Estate Tax: Atty. Johnson A.H. Ong, Cpa, Mba

Estate Tax
ATTY. JOHNSON A.H. ONG, CPA, MBA

Transfer and Busines Tax
• Gratuitous
– Estate tax (succession) – Mortis causa transfer. (took
effect upon death)
– Donor’s tax – Inter vivos (Gratuitous transfer during
lifetime)
• Onerous
– Percentage Tax
– VAT
Readings
Old Law
• R.A. 8424
– R.R. 2-2003
New Law
• R.A. 10963
– R.R. 12-2018 -READ-

Brief History
• Act No. 2601 (July 1, 1916)
– Incorporated in the Revised Administrative Code (Sec
1536), amended by various act (Act no. 2711, 2835,
3031 and 3606, and CA no. 105)
• Commonwealth Act No. 466 – NIRC (July 1, 1939)
• PD No. 69 (Nov 24, 1972) estate (the amount
that’s taken out of someone’s estate upon their
death) and inheritance (what the beneficiary –
the person who inherited the wealth) and
Donor’s and done tax have been integrated
effective Jan 1 1973
• R.A. 8424 – CTRP of 1997
• R.A. 10963 – TRAIN Law -READ-
Theories of death taxation
1. Benefit received theory – Considers the
services of the government renders in the
distribution of the estate of the decedent,
either by law or in accordance with his
wishes. (people should pay taxes based on
the benefits they receive from the
government)
2. Privilege theory or state partnership theory
– inheritance is not a right but a privilege
granted by the state, and large states have
been acquired only with the protection of the
State. (the State is a “silent or passive
partner” in the accumulation of said large
property.)
Theories of death taxation
3. Ability to pay theory – It asserts that the receipt
of inheritance which is in the nature of
unearned wealth or windfall, places assets in the
hands of the heirs and beneficiaries thereby
creating an ability to pay the tax and thus to
contribute to the governmental income. (taxes
should be based upon the amount of money
people earn.) those who earn more money are
expected to pay a higher rate of taxes which
means a higher portion of their income than
people who earn less money.
4. Redistribution of wealth theory – The receipt
of inheritance is a contributing factor to the
inequalities in wealth and incomes. The
imposition of death tax reduces the property
received by the successor, thus helping bring
about a more equitable distribution of wealth in
society. (The tax base is the value of the property
and the progressive scheme of taxation is
precisely motivated by the desire to mitigate the
evils of inheritance in the present form. The
taxes paid by rich people are programmed for
disbursement by Congress for the benefit of the
poor in terms on social services, education,
health, etc.)
Distinction between Estate and donor’s tax
Estate Tax Donor’s tax
Effectivity Effective upon death of Effective during
the decedent lifetime of the donor
Taxpayer Estate Donor
Tax base Net estate Net gift
Exempt amount P200,000 and below under P100,000 and below
R.A 8424. Now 6% base on under R.A. 8424. Now
net estate. 6% on total gift in
excess of P250,000.
Filing and payment Within six (6) months from Within 30 days after
the decedent's death the date gift is made.
under R.A. 8424. Now (Sec 103, R.A. 10963)
Within 1 years from the
decedent death. Sec 90,
R.A. 10963
Laws that govern 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 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. (Sec 3, RR
12-2018)
• im, the tax rates, procedures, and regulation
prescribed under the TRAIN Law (R.A. 10963) and
R.R. 12-2018 apply only to the estate tax accrues
starting January 1, 2018.
Nature of estate tax
• The estate tax is an excise tax on the transfer of
property at the death and is not tax on the property
transmitted. (US treasury regulations. 20-203 3-1(a))
Hence, the property is not really the tax base but
merely serve as a measure for determining the amount
being exacted by the state taxing power. (p 13, Estate
and gift taxation in the Philippines, Tomas Matic, 1981
ed.)
• What the law taxes is not the interest to which the
legatees and devisees succeeded, but the interest
which ceased by reason of death. (Connecticut Bank
and Trust Cp. Vs. US., 465 F. 2nd 760 (2nd Cir. 1972)
Distinction between estate and
inheritance tax
Estate tax Inheritance tax
As to object The interestThe interest to
which ceased by which some
reason of death person succeeds
on a death
As to incident It is levied upon It is collected
the total estate from the
left by the individual shares
deceased of the
beneficiaries.
Tax Rate under Sec 99, R.A. 8424
A tax based on the value of such net estate, as computed in
accordance with the following schedule:
If the net estate is
OVER BUT THE TAX PLUS OF THE
NOT OVER SHALL BE EXCESS
OVER
P 200,000 Exempt
P 200,000 550,000 0 5% P 200,000
500,000 2,000,000 P 15,000 8% 500,000
2,000,000 5,000,000 135,000 11% 2,000,000
5,000,000 10,000,000 465,000 15% 5,000,000
10,000,000 And Over 1,215,000 20% 10,000,000
Tax Rate under R.A. 10963 (TRAIN)
Six percent (6%) based on the value of such net
estate. (As amended by Sec 22, R.A. 10963)
Pro forma Computation of Net estate
of unmarried decedent
Gross Estate XXX
Less: Allowable Deduction
Ordinary deduction (XXX)
Special deduction
Standard deduction XXX
Family Home XXX (XXX)
Net Estate XXX
Pro forma Computation of Net estate
of married decedent
Exclusive Conjugal Total
Conjugal Properties:
Family Home P XXX P XXX
Real and personal properties XXX XXX
Exclusive Properties XXX XXX
Gross Estate XXX XXX P XXX
Less:
Ordinary Deductions
Conjugal Ordinary Deductions (XXX) (XXX)
Net Conjugal Estate XXX
Special Deductions
Family Home (If conjugal, divided by 2 but not to exceed P10M) (XXX)
Standard Deduction (XXX)
Total Deductions (XXX)
Net Estate P XXX
Less:
½ Share of Surviving Spouse (Net conjugal estate/2) (XXX)
NET TAXABLE ESTATE P XXX
Composition of Gross Estate:
The gross estate of a decedent shall be comprised
of the following properties and interest therein at
the time of his/her death, including revocable
transfers and transfers for insufficient
consideration, etc.:
1. Residents and citizens – all properties, real or
personal, tangible or intangible, wherever
situated.
2. Non-resident aliens – only properties situated in
the Philippines provided, that, with respect to
intangible personal property, its inclusion in the
gross estate is subject to the rule of reciprocity.
