ESTATE TAXATION

Timing of Succession
KINDS OF TRANSFERS:
- the rights to the succession are
transmitted from the moment of the death
of decedent.

1. Onerous/bilateral
Elements of Succession:

2. Gratuitous/unilateral
3. Complex 1. Decedent (or Testator, f:Testatrix)

2. Estate - young natransfer

3. Transferees

Succession - is a mode of acquisition by I. Heirs (Compulsory, Voluntary) - portion of

virtue of which the property, rights and the estate, universal title.

obligation of the extent of the value of II. Legatees - recipient of a gift of personal
inheritance, of a person are transmitted property
through his death to another or others either III. Devisees - recipient of a gift of real
by his will or by operation of law. property.

When does succession take e ect? Testamentary

What will be transferred?
1. Properties Will
2. Rights - Not all rights can be transferred
- act whereby a person is permitted, with
a. Transmissible rights - can be the formalities prescribed by law, to
transferred from one person to another
control to a certain degree the
I. Property Rights disposition of his estate to, to take e ect
b. Intransmissible rights after his death.

c. Political Rights
3. Legitime
- one who has compulsory heirs may
dispose of his estate provided he does not
contravene the provisions of the civil code
Note: If debtor dies, the debt remains. Debt
with regard to the legitime of the said
survives the death of debtor.
heirs.

- can be transferred but limited to the state

of the value

Kinds of Wills

When does succession happen?

- Through death

1. Notarial Will

When does succession accrue?

- upon death.
- requires three (3) witnesses

- Attested to a notary public

3 Kinds of Succession:

2. Holographic Will

1. Intestate - no will

- Entirely handwritten

2. Testamentary/Testate - with will

3. Mixed

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 Probate of Will - value of the gross estate of the decedent
- shall be determined by including the value
Probate at the time of his death of all property,
- court’s area of inquiry is limited - to an real or personal, tangible or intangible,
examination of, and resolution on, the wherever situated.

extrinsic validity of the will.

- The due execution thereof, the testatrix’s Composition of Gross Estate

testamentary capacity, and the
compliance with the requisites or All Properties
solemnities by law prescribed, are the - real or personal

questions solely to be represented, and to - Tangible or intangible

be acted upon, by the court.

- Owned by the decedent

- At the time of his death

I. Settlement of Estate
- appointment of administrator or
con rmation of executor.

- Executor is appointed by the testator WITHIN WITHOUT

con rmed by the court.
RC YES YES
- Administrator is appointed by the court.

NRC YES YES

II. Determination of heirs, legatees and RA YES YES
devisees

III. Collation of estate of the decedent NRA YES NO

- Which properties are included?

IV. Settlement of claims of creditors RECIPROCITY RULE

Partition and distribution of the estate. - no tax shall be collected in respect of
intangible personal property:
Characteristics of Estate Tax:
1. National Tax
a. If the decedent at the time of his death
2. Proportional - hindi nagbabago yung rate was a citizen and resident of FC which at
xed at 6%
the time of his death did not impose
3. Ad valorem - base on value
transfer tax in respect of IPP of citizens
4. Privilege/transactional
of PH not residing in that FC.

5. Direct
b. If the laws of the FC of which the
decedent was a citizen and resident at
Notes:

the time of his death allows a similar

- Estate tax is di erent from inheritance tax.

exemption from transfer or death

- Estate tax is not a tax on death.

taxes in respect of IPP owned by citizens

of the PH not residing in that FC.

Gross Estate: Composition, Computation

and Valuation
Intangible Personal Property:

Gross Estate 1. Franchise which must be exercised in PH

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2. Shares or rights in any partnership, Note: Coins and paper bills are an intangible
business or industry in the PH
personal property.
3. SOB (shares, obligations and bonds) by
any foreign corp 85% of the business of
which is not located abroad.

Valuation of Gross Estate

4. SOB issued by any corp or Sociedad
- the properties comprising the gross estate
anonima organised or constituted in the
shall be valued according to their fair
PH. (Domestic Corp)

market value as of the time of

5. SOB issued by any foreign corp if such
decedent’s death.

SOB have acquired a business situs in

PH.
Fair Market Value
Exercise #4
Real Property
R/P R/C NRA- NRA - - Zonal Value or assessed value whichever
No R R is higher

House and Real ✅ ❌

Lot, USA ❌ Listed Shares
Condo Unit, Real - arithmetic mean between the highest and
✅ ✅ ✅
PH lowest quotation at a date nearest the
date of death, if non is available on the
Furnitures TPP ✅ ✅ ✅
and
date of death itself.

