SUCCESSION AND TRANSFER TAXES

MODULE 1
 MODES AND MECHANICS OF ACQUIRING
OWNERSHIP
Art. 712 (New Civil Code)
“Ownership is acquired by occupation and by intellectual creation. Ownership and other real rights
over property are acquired and transmitted by law, by donation, by testate and intestate
succession, and in consequence of certain contracts, by tradition. They may also be acquired by
means of prescription.”
Modes and mechanics of acquiring ownership
Under the New Civil Code (NCC), ownership may be acquired through:
1. Occupation
2. Intellectual creation
3. Law
4. Donation
5. Tradition
6. Contract
7. Prescription
8. Succession
TRANSFER TAXES AND SUCCESSION DEFINED
Transfer taxes are the taxes imposed upon the gratuitous disposition or transfer of private
properties or rights.
Gratuitous transfer is one that neither imposes burden nor requires
consideration from transferee or recipient.
Onerous transfer is one where the transferee gives consideration in
return for the property or right(s) received.
Gratuitous transfers may take effect at the time of death of the donor or during the lifetime of
both the donor and the donee.
The former is known as “donation mortis causa” subject to estate tax while the latter is known
as “donation inter-vivos” subject to donor’s tax.
 TRANSFER TAXES AND SUCCESSION
DEFINED (CONT.)
Transfer taxes, which are typically assessed on the net value of the taxable assets transferred, fall into
two basic categories, namely:
1. Estate tax, and
2. Donor’s tax
Succession is a mode of acquisition by virtue of which, the property, rights, or obligations to the extent
of the value of the inheritance, of a person are transmitted through his death to another or others either
by his will or operation of law (Art. 774 NCC).
The inheritance includes all the property, rights and obligations of a person which are not extinguished by
his death (Art. 776 NCC).
The rights to the succession are transmitted from the moment of death of the decedent (Art. 777 NCC),
notwithstanding the postponement of the actual possession or enjoyment of the estate by the
beneficiary.
NATURE OF TRANSFER TAXES

The subject matter of the tax is the privilege of the transferor to gratuitously transfer
property or rights which take effect at the date of death of the transferor (known as
mortis causa subject to estate tax) or during the lifetime of the donor and the donee
(known as donation inter vivos subject to donor’s tax).
Although the amount of transfer tax is based on net estate or net gifts, it shall not be
construed as property tax.
Transfer tax is classified as “excise tax” or privilege tax imposed on the act of passing the
ownership of property and not on the value of the property or right.
THE LAW THAT GOVERNS THE IMPOSITION
OF ESTATE TAX
Estate taxation is governed by the statute in force at the time of death of the decedent.
The estate tax accrues as of the date of death of the decedent and the accrual of the tax is
distinct from the obligation to pay the same.
Upon the death of the decedent, succession takes place and the right of the State to tax
the privilege to transmit the estate vests instantly upon death (Section 3, RR 2-2003).
In the Philippines, succession itself (excluding the tax aspect) is governed by the new civil
code.
 ILLUSTRATION 1

Jack suffered an unexpected heart attack causing his death on September 1, 2019. His estate composed of the following:
Cash in bank/investment in bonds (X bank) P 5,000,000
House and lot 10,000,000
Cars 1,500,000
Personal properties 1,000,000
Jackie is the only heir of the decedent. Jack’s remains was cremated on September 15, 2019. The executor of Jack’s estate filed the estate tax
return and paid the corresponding estate tax on December 3, 2019. The properties left by the decedent were finally distributed on January 3,
2020. Answer the following:
1. When will the transfer of ownership from the decedent to the heir take effect?
2. When should the estate tax accrue?
3. Assume that Jack’s total outstanding liabilities as of the time of his death amounted to P19,000,000. How much of the outstanding
liabilities of the decedent should be assumed by Jackie?
 Illustration 1 (cont.)
1. Answer:
September 1, 2019.
The rights to the succession are transmitted from the moment of death of the decedent,
notwithstanding the actual transfer dated January 3, 2020.
2. Answer:
September 1, 2019.
Beginning 2018 (TRAIN Law), the executor is allowed under the tax code to file and pay the
corresponding estate tax within one year (1) year from the date of death, however, the estate tax
due accrues immediately at the time of death.
3. Answer:
P17,500,000
Limited only to the extent of the value of properties and rights inherited.
KINDS OF SUCCESSION (ART. 778 NCC)

1. Testamentary or testate succession – results from a designation of an heir, made in a will

executed in the form prescribed by law.
2. Legal or intestate succession – is effected by the operation of the law (based on the
provisions of the civil code regarding succession) since the decedent did not execute
a will or if the last will and testament executed by him is void.
3. Mixed succession – is effected partly by “will” and partly by operation of law.
ILLUSTRATION 2

CASE A: Testamentary succession

Assume the same data in Illustration 1. In addition, Jack left a duly executed last will and testament
transferring all his properties to Jackie upon his death.

