I.

Gross Estate vis-à-vis Net Estate intangible personal property of citizens of the
Gross Estate Philippines not residing in that foreign country; or
- Total value of all property, real or personal, tangible or intangible, the o Partial Exemption
actual and beneficial ownership of which was in the decedent at the § The laws of the foreign country of which the decedent
time of his death was a resident citizen at the time of his death allow a
similar exemption from estate tax, in respect of
Net Estate intangible property owned by citizens of the
- Value of the estate after all the deductions have been made against Philippines not residing in that foreign country
the gross estate;
Intangible Asset
Main distinction: Gross estate is the totality of all the properties in which the - Identifiable nonmonetary asset without physical substance
decedent had an interest existing at the time of his death while net estate is - Rule: situs of intangible personal property is the domicile of the owner
what remains after subtracting from the gross estate the allowable deductions. (Mobilia Sequntur Personam)
Gross estate is not subject to tax while the net estate is the basis for imposing o Not applicable if the intangible property has acquired a
the estate tax. business situs in another jurisdiction
o Should not be based on the domicile of the owner but the
II. Determination of Gross and Net Estate place where such franchise is exercised
Value of the Gross Estate - Within the Philippines:
- Including all the value at the time of his death of all property, real or o Franchise which must be exercised in the Philippines
personal, tangible or intangible, wherever situated o Shares, obligations or bonds issued by any corporation or
- In case of a nonresident: If at the time of his death was not a citizen of sociedad anonima organized or constituted in the Philippines
the Philippines, only that part of the gross estate which is situated in in accordance with its laws
the Philippines shall be included in his taxable estate o Shares, obligations or bonds issued by any foreign corporation,
85% if the business of which is located in the Philippines
o Shares, obligations or bonds issued by any foreign corporation
Composition of Gross Estate
if such shares, obligations or bonds have acquired a business
Decedent Gross Estate
situs in the Philippines
• Citizen 1. Property (Real or Personal)
o Shares or rights in any partnership, business or industry
• Resident Alien wherever situated
established in the Philippines
2. Intangible personal
property wherever situated
Situs of Tangible and Intangible Property
• Nonresident Alien 1. Real property situated in the
Property Situs
Philippines
• Real Property and Tangible Location of the property
2. Tangible personal property
Personal Property
situated in the Philippines
• Shares, franchise, copyright Where the intangible property is
3. Intangible personal
exercised regardless of where the
property with situs in the
corresponding certificate is stored
Philippines, unless excluded
on the basis of reciprocity • Receivables Residence of the debtor
• Bank Deposits Location of the depositary bank
Reciprocity Clause
- Excludes “intangible” personal property with situs in the Philippines Valuation of Gross Estate
from the gross estate of a non-resident alien decedent if there’s - Since succession and accrual of the corresponding estate tax takes
reciprocity effect upon the death, it shall only be fair to appraise the estate at its
- There’s reciprocity if: fair market value at the time of the decedent’s death
o Total Exemption
§ The decedent at the time of his death was a resident • In General Fair Market Value at the time of
citizen of a foreign country which at the time of his death
death did not impose an estate tax in respect of • Real Property Higher between;
 - FMV determined by the
Commissioner; and
- FMV as shown in the
schedule of values fixed by
the provincial and city
assessors
• Personal Property Fair Market Value at the time of
death
• Shares of Stock Unlisted Common Share
- Book Value Per Share of the
issuing corporation
Unlisted Preference Share
- Par Value Per Share
Listed Share
- FMV shall be the average
between the highest and
lowest quotation at the date
nearest the date of death, if
none is available on the date
of death itself
• Units of participation in any The bid price nearest the date of
association, recreation or death published in any newspaper
amusement club or publication for general circulation
• Right to usufruct, use or In accordance with the latest Basic
habitation and annuity Standard Mortality Table taking into
account the probable life of the
beneficiary, to be approved by the
Secretary of Finance upon
recommendation of the Insurance
Commissioner
III. Items to be Included in the Gross Estate
A. Property owned by the decedent ACTUALLY AND PHYSICALLY
PRESENT IN HIS ESTATE at the time of his death
B. Decedent’s Interest
o Refers to the extent of equity or ownership participation of the
decedent on any property physically existing and present in
the gross estate, whether or not in his possession, control or
dominion.
o Also refers to the value of any interest in property owned or
possessed by the decedent at the time of his death (interest
having value or capable of being valued or transferred)
C. Property NOT PHYSICALLY IN THE ESTATE (these have already
been transferred during the lifetime of the decedent but are still
subject to payment of estate tax)
1.) Transfer in contemplation of death
o Disposition of property prompted by the thought of death
o Thought of death is the controlling motive which induces the
disposition of property for the purpose of avoiding the tax
o Included within this concept is donation mortis causa
o Include in the gross estate the value of property transferred by
the decedent during his lifetime in anticipation of his death
such as:
i. Transfer of property in favor of another person, but the
transfer was intended to take effect only upon the
transferor’s death
ii. Transfer by gift intended to take effect at death, or
after death or under which the donor reserved the
income or the right to designate the persons who
should enjoy the income
o There’s no transfer in contemplation of death when the
transfer of property is a bona fide sale for an adequate and full
consideration in money or money’s worth
o It is not the mere transfer that constitutes a transfer in
contemplation of death but the retention of some type of
control over the property transferred
o Five instances which constitutes transfer in contemplation of
death according to Prof. Thomas Matic
§ Secondary Life Estate – Retention by the grantor for
life of the right to enjoy the income or the fruits of the
property transferred in trust constitute what is called
reservation of a primary life estate. There is no
question in this case that the property would be
included in the gross estate of the grantor upon his
death.
§ Interests Analogous to Life Estates – where the
decedent had transferred certain shares of stock to
his daughter “subject to your giving me the first
dividends on these P15,000,” and part of the P15,000
was still unpaid when the decedent died, it was held
that the entire value of the securities was properly
included in the decedent’s gross estate since he had
retained the income for a period which did not in fact
end before his death.