Appliances,
PH Unlisted Common Shares
Car, USA TPP
- book value

✅ ❌ ❌

Bonds, PH IPP ✅ ✅ ❌ Unlisted Preference Shares

- par value

Ordinary IPP ✅ ✅ ❌
Shares, not
Units of participation in any association,
traded in
the stock recreation or amusement club
exchange, - bid price nearest the date of death

PH Corp

Preferred IPP Personal Properties

✅ ✅ ❌
Share,
Foreign Recently Purchased
corp, 85%
of business
- purchase price

in the PH
Not Recently Purchased
Proceeds of IPP ✅ ✅ ❌
life - pawn value * 3

insurance,
OH
 Inclusions in Gross Estate:
Ex: Caregiver died
Are items not in the possession of the
decedent at the time of his death included
IF SILENT: REVOCABLE (CPALE
PURPOSES)
4. Transfers in Contemplation of Death
5. Conditional Transfers

in the gross estate? GR: NO!

Exception: STATUS WHEN? INCLUSION?

1. Retirement proceeds under RA 4917

FULFILLED BEFORE NO
DEATH
2. Transfer for Insu cient Consideration

FULFILLED AT/AFTER YES

DEATH
INCLUDED? AMOUNT
NOT YES
FMV@T<CON NO FULFILLED
SI
WAIVED BEFORE NO
FMV@T>CON YES FMV@DEATH DEATH
SI - CONSI

6. Revocable Transfers

3. Proceeds of Life Insurance

STATUS INCLUSION
BENEFICIARY REVOCABL IRREVOCAB
E LE EXERCISED YES
3RD PERSON YES EXEMPT NOT EXERCISED YES
EXECUTOR YES YES WAIVED NO
ADMINISTRAT YES YES EXPIRED BEFORE NO
OR DEATH
ESTATE YES YES EXPIRED AFTER YES
DEATH

PRESUMPTION UNDER IC
- the insured shall have the right to change 7. Transfers under a general power of
the bene ciary he designated in the policy, appointment

unless he has expressly waived this right

in said policy.
8. Void transfers

- Notwithstanding the foregoing, in the

event the insured does not change the 9. Transfers with retention/reservation of
bene ciary during his lifetime, the rights

designation shall be deemed irrevocable.

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 EXCLUSIONS FROM GROSS ESTATE: Irene - yeri = gross estate; tax

Yeri - sulgi = excluded to gross estate

1. The merger of usufruct in the owner of the

naked titled.
If Irene told na pwede ipamana kahit kanino
then it’s a general power of appointment

Ex:
- included to gross estate

Transferor - Jisoo
4. All bequests, devises, legacies or transfers
right of use - usufruct Jenny
to social welfare, cultural and charitable
-if Jenny dies it’ll be transferred to Lisa
institutions.

Owner of naked title - Lisa

- no rights to use and fruits

SPECIAL LAWS THAT ARE EXCLUDED
FROM GROSS ESTATE:
Jisoo - Lisa = Taxable

Jisoo - Jenny = Taxable

1. War Damages

Jenny - Lisa = Exempt

2. Bene ts from US VA

3. SSS and GSIS Bene ts

2. The transmission or delivery of the
inheritance or legacy by the duciary heir or GROSS ESTATE: MARRIED INDIVIDUALS
legatee to the deicommissary

Married Individuals
Ex:
- gross estate includes the capital of the
surviving spouse.
Momo - died and ipinamana muna kay

nayun as a duciary heir and then transfer to

chuyou
INCLUDED:
Nayun - died so the property will now be 1. Exclusive property of the deceased.

transferred to chuyou
2. Conjugal/Community property

3. Full amount
Momo - Nayun = gross estate; tax

Nayun - Chuyou = excluded

Note: exclusive property of the surviving
spouse is not included.

3. The transmission from the rst heir,

legatee or donee in favour of another Property Regimes
bene ciary, in accordance with the desire of - the property relations between husband
the predecessor.
and wife shall be governed in the following
- SPECIAL POWER OF APPOINTMENT order:

1. By marriage settlements executed

Irene - died and Panama kay yeri hung before the marriage (pre-nuptial
parcel of land; subject to the condition that if agreement)

yeti died she’ll transfer the land to sulgi 2. By the provisions of the code
Yeri - 1st heir 3. By the local custom
Sulgi - 2nd heir
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3 Property Regimes: 3. Property for personal and exclusive use
of either spouse; however, jewellery shall
1. Absolute Community of Property form part of the community property.

- true love

2. Conjugal Partnership of Gains

Note:

- kasama sa ginhawa lang lol

- treatment sa jewellery is an investment.

