SCHOOL OF BUSINESS ADMINISTRATION AND ACCOUNTANCY

General Luna Road, Baguio City Philippines 2600

Telefax No.: (074) 442-3071 Website: www.ubaguio.edu E-mail Address: ub@ubaguio.edu

INTEGR TAX 022

ESTATE TAXATION

- donation mortis causa

A. Succession
1. Mode of transmission of the ownership, rights, interest and obligations over property by reason of death of the
owner in favor of certain persons designated by the owner himself or by operation of law.
2. Elements of succession:
a. Decedent
b. Successor
o Concurring heirs (spouse) and primary heirs (descendants); in the absence of descendants,
ascendants will take their place
o Relatives up to 5th degree
o Republic of the Philippines
c. Estate
3. Kinds of succession:
a. Testate or voluntary – carried out according to the wishes of the testator expressed in a will executed in
the form prescribed by law
b. Intestate, involuntary, or legal – succession with an invalid will or without a will ; succession by
operation of law

B. Gross Estate

“The value of the gross estate of the decedent shall be determined by including the value at the time of his
death of all property, real or personal, tangible or intangible, wherever situated: Provided, however, that in the
case of a nonresident decedent who at the time of his death was not a citizen of the Philippines, only that part
of the entire gross estate which is situated in the Philippines shall be included in his taxable estate.”

Inventory at the point of death xxx

Less: Exempt Transfers xxx
Add: Taxable Transfers xxx
Gross Estate xxx

1. Exempt Transfers

a. Transfer of property not owned

o Merger of the usufruct in the owner of the naked title
o Transmission to the fideicommissary (special power of appointment)
o Irrevocable life insurance policy (except if the beneficiary is the estate, executor and administrator)
o Properties held in trust
o Separate properties of the spouse
o Transfer by sale

b. Properties excluded by law

o Transfers to social welfare, charitable, cultural institution
o War damage payments
o Expressly excluded by law
o USVA benefits
o Group insurance
 SCHOOL OF BUSINESS ADMINISTRATION AND ACCOUNTANCY
General Luna Road, Baguio City Philippines 2600

Telefax No.: (074) 442-3071 Website: www.ubaguio.edu E-mail Address: ub@ubaguio.edu

o GSIS benefits
o SSS benefits

2. Taxable transfers
a. Transfers in contemplation of death
b. Revocable transfers
“The power to alter, amend or revoke shall be considered to exist on the date of the decedent’s death”
c. Transfer with retention of certain rights over the income or enjoyment of the property transferred
d. Property passing under the general power of appointment – the done is authorized to dispose of the
property by exercising his power of appointment in designating any person who shall possess or enjoy the
property or its income
e. Transfer for insufficient consideration
- in all taxable transfers above: FMV at the time of death minus Consideration received
f. Claims against insolvent persons
g. Conjugal properties if the descendent was married

C. Property Regimes

1. Conjugal Partnership of Gains

a. Exclusive properties:
o All properties before marriage
o Those acquired through gratuitous title or exchange with an exclusive property after marriage,
except the fruits of such property
b. Conjugal properties:
o All other properties are presumed conjugal (salary, fruits of exclusive property, etc.)

2. Absolute Community of Property

a. Exclusive properties:
o Property acquired before marriage by either spouse who has legitimate descendants by a former
marriage and the fruits of such property
o Those acquired through gratuitous title and the fruits thereof
o Property for personal and exclusive use of either spouse, except jewelry

b. Conjugal properties:
o All properties owned by spouses before and after marriage

D. Deductions

1. Deductions for Residents or Citizens

a. Claims against the estate
b. Claims against insolvent person
c. Unpaid mortgage or indebtedness on the property
d. Property previously taxed (Vanishing Deduction)
o Property forming part of the gross estate is situated within the Philippines
o Within 5 years from date of death of prior decedent or date of gift
o Previous tax has been paid
o Same property; still claimable even if transformed
o First time to claim vanishing deduction
o Includes property purchased using donated or inherited money or property provided within 5
years from date of death
 SCHOOL OF BUSINESS ADMINISTRATION AND ACCOUNTANCY
General Luna Road, Baguio City Philippines 2600

Telefax No.: (074) 442-3071 Website: www.ubaguio.edu E-mail Address: ub@ubaguio.edu

o Steps:

