BUSINESS AND TRANSFER TAXATION 5th Edition 3

Chapter 2: TRANSFER TAXES AND BASIC SUCCESSION

CHAPTER 2
TRANSFER TAXES AND BASIC SUCCESSION

Problem 2-1
1. True
2. False – first P100,000 of net gift is exempt.
3. False – subject to business tax
4. False – gratuitous
5. False – an income earned
6. False – upon right to transfer
7. True
8. False – upon death
9. True
10. False – the legitime is based on value of the estate, not on the form of the estate.
11. False – they are voluntary heirs.
12. True
13. False – fixed by law
14. False – executor

Problem 2-2
1. False – relatives up to the 5th degree
2. True
3. False – the relative is the legitimate heir
4. False – if part of inheritance is through the written will
5. False – if the transfer is testamentary
6. False – one for the legitimate child and half for the illegitimate child
7. True
8. True
9. False – equal rights
10. True
11. False
12. True

Problem 2-3 Problem 2-4 Problem 2-5

1. A 1. C 1. B
2. C 2. A 2. C
3. A 3. A 3. D
4. A 4. C 4. A
5. C 5. D 5. B
6. C 6. B 6. A
7. C 7. B 7. C
8. D 8. B 8. A
9. A 9. D 9. C
10. D 10. B 10. A
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Chapter 2: TRANSFER TAXES AND BASIC SUCCESSION

Problem 2-6

1. C
Car – first prize P1,000,000
Amount of mortgage assumed 1,900,000
Salary 240,000
Amount of onerous transfer P3,140,000

2. C
House and lot as donation, net of mortgage (P2,000,000 – 1,900,000) P 100,000
Farm as inheritance 500,000
Amount of gratuitous transfer P 600,000

Problem 2-7
1. A
Car P 800,000

2. C
House and lot – mortis causa P1,000,000

Problem 2-8 C
Net value of property left by the decedent (P5,000,000 – P 4,000,000
P1,000,000)
Transfers in contemplation of death 2,000,000
Hereditary estate P 6,000,000

Problem 2-9 C
Net hereditary estate P5,000,000
Legitime of children (P5,000,000 x ½) ( 2,500,000)
Portion for the surviving spouse (P5,000,000 x ¼) ( 1,250,000)
Free portion – may be distributed to strangers P1,250,000

Note: The distribution is testamentary because there is a devise or legacy.

Problem 2-10 B
Inheritance of the spouse (P5,000,000/5) P1,000,000

Problem 2-11 A
Hereditary estate P3,000,000
Legitime of children (P3,000,000 x ½) ( 1,500,000)
Portion for the spouse (P1,500,000/4) ( 375,000)
Free portion P1,125,000
Multiplied by 20%
Legacy to the sister-in-law P 225,000
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Chapter 2: TRANSFER TAXES AND BASIC SUCCESSION

Problem 2-12 C
Hereditary estate P3,000,000
Portion for the illegitimate child (P3,000,000 x 1/3) (1,000,000)
Amount inherited by the wife P2,000,000

Problem 2-13
Hereditary estate, net of charges (P7,000,000 – P1,000,000) P 6,000,000
Legitime of legitimate children (P6,000,000 x ½) ( 3,000,000)
Portion for the acknowledge natural child (P3,000,000/3) x 50% ( 500,000)
Portion for the surviving spouse (P3,000,000/3) ( 1,000,000)
Free portion – could be disposed of as legacy to the nanny P 1,500,000

Problem 2-14
Inheritance of each child (P5,000,000/5) P 1,000,000

Problem 2-15
Cash in bank P 100,000
House and lot 5,000,000
Investments in securities 400,000
Total gross estate P5,500,000
Less: Unpaid mortgage P 200,000
Existing loan 100,000
Funeral expense 100,000
Estate tax 100,000 500,000
Hereditary estate P5,000,000

Problem 2-16
Legitimate child – Mario (P1,200,000 x ½) P 600,000
Illegitimate child – Maria (P600,000 x ½) 300,000
Surviving spouse (P600,000 x ½) 300,000
P1,200,000

Problem 2-17
With respect to legitime: Son Wife
Legitimate child (P4,200,000 – P200,000) x 50% P2,000,000
Surviving spouse (P2,000,000 x ½) P1,000,000

Remaining balance (divide based on the intention of

the will)
Legitimate child (P1,000,000 x ½) 500,000
Surviving spouse (P1,000,000 x ½) . 500,000
P2,500,000 P1,500,000
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Chapter 2: TRANSFER TAXES AND BASIC SUCCESSION

