WESTERN MINDANAO STATE UNIVERSITY

ACCOUNTANCY DEPARTMENT

Discussion made easy!

Transfer Taxes (Estate)
 Gift mortis causa or gift made in expectation of death.
 Estate Tax is a tax on the right of the deceased person to transmit his/her estate to his/her lawful
heirs and beneficiaries at the time of death and on certain transfers, which are made by law as
equivalent to testamentary disposition
 It is not a tax on property. It is a tax imposed on the privilege of transmitting property upon the death
of the owner.
 Citizen and Resident Alien - Taxable for ALL PROPERTIES transferred within and without (real,
tangible and intangible, personal)
 NRA- Taxable for the transfer of real properties and tangible properties within and intangible
properties within but subject to reciprocity
Situs (legal jurisdiction) of intangibles

1. Receivables - Residence of the debtor

2. Bank deposit- Location of the bank
3. Franchise or patents- Where property is exercised
4. Investment in partnership- where partnership is established
5. Shares of stock
a. Domesctic Corporation – Within the Phils
b. Foreign Corporation – Without the Philippines
Except:
i.) If > or = of business is in the Philippines – Within the Philippines
ii.) If share have acquired a business situs in the Philippines – Within the Philippines

Properties included in the gross estate- ALL that the decedent owns (properties, rights and interests) at
the time of death

1. Properties owned by the decedent and physically present in his estate at the time of death
2. Interest in property owned or possessed by the decedent at the time of death (usufruct)
*usufruct – right to enjoy the use of another’s property
3. Taxable transfers- made during lifetime but mortis causa in substance
*Analysis – Made gifts when the decedent is already in his/her deathbed. If he was to live, he would
not have made those gifts.
a. Transfer in contemplation of death (transfer is void if donee dies first)
b. Revocable transfers
c. Transfer with reservation of rights over the income or enjoyment of the property transferred
d. Property passing under General Power of Appointment (The done is the decedent. It is
considered his property since he has the authority to dispose.)
e. Transfer for insufficient consideration
*Included in the Gross Estate = FMV of property at the time of death – Consideration Received
(Selling price/Payment)
f. Proceeds of life insurance
- If beneficiary is the estate, executor or administrator(revocable or not)
- If other person (revocable only)
- Not also included if the benefits are from SSS, GSIS accruing because of death
4. Claims against insolvent persons (deducted by the uncollectible amount
*Bad debt deduction is taken for the uncollectible portion
5. Conjugal or community properties, if marred
Property Regimes

1. Absolute Community Property- On or after August 3,1988

2. Community Property of Gains- Before August 3,1988

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 ***EXCLUSIVE PROPERTIES:

Absolute Community Property (Exclusive) Community Property of Gains (Exclusive)

- Properties acquired during marriage by
gratuitous title
- Fruits and income of exclusive property
- Properties for the personal or exclusive
use of the spouse EXCEPT jewelry
- Property acquired before marriage
who has previous marriage
- Property designated as exclusive in a
marriage settlement
- Property owned before marriage
- Property acquired during marriage by
gratuitous title
- Property acquired using exclusive money
- Property designated as exclusive in a
marriage settlement

***MUTUAL PROPERTIES
Absolute Community Property
- All properties owned by the spouses at
the time of the marriage (except 4
above)
- All properties acquired thereafter.
- Fruits and income of community
properties.
Community Property of Gains
- Properties acquired using the common
funds
- Properties obtained from the labor or work
of the spouses
- Properties acquired by chance such as
winnings from gambling or betting. (Losses
shall borne exclusively by the loser-
spouse).
- Fruits and income of the conjugal
properties.
- Fruits and income of the exclusive
properties of each spouse.

Acquisition or transactions not included in the gross estate of the decent (Exempted)

1. Merger of the usufruct in the owner of the naked title to the property
- Owner of the Naked Title - The person who is vested with the ownership, dominion, or title of
property under the usufruct agreement.
Illustration:
X, in his last will and testament, transferred the possession of his house and lot to Y (usufructuary),
but the title of such properties was transferred in the name of Z (owner of the naked title). Transfer
from X (decedent) to Z (owner of the naked title) is subject to estate tax. Transfer from Y
(usufructuary) to Z (naked title owner) is not subject to estate tax.
For this exemption to apply, the one who should die first should be the USUFRUCTUARY (merger
of the Usufruct in the Owner of the naked title).