Requisites of reciprocity on intangible
personal property
1. if the decedent at the time of his death or the donor
at the time of the donation was a citizen and resident
of a foreign country which at the time of his death or
donation did not impose a transfer tax of any
character, in respect of intangible personal property
of citizens of the Philippines not residing in that
foreign country, or
2. if the laws of the foreign country of which the
decedent or donor was a citizen and resident at the
time of his death or donation allows a similar
exemption from transfer or death taxes of every
character or description in respect of intangible
personal property owned by citizens of the
Philippines not residing in that foreign country. (Sec
104, R.A. 8424)
Less than fee simple
Property includable in the gross estate includes property
interest constituting less than fee simple title (jus utendi,
jus abutendi, jus fruendi, jus disponendi, and jus
vindicandi) as long as such interest in property has
economic value or is capable of valuation.
• Jus fruendi – Usufruct
• Jus disponendi – Power of appointment
• Reversionary interest – Legal or conventional
redemption (i.e, Pacto de retro sale) and reserve
truncal
• Right to income which accrued prior to decedent death
– Rents, interests, dividends, his share of partnership
profits, refunds and vested rights to death benefits.
Test of includability
The test of inclusion is whether the decedent had such
property interest at the time of his death, that such
interest has
1. value or capable of valuation, and
2. that it passed from the decedent or was transmitted
on account of his death
• For the justification for the government ‘s power to
subject such interests to the estate tax rest on the
principle that such interest pass from the decedent at
death, and that the estate tax is an excise tax on the
privilege of transmitting property at death to the
survivors of the decedent. (Knowlton v. Moore, supra,
footnote 18, Chapter 1)
Kinds of property embraced: Gross
estate
Interest having value or capable of being valued,
transferred by the decedent at his death.
(Warren, Surrey, op. cit., p 106)
1. Interest in property possessed
2. Interest in property owned
3. Property or interest transferred
Decedent Interest
1. Decedent's Interest
– To the extent of the interest therein of the decedent at the time
of his death.
2. Transfer in Contemplation of Death

– To the extent of any interest therein of which the decedent has
at any time made a transfer, by trust or otherwise, in
contemplation of or intended to take effect in possession or
enjoyment at or after death, or of which he has at any time
made a transfer, by trust or otherwise, under which he has
retained for his life or for any period which does not in fact end
before his death the possession or enjoyment of, or the right to
the income from the property, or the right, either alone or in
conjunction with any person, to designate the person who shall
possess or enjoy the property or the income therefrom; except
in case of a bonafide sale for an adequate and full consideration
in money or money's worth.
Revocable Transfer
• To the extent of any interest therein, of which the decedent has at any
time made a transfer (except in case of a bona fide sale for an adequate
and full consideration in money or money's worth) by trust or otherwise,
where the enjoyment thereof was subject at the date of his death to any
change through the exercise of a power (in whatever capacity exercisable)
by the decedent alone or by the decedent in conjunction with any other
person (without regard to when or from what source the decedent
acquired such power), to alter, amend, revoke, or terminate, or where any
such power is relinquished in contemplation of the decedent's death.
• For the purpose of this Subsection, the power to alter, amend or revoke
shall be considered to exist on the date of the decedent's death even
though the exercise of the power is subject to a precedent giving of notice
or even though the alteration, amendment or revocation takes effect only
on the expiration of a stated period after the exercise of the power,
whether or not on or before the date of the decedent's death notice has
been given or the power has been exercised. In such cases, proper
adjustment shall be made representing the interests which would have
been excluded from the power if the decedent had lived, and for such
purpose if the notice has not been given or the power has not been
exercised on or before the date of his death, such notice shall be
considered to have been given, or the power exercised, on the date of his
death.
Property Passing Under General
Power of Appointment
1. To the extent of any property passing under a general
power of appointment exercised by the decedent:
1. by will, or
2. by deed executed in contemplation of, or intended to take
effect in possession or enjoyment at, or after his death, or
3. by deed under which he has retained for his life or any period
not ascertainable without reference to his death or for any
period which does not in fact end before his death
2. the possession or enjoyment of, or the right to the income
from, the property, or
3. the right, either alone or in conjunction with any person,
to designate the persons who shall possess or enjoy the
property or the income therefrom; except in case of a
bona fide sale for an adequate and full consideration in
money or money's worth.
Proceeds of Life Insurance
To the extent of the amount receivable by the
estate of the deceased, his executor, or
administrator, as insurance under policies taken
out by the decedent upon his own life, irrespective
of whether or not the insured retained the power
of revocation, or to the extent of the amount
receivable by any beneficiary designated in the
policy of insurance, except when it is expressly
stipulated that the designation of the beneficiary is
irrevocable.
Beneficiaries Revocable Irrevocable
Estate, Executor, or administrator Included Included
Others Included Excluded
Life insurance excluded from gross estate
1. Accidental insurance
2. Group insurance policy taken out by the company
for its employee
3. Irrevocable insurance policy where the beneficiary
is other than the estate, executor or administrator.
4. Insurance policy issued by the GSIS
5. Benefit under SSS by reason of death (SSS vs.
Davao, L-21642)
6. Life insurance policy payable to the heirs of
deceased member of the military personnel of the
US army or Philippine army administered by the US
Veterans Administration (BIR Ruling, Aug 25, 1950;
RA no. 360)
Prior Interests
Except as otherwise specifically provided
therein, the transfer in contemplation of death,
revocable transfer and the proceeds of life
insurance shall apply to the transfers, trusts,
estates, interests, rights, powers and
relinquishment of powers, as severally
enumerated and described therein, whether
made, created, arising, existing, exercised or
relinquished before or after the effectivity of
this Code.
Transfers of Insufficient Consideration
If any one of the transfers, trusts, interests, rights or powers
under
a) Transfer in contemplation of death;
b) Revocable transfer and
c) Property passing under the general power of
Appointment
is made, created, exercised or relinquished for a consideration
in money or money's worth, but is not a bona fide sale for an
adequate and full consideration in money or money's worth,
there shall be included in the gross estate only the excess of
the fair market value, at the time of death, of the property
otherwise to be included on account of such transaction,
over the value of the consideration received therefor by the
decedent. (Sec 85, R.A 10963)
Capital of the Surviving Spouse
The capital of the surviving spouse of a
decedent shall not be deemed a part of his or
her gross estate.