CASE B: Intestate or Legal succession

Assume the same data in Illustration 1. In addition, assume that Jack did not execute a last will and
testament during his lifetime and Jackie is the only legal heir qualified to inherit the properties left by the
decedent. In such a case, an intestate or legal succession exists. The estate of the decedent will be
disposed of in accordance with the provisions of law on inheritance/succession.
ILLUSTRATION 2 (CONT.)

CASE C: Mixed succession

Assume the same data in Illustration 1. Assume further that Jack left a duly executed last
will and testament transferring all his properties to Jackie upon his death. The last will and
testament was dated August 31, 2018. In addition, assume that from the preparation of the
“will” up to the date of death, the investment earned interest income of P250,000. Of this
amount, P150,000 was used to acquire personal properties and the P100,000 was used to
open a new bank account. Since the acquisition of new personal properties and a new bank
account were not included in the last will because these were made after August 31, 2018, a
mixed succession exists.
CAUSES OF LEGAL SUCCESSION OR
INTESTACY

1. If a person dies without a will, or with a void will, or one which has subsequently lost
its validity.
2. When the will does not institute an heir.
3. Partial institution of heir. Consequently, intestacy takes place as to the undisposed
portion.
4. When the heir instituted is incapable of succeeding
ILLUSTRATION 3

CASE A: A VOID WILL

Mr. Juan devised his will written in Spanish language. Mr Juan neither
write nor read Spanish. In such case, the will is void.

CASE B: Will which has subsequently lost its validity

Assume the same data on Illustration 1. In addition, on the eve of August 1, 2019, a day after
executing the last will, the testator accidentally obliterated the same. The testator was not able to
prepare a new “will” before his death. Consequently, there is no more “last will and testament” to
speak of. An intestate succession exists.
CAUSES OF LEGAL SUCCESSION OR INTESTACY
(CONT.)
5. Other causes such as:
a. Non-fulfillment of the suspensive condition attached to the institution of heir. Suspensive
condition is a condition depending upon the happening of an uncertain event which must
be fulfilled before an obligation arises.
b. Preterition (omission in the testator’s will of one, some or all of the compulsory heirs in the
direct line which has the effect of annulling the institution of the heir).
c. Fulfillment of “resolutory condition.” A resolutory condition refers to a condition whereby,
upon fulfillment terminates an already enforceable obligation.
d. Expiration of term or period of institution.
e. Non-compliance or impossibility of compliance with a will.
f. Repudiation of the instituted heir.
ELEMENTS OF SUCCESSION

1. Decedent is the term applied to the person whose property is transmitted through
succession, whether or not he left a will. If he left a will, he is called a testator.
Executor is a person designated in the last will and testament to carry out the
provisions of the decedent’s will.
Administrator is a person appointed by the court and performs the same duty, in lieu of
an executor, if the latter refused to accept the appointment, failed to qualify under the
law or that the last will and testament did not appoint one.
ELEMENTS OF SUCCESSION (CONT.)

2. Estate (Inheritance) – include all the property, rights and obligations of a person which
are not extinguished by death and all which have accrued thereto since the opening of
succession.
3. Successor/s (Heir/s) is a person who is called to the succession either the provision of
a will or by operation of law (Art. 782 NCC). Devisees and legatees are persons to
whom gifts of real and personal property are respectively given by virtue of a will.
 ELEMENTS OF SUCCESSION (CONT.)

Successors or heirs are classified under the law as follows:

a. Compulsory heirs – those who succeed by force of law to some portion of the inheritance, in an
amount predetermined by law, known as the legitime.
Kinds of compulsory heirs:
• Primary – those who have precedence over and exclude other compulsory heirs (i.e., legitimate
children and descendants).
• Secondary – those who succeed only in the absence of the primary compulsory heirs (i.e.,
legitimate parents and ascendants).
• Concurring – those who succeed together with the primary or secondary compulsory heirs (i.e.,
illegitimate children and descendants and surviving spouse).
TABLE 1.1: TABLE OF COMPULSORY HEIRS
Primary Compulsory Secondary Compulsory
A. Legitimate children and their D. Legitimate parents and legitimate
descendants ascendants. (They inherit only in
default of “A”).
B. Surviving spouse E. Illegitimate parents (no other
descendants). They inherit only in
default of “A” & “C”.
C. Illegitimate children and their
descendants, legitimate or
illegitimate
NOTE: Brothers and sisters are neither compulsory heirs nor strangers.
However, they may be voluntary heirs.
ELEMENTS OF SUCCESSION (CONT.)