1. Initial value = FV at the time of transfer or FV at the date of death whichever is lower
2. Initial basis = initial value – indebtedness assumed and paid before death
3. Final basis = Initial basis – [(Initial basis/Gross Estate) x (LITT)]
4. Final basis x rate of vanishing deduction
o Rates:

More than Not more than Percentage

xxx 1 year 100%
1 year 2 years 80%
2 years 3 years 60%
3 years 4 years 40%
4 years 5 years 20%

e. Transfer for public purpose

f. Standard deduction of P5,000,000
g. Family home in the amount of P10,000,000
h. Amounts received by heirs under RA No. 4917
o Amount received by heirs from employers as a consequence of death
o Must form part of gross estate

2. Deductions for NRA

a. Value of:
o Claims against the estate
o Claims against the insolvent person
o Unpaid mortgage
b. Property previously taxed (Vanishing Deduction)
c. Transfer for public purpose
d. Standard deduction of P500,000

E. Estate Tax Rates

“There shall be levied, assessed, collected and paid upon the transfer of the net estate as determined in
accordance with Section 85 and 86 of every decedent, whether resident or non-residents of the Philippines, a tax at
the rate of six percent (6%) based on the value of such net estate.”

F. Foreign Taxes Paid

1. One foreign country

- compare actual payment vs. Limit (A)
Limit (A): Taxable Net Estate (per Foreign Country) x Philippine Estate Tax
Total Net Estate (World)

2. Two or more foreign country

- compare actual payment vs. Limit (A) per foreign country (add)
- compare summation to Limit (B)
Limit (B): Taxable Net Estate (all Foreign Country) x Philippine Estate Tax
 SCHOOL OF BUSINESS ADMINISTRATION AND ACCOUNTANCY
General Luna Road, Baguio City Philippines 2600

Telefax No.: (074) 442-3071 Website: www.ubaguio.edu E-mail Address: ub@ubaguio.edu

Total Net Estate (World)

G. Filing of Return and Payment of Tax

1. Estate tax returns showing a value of gross value exceeding P5,000,000 shall be supported with a
statement duly certified by a CPA.
2. Estate tax returns shall be filed within one (1) year from the decedent’s death.
3. In case the available cash of the estate is insufficient to pay the total estate tax due, payment by
installment shall be allowed within two (2) years from the statutory date of payment, without civil
penalty and interest.
4. If a bank has knowledge of the death of a person, who maintained a bank deposit account alone, or
jointly with another, it shall allow any withdrawal from the said deposit account, subject to a final
withholding tax of (6%).
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Estate Tax Drill 1

A-C
1. A succession to properties mentioned in the last will and testament, where the values of the properties shall have
increased from the time the last will and testament was executed is:
a. Testamentary succession
b. Mixed succession
c. Intestate succession
d. Given to the state on the increased value

2. Which of the following is not included in the gross estate?

a. Revocable transfer where the consideration was not sufficient
b. Revocable transfer where the power of revocation was not exercised
c. Transfer under a general power of appointment where the consideration was not sufficient
d. Transfer under a limited power of appointment

3. A revocable transfer with a consideration received:

Consideration received P200,000
Fair market value of property at the time of transfer P300,000
Fair market value of property at the time of death P250,000
Value to include in the gross estate is:
a. P300,000 b. P250,000 c. P100,000 d. P50,000

4. A revocable transfer with the following circumstances: Fair market value at the time of transfer- P300,000; fair
market value at the time of death- P180,000; consideration received when transferred- P200,000:
a. Shall be included in the gross estate at P180,000
b. Shall be included in the gross estate at P200,000
c. Shall be included in the gross estate at P100,000
d. Shall not be included in the gross estate

5. The following are transactions and acquisitions exempt from transfer tax, except:
a. Transmission from the first heir or donee in favor of another beneficiary in accordance with the desire of the
predecessor
 SCHOOL OF BUSINESS ADMINISTRATION AND ACCOUNTANCY
General Luna Road, Baguio City Philippines 2600

Telefax No.: (074) 442-3071 Website: www.ubaguio.edu E-mail Address: ub@ubaguio.edu

b. Transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to the fideicommissary.
c. The merger of usufruct in the owner of the naked title
d. All bequests devises, legacies or transfers to social welfare, cultural and charitable institutions