§ Discharging Legal obligation to transferor – a transfer
with the right retained to have the income used to
discharge a legal obligation of the transferor or
otherwise for his pecuniary benefit is equivalent to a
reservation of the right to the income. Thus, where a
man created a trust with the provision that the
income should be paid to his life for her “support and
maintenance”, remainder to their children, it was held
that the property was includible in his gross estate.
But there is no inclusion required if the grantor’s
dependent is free to use the income for any purpose
without restriction, the reason being that inclusion is
 required only where the transfer relieves the grantor
of his duty to support.
§ Right Retained Alone or with another to designate
who shall enjoy property or income therefrom – The
situation contemplated here usually occurs when the
settlor or grantor designates himself as trustee or co-
trustee with another.
§ Retention of Power to distribute or accumulate trust
income – where the grantor, either alone as trustee or
as co-trustee with others, reserved the power to
accumulate or distribute income and exercised such
power by accumulating and adding income to
principal and this power he held until the moment of
his death with respect to both the original principal
as well as the accumulated income, this requires the
inclusion in the decedent settlor’s gross estate.
o Motives which negate transfer in contemplation of death
§ To relieve the donor from the burden of
management;
§ To save income taxes or property taxes;
§ To settle family litigated and unlitigated disputes;
§ To provide independent income for dependents;
§ To see the children enjoy the property while while
the donor is alive;
§ To protect family from hazards of business
operations;
§ To reward services rendered.
o Circumstances to be taken into account in determining
whether the transfer is one in contemplation of death
§ Age of the decedent at the time the transfers were
made
§ Decedent’s health, as he knew it at or before the time
of the transfers
§ The interval between the transfers and the decedent’s
death
§ The amount of property transferred in proportion to
the amount of property retained
§ The nature and disposition of the decedent
§ The existence of a general testamentary scheme of
which the transfers were a part
§ The relationship of the donee(s) to the decedent
§ The existence of a desire on the part of the decedent
to escape the burden of managing property by
transferring the property to others
§ The existence of a long established gift-making policy
on the part of the decedent
§ The existence of a desire on the part of the decedent
to vicariously enjoy the enjoyment of the donees for
the property transferred
§ The existence of the desire by the decedent of
avoiding estate taxes by means of making inter vivos
transfers of property (Estate of Oliver Johnson v.
Commissioner, 10 T.C. 680)
§ Concurrent making of will or making a will within a
short time after the transfer (Roces v. Posadas, 58 Phil.
108).
2.) Transfer with retention or reservation of certain rights
o Decedent transferred his property during his lifetime, but
retained for himself beneficial employment of the thing or the
right to receive income from the same
o Doesn’t convey full ownership
3.) Revocable transfers
o Transfer whereby the terms of enjoyment of the property may
be altered, amended, revoked or terminated by:
§ Decedent alone;
§ By the decedent in conjunction with any other person
without regard to when or from what source the
decedent acquired such power to alter, amend,
revoke or terminate; or
§ Where any such power is relinquished in
contemplation of the decedent’s death other than a
bona fide sale for an adequate and full consideration
in money or money’s worth.
o The power to alter, amend or revoke shall be considered to
exist on the date of decedent’s death even though:
§ The exercise of the power is subject to a precedent
giving of notice; or
§ The alteration, amendment or revocation takes effect
only on the expiration of a stated period for the
exercise of the power, whether or not on or before the
date of the decedent’s death
• Notice has been given
• The power has been exercised.
o Revocable transfer is part of the gross estate because the
transferor can revoke the transfer any time
o It is sufficient that the decedent had the power to revoke
though he did not exercise the power
o Transfer not revocable, thereby not subject to estate tax when:
§ The decedent’s power could only be exercised with
the consent of all parties having an interest in the
transferred property and if the power adds nothing to
the rights the parties possess under local law (Lober v.
United States, 346 US 335).
§ When the decedent has been completely divested of
the power at the time of his death (ibid.)
 § Where the exercise of the power by the decedent was • The possession, enjoyment or right to income
subject to a contingency beyond the decedent’s from the property; or
control which did not occur before his death (Hurd v. • The right to designate the person who will
Commissioner 160F(2)610). possess or enjoy the property or income
§ The mere right to name trustees. Neither is the therefrom (Sec. 85[D], NIRC).
grantor’s limited power to appoint himself as trustee
under conditions which did not exist at his death (24 5.) Transfer for insufficient consideration
Am Jur. 2d, p 790). o When a sale or transfer was made for a price less than its fair
market value at the time of sale or transfer, the excess of the
4.) Transfers under a general power of appointment fair market value of the transferred property at the time of
o Power of appointment refers to the right to designate the death over the consideration received should be included in
person who will succeed to the property of the prior decedent. the gross estate
o Appointment could be in favor of anybody, including himself, o This is applicable to:
his estate, his creditors, or the creditors of his estate § Transfers in contemplation of death
§ Revocable transfers
General Power of Special Power of § Transfers under general power of appointment
Appointment Appointment o It is also subject to Donor’s Tax if there is no reference to:
As to Nature Donee has the power to Donee appoints the § Revocable transfer
appoint any person he successor to the § Contemplation of death
chooses or enjoy the property who is within a § General power of appointment
property without restriction limited group or class of o Fair Market Values:
person according to the § FMV of the property at the time of sale or transfer
will of the Donor • Determine whether or not the consideration
was full and adequate
• If the consideration received is substantially
As to tax Makes appointed property, Not includable in the the same with the fair market value at the
implications for all intents, the property of gross estate of the done time of transfer, hence not subject to estate
the done; thus, forms part of when he dies tax
the gross estate of the donee § FMV of the property at the time of death
• Used to determine the amount to be
included in the gross estate
• If the consideration received is substantially
As to effects Donee holds the appointed Donee holds the lower or for less than full and adequate
property with all the appointed property in consideration compared to the fair market
attributes of ownership trust value at the time of sale or transfer
o If there was no consideration received at the date of transfer
and such transfer was made “in contemplation of date,” the
fair market value of the property at the date of death, not at
o Properties passing under a GPA is includible as part of a the date of transfer, should be included in the gross estate of
decedent’s estate through the decedent
§ Will o If there was no consideration received at the date of transfer
§ Deed executed in contemplation of death, or and such transfer was not made “in contemplation of death,”
intended to take effect in possession or enjoyment at, such transfer shall be considered inter-vivos subject to donors’
or after his death tax based on the fair market value at the date the donation
§ Deed under which he has retained for his life or for was made
any period not ascertainable without reference to his
death or for any period which does not in fact end Rules on insufficient consideration
before his death: Consideration >/= FMV at the time Bona fide sale; excluded from
of transfer gross estate
Consideration < FMV at the time Insufficient consideration. § Proceeds of a group insurance policy taken out by a
of transfer Include in the gross estate at company for its employees;
the excess of FMV @ the time of § Proceeds of insurance policies issued by the GSIS to
death over the consideration government officials and employees are exempt
received. from all taxes;
Sale was made in the ordinary Bona fide sale regardless of the § Benefits accruing from SSS law;
course of trade amount of consideration § Proceeds of life insurance payable to heirs of
No consideration received Either donation mortis causa deceased members of military personnel.