b. 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.
Free portion refers to the portion or value left in the estate after deducting the legitimes
of the compulsory heirs.
A voluntary heir is determined through the last will and testament.
c. 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).
COMPOSITION OF GROSS ESTATE

1. Legitime – is part of a testator’s property which he cannot dispose of because the law
has reserved it for certain heirs who are, therefore, called compulsory heirs (Art. 886
NCC).
2. Free portion – is that portion of the estate which the testator can freely dispose of.
 COMPOSITION OF GROSS ESTATE

Decedent’s Estate To be inherited by:

Compulsory Heirs:
LEGITIME This portion of the estate is reserved by law specifically
(i.e., 75% of the estate) to compulsory heirs as provided in Table 1-1, regardless
of whether or not a last will and testament was prepared.
Refer to Table 1-3 for sharing of legitimes by the
compulsory heirs.

Compulsory Heirs and/or Voluntary Heirs:

FREE PORTION • As provided in the last will and testament
(i.e., 25% of the estate) • In the absence of a will, this portion of the estate
shall be distributed to “intestate heirs” based in the
order of priority as provided in Table 1-2.
TABLE 1.2: ORDER OF INTESTATE
SUCCESSION
1. Legitimate children or descendants
2. Legitimate parents or ascendants
3. Illegitimate children or descendants
4. Surviving spouse
5. Brothers and sisters, nephews and nieces
6. Other collateral relatives within the 5th degree
7. State
The distribution of free portion in intestate succession is based in the order of priority because in every
inheritance, the relative nearest in degree excludes the more distant ones, saving the right of representation when
it properly takes place.
COLLATERAL RELATIVES

Consanguinity is the relation of persons descending from the same stock or common ancestors.
These persons are known as blood relatives, and are said to be related by blood or consanguinity.
It may be lineal or collateral.
Lineal consanguinity, which 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 do not descend (or ascend) one from the other.
Proximity of relationship is determined by the number of generations.
Determining blood relationship
A
B
C
D
E
F

G J
K L
H I

M N
 TABLE 1.3: TABLE OF LEGITIMES
Survivor Legitime Notes
LC ½ Divide by the number of LC, whether they survive alone or with
concurring compulsory heir (CH)
1 LC; ½
SS 1/4
2 or more LC ½
SS Equal to 1 LC
LC ½ All the concurring CH get from the half free portion, the share of the SS
SS ¼ having preference over that of the IC, whose share may suffer reduction
IC pro-rata because there is no preference among themselves.
½ of 1 LC
LPA 1/2 Whether they survive alone or with concurring CH
LPA; IC 1/2; 1/4 IC succeed in the ¼ in equal shares
LPA; SS; ½; 1/4
TABLE 1.3: TABLE OF LEGITIMES (CONT.)
Survivor Legitime Notes
LPA 1/2
SS 1/8
IC 1/4
IC 1/2 Divide equally among IC
SS 1/3
IC 1/3
SS 1/2 1/3 if marriage is in articulo mortis and deceased spouse dies within
three months after the marriage
IP 1/2
IP Excluded Children inherit in the amounts established in the foregoing rules
Any child It depends
IP 1/4 Only the parents of IC are included. Grandparents and other
SS 1/4 ascendants are excluded.
DEFINITION AND KINDS OF WILL

Will is 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 (Art. 783 NCC)

Kind of Will
1. Notarial or Ordinary or Attested Will – is one which is executed in accordance with the formalities
prescribed by Art. 804 to 808 of the NCC.
Requisites for a Valid Notarial Will
a) It must be in writing and executed in a language or dialect known to the testator
b) It must be subscribed at the end thereof by the testator himself or by the testator’s name written
by some other person in his presence and by his express direction.
 c) It must be attested and subscribed by three or more credible witnesses in the presence of
the testator and of one another.
2. Holographic Will – is a written will which must be entirely written, dated and signed by the
hand of the testator himself. It subject to no other form and it may be made in or out of the
Philippines and need not be witnessed (Art. 811 NCC). In case of any insertion, cancellation,
erasure or alteration in a holographic will, the testator must authenticate the same by his full
signature.
Codicil is 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.
Probate of a Will is a court procedure by which a will is proved to be valid or invalid. In the
probate of a holographic will, it shall be necessary that at least one witness who knows the
handwriting and signature of the testator explicitly declare that the will and the signature
are in the handwriting of the testator.
Foreign Wills
The will of an alien who is abroad produces effect in the Philippines if made with the formalities
prescribed by the law of the place in which he resides, or according to the formalities observed in
his country, or in conformity with those which the Philippine civil code prescribes. A will made in
the Philippines by a citizen or subject of another country, which is executed in accordance with the
law of the country of which he is a citizen or subject, and which might be proved and allowed by the
law of his own country, shall have the same effect as if executed according to the laws of the
Philippines.
When a Filipino is in foreign country, he is authorized to make a will in any of the forms established
by the law of the country in which he may be. Such will may be probated in the Philippines (Art. 815
NCC).
REVOCATION OF WILLS AND
TESTAMENTARY DISPOSITIONS
A will may be revoked by the testator at any time before his death, any waiver or
restriction of this right is void (Art. 828). A revocation done outside the Philippines by a
person who does not have his domicile in the Philippines, is valid when it is done according
to the law of the place where the will was made, or according to the law of the place in
which the testator had his domicile at the time and if the revocation takes place in the
Philippines when it is in accordance with the provisions of the new civil code.
MODES OF REVOKING A WILL

1. By implication of law
2. By some will, codicil, or other writing executed as provided in case of wills
3. By burning, tearing, cancelling, or obliterating the will with the intention of revoking it,
by the testator himself, or by some other person in his presence, and by his express
direction.
INSTITUTION OF AN HEIR (ART. 840)

Institution of an heir is an act by virtue of which a testator designates in his will the person
or persons who are to succeed him in his property and transmissible rights and obligations.
A will shall be valid even though it should not contain an institution of an heir, or such
institution should not comprise the entire estate, and even though the person so instituted
should not accept the inheritance or should be incapacitated to succeed. In such cases, the
testamentary dispositions made in accordance with law shall be complied with and the
remainder of the estate shall pass to the legal heirs.
DISINHERITANCE
Disinheritance is a testamentary disposition by which a compulsory heir is deprived of, or excluded
from the inheritance to which he has a right. This is not applicable for voluntary heirs.
Requisites for disinheritance
1. Effected only through a valid will
2. For a cause expressly stated by law
3. Cause must be stated in the will itself
4. Cause must be certain and true
5. Unconditional
6. Total (there is no partial inheritance)
7. The heir disinherited must be designated in such a manner that there can be no doubt as to his
identity
COMMON CAUSES FOR DISINHERITANCE

1. When the heir has been found guilty of an attempt against the life of the testator,
his/her descendants or ascendants, and spouse in case of children and parents;
2. When heir has accused the testator of a crime for which the law prescribes
imprisonment for 6 years or more, if the accusation has been found groundless;
3. When the heir by fraud, violence, intimidation or undue influence causes the testator
to make a will or to change one already made;
4. Refusal, without justifiable cause to support the testator who disinherits such heir.
PECULIAR CAUSES FOR DISINHERITANCE

1. CHILDREN/DESCENDANTS
a. When the child or descendant has been convicted of adultery or concubinage with
the spouse of the testator;
b. Maltreatment of the testator by word or deed by the child/descendant;
c. When the child or descendant leads a dishonorable or disgraceful life;
d. When the child or descendant is convicted of a crime which carries with it a penalty
of civil interdiction
PECULIAR CAUSES FOR DISINHERITANCE
(CONT.)
2. PARENTS/ASCENDANTS
a. When the parents have abandoned their children or induced their daughters to live a
corrupt or immoral life, or attempted against their virtue;
b. When the parent or ascendant has been convicted of adultery or concubinage with
the spouse of the testator;
c. Loss of parental authority for causes specified in the Civil Code; and
d. Attempt by one of the parents against the life of the other, unless there has been
reconciliation between them.
PECULIAR CAUSES FOR DISINHERITANCE
(CONT.)
3. SPOUSE
a. When the spouse has given cause for legal separation;
b. When the spouse has given grounds for loss of parental authority
RIGHT OF REPRESENTATION

It is a “right” created by fiction of law where the representative is raised to the place and
degree of the person represented, and acquires the rights which the latter would have if he
were living or could have inherited. Representation may arise because of:
1. Death
2. Incapacity
3. Disinheritance
The representative(s) shall not inherit more than what the person they represent would
inherit, if he were living or could inherit (Art. 974).
Right of Representation (cont.)
The law further provides that “representation” is not available to:
1. As to compulsory heirs: In case of repudiation, the one who repudiates his inheritance
cannot be represented. Their own heirs inherit in their own right.
2. As to voluntary heirs
3. Voluntary heirs, legatees and devisees who
a. Predecease the testator; or
b. Renounce the inheritance cannot be represented by their own heirs, with respect to
their supposed inheritance