Classification of taxpayer for estate tax
Residents and Non-resident Alien
Citizens
Real Property Within and Only Within
without
Tangible Personal Within and Only Within
Property without
Intangible Within and Only Within,
personal property without subject to
reciprocity
The amounts withdrawn from the deposit accounts of a decedent
subjected to the 6% final withholding tax, shall be excluded from the
gross estate for purposes of computing the estate tax. (Sec 4, R.R.12-
2018)
Payment of Tax before transfer –
Shares, bonds or rights
Section 97. Payment of Tax Antecedent to the Transfer of Shares, Bonds or Rights. - There shall not
be transferred to any new owner in the books of any corporation, sociedad anonima, partnership,
business, or industry organized or established in the Philippines any share, obligation, bond or right by
way of gift inter vivos or mortis causa, legacy or inheritance, unless a certification from the
Commissioner that the taxes fixed in this Title and due thereon have been paid is shown.
"If a bank has knowledge of the death of a person, who maintained a bank deposit account
alone, or jointly with another, it shall allow any withdrawal from the said deposit account,
subject to a final withholding tax of six percent (6%). For this purpose, all withdrawal slips shall
contain a statement to the effect that all of the joint depositors are still living at the time of
withdrawal by any one of the joint depositors and such statement shall be under oath by the
said depositors." (As amended by R.A. 10963)
If a bank has knowledge of the death of a person, who maintained a bank deposit
account alone, or jointly with another, it shall not allow any withdrawal from the said
deposit account, unless the Commissioner has certified that the taxes imposed thereon
by this Title have been paid: Provided, however, That the administrator of the estate or
any one (1) of the heirs of the decedent may, upon authorization by the Commissioner,
withdraw an amount not exceeding Twenty thousand pesos (P20,000) without the
said certification. For this purpose, all withdrawal slips shall contain a statement to the
effect that all of the joint depositors are still living at the time of withdrawal by any
one of the joint depositors and such statement shall be under oath by the said
depositors. (Sec 97, R.A. 8424)
Citizen of the Philippines
1. The following are citizens of the Philippines:
2. Those who are citizens of the Philippines at the
time of the adoption of this Constitution;
3. Those whose fathers or mothers are citizens of
the Philippines;
4. Those born before January 17, 1973, of Filipino
mothers, who elect Philippine citizenship upon
reaching the age of majority; and
5. Those who are naturalized in accordance with
law. (Art 4, Sec 1, 1987 Constitution)
Residence for purpose of transfer tax
• For purposes of estate and taxation, residence" was
synonymous with domicile. and that the two were used
interchangeably. (Collector of internal revenue vs.
Domingo De Lara, G.R. Nos. L-9456 and L-9481, January
6, 1958)
• Residence or domicile, for purposes of the transfer taxes
is “the place where one has his true, permanent home
and principal establishment and to which wherever
absent, he has the intention of returning. It is not always
the place where a person was in actual physical
attendance at the moment of his death.
• The incidence of estate and succession has historically
been determined by domicile and situs and not by the
fact of actual residence. (Bowring vs. Bowers, (1928) 24 F
2d 918, at 921, 6 AFTR 7498, cert. den (1928) 272
U.S.608).
Difference between residence and domicile
Residence is used to indicate a place of abode, whether
permanent or temporary; domicile denotes a fixed
permanent residence to which when absent, one has the
intention of returning. A man may have a residence in
one place and a domicile in another. Residence is not
domicile, but domicile is residence coupled with intention
to remain for an unlimited time. A man can have but one
domicile for one and the same purpose at any time, but
he may have numerous places of residence. His place of
residence generally is his place of domicile, but is not by
any means, necessarily so since no length of residence
without intention of remaining will constitute domicile.
(Saludo vs. American Express, G.R. No. 159507, April 19,
2006)
Intangible property considered
located in the Philippines
1. That franchise which must be exercised in the
Philippines;
2. Shares, obligations or bonds issued by any
corporation or sociedad anonima organized or
constituted in the Philippines in accordance with its
laws;
3. Shares, obligations or bonds by any foreign
corporation eighty-five percent (85%) of the business
of which is located in the Philippines;
4. Shares, obligations or bonds issued by any foreign
corporation if such shares, obligations or bonds have
acquired a business situs in the Philippines;
5. Shares or rights in any partnership, business or
industry established in the Philippines. (Sec 104, R.A.
8424)
Valuation of the Gross Estate
In general
• The fair market value of the properties as of
the time of decedent’s death.
Valuation of Real property
The appraised value thereof as of the time of
death shall be, whichever is the higher of –
The fair market value as determined by the

Commissioner (Zonal value)
or
The fair market value as shown in the schedule
of values fixed by the provincial. (assessed
value)
Valuation of Shares of stocks
1. Not listed stock
a. Unlisted common shares – The fair value of the
stock are valued on their book value
• In determining the book value of common shares, appraisal
surplus shall not be considered as well as the value assigned
to preferred shares, if there are any. The valuation of
unlisted shares shall be exempt from the provisions of RR
No. 06-2013, as amended
b. Unlisted preferred shares - The fair value of the
stock are valued at par value.
2. Listed in the stock exchanges
– The fair market value shall be the arithmetic mean
between the highest and lowest quotation at a date
nearest the date of death, if none is available on the
date of death itself. (Sec 5, R.R. 12-2018)
CE L FINANCIAL
PSEi 5,921.55 ALL FIN IND HLDG PRO SVC M-O Trades Value Barket
-0.169t. -9.78 0.0096 1.7096 -0.269t. -0.619t. -0.3:3% -0.419t. 4.0796 71.717 17.333.86:3.272 Closed... Click Here
Auo. 27 07 Log-Off
StockBuyers/Sellers Trade PricesI-ChartsProfileDividendsNewsValuationsHighlightsResearch
MQ Q B R
List Stock .6ymhnls SM INVESTMENTS CORPORATION
Previous 887.0000
Last 873.0000
0&26/2020 C0b082 Sk Change —14.0000
Investments proposed bond program ( PSE) 873 0000 882.0000 %Change —1 58
0&20/2020 C05962 Sk 872.5000 883.0000 Open BB7.0000
Investments proposed bond program ( PSE)
4 340 872.0000 884.0000500 1 High BB7.0000
0B05/2020: C05520: Sk 871 5000 Low 872.0000
Investments press release - 1 ( PSE)
871 0000 887.0000 230 3 Value 13,445,085,850
0B05/2020: C05520: Sk
Investments press release -2 PSE) Trades 2,018
Volume 15,279,810
15.279 810 873 00 CLOSED OB—27 Outstanding 1,204,582,867
( 12 59 10 873 A&ASE CREDITS h1arket Capitalization 1,051,600,842,891
58 0000
12 5950 50 873 00 A&ASE CREDITS Inst. Status Authorized
12:59:49 570 873.0000 A&ASE CREDITS L1arket Status Surveillance Intervention
12:59:49 10 873.00 COL CREDIT S BaardLot 10
along with total volume Note: Bid/Ask pnce now displays FINA ted orders Fluctuation
Floor Price 0.5000
620.9000
CeilingPrice 1,330.5000
DyM T Low 7B5.7000
DyM T Hig h 960.3000
Par Value 10 0000
100
Open to Foreigners YES
RR 6-2013
The fair market value as determined by the
Commissioner (Zonal Value)
or
The fair market value as shown in the schedule
of valued fixed by the Provincial and City
Assessors (Assessed value)
or
The fair market value as determined by
Independent Appraiser. (Appraised
value)
RR 6-2013
Mr. X sold on April 30, 2013, 5000 shares of stock of “A” Corporation. “A”
Corporation has 10,000 outstanding shares The total assets and liabilities of “A”
Corporation in its latest audited financial statements (AFS) are Php20,000,000 and
Php5,000,000, respectively
Book
Value per MV per Tax Zonal Independent Highest of
AFS Declaration Valuation Appraiser the three Adjustment
Land A 2,000,000 2,500,000 5,000,000 6,000,000 6,000,000 4,000,000
Land B 2,000,000 2,200,000 4,000,000 3,500,000 4,000,000 2,000,000
Building A 1,000,000 2,400,000 3,000,000 3,000,000 2,000,000
Building B 500,000 2,000,000 1,950,000 2,000,000 1,500,000
TOTAL 5,500,000 15,000,000 9,500,000
In the above case, the net asset of “A” Corporation is Php15,000,000 while the
adjusted net asset is Php24,500,000 [(20,000,000 + 9,500,000)- 5,000,000]. As such,
with the adjusted value per shares of stock of Php2,450, the fair market value of the
shares sold was Php12,250,000 (5000 shares at Php2,450 per share).