(subject to estate tax) or
donation inter-vivos (subject to Proceeds of Life Insurance (Taken out by the Decedent)
donor’s tax) Beneficiary Designation Gross Estate
Estate Revocable or Included
6.) Claims against insolvent persons Irrevocable
o Insolvent = properties are not sufficient to satisfy, whether fully Executor Revocable or Included
or partially, his debts Irrevocable
o Judicial declaration of insolvency is not required but the Administrator Revocable or Included
incapacity of the debtor to pay should be proven Irrevocable
o Full amount of the claim should be included in the gross 3rd Party (i.e. wife) Revocable Included
estate 3rd Party (i.e. wife) Irrevocable Not Included
o Portion of the claim which is not collectible should be allowed
as deduction
§ (Assets/Liabilities) x Claim = Collectible o To determine the conjugal or separate character of proceeds,
§ Claim – Collectible = Uncollectible (deductible) the following factors are considered:
§ Policy taken before marriage – Source of funds
7.) Proceeds of life insurance determines ownership of the proceeds of life
o Part of the gross estate to the extent of the amount receivable insurance
when the beneficiary in a life insurance is: § Policy taken during marriage
§ The estate of the decedent, his executor or • Beneficiary is estate of the insured –
administrator taken out by the decedent upon his Proceeds are presumed conjugal; hence,
own life regardless of whether the designation is one-half share of the surviving spouse is not
revocable or irrevocable; OR taxable
§ A third person, other than the decedent’s estate, • Beneficiary is third person – Proceeds are
executor, or administrator provided that the payable to beneficiary even in premiums
designation is not revocable were paid out of the conjugal
o In the absence of an express designation, the presumption is
that the beneficiary is revocable designated. In the event the 8.) Prior Interest
insured does not change the beneficiary during his lifetime, o All transfers, trusts, estates, interests, rights, powers and
the designation shall be deemed irrevocable relinquishment of powers made, created, arising existing,
o Not part of the gross estate when: exercised or relinquished before or after the effectivity of the
§ Proceeds from a life insurance policy is receivable by NIRC
a 3rd person (NOT the decedent’s estate, executor or o Coverage of prior interest
administrator) AND that the said beneficiary is § Transfers in contemplation of death
designated as irrevocable; § Revocable transfers
§ Where the life insurance was not taken by the § Life insurance proceeds to the extent of the amount
decedent upon his own life even though the receivable by the estate of the deceased, executor or
beneficiary is the decedent’s estate, executor, or administrator under policies taken out by the
administrator; decedent upon his own life or to the extent of the
§ Accident insurance proceeds. NIRC specifically amount receivable by any beneficiary not expressly
mentions only life insurance policies; designated as irrevocable
 Vanishing Deductions - Standard deduction of
- Share of the surviving spouse is not included in the gross estate; it is 500,000 is now allowed
actually a deduction from the gross estate II. Special Deductions
- Capital = property brought by the husband to the marriage - Standard Deduction III. Share of the Surviving
- Paraphernal = property brought by the wife to the marriage - Family Home Spouse
- RA 4917 (Retirement
IV. Deductions from the Gross Estate Benefits)
- Deductions from the gross estate are classified as ordinary and
special deductions III. Share of the Surviving
Spouse
Allowable Deductions (Prior to TRAIN)
Citizens and Resident Decedents Nonresident Alien Decedents Ordinary Deductions
I. Ordinary Deductions I. Ordinary Deductions A. ELITe (Expenses, Losses, Indebtedness, Taxes, etc.)
Expenses, Losses, Indebtedness, Proportionate Deductions for 1.) Funeral Expenses
Taxes, etc. (ELIT) Expenses, Losses, Indebtedness, o Repealed by TRAIN
- Funeral Expenses Taxes, etc. (ELIT) computed as o Whether paid or unpaid from the date of death up to date of
- Judicial Expenses follows: interment
- Losses - (Gross Estate Phils./Gross o The amount deductible is the lower between:
- Indebtedness/Claims Estate World) x ELIT world § Actual funeral expenses (paid or unpaid); or
against the estate/Mortgage Transfer for Public Use § 5% of the gross estate
payable Vanishing Deductions **But not exceeding 200,000
- Taxes o Any amount in excess of 200,000 are not deductible
- Claims against Insolvent II. Special Deductions § Neither shall the unpaid portion in excess of
Person - Not allowed 200,000 be allowed as deduction under “claims
Transfer for Public Use against the estate”
Vanishing Deduction III. Share of the Survivng o Supporting receipts or invoices
Spouse o Nonresidents:
II. Special Deductions § Lower between:
- Standard Deduction • (Phil GE/World GE) x F.E. World
- Family Home • 5% x Phil GE
- Medical Expenses o Funeral Expenses include:
- RA 4917 (Retirement § Mourning apparel of the surviving spouse and
Benefits) unmarried minor children of the deceased, bought
and used in the occasion of the burial;
III. Share of the Surviving § Expenses of the wake preceding the burial including
Spouse food and drinks;
§ Publication charges for death notices;
Allowable Deductions (TRAIN) § Telecommunication expenses in informing relatives
Citizen and Resident Decedents Nonresident Alien Decedents of the deceased;
I. Ordinary Deductions I. Ordinary Deductions § Cost of burial plot, tombstone monument or
Expenses, Losses, Indebtedness, Losses, Indebtedness, Taxes, claims mausoleum but not their upkeep. In case deceased
Taxes, etc. (ELIT) against insolvent persons owns a family estate or several burial lots, only the
- Losses - (Gross Estate Phils./Gross value corresponding to the plot where he is buried is
- Indebtedness/Claims Estate World) x LIT world deductible;
against the estate Transfer for Public Use § Interment and/or cremation fees and charges;
- Taxes Vanishing Deductions § All other expenses incurred for the performance of
- Claims against insolvent the ritual and ceremonies incident to the interment.