6. Proceeds of life insurance includible in the taxable gross estate:

a. Insurance proceeds from SSS or GSIS
b. Amount payable to any beneficiary, irrevocable, designated in the insurance policy by the insured
c. Amount payable to any beneficiary designated in the insurance policy by the insured
d. Proceeds of group insurance taken out by a company for its employees

7. Real property with a cost of P300,000 and a fair market value at the time of death of P1,000,000, but subject to a
mortgage of P200,000.
a. Shall bee in the taxable net estate at P100,000
b. Shall be in the gross estate at the decedent’s equity of P800,000
c. Shall be in the gross estate at P300,000
d. Shall be in the gross estate at P1,000,000

8. 1st statement: For marriages on or after August 3, 1988, the property relationship between husband and wife, in the
absence of written agreement between them, is the system of absolute community of property.
2nd statement: There maybe a property relationship of conjugal partnership of gains even if marriage was on or after
August 3, 1988.
a. Only the first statement is true c. Both statements are true
b. Only the second statement is true d. Both statements are false

9. A citizen of the Philippines and resident of the United States, under the system of conjugal partnership of gains,
died in the US and was shipped to and buried in the Philippines. He had, among others, the following date:
Real property in the Philippines (inherited 3 ½ years ago, with a
fair market value of P500,000 when inherited) P600,000
Real property in the US, used as a family home 2,400,000
Tangible personal property in the Philippines 200,000
Tangible personal property in the US 700,000
Claim against an insolvent person in the Philippines 100,000
The gross estate is:
a. P800,000 b. P4,000,000 c. P3,900,000 d. P900,000
D-E
10. One of the following statement is wrong. Claim against insolvent persons:
a. Should always be included in the gross estate
b. If entirely uncollectible, may be omitted in the computation of the taxable net estate
c. Is a deduction even if the debtor had some properties
d. Can be a deduction even if secured by a mortgage

11. If the decedent was a citizen or resident of the Philippines, which is deductible even if the property is located
outside the Philippines?
a. Transfer for public purpose c. Family home
b. Vanishing deduction d. None of these

12. One of the following statement is wrong. Vanishing deduction shall be allowed to the estate of a resident citizen:
a. As long as the property is included in the gross estate
b. If no vanishing deduction was allowed to the estate of the prior decedent
c. Even if the grantor of the property is still alive
 SCHOOL OF BUSINESS ADMINISTRATION AND ACCOUNTANCY
General Luna Road, Baguio City Philippines 2600

Telefax No.: (074) 442-3071 Website: www.ubaguio.edu E-mail Address: ub@ubaguio.edu

d. Even on substitute property

13. A citizen and resident of the Philippines, married, died, leaving the following properties:
Real and personal properties acquired during the marriage P3,000,000
Land and building inherited from the father 1 ½ years ago
(with a fair market value at that time of P1,500,000),
and used at the time of his death at home for his family 2,000,000
Car, purchased with cash received as gift from the mother during the year 500,000
Cash (including P500,000 received by inheritance from the father) 1,500,000
Claims against conjugal properties 600,000
Unpaid mortgage on the land and building inherited (from an original
of P600,000 when inherited) 100,000
The vanishing deduction is:
a. P1,530,000 b. P1,080,000 c. P450,000 d. P1,130,000

A citizen and resident of the Philippines, died on October 10, 2018, leaving the following properties, rights,
obligations, and charges:
Conjugal properties (including a family home of P3,000,000 and
amount receivable under RA 4917 of P200,000) P6,000,000
Exclusive properties (including cash of P500,000 inherited 4 ½ years ago) 4,000,000
Medical expenses, unpaid, January 2018 ‘ 600,000
Funeral expenses 350,000
Judicial expenses 500,000
Other obligations 100,000

14. The deductible medical expense is:

a. P600,000 b. P300,000 c. P500,000 d. P0
15. The deductible funeral expense is:
a. P350,000 b. P0 c. P500,000 d. P200,000
16. The deduction for family home is:
a. P3,000,000 b. P1,500,000 c. P1,000,000 d. P5,000,000
17. The vanishing deduction is:
a. P460,000 b. P99,000 c. P92,000 d. P138,000
18. The taxable net estate is:
a. P251,000 b. P151,000 c. P3,808,000 d. P3,908,000

F-G
19. An executor or administrator, after paying the estate tax, and to escape a future liability for a deficiency estate tax,
must secure a written discharge from personal liability from:
a. The heirs
b. The court where the estate was being settled
c. The Commissioner of Internal Revenue
d. None of the these