Definition of “fair market value”
of
the Shares of Stock
(c.2.1) In the case of listed shares which were sold,
transferred, or exchanged outside of the trading system
and/or facilities of the Local Stock Exchange, the closing price
on the day when the shares are sold, transferred, or
exchanged. When no sale is made in the Local Stock Exchange
on the day when the listed shares are sold, transferred, or
exchanged, the closing price on the day nearest to the date
of sale, transfer or exchange of the shares shall be the fair
market value(RR. 6-2008)
Some author use RR 6-2008. However it apply only to sale not

gratuitous transfer. The subject of the R.R. read as follow:
SUBJECT : CONSOLIDATED REGULATIONS PRESCRIBING THE
RULES ON THE TAXATION OF SALE, BARTER, EXCHANGE OR
OTHER DISPOSITION OF SHARES OF STOCK HELD AS CAPITAL
ASSETS.
Valuation of unit of participation in
association, recreation or amusement club
The fair market value of units of participation in
any association, recreation or amusement club
(such as golf, polo, or similar clubs), shall be the
bid price nearest the date of death published in
any newspaper or publication of general
circulation.
Valuation of Usufruct
The value of the right of usufruct, use or
habitation, as well as that of annuity, there shall
be taken into account the probable life of the
beneficiary in accordance with the latest Basic
Standard Mortality Table, to be approved by the
Secretary of Finance, upon recommendation of
the Insurance Commissioner. (Sec 5, R.R. 12-
2018)
Valuation of personal property
Property Valuation
Newly acquired property Current market price
(purchase value)
Second hand property Second hand value market
price
Pawned property Grossed up loan value
Interest earning receivables/bank Fair value + accrued interest
deposit
Non interest bearing notes Discounted value
receivable
Philippine Peso currency Face Value
Foreign currency Converted Philippine peso
value
Allowable Deduction
Estate Tax
Allowable Deduction
R.A. 8424 R.A. 10963
Funeral For actual funeral expenses Excluded
Expense or in an amount equal to five
percent (5%) of the gross
estate, whichever is lower,
but in no case to exceed Two
hundred thousand pesos
(P200,000) (Sec 86, R.A.
8424)
Judicial For judicial expenses of the Excluded
Expense testamentary or intestate
proceedings
Allowable Deduction
R.A. 8424 R.A. 10963
Claims against For claims against the estate: Provided, That at the
the estate time the indebtedness was incurred the debt
instrument was duly notarized and, if the loan was
contracted within three (3) years before the death
of the decedent, the administrator or executor
shall submit a statement showing the disposition
of the proceeds of the loan
Same
Claims of the For claims of the deceased against insolvent
deceased persons where the value of decedent's interest
against therein is included in the value of the gross estate.
insolvent
debtor
R.A. 8424 R.A. 10963
Unpaid For unpaid mortgages upon, or any indebtedness in respect to,
mortgage property where the value of decedent's interest therein,
undiminished by such mortgage or indebtedness, is included in the
value of the gross estate, but not including any income tax upon
income received after the death of the decedent, or property taxes
not accrued before his death, or any estate tax. The deduction herein
allowed in the case of claims against the estate, unpaid mortgages or
any indebtedness shall, when founded upon a promise or agreement,
be limited to the extent that they were contracted bona fide and for
an adequate and full consideration in money or money's worth.
Losses There shall also be deducted losses incurred during the settlement of
the estate arising from fires, storms, shipwreck, or other casualties,
or from robbery, theft or embezzlement, when such losses are not
compensated for by insurance or otherwise, and if at the time of the
filing of the return such losses have not been claimed as a deduction
for the income tax purposes in an income tax return, and provided
that such losses were incurred not later than the last day for the
payment of the estate tax as prescribed in Subsection (A) of Section
91
R.A. 8424 R.A. 10963
Property An amount equal to the value specified below of any property forming a part of the
previously gross estate situated in the Philippines of any person who died within five (5) years
taxed prior to the death of the decedent, or transferred to the decedent by gift within five
(Vanishing (5) years prior to his death, where such property can be identified as having been
deduction) received by the decedent from the donor by gift, or from such prior decedent by
gift, bequest, devise or inheritance, or which can be identified as having been
acquired in exchange for property so received:
One hundred percent (100%) of the value, if the prior decedent died within one (1)
year prior to the death of the decedent, or if the property was transferred to him by
gift within the same period prior to his death;
Eighty percent (80%) of the value, if the prior decedent died more than one (1) year
but not more than two (2) years prior to the death of the decedent, or if the
property was transferred to him by gift within the same period prior to his death;
Sixty percent (60%) of the value, if the prior decedent died more than two (2) years
but not more than three (3) years prior to the death of the decedent, or if the
Forty percent (40%) of the value, if the prior decedent died more than three (3)
years but not more than four (4) years prior to the death of the decedent, or if the
Twenty percent (20%) of the value, if the prior decedent died more than four (4)
years but not more than five (5) years prior to the death of the decedent, or if the
R.A. 8424 R.A. 10963
These deductions shall be allowed only where a donor's tax or estate tax imposed under this
Title was finally determined and paid by or on behalf of such donor, or the estate of such prior
decedent, as the case may be, and only in the amount finally determined as the value of such
property in determining the value of the gift, or the gross estate of such prior decedent, and only
to the extent that the value of such property is included in the decedent's gross estate, and only
if in determining the value of the estate of the prior decedent, no deduction was allowable under
paragraph (2) of R.A.8424 or paragraph (5) under R.A. 10967 in respect of the property or
properties given in exchange therefor.