persons II. Special Deductions o Expenses incurred after the interment are not deductible
Transfer for Public Use o If borne by relatives and friends = Not deductible
 o Medical expenses as of the last illness will not form part of
funeral expense but should be claimed as Medical Expenses
2.) Judicial Expenses of Testamentary or Intestate Proceedings
o Repealed by TRAIN
o Expenses of testamentary or intestate proceedings for the
benefit of the estate; those incurred in the:
§ Inventory-taking of assets comprising the gross
estate;
§ Administration;
§ Payment of debts of the estate;
§ Distribution of the estate among the heir
o Expenses incurred during the settlement of the estate but
not beyond the last day prescribed by law, or the extension
thereof, for the filing of the estate tax return
§ 6 months or no more than 30 days (extension)
o Extrajudicial Proceedings (Administration and Settlement)
§ Limited to expenses actually and necessarily
incurred in the collection of the assets of the estate,
payment of debts, and distribution of the remainder
o Attorney’s fees
§ Must be essential to the collection of assets,
payment of debts, distribution of property in order to
be deductible
o Examples of judicial expenses:
§ Fees of executor or administrator
§ Attorney’s fees
§ Court fees
§ Accountant’s fees
§ Appraiser’s fees
§ Clerk hire
§ Costs of preserving and distributing the estate
§ Costs of storing or maintaining property of the estate
§ Brokerage fees for selling property of the estate (Sec.
6[A][2], R.R. 2-2003)
o Non-deductible Judicial Expenses
§ Expenditures incurred for the individual benefit of
the heirs, devisees, legatees
§ Compensation paid to a trustee of the decedent’s
estate when it appeared that such trustee was
appointed for the purpose of managing the
decedent’s real property for the benefit of the
testamentary heir
§ Premiums paid on the bond filed by the
administrator as an expense of administration since
the giving of a bond is in the nature of a qualification
for the office and not necessary for the settlement of
the estate
§ Attorney’s fees incident to litigation incurred by the
heirs in asserting their respective rights (ibid).
3.) Casualty Losses
o Include storms, shipwreck or other casualties, or from
robbery, theft or embezzlement
o Amount deductible is the value of the property lost
o Requisites for deductibility:
§ Arising exclusively from:
• Acts of God (fire, storm, shipwreck)
• Acts of man (robbery, theft, embezzlement)
§ Not compensated by insurance or otherwise
§ Not claimed as a deduction in an income tax return
of the estate subject to income tax
§ Occurred during the settlement of the estate (not
beyond the last day – 1 year from date of death)
o Losses are allowed as deductions from the gross estate of
non-resident alien decedent:
§ Proportion of such deductions which the value of his
gross estate in the Philippines bears to the value of
his entire gross estate, wherever situated
o Casualty loss can be allowed as deduction in one instance
only, either income tax purposes or estate tax purposes
4.) Indebtedness or Claims Against the Estate
o Claims are debts or demands of a pecuniary nature which
could have been enforced against the deceased in his
lifetime and could have been reduced to simple money
judgements
o Personal obligation of the deceased existing at the time of
his death
o Sources of claims (CTO)
§ Contract
§ Tort
§ Operation of Law
o Claims against the estate may be claimed as a deduction by
a Filipino citizen, whether resident or not, or of a resident
alien decedent provided that:
§ At the time the indebtedness was incurred the debt
instrument was duly notarized; and
§ If the loan was contracted within three (3) years
before the death of the decedent, the administrator
or executor shall submit a statement showing the
disposition of the proceeds of the loan (Sec
86[A][1][c], NIRC)
o Requisites for its deductibility (TiG- VaCS)
§ The liability represents a personal obligation of the
deceased existing at the Time of his death except
unpaid obligations incurred incident to his death
 such as unpaid funeral expenses and unpaid
medical expenses;
§ The liability was contracted in Good faith and for
adequate and full consideration in money or
money’s worth;
§ Must be a debt or claim must be Valid and
enforceable in court;
§ Indebtedness must not have been Condoned by the
creditor or the action to collect from the decedent
must not have prescribed (R.R. 2-2003); and
§ It must be duly Substantiated.
o Substantiation Requirements
§ In case of simple loan (including advances)
• The debt instrument must be duly notarized
at the time the indebtedness was incurred,
except for loans contracted by financial
institutions (notarization is not part)
• Duly notarized Certification from the
creditor
o If creditor is a corporation: sworn
certification signed by the President,
or Vice President or other principal
officer
o If creditor is a partnership: any of the
general partners
o If creditor is a bank or other financial
institutions: branch manager
o If creditor is an individual: signed by
him
o The one who should certify must not
be a relative within the fourth
degree (except if a copy of the
promissory note is filed with RDO
having jurisdiction over the borrower
within 15 days from execution
• Proof of financial capacity of the creditor
• Statement under oath executed by the
administrator or executor reflecting the
disposition of the loan if contracted within 3
years prior to death
o If the unpaid obligation arose from purchase of goods or
services
§ Pertinent documents evidencing the purchase of
goods or services (invoice, delivery receipt) as duly
acknowledged, executed and signed by decedent-
debtor and creditor, and statement of account given
by the creditor as duly received by decedent-debtor
§ Duly notarized Certification from the creditor
§ Certified true copy of the last audited balance sheet
of the creditor with a detailed schedule of its
receivable; Certified true copy of the updated latest
subsidiary ledgers/records of the debt
§ If settlement is through the Court in a testate or
intestate proceeding, pertinent documents filed
with the Court evidencing the claims against the
estate , and the Court Order approving the said
claims
5.) Unpaid Mortgage
o Decedent leaves property encumbered by a mortgage or
indebtedness contracted in good faith
o Requisites for deductibility:
§ The value of the property to the extent of the
decedent’s interest therein, undiminished by such
mortgage or indebtedness is included in the gross
estate; and
§ The mortgage indebtedness was contracted in good
faith and for an adequate and full consideration in
money or money’s worth.