2. Fideicommissary substitution
- Fiduciary Heir– the first heir of the property who is usually a trustee in relation to a
beneficiary. He is a usufructuary and does not own the property.
- Fideicommissary– the second heir who is the beneficiary of the property. He is the rightful
heir upon reaching the age of majority. His relationship to the fiduciary heir must be one
degree of generation such that of a parent and a child or vice versa. He is the owner of the
naked title.
- The fiduciary heir holds the property temporarily while waiting for the qualifications of the
fideicommissary. Ultimately, the property will go to the fideicommissary. This usually
happens when the fideicommissaryis still a minor.
- Predecessor->Fiduciary Heir (Estate Tax)->Fideicommissary (No Estate Tax)

3. Transfers to social welfare, cultural and charitable institutions

4. Proceeds of life insurance from GSIS, SSS, US government, US Veteran
Administration. Valuation of gross estate

- Properties are valued at the time of death of the decedent

a. Usufruct- Shall take into account the probable life of the beneficiary based on the basic standard
mortality rate table
b. Real properties- FMV
c. Personal properties- Generally FMV
Deduction from the gross estate
1. Ordinary Deductions
a. ELIT (Expenses, Loses, Indebtedness, Taxes, etc.)
 Funeral Expenses- lowest of (a)actual expenses, (b)5% of gross estate and (c)P200,000
o *Excludes obituary publication and cost of memorial lot (like send news and invitations)
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 o *Excludes expenses after the burial, or expenses paid by others
 Judicial Expenses- Court litigation and administration of assets
 Claims against the estate- Unpaid personal obligations (should not include funeral and medical
expenses). This should be with proof notarized 3 years prior.
 Claims against insolvent persons
o *must first be included in the Gross Estate
o *Uncollectible portion is deductible from Gross Estate
 Unpaid mortgages
 Income taxes and property taxes (those unpaid before death)
 Losses- From mishaps, accidents, casualties and embezzlements. These must occur within 6
months after death.
o Transfers for public use
 Transfers made to government, social welfare, cultural and charitable institutions.
o *No part of its income inures to the benefit of any individual.
o *< or = 30% of the bequest, devise or legacy is used from administrative purposes
o Vanishing Deduction (previously taxed properties)
 This should be acquired by inheritance- donation within 5 years prior death (100%, 80%, 60%, 40%,
20%)
o *Discussion? - Coming soon 

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2. Special Deduction
-Deducted only after the ordinary deductions have been deducted from the gross estate
a. Family home (lower of FMV and 1,000,000)
*Must be included in the Gross Estate
*Family home must be the actual residential home of the decedent as certified to by the barangay captain
b. Medical Expenses
*must be incurred within 1 year of death
*must be substantiated
*less than or equal to P500,000
c. Standard deduction (1,000,000- only for citizens and resident aliens)
*Substantiation not required
d. Amounts received by heirs from SSS, GSIS, US veterans

3. Share of the surviving spouse in the net conjugal properties

*Amount of deduction = [Conjugal properties less obligations chargeable to such properties]/2

*Only the ordinary expenses is allowed to be deducted for the NRA (ELIT, transfer for public use, vanishing
deduction and share of surviving spouse)

*Funeral and judicial expenses are deducted from conjugal properties

Gross Exclusive + Conjugal Properties Total Properties

Estate Properties
less Judicial and Funeral Expenses
less Claims against the estate, against an insolvent
person,
mortgage, taxes and losses
less Transfers of
properties
less Vanishing
Deductions
less Other ELIT
Net XXXXX + XXXXX** XXXXX
Estate
Standard Deduction (XXXXX)
Medical Expense (XXXXX)
Family home (if conjugal divide (XXXXX)
by 2)
Share of the Surviving Spouse (XXXXX)
(** divided 2)
Net Taxable Estate XXXXX

 Notice of death- The executor or the administrator within 2 months after the decedent’s death shall give a written
notice of death to the Commissioner when the gross value of the estate exceeded 20,000.
 When estate tax return should be filed? When the estate is subject to estate tax or when the gross estate includes
properties which clearance by BIR is needed.
 The estate tax return must be filed within 6 months from death. It may be extend to another 30 days in meritorious
cases
 If the gross value exceeded 2,000,000, the statement must be certified by a CPA.
 PAY AS YOU FILE
 There payment may be extended for a period not exceeding 5 years if settled through courts and for a period not
exceeding 2 years if settled extra-judicially.
 Payment of tax serves as authority to distribute the properties (CAR)
 Administrator or one of the heirs may upon authorization of CIR withdraw an amount not exceeding 20,000 even
without CAR.

Tax Rates

(The rate applicable shall be based on the law prevailing at the time of
decedent’s death)

Effective January 1, 2018 to present [Republic Act (RA) No. 10963]

There shall be an imposed rate of six percent (6%) based on the value of such NET ESTATE determined as
of the time of death of decedent composed of all properties, real or personal, tangible or intangible less
allowable deductions.