COMPOSITION OF GROSS ESTATE BASED ON RESIDENCY AND CITIZENSHIP

1) As to resident citizen decedent 2) As to non-resident alien decedent

 Real property wherever situated
 Personal property wherever situated
 Tangible personal property wherever
situated
 Intangible personal property wherever
situated
 Real property situated in the Philippines
 Personal property situated in the Philippines
 Tangible personal property situated in the
Philippines
 Intangible personal property with a situs in
the Philippines unless exempted on the basis
of reciprocity

Section 104 of the Tax Code enumerates the following intangible personal property with situs in the Philippines:
1) Franchises which must be exercised in the Philippines;
2) Shares, obligations, or bonds issued by any corporation or sociedad anonima organized or constituted in the
Philippines in accordance with its laws;
3) Shares, obligations, or bonds issued by any foreign corporation, 85% of the business of which is located in the
Philippines;
4) Shares, obligations, or bonds issued by any foreign corporation if such shares, obligations, or bonds have
acquired a business situs in the Philippines;
5) Shares or rights in any partnership, business or industry established in the Philippines.

General Rule:
 The right to ownership of property takes effect at the time of death of the decedent.
 Therefore, said property should be excluded in the Gross Estate of the decedent.

Exception to the rule:

 Not terminated usufruct
 General Power of Appointment

INCLUSIONS IN THE GROSS STATE

1) Properties actually and physically present at the time of death
2) Decedent’s Interest
3) Properties actually but not physically present at the time of death
 Transfer for insufficient consideration

Consideration < FMV at date of transfer … Difference between CR and FMV, included in GE
Consideration = FMV at date of transfer … Ownership already transferred, excluded in GE
Consideration > FMV at date of transfer … Ownership already transferred, excluded in GE

 Claims against insolvent persons

General rule: The full amount of claim against the insolvent person should be deducted in the gross estate
of the decedent, regardless of the amount the debtor is unable to pay.

Exception: If the incapacity of the debtor to pay his obligation is proven, the amount the debtor is unable
to pay is the amount that will be deducted to the Gross Estate of the decedent.
 1st step: Get the % of Collectible Debt (A/L x 100 = %) Assets – Unpaid Taxes
2nd step: Total Debt x % of Collectible Debt = Collectible Debt Liability – Unpaid Taxes
3rd step: Total Debt – Collectible Portion = Uncollectible Debt
Or
1st Step: Get the % of Collectible Debt
2nd step: Total Debt x % of Collectible Debt = Collectible Debt
3rd step: Total Debt – Collectible Portion = Uncollectible Debt

 Transfer in contemplation of death

This refers to property formerly owned by the decedent but were no longer owned by him at the time of
his death. It contemplates a situation where the transferor during his lifetime, transfer property in
contemplation of or intended to take effect in possession or enjoyment at or after his death. Or where the
transferor retains for life the possession or enjoyment, or the right to the income from the property, or the
right to designate the person who shall possess or enjoy the property or the income therefrom. At the time
of his death, therefore, the decedent no longer owned the property, but still applying sec. 85(b) of the tax
code, such property forms part of his gross estate.

 Transfer with retention or reservation of certain rights

 Revocable transfer
The gross estate includes transferred property in which the decedent retains a power to alter, amend,
revoke, or terminate the transfer.

 Transfer under a general power of appointment Refers to right to designate the

person or persons who will succeed
to the property of the prior decedent
The power of appointment is general when the power of
appointment authorizes the donee of the power to appoint any person he pleases.

The power of appointment is special when the donee can appoint only from a restricted or designated
class of persons other than him.

The power of appointment may be exercised by the donor-decedent through the following modes:
a. By will;
b. By deed to take effect in possession or enjoyment at or after his death;
c. By deed under which he has retained for his life or any period not ascertainable without reference to
his death or for any period which does not in fact end before his death
d. The possession or enjoyment of, or the right to the income from the property;
e. The right, either alone, or in conjunction with any person to designate the persons who shall possess
or enjoy the property or the income therefrom.

 Proceeds of life insurance

PROCEEDS OF LIFE INSURANCE (Taken out by the

 decedent)
Beneficiary Designation Gross
Estate
Estate Revocable or Irrevocable Included
Executor Revocable or Irrevocable Included
Administrator Revocable or Irrevocable Included
3rd Party (i.e. wife) Revocable Included
3rd Party (i.e. wife) Irrevocable Excluded
VALUATION OF GROSS ESTATE

1) In General
 Fair Market Value at the time of death

2) Real or Immovable Property

The higher value between:
 FMV determined by the Commissioner
 FMV as shown in the schedule of values fixed by the Provincial and City Assessors

3) Personal Property
 Fair Market Value at the time of death

A share in a company carrying the ordinary

4) Shares of stock
 Unlisted Common Shares
 Unlisted Preference Shares
 Listed Shares
Book Value
benefits associated with a membership of a
Outstanding
company. The most important of these
shares (OS) +
benefits are the right to a share of the
Retained
company’s profits, rather than a payment of a
fixed amount out of profits (compare
Earnings (RE)
preference share), and the rights to a vote at
all meetings of members of the company.

Shares being on the

list (or board) of A share in a company carrying a right to be
paid a fixed amount (called a preference Par Value
stock that are
officially traded on dividend) each year out of the company’s
a stock exchange. profits

 Quotation Price
 Mean Value
 HQ + LQ
2

5) Units of participation in any association recreation or amusement club

 The bid price nearest the date of death published in any newspaper or publication for general circulation

6) Rights to usufruct, use or habitation and annuity

 In accordance with the latest Basic 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.