Problem 2-18
Gross estate P2,000,000
Less: Deduction 1,000,000
Net estate before share of the surviving spouse P1,000,000
Less: Share of the surviving spouse (P1,000,000 x 50%) 500,000
Net estate before estate tax P 500,000
Less: Estate tax 15,000
Net distributable estate P 485,000
Dorado Maya Jess Total
(child) (child) (husband)
Fraction of share - intestate 1/3 1/3 1/3 1
Distribution of inheritance P161,667 P161,667 P161,667 P485,000

Death of Jess
Exclusive share when Sabel died P 500,000
Add: Share from distributable share 161,667
Distributable estate P 661,667
Dorado Maya Free Total
(child) (child) Portion
Fraction of share - testate ¼ ¼ ½ 1
Distribution of inheritance P165,417 P165,417 P333,883 P 661,667

Problem 2-19
Gross taxable value for:
1. Capital gain tax P 300,000

2. Donor’s tax P 500,000

3. Business tax P - 0 -

4. Estate tax P1,800,000

Problem 2-20
Gross estate P3,000,000
Less: Deductions 1,000,000
Net estate before estate tax P2,000,000
Less: Estate tax 135,000
Net distributable estate P1,865,000
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Chapter 2: TRANSFER TAXES AND BASIC SUCCESSION

Tito (legitimate Vic Total

son) (illegi’te son)
Fraction of share - intestate 1 ½ 1.5
Distribution of inheritance P1,243,333 P621,667 P1,865,000

Problem 2-21
1. Gross estate (P500,000 + P250,000 + P1,000,000 + 100,000) P1,850,000

2. Inheritance of Tim (P500,000 x ½) P 250,000

Problem 2-22
1. Testamentary
Legitime:
Legitimate son – Peter (P35,000,000 x 50%) x ½ P8,750,000
Legally adopted son – Petros (P35,000,000 x 50%) x ½ 8,750,000
Surviving spouse (P8,750,000 x ½) 4,375,000
Illegitimate son – Rocky 4,375,000
Free portion – that may be given to other relatives 8,375,000
P35,000,000

2. Intestate Succession
Legitimate son – Peter (P35,000,000/3.5) 1 P10,000,000
Legally adopted son – Petros (P35,000,000 x 3.5) 1 10,000,000
Surviving spouse (P35,000,000 x 3.5) 1 10,000,000
Illegitimate son – Rocky (P35,000,000 x 3.5) x ½ 1/2 5,000,000
P35,000,000

Problem 2-23
Legitimate Legitimate Surviving Illegitimate Total
child 1 child 2 spouse child
Fraction of share 1 1 1 ½ 3.5
Amount of P2,857,143 P2,857,143 P2,857,143 P1,428,571 P10,000,000
inheritance

Note: The last will and testament is void because the presence of legitimate child
eliminates the parents from the inheritance. In all cases, the legitime must not be
impaired by the disposition through will.
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Chapter 2: TRANSFER TAXES AND BASIC SUCCESSION

Problem 2-24
1. Computation of net distributable share
Total gross estate (P10,000,000 + P20,000,000 + P60,000,000
P30,000,000) 2,500,000
Less: Ordinary deductions P57,500,000
Net estate before share of surviving spouse 28,750,000
Less: Share of surviving spouse (P57,500,000 x 50%) P28,750,000
Net estate before estate tax 4,312,500
Less: Estate tax (P28,750,000 x 15%) P24,437,500
Net distributable estate

2. Computation of the shares of the heirs

Share of legitimate son (P24,437,500 x ½) P12,218,750
Share of surviving spouse (P24,437,500 x ½) P12,218,750

Note: His mother and brother, as secondary heirs, are disqualified to share from the
portion of the legitime due to the presence of a legitimate child. Hence, the will becomes
void.

Problem 2-25
1. Computation of net distributable estate:
Gross estate (P4,000,000 + P1,000,000 + P200,000 + P5,000,000 + P3,000,000) P13,200,000

Less: Ordinary deductions:

Funeral expense P 100,000
Unpaid mortgage 200,000 P 300,000
Allowable deduction – Stan’d deduction 1,000,000 1,300,000
Net taxable estate P11,900,000
Less: Estate tax (P11,900,000 x 15%) 1,785,000
Net estate after tax P10,115,000
Add: Standard deduction 1,000,000
Net distributable estate P11,115,000

2. Distribution of net distributable estate:

Christopher Cristeta Crisistomo
(son) (daughter) (driver) Total

Testate succession P4,000,000 P1,000,000 P 200,000 P 5,200,000

Intestate succession 2,957,500 2,957,500 . 5,915,000
Mixed succession P6,957,500 P3,957,500 P 200,000 P 11,115,000