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Bubbles growing like mushrooms

WE live in a world where we aim to invest in

properties, own a house and lot of our dream, save money for our loved ones; so when our
physical self departs the universe, we are at peace that our successors will be financially secured.
Indeed, our death is certain, so with estate tax.

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. It is not a tax on property but a tax imposed on the
privilege of transmitting property upon the death of the owner.

Prior to the effectivity of the Tax Reform for Acceleration and Inclusion (TRAIN) law on
January 1, 2018, the Tax Code of 1997 in relation to Revenue Regulations (RR) 2-2003 imposes
a 5-percent to 20-percent estate tax based on the net estate. Under the TRAIN law, the rate of
estate tax is fixed at 6 percent. The new rate, however, will apply only to deaths occurring on or
after January 1, 2018.

Earlier this year the Bureau of Internal Revenue (BIR) issued RR 12-2018 discussing everything
an heir should know before he/she receives his/her share of the pie.

Aside from the new rate, RR 12-2018 increased the standard deduction granted to the net estate
of a deceased citizen or resident of the Philippines from P1 million to P5 million. Nonresident
aliens are, likewise, entitled to a standard deduction of P500,000. The deduction for family home
is raised to P10 million, from P1 million, based on the current fair market value of the decedent’s
family home. On the contrary, deductions for funeral and medical expenses may no longer be
claimed.
Under the revenue regulation, estate-tax returns are now required to be filed within one year
from the death of the decedent from the former filing period of six months. Estate tax may now
also be paid by cash installment for a period of two years from the date of the filing of estate-tax
return. After the lapse of two years without payment, the entire tax due shall become due,
demandable and subject to applicable penalties and interests.

Another salient feature of the revenue regulation is the introduction of electronic Certificate
Authorizing Registration (eCAR), which will be issued by the BIR in case of partial disposition
of estate and application of its proceeds to the estate tax due.

As to the most common query of an expectant recipient of his/her pie, an heir may only withdraw
the bank deposit of the decedent upon payment of final withholding tax of 6 percent of the
amount to be withdrawn. The heir may exercise his/her right to withdraw within a period of one
year from the death of the decedent.  On the part of the bank, it is required to file the prescribed
quarterly return on the final tax withheld on or before the last day of the month following the
close of the quarter during which the withholding was made. The bank, thereafter, shall issue the
corresponding BIR Form  2306 certifying such withholding.

In all cases, the final tax withheld for bank deposit shall not be refunded, or credited on the tax
due on the net taxable estate of the decedent.

In instances where the bank deposit accounts have been duly included in the gross estate of the
decedent and the estate tax due thereon paid, the executor, administrator, or any of the legal heirs
shall present the eCAR issued for the said estate prior to withdrawing from the bank deposit
account. Such withdrawal shall no longer be subject to the 6 percent final withholding tax.

Regardless of these rules, one thing is for sure. During our lifetime, we are taxed and death
provides no escape.

****

The author is a junior associate of Du-Baladad and Associates Law Offices (BDB Law), a
member-firm of WTS Global.

The article is for general information only and is not intended, nor should be construed as a
substitute for tax, legal or financial advice on any specific matter. Applicability of this article to
any actual or particular tax or legal issue should be supported therefore by a professional study
or advice.  If you have any comments or questions concerning the article, you may e-mail the
author at shiendyloufer.casana@bdblaw.com.ph or call 403-2001 local 170.
Friday, October 16, 2020
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Home Legal Advice DearPao Selling undivided inheritance

Selling undivided inheritance

By Persida Acosta
February 18, 2018

Persida Acosta

Dear PAO,

My brother Julio and I inherited 1,000 square meters of residential land. The property was titled
in the name of our parents who passed away last year. We have not yet executed an extra-
judicial settlement of the estate since we do not have any money to defray expenses for partition
and transfer of the property. I am intending to sell my share from the land. A prospective buyer,
however, would like a portion of the property where our old house was erected since this is
nearer the highway. My brother objected to the proposal of the buyer because he is the one
occupying the house. Can I sell the portion of the land that the buyer wants?
Celso

Dear Celso,

Based on the facts you have provided, your parents died without a will. Hence, the rule on legal
or intestate succession pursuant to Article 960 (1) of the New Civil Code shall apply to your
situation. Under this provision of law, “legal or intestate succession takes place: (1) if a person
dies without a will, or with a void will, or one which has subsequently lost its validity.” Relative
thereto, Article 980 of the same code also states that “the children of the deceased shall always
inherit from him in their own right, dividing the inheritance in equal shares.”

 
Upon the death of your parents, the property shall be owned in common by you and your brother.
This finds support under Article 1078 of the law, which states that “where there are two or more
heirs, the whole estate of the decedent is, before its partition, owned in common by such heirs,
subject to the payment of debts of the deceased.”

In the case of Carvajal vs. the Honorable Court of Appeals (G.R. No. L-44426, February 25,
1982), the Supreme Court through former Chief Justice Claudio Teehankee stated:

“While under Article 493 of the New Civil Code, each co-owner shall have the full ownership of
his part and of the fruits and benefits pertaining thereto and he may alienate, assign or mortgage
it, and even substitute another person in its enjoyment, the effect of the alienation or the
mortgage with respect to the co-owners, shall be limited, by mandate of the same article, to the
portion which may be allotted to him in the division upon the termination of the co-ownership.
He has no right to sell or alienate a concrete, specific or determinate part of the thing in common
to the exclusion of the other co-owners because his right over the thing is represented by an
abstract or ideal portion without any physical adjudication. An individual co-owner cannot
adjudicate to himself or claim title to any definite portion of the land or thing owned in common
until its actual partition by agreement or judicial decree. Prior to that time, all that the co-owner
has is an ideal or abstract quota or proportionate share in the entire thing owned in common by
all the co-owners. What a co-owner may dispose of is only his undivided aliquot share, which
shall be limited to the portion that may be allotted to him upon partition. Before partition, a co-
heir can only sell his successional rights.”

Applying the above-cited decision to your situation, you cannot sell a definite or specific portion
of the property like the portion where the old house is located, because there is no partition yet or
physical division of the property made by agreement or judicial decree. Your share and that of
your brother is ideal or abstract. So, what you are actually selling to the buyer is your
proportionate share, which shall be limited to the portion that will be allotted to you after
partition.

We hope that we were able to answer your queries. Please be reminded that this advice is based
solely on the facts you have narrated and our appreciation of the same. Our opinion may vary
when other facts are changed or elaborated.

Editor’s note: Dear PAO is a daily column of the Public Attorney’s Office. Questions for Chief
Acosta may be sent to dearpao@www.manilatimes.net.