o Amount deductible would be the outstanding debt or
mortgage
o In case unpaid mortgage payable is being claimed by the
estate, and the loan is found to be merely an
accommodation loan where the loan proceeds went to
another person, the value of the unpaid loan, to the extent of
the decedent’s interest therein must be included as a
receivable of the estate
o If there is a legal impediment to recognize the same as
receivable of the estate: it shall not be allowed as deduction
o If owned only half of the property so that half of its value was
included in his estate, only half of the debt is deductible,
even though the executor paid the entire debt, the liability
being solidary
6.) Taxes
o Unpaid taxes that accrued prior to death of the decedent
o Taxes not deductible are those accruing after death, such as:
§ Income tax on income received after death
§ Property taxes accrued after death
§ Estate tax
7.) Claims against insolvent persons
o Receivables due or owing from persons who are not
financially capable of meeting their obligations
o Requisites for deductibility:
§ The incapacity of the debtor to pay his obligation
 § The full amount owed must first be included in the Beyond 4 years to 5 years 20%
gross estate and the amount uncollectible shall be More than 5 years No deduction allowed
allowed as a deduction
o Pro-Forma Computation of Vanishing Deductions
§ If the insolvent could only pay partial amount, the
Value to take (The lower amount between the XXXX
full amount owed shall be included and the
value of the property in the gross estate of the
uncollectible shall be allowed as deduction
prior decedent or value of the gift and value of
the same property in the gross estate of the
B. Transfer for Public Use
present decedent)
o Requisites for deductibility (WIG-PD)
§ The disposition is in a Last Will and testament;
Less: Mortgage Paid (1st deduction) (XXX)
§ To take effect after Death
(Paid by the present decedent from the
§ In favor of the Government or any political Mortgage assumed when the property was
subdivision;
Inherited or received as donation)
§ For exclusive Public purposes; and
_____
§ The value of the property given is Included in the
Initial Basis XXXX
gross estate.
o If transfer to Red Cross = Deductible
Less: Proportionate deduction (2nd deduction)
Computed as:
C. Vanishing Deductions (Property previously taxed)
(Initial Basis/Gross Estate) x **ELIT + Transfer (XXX)
o Deduction allowed from the gross estate for properties which
For Public Use***
were previously subject to donors or estate tax
o Lessen double taxation
Final Basis XXXX
o Property received by him from a prior decedent or donor by: X Vanishing Deduction % %
(1) gift or by (2) bequest, device or inheritance has been the
VANISHING DEDUCTION XXX
object of previous transfer taxation
o Requisites for deductibility (5-P2INT) ***Funeral and Judicial expenses are no longer allowed In
§ The present decedent died within 5 years from
TRAIN
receipt of the property from the prior decedent or
donor;
Special Deductions
§ The property on which vanishing deduction is being
A. Standard Deduction
claimed is located within the Philippines;
§ The property formed Part of the taxable estate of the o Standard deduction of 5,000,000 (1,000,000 prior TRAIN)
o Without need of substantiation
prior decedent or of the taxable gift of the donor;
§ The estate Tax on the prior succession or donor’s tax o Nonresident Aliens = 500,000 deduction
on the gift must have been finally determined and Standard Deduction in Estate Optional Standard
paid; Tax Deduction in Income
§ The property on which the vanishing deduction is Tax
taken must be Identified as the one received or As to Nature Deduction in addition to the Deduction in lieu of
acquired; and other deductions itemized deductions
§ No vanishing deduction was allowed on the same As to Amount Fixed at 5,000,000 40% of gross income or
property on the prior decedent’s estate. of Deduction gross sales/receipts
o Vanishing deduction rates As to Available to all Applies to all
Period from receipt to decedent’s Rate Availability individuals taxpayers
death except non-resident
aliens, and non-
Within 1 year 100% resident foreign
Beyond 1 year to 2 years 80% corporations
Beyond 2 years to 3 years 60%
Beyond 3 years to 4 years 40% B. Family Home
 o Dwelling house, including the land where it is situated and
where the family resides, as certified by the Barangay Captain
of the locality
o Lower between: (of the family home and the land)
§ 10,000,000
§ Fair market value at the time of the decedent’s death
o Family home is deemed constituted on the house and lot
from the time it is actually occupied as a family residence and
is considered as such for as long as any of its beneficiaries
actually resides therein
o Actual occupancy shall not be considered interrupted or
abandoned in cases of temporary absence due to travel or
studies or work abroad
o Unmarried Head of a Family
§ Unmarried or legally man or woman with one or both
parents, or with or more brothers or sisters, or with
one or more legitimate, recognized natural or legally
adopted children living and dependent upon him
(not more than 21 years old)
o Beneficiaries of a family home:
§ Husband and wife, or the head of a family; and
§ Their parents, ascendants, descendants including
legally adopted children, brothers and sisters,
whether the relationship be legitimate or illegitimate,
who are living in the family home and who depend
upon the head of the family for legal support
o Limitation
§ Person may constitute only 1 family home
o Requisites for deductibility
§ Decedent was married or if single, head of a family;
§ Beneficiaries must be dwelling in the family home
§ The family home must be the actual residential
home of the decedent and his family at the time of
his death, as certified by the Barangay Captain of
the locality where the family home is situated;
§ The total value of the family home must be
included as part of the gross estate of the
decedent; and
§ Allowable deduction must be in the amount
equivalent to:
• The current FMV of the family home as
declared or included in the gross estate, or
• The extent of the decedent’s interest
(whether conjugal/community or exclusive
property), whichever is lower, but not
exceeding P10, 000,000.