20. When a donation which paid a donor’s tax was actually a donation mortis causa, as ascertained by the Bureau of
Internal Revenue, which of the following is true?
a. The donation shall be required to pay the estate tax on its proper valuation at the time of death, and there
can be a refund for the wrong payment of the donor’s tax.
 SCHOOL OF BUSINESS ADMINISTRATION AND ACCOUNTANCY
General Luna Road, Baguio City Philippines 2600

Telefax No.: (074) 442-3071 Website: www.ubaguio.edu E-mail Address: ub@ubaguio.edu

b. The donation shall be required to pay the estate tax so that the estate tax computed shall be reduced by
the donor’s tax already paid.
c. The donation shall not pay any transfer tax anymore
d. The donation has to pay the estate tax in addition to the donor’s tax previously paid.

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Estate Tax Drill 2

1. Statement I: In default of agreement as to the property relation between spouses, the absolute separation of
property is presumed.
Statement II: All fruits, accruing before or after marriage the marriage are conjugal properties.
a. Statement I is true; Statement II is false
b. Statement I is false; Statement II is true
c. Both statements are true
d. Both statements are false
2. Statement I: All fruits before the marriage are conjugal properties.
Statement II: All fruits during the marriage are communal properties.
a. Statement I is true; Statement II is false
b. Statement I is false; Statement II is true
c. Both statements are true
d. Both statements are false
3. Statement I: Jewelry is generally considered conjugal property.
Statement II: The properties of a spouse without descendant by a prior marriage are communal properties.
a. Statement I is true; Statement II is false
b. Statement I is false; Statement II is true
c. Both statements are true
d. Both statements are false

4. Statement I: The fruits of donated properties are exclusive properties under conjugal partnership of gains.
Statement II: The proceeds of separate property sold during the marriage can become a conjugal property.
a. Statement I is true; Statement II is false
b. Statement I is false; Statement II is true
c. Both statements are true
d. Both statements are false
5. Statement I: The spouses can stipulate the conjugal partnership of gains as their property regimes even in the
current time.
Statement II: The property regime of the spouses may be agreed upon during the marriage.
a. Statement I is true; Statement II is false
b. Statement I is false; Statement II is true
c. Both statements are true
d. Both statements are false

6. A resident decedent died. Among the properties he left behind were antique pieces of jewelry he inherited from his
mother who predeceased him. The value of the jewelry could not be determined. It was established that the pawn
value of the jewelry was P100,000. You were appointed as the administrator of the estate. What would be your
proper treatment of the jewelry for estate tax purposes?
a. The pieces of jewelry should not be included in the gross estate because the BIR will have no way of
knowing them.
 SCHOOL OF BUSINESS ADMINISTRATION AND ACCOUNTANCY
General Luna Road, Baguio City Philippines 2600

Telefax No.: (074) 442-3071 Website: www.ubaguio.edu E-mail Address: ub@ubaguio.edu

b. The pieces of jewelry should not be included in the gross estate because they are old and the true value
cannot be established.
c. The pieces of jewelry should be included in the gross estate because they are properties owned by present
decedent at the time of death.
d. The pieces of jewelry may or may not be included in the gross estate at the discretion of the administrator
of the estate.

7. The gross value of the estate amounted to P50,000. Per computation there was no estate tax payable. The
administrator of the estate contended that no notice of death and no estate tax return need be filed in this particular
case. What advice would you give him?
a. The administrator was totally correct.
b. The administrator was partly correct. Notice of death had to be filed if the value of the gross estate exceeds
P20,000 although exempt from estate tax.
c. The administrator was partly correct. Notice of death was not required to be filed but an estate tax return
had to be filed.
d. The administrator was totally incorrect. Both notice of death and estate tax returns had to be filed.

8. Which of the following is not true? A transfer in contemplation of death for less than full and adequate consideration
in money may result in:
a. Value included in the gross estate
b. Value included in the net estate
c. Nothing included in the gross estate
d. Value to consider in the taxable income

9. The following transactions are exempt from transfer tax, except:

a. Transmission from the first heir or donee in favor of another beneficiary in accordance with the desire of the
predecessor.
b. Transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to the fideicommisary.
c. The merger of usufruct in the owner of the naked title.
d. All bequests, devises, legacies or transfers to social welfare, cultural and charitable institutions.