SUCCESSION AND TRANSFER TAXES

• Article 712 (New Civil Code)

• “Ownership is acquired by occupation and 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.”
• Under the New Civil Code, ownership may be acquired through:
1. Occupation
2. Intellectual creation
3. Law
4. Tradition
5. Contract
6. Prescription
7. Succession
Transfer Taxes and Succession Defined
• Transfer taxes
• Taxes imposed upon gratuitous disposition of private properties and rights
• Gratuitous transfer
• One that neither imposes burden nor requires consideration from
transferee or recipient
• Absence of financial consideration
• Essentially donations
• Onerous transfer
• Reverse side of gratuitous
• One where the transferee gives consideration in return for the property or
rights received
• Subject to business taxes instead of transfer taxes
• Gratuitous transfer or donation - take effect at the time of death of the donor or
during the lifetime of both the donor and donee
• Death of the donor - donation mortis causa, estate tax
• During the lifetime of both the donor and donee - donation inter vivos,
donor’s tax
• Transfer taxes
• Assessed on the net value of the taxable assets transferred
• Fall into 2 basic categories:
• Estate tax
• Donor’s tax
• Succession
• Mode of acquisition by virtue of which, the property, rights and obligations to the
extent of the value of the inheritance, of a person are transmitted through his
death to another or others either by will or by operation of law
• Inheritance
• Includes all the property, rights and obligations of a person that are not
extinguished by his death
Rights to succession - transmitted from the moment of the death of the decedent

Decedent’s Estate To be acquired/inherited by the heir

(cut-off period: as of the date of death
Of the testator)
Property ----------------- Property
Rights ----------------- Rights
Obligations -------------- Obligations

Amount of obligations acquired/inherited

- Should not be more than the combined value of properties and rights inherited

Nature of transfer taxes

- Subject matter of transfer tax: privilege of the transferor to gratuitously transfer property
or rights which takes effect at the date of the death of transferor (transfer mortis causa
subject to estate tax) or during the lifetime of the donor and the done (transfer inter
vivos, donor’s tax)
- 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
Law that governs the imposition of Estate Tax
- Governed by the statute in force at the time of death of the decedent
- Estate tax accrues as the date of the 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
o Succession takes place and the right of the State to the tax the privilege to
transmit the estate vests instantly upon death
- In the Philippines
o Succession itself (excluding the tax aspect) is governed by the New Civil Code
Kinds of Succession
1. Testamentary or testate succession
o Results from the designation of an heir, made in a will, executed in the form
prescribed by law
2. Legal or intestate sucession
o Effected by operations of 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
o Type of succession which is effected partly by “will” and partly by operation of law
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 a heir
3. Partial institution of heir. Consequently, intestacy takes place as to the undisposed
portion
o Entire estate was not disposed of in the last will and testament
o Mixed succession exists
4. When the heir instituted is incapable of succeeding
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 heir)
c. Fulfillment of “resolutory condition.”
 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 the will
f. Repudiation of the instituted heir
Elements of Succession
1. Decedent
o Person whose property is transmitted through succession, whether or not he left a
will. If he left a will, he is called testator
o Executor
 Person designated in the last will and testament to carry out the provisions
of the decedent’s will
 Performs fiduciary duty (taking care of the estate prior to final disposition)
o Administrator
 Persons appointed by the court and performs the sameduty, in lieu of an
executor
2. Inheritance (estate)
o Property, rights and obligations of a person which are not extinguished by death
and all which have accrued thereto since the opening of succession
o Rights purely personal
 Not transmissible for they are extinguished by death
3. Successors
o Called to the succession either the provision of a will or by operation of law
o Devisees and legatees
 Persons to whom gifts of real and personal property are given by virtue of
a will
o Classified by law as follows:
a. Compulsory heirs
 Succeed by force of law to some portion of the inheritance in an amount
predetermined by law, known as the legitime
 Succeed whether the testator likes it or not
 Cannot be deprived except by disinheritance properly effected
 Kinds of compulsory heirs
• Primary – have precedence over and exclude other compulsory
heirs (ex. Legitimate children and descendants)
• Secondary – succeed only in the absence of primary compulsory
heirs (ex. Legitimate parents and ascendants)
• Concurring – succeed together with the primary or secondary
compulsory heirs (ex. Legitimate children and descendants and
surviving spouse)
Primary Compulsory Secondary Compulsory
A. Legitimate children and their D. Legitimate parents and
descendants legitimate ascendants (inherit
B. Surviving spouse only in default of A)
C. Illegitimate children and their E. Illegitimate parents (no other
descendants, legitimate or descendants) (inherit only in
illegitimate default of A and C)
 b. Voluntary Heirs
 Instituted by testator in his will to succeed to the inheritance of the portion
thereof of which the testator can freely dispose
 Free portion – portion or value left in the estate after deducting the
legitimes of the compulsory heirs
 Determined through the last will and testament
c. Legal or intestate heirs
 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
Decedent’s estate To be inherited by:
Legitime (75% of the estate) Compulsory Heirs:
This portion is reserved by law specifically to
compulsory heirs
1. Regardless of whether
or not a last will and
testament was prepared
Free Portion (25% of the estate) Compulsory Heirs and/or Voluntary Heirs
- As provided in the last will and
testament
- In the absence of will, this portion of
estate shall be distributed to “intestate
heirs” based in the order of priority