C. Medical Expenses
o Repealed by TRAIN
o All medical expenses (cost of medicine, hospital bills, doctors’
fees, etc.) incurred within one year before death(whether paid
or unpaid), but should not exceed P500,000
o If incurred within one year from death in excess of 500,000
shall no longer be allowed as deduction
o Requisites for deductibility
§ Medical expenses incurred by the decedent;
§ Incurred within one (1) year prior to the decedent’s
death;
§ Must be substantiated with receipts; and
§ Shall not exceed 500,000 whether paid or unpaid.
D. Amounts received by heirs under RA 4917
o Any amount received by the heirs from the decedent’s
employer as a consequence of the death of the decedent-
employee in accordance with RA No. 4917 shall be allowed as
a deduction from the gross estate
§ Provided it is included in the gross estate
o Requisites for deductibility
§ Amounts received by the heirs from the decedent’s
employer;
§ Received as a consequence of the death of the
decedent-employee; and
§ Amount is included in the gross estate of the
decedent
E. Net Share of the Surviving Spouse
- Amount deductible is the net share of the surviving spouse in the
conjugal partnership property
o ½ or 50% of the conjugal property after deducting the
obligations chargeable to such property
Deductions from the Gross Estate of a Nonresident Alien
- No deduction shall be allowed, unless the executor, administrator, or
anyone of the heirs, as the case may be, includes in their return
required to be filed the value at the time of the decedent’s death of
that part of his gross estate not situated in the Philippines
- Value of the net estate of a non-resident alien in the Philippines:
o Determined after deducting from the value of that part of his
gross estate which at the time of his death is situated in the
Philippines the following items of deductions:
Prior to 2018 Starting 2018
1.) ELIT. That “proportion” of the 1) LIT.** That “proportion” of the
total expenses, losses, total losses, indebtedness, claim
indebtedness, and taxes which against insolvent persons and
the value of such part bears to taxes which the value of such
the value of his entire gross part bears to the value of his
estate wherever situated entire gross estate wherever
 computed using the following
formula:
Computed as:
(GE Philippines/GE World) x ELIT
World
2.) Transfer for public use
3.) Vanishing deduction
4.) Net share of the surviving spouse
in the community property
situated computed using the 4) Amounts received from Philippines and United States government for
following formula: war damages
Computes as: 5) Payments from the Philippines of US government to the legal heirs pf
(GE Philippines/GE World) x LIT deceased of World War II Veterans
World 6) Amounts received from Unites States Veterans Association
2) Transfer for public use 7) Transfer by way of bona fide sales
3) Vanishing deduction 8) Properties held in trust by the decedent
4) Net share of the surviving spouse 9) Acquisition and/or transfer expressly declared as not taxable
in the community property 10) Personal Equity and Retirement Account assets of the decedent-
5) Standard deduction of 500,000 contributor

V. Tax Credit for Estate Taxes Paid in a Foreign Country

IV. Exemptions and Exclusions from the Gross Estate
A. Exclusions under Sections 85 and 86 of the Tax Code
1) Exclusive property of the surviving spouse
o The gross estate in case of married decedents, is composed of:
§ Exclusive properties of the decedent
§ Common properties of the decedent and the
surviving spouse
o Exclusive properties of the surviving spouse should be
excluded in the gross estate
o Capital = Exclusive properties of the husband
o Paraphernal = Exclusive properties of the wife
2) Property outside the Philippines of a non-resident alien decedent
o Only his properties situated or with situs within the
Philippines shall be included in his gross estate
3) Intangible personal property in the Philippines of a non-resident alien
under the Reciprocity Law
o Excludes intangible personal property with situs in the
Philippines
B. Exclusions under the Section 87 of the Tax Code
1) The Merger of the usufruct in the owner of the naked title
2) The transmission or the delivery of the inheritance or legacy by the
fiduciary heir or legatee to the Fideicommissary
3) The transmission from the first heir, legatee or donee in favor of
Another beneficiary, in accordance with the desire of the predecessor
4) All the bequests, devises, legacies or transfers to social welfare, cultural
and charitable Institutions no part of the net income of which inures
to the benefit of any individual: provided that not more than 30% of
the value given is used for administrative purposes
C. Exclusions under Special laws
1) Proceeds of life insurance and benefits received by members of GSIS,
SSS, by reason of death
2) Life insurance proceeds on life insurance policy taken out by the
decedent himself, upon his own life, where the beneficiary is a third
person and is irrevocably designated
3) Group Insurance taken out by his employer on the employee’s life ,
whoever the beneficiary may be, whether revocable or irrevocable
- Deduction from the estate tax itself
- Estate Tax Credit
o Taxpayer’s right to deduct from the tax due the amount of tax
it has paid to a foreign country
o Remedy against international double taxation
- Amount could be claimed a deduction if such taxes pertain to
properties included in the gross estate
- Nonresident alien decedents are not entitled to estate tax credit
- Only the estate of a citizen or resident alien at the time of death can
claim tax credit for any estate taxes paid in a foreign country
- Limitations in estate tax credit
o The amount of the credit in respect to the tax paid to any
country shall not exceed the same proportion of the tax
against which such credit is taken, which the decedent’s net
estate situated within such country taxable under the NIRC
bears to his entire net estate (per country basis); and
o The total amount of the credit shall not exceed the same
proportion of the tax against which such cre\dit is taken,
which the decedent’s net estate situated outside the
Philippines taxable under the NIRC bears to his entire net
estate (overall basis).
- Philippine Estate Tax Due
o Estate Tax Due (based on estate tax table) P XXXX
Less: Tax credit for foreign estate taxes paid (XXXX)
Philippine estate tax payable XXX
Limit A or – If there is only 1 Foreign Country
Net estate, foreign country X Philippine Estate Tax Due = P XXX (Limit)
Net estate, world
Versus
Actual tax paid, foreign country P XXX (Actual)
Actual tax credit (lower amount) P XXX (Tax
Credit)
 o Itemized assets of the decedent (w/ corresponding gross
value)
Limit B – If there are >1 Foreign Country o Itemized deductions
Step 1 – Compute limit A per foreign country o Amount tax due (whether paid or outstanding)
Step 2 – Compute limit B:
Time for Filing
Net estate all foreign countries X Philippine Estate = P XXX - 1 year from date of death (without surcharges or interests)
(Limit) o Court approving the project of partition shall furnish the
Net estate, world Tax Due Commissioner with certified copy thereof and its order
within 30 days after promulgation
Versus
Extension of Time to File the Estate Tax Return
Actual Tax paid, all foreign countries = P XXX - Commissioner or any revenue officer
(Actual) o Reasonable extension not exceeding 30 days
Limit B (lower amount) = P XXX - Filed in the Revenue District Office
(Limit)
Time for Payment of the Estate Tax
Step 3 - Paid at the time the return is filed by the executor, administrator, or
Choose the lower amount between Limit A and Limit B the heirs
Limit A P XXX
Limit B XXX Extension of Time to Pay Estate Tax
Allowed Tax Credit (lower) XXX - Requisites:
o The request for extension must be filed before the expiration
Net Distributable Estate of the original period to pay which is within 1 year from
- Amount arrived at from gross estate (all properties in the possession death;
and control of the decedent at death and actual expenses, charges, o There must be a finding that the payment on the due date of
and payments from gross estate) the estate tax would impose undue hardship upon the
estate or any of the heirs;
VI. Filing of Estate Tax Return and Payment of Tax Due o The extension must be for a period not exceeding 5 years if
Notice of Death the estate is settled judicially or 2 years if settled extra-
- Prior 2018: Filed by the executors or any of the legal heirs (when the judicially; and
transfer mortis cause is subject to tax, or, where though exempt, the o The Commissioner may require the posting of a bond in an
value of the gross estate exceeds 20000) amount not exceeding double the amount of tax to secure
o Within 2 months after decedent’s death the payment thereof.
§ Or within 2 months after the executor has qualified - If request is by reason of negligence, intentional disregard if rules and
- TRAIN (1/1/2018) regulations, or fraud
o No longer required o No extension

Filing of Estate Tax Return and Payment of Estate Tax Due

Payment of Estate Tax by Installment and Partial Disposition of Estate
- Shall be paid by the executor/administrator or any of the legal heirs at
- In case of insufficiency of cash for the immediate payment of the
the time the return is filed (Pay as you file system)
total estate tax due, the estate may be allowed to pay the estate tax
- Required in cases of
due throught the following options:
o Transfers subject to tax
1. Cash Installment
o Regardless of the gross value of the estate, where the said
o Shall be made within 2 years from the date of filing the
estate consists of registered or registrable property
estate tax return
- Estate tax returns showing gross value exceeding 5,000,000 shall be
o Estate tax return shall be filed within 1 year from date of
supported by a certificate duly certified by a CPA containing the
decedent’s death
following
 o Frequency (monthly, quarterly, etc) deadline and the amount
of each installment shall be included in the estate tax return,
subject to the approval by the BIR
o In case of lapse of 2 years without the payment of entire tax
due, remaining balance shall be due and demandable (plus
penalties and interest from the prescribed deadline for filing
the return and payment of tax)
o No civil penalties or interest may be imposed on estates
permitted to pay the estate tax due by installment
2. Partial disposition of estate and application of its proceeds to the
estate tax due
o The disposition shall refer to the conveyance of property (real,
personal, tangible or intangible) with the equivalent cash
consideration
o Estate tax return shall be filed within 1 year from decedent’s
death
o Written request for partial disposition shall be approved by
the BIR
§ Filed together with a notarized undertaking –
proceeds will be exclusively used for the payment of
total estate tax due
o Computed estate tax due shall be allocated in proportion to
the value of each property
o Estate shall pay to the BIR the proportionate estate tax due
of the property intended to be disposed
o An electronic Certificate Authorizing Registration shall be
issued upon presentation of the proof of payment of the
estate tax due of the property intended to be disposed
§ eCARs shall be issued as many as there are
properties to be disposed to cover the total estate
tax due, net of the proportionate estate taxes
previously paid
o In case of failure to pay total estate tax due, the estate tax
shall be immediately due and demandable
Request for Extension of Time, Installment Payment and Partial Disposition
of Estate
- Shall be filed with the Revenue District Officer (RDO) where the
estate is required to secure its TIN and file the estate tax return
o Shall be approved by the Commissioner or his duly
authorized representative
Place of Filing the Return and Payment of the Estate Tax
- Resident Decedent
o Administrator/Executor shall register the estate and secure a
new TIN from the RDO where the decedent was domiciled
at the time of his death and shall file the estate tax return
and pay the corresponding tax with the Accredited Agent
Bank (AAB), RDO or Revenue Collection Officer (RCO) having
jurisdiction over the place
- Non-Resident Decedent (Citizen or Alien – with executor in the PH)
o Estate tax return shall be filed and the TIN for the estate shall
be secured from the RDO where such administrator or
executor is registered
§ If executor is not registered; estate tax return shall be
filed and the TIN of the estate shall be secured from
the RDO having jurisdiction over the executor’s legal
residence
Liability for the Payment of Estate Tax
- Primary Obligation = Executor/Administrator
- Subsidiary Liability = Beneficiary
o Portion of the estate which his distributive share bears to the
value of the net estate
o Liability shall not exceed the value of his share in the
inheritance
- If there’s no executor or administrator, qualified and acting within
the Philippines
o Any person in actual or constructive possession of any
property of the decedent must file
- Two or more executors or administrators
o All of them are severally liable for the payment
o Estate tax issued by the Commissioner or the RDO (having
jurisdiction) will serve as the authority to distribute the
remaining properties
Payment by Installment (TRAIN)
- Before 2018
o In case 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 (clearance shall be released to the
property the computed tax on which has been paid)
o Computation of the estate tax shall always be on the
cumulative amount of the net taxable estate
o If paid after the statutory due date = impose penalty
§ But if approved by the Commissioner (or
representative) the penalty shall only be interest
- TRAIN
o In case the available cash of the estate is insufficient
§ Payment by installment shall be allowed within 2
years from the statutory date without civil penalty
and interest
Civil Penalties and Interest
- If paid after the statutory due date, but within the extension period
o Subject to interest but not to surcharge
o If no false or fraudulent intent = Penalty of 25%
 o If there is false, malice or fraudulent intent = Penalty of 50%
o Interest of 20% on the unpaid amount of tax from the datge
computed until fully paid

Payment of Tax Antecedent to the Transfer of Shares, Bonds, or Rights

- Not be transferred to any new owner in the books of any corporation,
partnership, business or industry established in the PH any share,
obligation, bond or right by way of gift inter-vivos or mortis causa,
legacy or inheritance
o Unless a certification from the Commissioner that the tax
have been paid
- If bank has knowledge of the death of a person (who maintained a
bank account alone, or jointly with another
o It shall allow any withdrawal from the said deposit account
§ Subject to 6% withholding tax
o All withdrawal slips shall contain a statement to the effect
that all of the joint depositors are still living at the time of the
withdrawal
- TRAIN
o In case the available cash is insufficient to pay the total
estate tax due, payment by installment shall be allowed
within 2 years from the statutory date (without civil penalty
and interest)
Donor’s Tax
Donation is an act of liberality whereby a person disposes gratuitously of a
thing or right in favor of another, who accepts it.
- Law considers donation a contract (requires acceptance – rules on
Oblicon applies)
I. Nature of Donor’s Tax
- Tax levied, assessed, collected and paid upon the transfer by any
person, resident or nonresident, of the property or gift
- Tax imposed on the exercise of the donor’s right during lifetime to
transfer property to others
- Not a property tax – An Excise Tax imposed on the transfer of
property by way of gift inter-vivos
- Direct tax
o Imposed on the donor and determined with reference to all
the donor’s gifts
o Applies to both natural and juridical persons
- “Transfer of property in trust or otherwise, direct or indirect”
o Not only the transfer of ownership in the fullest sense but
also the transfer of any right or interest in property, but less
than the title
- Transfer becomes complete and taxable only when the donor has
divested himself of all beneficiary interest in the property and has no
power to revest any such interest in himself or his estate
II. Purpose or Object
- Two-fold purpose of Donor’s Tax
o To supplement estate tax
o To prevent avoidance of income tax through the device of
splitting income among numerous donees who are usually
members of a family or into many trusts, with the donor
thereby escaping the effect of the progressive rates of
income taxation
III. Requisites of Valid Donation (CIDA)
- Capacity of donor to donate
o Refers to the condition and legal competence of the donor
to enter into a contract
o All person who may contract and dispose of their property
may make a donation
§ Not enough that a person be capacitated to contract
but also have the capacity to dispose
o The donor’s capacity shall be determined as of the time of
the making of the donation (Art. 737, NCC).
- Donative Intent
o Refers to the proper declaration of the legal owner of a
property or right to transfer ownership without consideration
o Such intent followed by a donative act is essential to
constitute a gift (and no strained and artificial construction of
a supplementary statute should be included to tax as gift)
o NOTE: Donative intent is necessary only in cases of direct gift.
If the gift is indirectly taking place by way of sale, exchange
or other transfer of property as contemplated in cases of
transfer for less than adequate and full consideration (Sec.
100, NIRC), not always essential to constitute a gift.
- Actual or constructive Delivery of gift
o Donor’s tax applies to a completed gift
o Perfected from the moment the donor knows of the
acceptance of the donee
- Acceptance by the donee
o Perfected not from the time of acceptance but from the
time of knowledge of the donor that the done has accepted
the same
o Acceptance must be made during the lifetime of the donor
and of the
Formalities
- Donation of Movable Property
o May be made orally or in writing
o Oral donation requires the simultaneous delivery of the thing
or the document representing the right donated
o If the value exceeds 5000
§ Donation and acceptance must be made in writing,
otherwise void
- Donation of Immovable Property
o Must be made in a public document (specifying the property
donated and the value of the charges which the done must
satisfy)
o Acceptance may be made in the same deed of donation or
in a separate public document
§ If separate document: donor shall be notified thereof
in an authentic form
Characteristics of Donor’s Tax
- An “excise tax” not a property tax
o Imposed on the right or privilege to transfer property by way
of gift inter-vivos
- Donor’s tax, being a contract, does not apply unless and until there is
a completed gift
o Completed by delivery either actual or constructive
- Transfer is perfected from the moment the donor knows of the
acceptance of the done
- Donor’s tax is a direct tax because the tax is imposed on the donor
and determined with reference to all the gifts
 - Renunciation by the surviving spouse of his/her share in the conjugal
partnership or absolute community after dissolution of the marriage
is subject to donor’s tax
- General renunciation by an heir, including the surviving spouse, of
his/her share in the hereditary estate is not subject to tax, unless
specifically and categorically done in favor of identified heirs to the
exclusion or disadvantage of other co-heirs
§ On account of debtor’s services to the creditor
the same is in taxable income to the debtor.
§ If no services were rendered but the creditor
simply condones the debt, it is taxable gift and
not a taxable income.

Classification of Donation
- As to motive or purpose
o Simple
§ Pure liberality
o Renumeratory
§ Due to past services rendered or future services or
charges or burdens
§ Not really donations in substance
§ Not gratuitous – Not subject to donor’s tax
o Modal
§ Consideration is less than the value of the thing
donated
- As to time of taking effect (Perfection)
o Donation inter-vivos
o Donation mortis-causa

IV. Transfers which may be constituted as donation

- Sale/exchange/transfer of property for insufficient consideration
o Rule regarding transfer for less than adequate and full
consideration:
§ GR: Where a property is transferred for less than
adequate and full consideration in money or
money’s worth, the amount by which the FMV
exceeds the consideration shall be deemed a
gift and be included in computing the amount
of gifts made during the calendar year. It is as if
the property was donated but in order to avoid
paying donor’s tax, the donor opted to transfer
the property for inadequate consideration.
§ XPN: Where property transferred is real property
located in the Philippines considered as capital
asset, the transfer is not subject to donor’s tax
but to a capital gains tax, which is a final income
tax of 6% of the fair market value or gross selling
price, whichever is higher, and therefore, there
can be no instance where the seller can avoid
any tax by selling his capital assets below its FMV
- Condonation/Remission of debt
o If the creditor condones the indebtedness of the debtor
the following rules apply: