ESTATE TAX THEORIES REVIEWER 2.

Estate tax- transfer is effected upon death of

the owner of property or imposed on
Republic Act No. 8424- National Internal Revenue
donation mortis causa
Code of the Philippines
Inter-vivos transfer- the property is transferred
Excise tax- a regulatory tax imposed on the
during the lifetime of the donor and donee, and is
enjoyment of a privilege, performance of an act, or
effected upon the delivery and acceptance of the
engagement to an occupation
property donated
Business tax- tax imposed on the right of privilege to
Mortis-causa transfer- the right to succession is
engage in an onerous transfer of goods or services in
effected from the moment of the decedent’s death
the normal conduct of business
Onerous transfer- sale or exchange of property for a
Transfer tax- tax imposed on one’s right to make
monetary consideration or a transfer of goods or
casual and gratuitous transfer of one’s property to
services in return for something of equal value
the other person
Onerous transfer may be made through:
Documentary stamp tax- imposed on the right to
enter into a transaction that is described in the 1. Regular business activities- sales or
document needed to be filed in any government office exchanges in the ordinary course of business
are usually imposed of business taxes such as
Nature of Transfer Taxes is expressed in the ff:
VAT, OPT, and excise tax
1. Estate tax- not imposed on the value or the 2. Casual sale of property- done by a person not
property itself but on the act of transmitting engaged in business of selling property and is
one’s property to another for free subject to capital gains tax or regular income
2. Irregular payments- not usually paid at tax
regular intervals
Gratuitous transfer- conveyance of property which is
3. Direct tax- imposed on the property left by
not conditioned or reciprocated by any consideration
the decedent or donor transmitting the
in exchange for the value of the property given away
property, not on the recipient of the property
4. National tax- collected by the BIR Justification of Transfer Taxes
5. Fiscal- help to increase the revenue of the
1. Redistribution of wealth theory- properties
government
are given for free contributes to the unequal
6. Compensation tax- intended to be
distribution of wealth and earnings because
redistributed in the form of governmental
the recipient has not actually worked for it
projects for the general welfare
2. Benefit-received theory- the government
7. Ad valorem tax- tax imposed are based on the
protects and provides services in the
fair market values of the property at the time
accumulation of properties transferred
of death or the time of donation
gratuitously that resulted to benefits received
8. Progressive tax- tax imposed are graduated
by the estate and the recipient
or schedular tax
3. Privilege or state partnership theory- asserts
9. Subject to exemption- subject to conditions
that the State is a passive and silent partner in
prescribed by law, all grants, endowments,
the accumulation of wealth as it protects
donations, or contributions used actually,
every individual within its territory
directly, and exclusively for educational
4. Ability-to-pay theory- every inheritance
purposes shall be exempt from tax
received by an heir is in the nature of
10. Returnable- required to be reported using the
unearned wealth and the effect of inheritance
prescribed from tax return provided by the
increases the wealth of the heir thereby
BIR
creating an ability to pay the tax and thus
Classification of Transfer Tax contributing to governmental income
5. Equitable recoupment theory- prevent unjust
1. Donor’s tax- during the lifetime of the donor
enrichment by either the taxpayer or the
or imposed on donation inter vivos
government
Ownership may be acquired through:
 Occupation
 Intellectual creation
 Law
 Donation
 Tradition
 Contract
 Prescription
 Succession
Succession- defined as a mode of acquisition by
virtue of which the property, rights, and obligations
to the extent of the value of the inheritance, of a
person are transmitted through his death to another
or others either by will or by operation of law
Elements of Succession
1. Decedent- person who died and whose
property is transmitted through succession,
whether or not he left a will
Testator- decedent who made the last will
and testament
Executor- person designated in the last will
and testament to carry out the provisions of
the decedent’s will
Executrix- a female executor
Administrator- person entrusted and
assigned by court for the care, custody and
management of the estate of a decedent
Administratrix- a female administrator
2. Estate- properties or property rights of the
decedent, which is the subject matter of
succession
Inheritance- includes all property, rights and
obligations of a person which are not
extinguished by his death and includes those
which have accrued thereto since the opening
of the succession
Testate Estate- an estate of a deceased person
which is settled or to be settled with a valid
last will and testament
Intestate Estate- an estate of a deceased
person without a will
3. Successor- heir or the person to whom the
property or property rights is to be
transferred
Devisee- one who is given real property in a
will
Legatee- one who is given personal property
through a will
Classification of successors
1. Compulsory heirs- those who succeed by
force of law to some portion of the
inheritance, in an amount predetermined by
law, known as legitime
 Primary compulsory heirs- those who have
precedence over and exclude other
compulsory heirs (legitimate children and
descendants)
 Secondary compulsory heirs- those who
succeed only in the absence of the primary
compulsory heirs (legitimate parents and
ascendants)
 Concurring compulsory heirs- those who
succeed together with the primary or
secondary compulsory heirs (illegitimate
children and descendants and surviving
spouse)
2. Voluntary heirs- those instituted by the
testator in his will to succeed to the
inheritance of the portion thereof of which
the testator can freely dispose
3. Legal or intestate heirs- those who succeed to
the estate of the decedent by operation of law
(decedent died without a valid will or his
estate was not entirely disposed of by will)
Disinheritance- a testamentary disposition by which
a compulsory heir is deprived of, or excluded from
the inheritance to which he has a right
Kinds of Succession
1. Testamentary or testate succession- results
from the designation of an heir, made in a will
executed in the form prescribed by law
2. Legal or intestate succession- effected by
operations of law since the decedent did not
execute a will or if the last will and testament
executed by him is void
3. Mixed succession- effected partly by will and
partly by operation of law
Free portion-part of the whole estate which the
testator could dispose of freely though a written will
irrespective of his relationship to the recipient
Will- an act whereby a person is permitted, with the
formalities prescribed by law, to control to a certain
degree the disposition of his estate to take effect after
his death
Kinds of Wills
1. Notarial/Ordinary/Attested Will- one which
is executed in accordance with the formalities
prescribed by Art. 804 to 808 of the New Civil
Code
2. Holographic Will- written will which must be
entirely written, dated, and signed by the
hand of the testator himself
Codicil- a supplement or addition to a will, made after
the execution of a will and annexed to be taken as a
part thereof, by which any disposition made in the
original will is explained, added to or altered
Special proceedings- a remedy by which a party seeks
to establish a status, a right, or a particular fact
Probate- a special proceeding to establish the validity
of a will
Reprobate- a special proceeding to establish the
validity of a will previously proved in a foreign
country
Escheat- a proceeding whereby the State, by virtue of
its sovereignty, steps in and claims the real or
personal property of a person who dies intestate
without heir
Consanguinity- relation of persons descending from
the same stock or common ancestors
Lineal consanguinity- may be descending or
ascending, is that which subsists between persons of
whom one is descended in a direct line from the
other
Collateral consanguinity- is that which subsists
between persons who have the same ancestors, but
who not descend or ascend from one another
Property regime- set of rules agreed upon by the
parties, before getting married, which would govern
their property relations during the course of their
married life
Recoverable transfer- a transfer of property with
retention or reservation of rights over the property
by the donor while he still lives
Deductions from gross estate- items which the law on
estate tax allows to be subtracted from the value of
the gross estate in order to arrive at the net taxable
estate