Where a deduction was allowed of any Where a deduction was allowed of any
mortgage or other lien in determining the mortgage or Other lien in determining the
donor's tax, or the estate tax of the prior donor's tax, or the estate tax of the prior
decedent, which was paid in whole or in part decedent, which was paid in whole or in part
prior to the decedent's death, then the deduction prior to the decedent's death, then the
allowable under said Subsection shall be deduction allowable under said Subsection
reduced by the amount so paid. Such deduction shall be
allowable shall be reduced by an amount which reduced by the amount so paid. Such
bears the same ratio to the amounts allowed as deduction allowable shall be reduced by an
deductions under paragraphs (1) and (3) of this amount which bears the same ratio to the
Subsection as the amount otherwise deductible amounts allowed as deductions under
under said paragraph (2) bears to the value of paragraphs (2), (3), (4), and (6) of this
the decedent's estate. Where the property Subsection as the amount otherwise
referred to consists of two or more items, the deductible under said paragraph (5) bears to
aggregate value of such items shall be used for the value of the decedent's estate. Where the
the purpose of computing the deduction. property referred to consists of two or more
items, the aggregate value of such items shall
be used
R.A. 8424 R.A. 10963
Transfer The amount of all the bequests, legacies, devises or transfers to
for public or for the use of the Government of the Republic of the
use Philippines, or any political subdivision thereof, for exclusively
public purposes.
Family An amount equivalent to the An amount equivalent to the
Home current fair market value of the current fair market value of
decedent's family home: the decedent's family home:
Provided, however, That if the Provided, however, That if the
said current fair market value said current fair market value
exceeds One million pesos exceeds Ten million pesos
(P1,000,000), the excess shall be
(P10,000,000), the excess
subject to estate tax. As a sine
shall be subject to estate tax.
qua non condition for the
exemption or deduction, said
family home must have been
the decedent's family home as
certified by the barangay
captain of the locality.
R.A. 8424 R.A. 10963
Standard An amount equivalent to An amount equivalent to
Deduction One million pesos Five million pesos
(P1,000,000) (P5,000,000)
Medical Medical Expenses Excluded
Expenses incurred by the decedent
within one (1) year prior
to his death which shall
be duly substantiated
with receipts: Provided,
That in no case shall the
deductible medical
expenses exceed Five
Hundred Thousand
Pesos (P500,000).
R.A. 8424 R.A. 10963
Amount Any amount received by the heirs from the
Received by decedent - employee as a consequence of
Heirs Under the death of the decedent-employee in
Republic Act accordance with Republic Act No. 4917:
No. 4917 Provided, That such amount is included in
the gross estate of the decedent.
Net share of The net share of the surviving spouse in
the surviving the conjugal partnership property as
spouse diminished by the obligations properly
chargeable to such property shall, for the
purpose of this Section, be deducted from
the net estate of the decedent.
Allowable deduction under
R.A. 8424
OLD LAW
Funeral Expense
Actual funeral expenses (whether paid or unpaid)
up to the time of interment, or an amount equal
to five percent (5%) of the gross estate, whichever
is lower, but in no case to exceed P200,000.
Any amount of funeral expenses in excess of the
P200,000 threshold, whether the same had actually
been paid or still payable, shall not be allowed as a
deduction under this Subsection. Neither shall the
unpaid portion of the funeral expenses incurred
which is in excess of the P200,000 threshold be
allowed to be claimed as a deduction under “claims
against the estate” provided under Subsection (C)
hereof.
Limit of funeral expense
• Actual funeral expense
Whichever
• 5% of the gross estate
is lower
• P200,000
Funeral Expense defined
FUNERAL EXPENSES" is not confined to its ordinary or usual meaning.
They include:
1. The mourning apparel of the surviving spouse and unmarried
minor children of the deceased bought and used on the occasion
of the burial;
2. Expenses for the deceased’s wake, including food and drinks;
3. Publication charges for death notices;
4. Telecommunication expenses incurred in informing relatives of
the deceased;
5. Cost of burial plot, tombstones, monument or mausoleum but not
their upkeep. In case the deceased owns a family estate or several
burial lots, only the value corresponding to the plot where he is
buried is deductible;
6. Interment and/or cremation fees and charges; and
7. All other expenses incurred for the performance of the rites and
ceremonies incident to interment.
Expenses incurred after the interment, such as for prayers, masses,
entertainment, or the like are not deductible. Any portion of the
funeral and burial expenses borne or defrayed by relatives and friends
of the deceased are not deductible.
Actual Funeral Expense
• Actual funeral expenses shall mean those
which are actually incurred in connection with
the interment or burial of the deceased. The
expenses must be duly supported by receipts
or invoices or other evidence to show that
they were actually incurred.
Illustrations on how to determine the amount of
allowable funeral expenses
1. If five percent (5%) of the gross estate is P70,000 and the amount
actually incurred is P50,000, only P50,000 will be allowed as
deduction;
2. If the expenses actually incurred amount to P90,000 and five percent
(5%) of the gross estate is P70,000, only P70,000 will be allowed as
deduction;
3. If five percent (5%) of the gross estate is P220,000 and the amount
actually incurred is P215,000, the maximum amount that may be
deducted is only P200,000;
4. If five percent (5%) of the gross estate is P 100,000 and the total
amount incurred is P150,000 where P20,000 thereof is still unpaid,
the only amount that can be claimed as deduction for funeral
expenses is P100,000. The entire P50,000 excess amount consisting of
P30,000 paid amount and P20,000 unpaid amount can no longer be
claimed as FUNERAL EXPENSES. Neither can the P20,000 unpaid
portion be deducted from the gross estate as CLAIMS AGAINST THE
ESTATE. (Sec 6 par A (1), R.R. 2-2003)
Note: Funeral expenses are no longer allowed as deduction from the gross estate under R.A. 10963
Judicial expenses of the testamentary
or intestate proceedings
Expenses allowed as deduction under this category are those incurred in the inventory-
taking of assets comprising the gross estate, their administration, the payment of debts of
the estate, as well as the distribution of the estate among the heirs. In short, these
deductible items are expenses incurred during the settlement of the estate but not beyond
the last day prescribed by law, or the extension thereof, for the filing of the estate tax
return. Judicial expenses may include:
1. Fees of executor or administrator;
2. Attorney’s fees;
3. Court fees;
4. Accountant’s fees;
5. Appraiser’s fees;
6. Clerk hire;
7. Costs of preserving and distributing the estate;
8. Costs of storing or maintaining property of the estate; and
9. Brokerage fees for selling property of the estate.
Any unpaid amount for the aforementioned cost and expenses claimed under “Judicial
Expenses” should be supported by a sworn statement of account issued and signed by the
creditor. (Sec 6 par A (2), R.R. 2-2003)
Note: Judicial expenses are no longer allowed as deduction from the gross estate under
R.A. 10963
The family Home
• An amount equivalent to the current fair
market value of the decedent’s family home:
Provided, however, That if the said current fair
market value exceeds One million pesos
(P1,000,000), the excess shall be subject to
estate tax.
• As a sine qua non condition for the exemption
or deduction, said family home must have
been the decedent’s family home as certified
by the barangay captain of the locality.
Standard deduction
• A deduction in the amount of One Million
Pesos (P1,000,000) shall be allowed as an
additional deduction without need of
substantiation.
• The full amount of P1,000,000 shall be
allowed as deduction for the benefit of the
decedent.
Medical expenses
• All medical expenses (cost of medicines, hospital bills,
doctors’ fees, etc.) incurred (whether paid or unpaid) within
one (1) year before the death of the decedent shall be
allowed as a deduction provided that the same are duly
substantiated with official receipts for services rendered by
the decedent’s attending physicians, invoices, statements of
account duly certified by the hospital, and such other
documents in support thereof and provided, further, that the
total amount thereof, whether paid or unpaid, does not
exceed Five Hundred Thousand Pesos (P500,000).
• Any amount of medical expenses incurred within one year
from death in excess of Five Hundred Thousand Pesos
(P500,000) shall no longer be allowed as a deduction under
this subsection. Neither can any unpaid amount thereof in
excess of the P500,000 threshold nor any unpaid amount for
medical expenses incurred prior to the one-year period from
date of death be allowed to be deducted from the gross
estate as claim against the estate. (Sec 6 par f, R.R. 2003)
Illustrations:
• P500,000 threshold amount for Allowable medical
expenses
• If the actual amount of medical expenses incurred is
P250,000, then only P250,000 shall be allowed as
deduction and not to the extent of the P500,000 threshold
amount;
• If the actual amount of medical expenses incurred within
the year prior to decedent’s death is P600,000, only the
maximum amount of P500,000 shall be allowed as
deduction. If in case the excess of P100,000 (P600,000-
500,000) is still unpaid, such amount shall not be allowed
to be deducted from the gross estate as “claims against the
estate”.
Note: Medical expenses are no longer allowed as deduction

from the gross estate under R.A. 10963
Allowable deduction for residents
and citizens under R.A. 10963
Summary of allowable deduction
Citizen/Resident decedent Non resident Alien decedent
ORDINARY DEDUCTION ORDINARY DEDUCTION
1. Losses, Indebtedness, Taxes (LIT) Proportional deduction for Losses,
• Losses Indebtedness, Taxes (LIT)
• Claims against insolvent debtor
• Indebtedness/Claims against he estate Gross estate X LIT World
• Taxes Gross estate world
2. Transfer for pubic use Transfer for pubic use
3. Vanishing deduction Vanishing deduction
SPECIAL DEDUCTION SPECIAL DEDUCTION
1. Standard deduction (P5Million) Standard Deduction (P500 thousand)
2. Family Home (Max of P10Million) No deduction allowed
3. R.A. 4917 No deduction allowed
4. Share of the surviving spouse Share of the surviving spouse
Requisites for deductibility of losses
1. The losses was incurred during the settlement of the
estate
2. The losses must arise from fires, storms, shipwreck, or
other casualties, or from robbery, theft or embezzlement
3. The losses are not compensated for by insurance or
otherwise
4. That such losses at the time of the filing of the estate
tax return have not been claimed as a deduction for the
income tax purposes in an income tax return
5. That the losses were incurred not later than the last day
for the payment of the estate tax (one (1) year).
Claims against insolvent person
• Claims of the deceased against insolvent
persons as defined under R.A. 10142 (FRIA)
and other existing laws, where the value of
the decedent’s interest therein is included in
the value of the gross estate.
Insolvent debtor
Insolvent debtor refers to the debtor whose
financial condition is generally unable for him to
pay its or his liabilities as they fall due in the
ordinary course of business or has liabilities that are
greater than its or his assets.
The term debtor shall refer to, a sole proprietorship
duly registered with the Department of Trade and
Industry (DTI), a partnership duly registered with
the Securities and Exchange Commission (SEC), a
corporation duly organized and existing under
Philippine laws, or an individual debtor who has
become insolvent. (Sec 4, R.A. 10142)
Losses, Indebtedness and Taxes (LIT)
2-4
Claims against the estate
• The word “claims” is generally construed to
mean debts or demands of a pecuniary nature
which could have been enforced against the
deceased in his lifetime and could have been
reduced to simple money judgements. Claims
against the estate or indebtedness in respect
of property may arise out of: (1) Contract; (2)
Tort; or (3) Operation of Law.
Requisites for Deductibility of Claims
Against the Estate
1. The liability represents a personal obligation of
the deceased existing at the time of his death;
2. The liability was contracted in good faith and for
adequate and full consideration in money or
money’s worth;
3. The claim must be a debt or claim which is valid
in law and enforceable in court;
4. The indebtedness must not have been
condoned by the creditor or the action to collect
from the decedent must not have prescribed.
Substantiation Requirements – Claims against the estate
In case of simple loan (including advances):
1. The debt instrument must be duly notarized at the time the indebtedness was incurred, such as
promissory note or contract of loan, except for loans granted by financial institutions where
notarization is not part of the business practice/policy of the financial institution-lender;
2. Duly notarized Certification from the creditor as to the unpaid balance of the debt, including interest
as of the time of death. If the creditor is a corporation, the sworn certification should be signed by
the President, or Vice- President, or other principal officer of the corporation. If the creditor is a
partnership, the sworn certification should be signed by any of the general partners. In case the
creditor is a bank or other financial institutions, the Certification shall be executed by the branch
manager of the bank/financial institution which monitors and manages the loan of the decedent-
debtor. If the creditor is an individual, the sworn certification should be signed by him. In any of
these cases, the one who should certify must not be a relative of the borrower within the fourth civil
degree, either by consanguinity or affinity, except when the requirement below is complied with.