3. Complete Separation of Property

- donated jewellery is exclusive

- KKB
CONJUGAL PARTNERSHIP
ABSOLUTE COMMUNITY
CONJUGAL
Community - all property acquired during the
- all the properties owned by the spouses at marriage, whether the acquisition
the time of the celebration of the marriage appears to have been made, contracted or
or acquired thereafter.
registered in the name of one or both
spouses, is presumed to be conjugal
Exclusive: unless the contrary is proved.

1. Property acquired during the marriage by

gratuitous title by either spouse, and the EXCLUSIVE:
fruits as well as the income thereof, if 1. That which each acquires during the
any, unless it is expressly provided by the marriage by gratuitous title.

donor, testator or grantor that they shall 2. That which is acquired by exchange, by
form part of the community property.
right of redemption, by barter with
property belonging to only one of the
2. Property acquired before the marriage
spouses.

by either spouse who has legitimate

3. That which is purchased with the
descendants by a former marriage,
exclusive money of the wife or the
and the fruits as well as the income, if
husband.

any, of such property.

4. That which is brought to the marriage as

the spouse’s own.

Example:

SEPARATION OF PROPERTY
LXC AND JGY got married and had a son, - may refer to present or future property or
LJY, but the marriage did not work out. LXC
both.

met NMJ and later got married. NMJ’s - May be total or partial.

properties and LXC’s properties are included - In the latter case, the property not agreed
in the marriage.

upon as separate shall pertain to the

absolute company.

NMJ - Community

LXC - Exclusive

However, if LJY is an illegitimate child LXC’s

property becomes community.

 PROPERTY ACQUIRED THRU LABOR/

INDUSTRY

RULES:

ACP

FRUITS - follows the source.
INCOME - follows the source
CP BEFOR DURING/AFTER
C CPG
FRUITS - conjugal no matter the source
INCOME - conjugal no matter the source.

AC C
DEFAULT PROPERTY REGIME
- no pre-nup

ABSOLUTE COMMUNITY OF PROPERTY

- e ectivity date of Family Code: August 3,
1988
PROPERTY OWNED

NOTE: if silent assume it’s for love thus

absolute community of property.

CP C-C
DEDUCTIONS FROM GROSS ESTATE:
E-E
ORDINARY DEDUCTIONS

1. Ordinary Deductions
A. Losses

AC C B. Claims against insolvent persons

C. Claims against the estate

D. Unpaid taxes/mortgage

E. Vanishing deduction

F. Transfer for public use

2. Special Deductions
A. Family Home

B. Retirement bene ts under RA 4917

PROPERTY ACQUIRED THRU C. Standard deduction

GRATUITOUS TITLE
I. ORDINARY DEDUCTIONS

CPG 1. LOSSES
E Date of death - buo pa yung bahay

One day after date of death - nasunog ang

bahay

AC E
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 Two days after death - abo na (ashes)
- refer to the nancial condition of a debtor
When to determine the value of the gross that is generally unable to pay its or his
estate? liabilities as they fall due in the ordinary
- at time of death
course of business or has liabilities that are
greater than its or his assets.

All properties existing as of the date of death

of the decedent is included in the gross Problem: page 5

estate

Requisites:
1. Timing

A. During the settlement of the estate

B. Not later than the last day for the

payment of the estate tax or not later
than one year
2. CLAIMS AGAINST THE ESTATE
2. Cause: arising from shipwreck, res, - debts or demands of pecuniary nature.

theft, embezzlement, robbery, storms or - Enforceable against the deceased.

other casualties
- Transmissible.

3. Not compensated by insurance

4. Have not been claimed as a deduction REQUISITIES:

for the income tax purposes
1. Enforceable and valid

2. Existing at the time of death

Problem: page 4
3. Not condoned

4. Not prescribed

5. Good faith

6. Adequate and full consideration

7. Substantiated

8. 3 years - statement showing disposition

3. CLAIMS AGAINST INSOLVENT

PERSONS
- receivable is included as part of gross CATE VS. CAIP
estate

- Uncollectible portion is claimed as

deduction from gross estate
CATE CAIP
- Computation of uncollectible portion
DECEDENT DEBTOR CREDITOR
involves application of preference of
credits NATURE OF PAYABLE RECEIVABLE
CLAIM

INSOLVENCY PART OF GE? NO YES

Insolvent
UNPAID MORTGAGES
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- GROSS ESTATE: include property
mortgaged

- DEDUCTIONS FROM GROSS ESTATE:

amount of unpaid mortgage.

4. UNPAID TAXES
- DEDUCTIONS FROM GROSS ESTATE:
taxes accruing before death

BIR FORM 1801

5. VANISHING DEDUCTION (PROPERTY

PREVIOUSLY TAXED)

REQUISITES: