Vanishing Deduction Rates : VR

Final basis 0 – 1 year = 100%
X Vanishing Rate % 1 – 2 years = 80%
Vanishing deduction 2 – 3 years = 60%
3 – 4 years = 40%
4 – 5 years = 20%
2. Special Deductions 5 years – above = 0%
a. Standard deduction – 5M ( if di lagpas sa 5M ang gross estate wala ng babayaran)
b. Family Home
FV at time of death = whichever is lower, yun ang deduction
10M
c. Retirement Benefit (R.A. 4917)
Retirement benefit mo from previous employer → kasama sa gross estate pero pwede
din ideduct sa
3. Share of Estate
- Gross estate included common
ex: common – 9M
less: share of spouse - (4.5M)
4.5M
X 6%
Share of Spouse

ASSET

Before (ikasal) During (ikasal)

Absolute Conjugal Gratuitous Onerous

↓ ↓ ↓ ↓
COMMON EXCLUSIVE EXCLUSIVE COMMON