– When the lender, or the President/Vice-president/principal officer of the creditor-corporation, or the general partner of
the creditor-partnership is a relative of the debtor in the degree mentioned above, a copy of the promissory note or
other evidence of the indebtedness must be filed with the RDO having jurisdiction over the borrower within fifteen
days from the execution thereof.
3. In accordance with the requirements as prescribed in existing or prevailing internal revenue
issuances, proof of financial capacity of the creditor to lend the amount at the time the loan was
granted, as well as its latest audited balance sheet with a detailed schedule of its receivable showing
the unpaid balance of the decedent-debtor. In case the creditor is an individual who is no longer
required to file income tax returns with the Bureau, a duly notarized Declaration by the creditor of
his capacity to lend at the time when the loan was granted without prejudice to verification that may
be made by the BIR to substantiate such declaration of the creditor. If the creditor is a non-resident,
the executor/administrator or any of the legal heirs must submit a duly notarized declaration by the
creditor of his capacity to lend at the time when the loan was granted, authenticated or certified to as
such by the tax authority of the country where the non-resident creditor is a resident;
4. A statement under oath executed by the administrator or executor of the estate reflecting the
disposition of the proceeds of the loan if said loan was contracted within three (3) years prior to the
death of the decedent; (R.R. 12-2018)
Substantiation Requirements – Claims against the estate
If the unpaid obligation arose from purchase of goods or services:
1. Pertinent documents evidencing the purchase of goods or service, such as sales
invoice/delivery receipt (for sale of goods), or contract for the services agreed to be
rendered (for sale of service), as duly acknowledged, executed and signed by decedent
debtor and creditor, and statement of account given by the creditor as duly received by
the decedent debtor;
2. Duly notarized Certification from the creditor as to the unpaid balance of the debt,
including interest as of the time of death. If the creditor is a corporation, the sworn
Certification should be signed by the President, or Vice-President, or other principal
officer of the corporation. If the creditor is a partnership, the sworn certification should
be signed by any of the general partners. If the creditor is a sole proprietorship, the
sworn certification should be signed by the owner of the business. In any of these cases,
the one who issues the certification must not be a relative of the decedent-debtor within
the fourth civil degree, either by consanguinity or affinity, except when the requirement
below is complied with. When the lender, or the President/Vice-President/principal
officer of the creditor-corporation, or the general partner of the creditor-partnership is a
relative of the debtor in the degree mentioned above, a copy of the promissory note or
other evidence of the indebtedness must be filed with the RDO having jurisdiction over
the borrower within fifteen days from the execution thereof.
3. Certified true copy of the latest audited balance sheet of the creditor with a detailed
schedule of its receivable showing the unpaid balance of the decedent-debtor. Moreover,
a certified true copy of the updated latest subsidiary ledger/records of the debt of the
debtor-decedent, (certified by the creditor, i.e., the officers mentioned in the preceding
paragraphs) should likewise be submitted. (R.R. 12-2018)
Substantiation Requirements – Claims
against the estate
Additional Requirements - settlement is made through
the Court in a testate or intestate proceeding
• Where the settlement is made through the Court in a
testate or intestate proceeding, pertinent documents
filed with the Court evidencing the claims against the
estate, and the Court Order approving the said claims,
if already issued, in addition to the documents
mentioned in the preceding paragraphs.
Vanishing deduction
Requisites for deduction
1. The present decedent died within five years from
receipt of the property through gratuitous transfer
2. The property from which a vanishing deduction is being
claimed must be located in the Philippines’
3. An estate or donor’s tax must have been actually paid on
such property
4. No similar deduction must have been allowed for
the same property in the estate of the immediate
prior decedent to the present decedent
5. The property on which vanishing deduction is
being claimed must be
1. The one identified as the same property received from
the prior decedent or from a donor
2. The one which can be identified as having been acquired in
exchange for property so received.
Property Previously Tax
(Vanishing Deduction)
• An amount equal to the value specified below of any property forming part of the gross
estate situated in the Philippines of any person who died within five (5) years prior to the
death of the decedent, or transferred to the decedent by gift within five (5) years prior to his
death, where such property can be identified as having been received by the decedent from
the donor by gift, or from such prior decedent by gift, bequest, devise or inheritance, or
which can be identified as having been acquired in exchange for property so received: XXX
• "These deductions shall be allowed only where a donor’s tax, or estate tax imposed under
this Title was finally determined and paid by or on behalf of such donor, or the estate of
such prior decedent, as the case may be, and only in the amount finally determined as the
value of such property in determining the value of the gift, or the gross estate of such prior
decedent, and only to the extent that the value of such property is included in the decedent’s
gross estate, and only if in determining the value of the estate of the prior decedent, no
deduction was allowable under paragraph (5) (PPT) in respect of the property or properties
given in exchange therefor. Where a deduction was allowed of any mortgage or other lien in
determining the donor’s tax, or the estate tax of the prior decedent, which was paid in whole
or in part prior to the decedent’s death, then the deduction allowable under said Subsection
shall be reduced by the amount so paid. Such deduction allowable shall be reduced by an
amount which bears the same ratio to the amounts allowed as deductions under paragraphs
(2) (Claim against the estate), (3) (Claim against insolvent person), (4) (Unpaid Mortgage),
and (6) (Transfer of Public Use) of this Subsection as the amount otherwise deductible
under said paragraph (5) bears to the value of the decedent’s estate. Where the property
referred to consists of two or more items, the aggregate value of such items shall be used for
the purpose of computing the deduction. (Sec 86 a, 5)
Vanishing Deduction
Period from receipt to Rate
decedent's death
Within 1 year 100%
More than 1 year – 2 years 80%
More than 2 years – 3 Years 60%
More than 3 years – 4 years 40%
More than 4 years – 5 years 20%
perty in the gross
fdevntaonr viasluhe ionf tghe dgifet adnduvcaltueioofnthe same

Value to take Value XXX
Less: Mortgage paid (XXX)
Initial Basis XX
Less:PaPirdobpyorthtieonparel sdeendt udcetcioednent
Inimtiaolrtbgaasgies assumed when the property was
Gross einsthaetreitedXoLrITr+ecTeraivnesfderafsordPounbaXX
lit
Final Basis XXX
X Vanishing deduction % %
Vanishing Deduction XXX
Transfers for public use
The amount of all bequests, legacies, devises or
transfers to or for the use of the Government of
the Republic of the Philippines or any political
subdivision (i.e. Provinces, cities, municipality
and Barangay (Sec 1, Art X 1987 Constitution)
thereof, for exclusively public purposes. (Sec 6,
par 6 R.R. 12-2018)
Standard Deduction
A deduction in the amount of Five Million Pesos
(P5,000,000) shall be allowed without need of
substantiation. The full amount of P5,000,000
shall be allowed as deduction for the benefit of
the decedent. The presentation of such
deduction in the computation of the net taxable
estate of the decedent. (Sec 6, par 1 R.R. 12-
2018)
Family Home
• An amount equivalent to the current fair
market value of the decedent’s family home:
Provided, however, that if the said current fair
market value exceeds Ten million pesos
(P10,000,000), the excess shall be subject to
estate tax. (Sec 6, par 7 R.R. 12-2018)
Definition of Family home
The dwelling house, including the land on which
it is situated, where the husband and wife, or a
head of the family, and members of their family
reside, as certified to by the Barangay Captain of
the locality.