- Legitime
o Cannot be disposed of because the law has reserved it for certain heirs who are,
therefore, called compulsory heirs
- Free portion
o Can freely dispose of
o Anyone may inherit from free portion (compulsory or voluntary heirs)
o Voluntary heirs may inherit if mentioned by will. If not mentioned, voluntary heirs will
not inherit anything
o Shall be disposed of in an order of priority
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

Collateral Relatives

- Consanguinity – relation of persons descending from the same stock or common ancestors
o Known as blood relatives and are said to be related by blood or consanguinity
 o Lineal or collateral
- Lineal consanguinity
o Descending or ascending
o That which subsists between persons of whom one is descended in a direct line from
the other
- Collateral consanguinity
o That which subsists between persons who have the same ancestors, but who do not
descend (or ascend) one from the
- Proximity of relationship
o Determined by the number of generations
o Each generation forms a degree
- Affinity
o Connection existing in consequence of a marriage between each of the married spouse
and the kindred of the other

Survivor Legitime Notes

LC ½ Divide by the number of LC ,
whether they survive alone or
with concurring compulsory heir

1 LC, SS ½, ¼

2 or more LC ½
SS Equal to 1 LC

LPA ½ Whether they survive alone or

with concurring CH

LPA ½ IC succeed in the ¼ in equal

IC ¼ shares

LPA ½
SS ¼

LPA ½
SS ¼
IC 1/8

IC ½ Divide equally among the IC

SS 1/3
IC 1/3

SS ½ 1/3 if marriage is articulo mortis

and decease spouse dies within
3 months after marriage
 IP ½

IP Excluded Children inherit in the amounts

Any child It depends established in the foregoing
rules

IP ¼ Only the parents of the IC are

SS ¼ included. Grandparents and
other ascendants are excluded.

Wills

- 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
- Document whereby a person called the “testator” disposes of his or her properties or “estate”
to take effect upon his or her death
- It is strictly a personal act, cannot be left in while or in part of the discretion of a third person ,
or accomplished through the instrumentality of an agent or attorney
- Persons prohibited by law to make a will
o Those below 18 years old
o Those who are not of sound mind at the time of its execution
- Married woman
o May make a will without the consent of her husband and without the authority of the
court
o May dispose by will of all her separate property as well as her share of the conjugal
partnership or absolute community property

Kinds of Wills

1. Notarial or ordinary or attested will

- Executed in accordance with the formalities of Art. 804 to 808 of the New Civil Code
- Requisites for a valid notarial will
o Must be in writing, executed in a language or dialect known to the testator
o Subscribed at the end by the testator or by the testator’s name written by some other
person in his presence and by his express direction
o Attested and subscribed by three or more credible witnesses in the presence of the
testator and of one another
- Disqualified from being witnesses to a will
o Person not domiciled in the Philippines
o Those who have been convicted of falsification of a document, perjury or false
testimony