Head of the family
• Husband and Wife
– Legally married man and woman.
• Unmarried Head of a Family
– An unmarried or legally separated man or woman with one
or both parents, or with one or more brothers or sisters, or
with one or more legitimate, recognized natural or legally
adopted children living with and dependent upon him or
her for their chief support, where such brothers or sisters
or children are not more than twenty one (21) years of
age, unmarried and not gainfully employed or where such
children, brothers or sisters, regardless of age are
incapable of self-support because of mental or physical
defect, or any of the beneficiaries mentioned in Article 154
of the Family Code who is living in the family home and
dependent upon the head of the family for legal support.
Nature of family home
• The family home is deemed constituted on the house and lot from the
time it is actually occupied as a family residence and is considered as
such for as long as any of its beneficiaries actually resides therein. (Arts.
152 and 153, Family Code)
• However, actual occupancy of the house or house and lot as the family
residence shall not be considered interrupted or abandoned in such
cases as the temporary absence from the constituted family home due
to travel or studies or work abroad, etc.
• In other words, the family home is generally characterized by
permanency, that is, the place to which, whenever absent for business
or pleasure, one still intends to return.
• The family home must be part of the properties of the absolute
community or of the conjugal partnership, or of the exclusive properties
of either spouse depending upon the classification of the property
(family home) and the property relations prevailing on the properties of
the husband and wife. It may also be constituted by an unmarried head
of a family on his or her own property. (Art. 156, Ibid.)
• For purposes of availing of a family home deduction to the extent
allowable, a person may constitute only one family home. (Art. 161,
Ibid.)
Conditions for deduction of family home
1. The family home must be the actual residential
home of the decedent and his family at the time of
his death, as certified by the Barangay Captain of
the locality where the family home is situated;
2. The total value of the family home must be
included as part of the gross estate of the
decedent; and
3. Allowable deduction must be in an amount
equivalent to the current fair market value of the
family home as declared or included in the gross
estate, or the extent of the decedent’s interest
(whether conjugal/community or exclusive
property), whichever is lower, but not exceeding
P10,000,000. (Sec 6 par 7.2, R.R. 12-2018)
Amount received by heirs under
Republic Act No. 4917
Any amount received by the heirs from the
decedent’s employer as a consequence of the
death of the decedent employee in accordance
with Republic Act No. 4917 is allowed as a
deduction provided that the amount of the
separation benefit is included as part of the
gross estate of the decedent. (Sec 6 par 8, R.R.
12-2018)
RA. 4917 – Retirement benefit of employees of private
firm not subject to attachment, levy, execution and taxes
The retirement benefits received by officials and employees of private
firms, whether individual or corporate, in accordance with a
reasonable private benefit plan maintained by the employer shall be
exempt from all taxes and shall not be liable to attachment,
garnishment, levy or seizure by or under any legal or equitable process
whatsoever except to pay a debt of the official or employee concerned
to the private benefit plan or that arising from liability imposed in a
criminal action: Provided, That the retiring official or employee has
been in the service of the same employer for at least ten (10) years
and is not less than fifty years of age at the time of his
retirement: Provided, further, That the benefits granted under this Act
shall be availed of by an official or employee only once: Provided,
finally, That in case of separation of an official or employee from the
service of the employer due to death, sickness or other physical
disability or for any cause beyond the control of the said official or
employee, any amount received by him or by his heirs from the
employer as a consequence of such separation shall likewise be
exempt as hereinabove provided. (Sec 1, R.A. 4917)
Definition of reasonable private
benefit plan
Means a pension, gratuity, stock bonus or profit
sharing plan maintained by an employer for the
benefit of some or all of his officials and employees,
wherein contributions are made by such employer
or officials and employees, or both, for the purpose
of distributing to such officials and employees the
earnings and principal of the fund thus
accumulated, and wherein it is provided in said plan
that at no time shall any part of the corpus or
income of the fund be used for, or be diverted to,
any purpose other than for the exclusive benefit of
the said officials and employees. (Sec 2, R.A. 4917)
Net share of the surviving spouse in the
conjugal partnership or community property
After deducting the allowable deductions
appertaining to the conjugal or community
properties included in the gross estate, the
share of the surviving spouse must be removed
to ensure that only the decedent’s interest in
the estate is taxed.
Absolute community of property
Community property shall consist of all the
property owned by the spouses at the time of
the celebration of the marriage or acquired
thereafter. (Art. 91 Family Code) Property
acquired during the marriage is presumed to
belong to the community, unless it is proved
that it is one of those excluded therefrom. (Art.
93, FC)
Excluded from the community property
The following shall be excluded from the community
property
1. Property acquired during the marriage by gratuitous
title by either spouse, and the fruits as well as the
income thereof, if any, unless it is expressly provided
by the donor, testator or grantor that they shall form
part of the community property;
2. Property for personal and exclusive use of either
spouse. However, jewelry shall form part of the
community property;
3. Property acquired before the marriage by either
spouse who has legitimate descendants by a former
marriage, and the fruits as well as the income, if any,
of such property. (Art. 92, FC)
Charges to absolute community of property
1. The support of the spouses, their common children,
and legitimate children of either spouse; however,
the support of illegitimate children shall be governed
by the provisions of this Code on Support;
2. All debts and obligations contracted during the
marriage by the designated administrator-spouse for
the benefit of the community, or by both spouses, or
by one spouse with the consent of the other;
3. Debts and obligations contracted by either spouse
without the consent of the other to the extent that
the family may have been benefited;
4. All taxes, liens, charges and expenses, including major
or minor repairs, upon the community property;
5. All taxes and expenses for mere preservation made
during marriage upon the separate property of either
spouse used by the family;
Charges to absolute community of property
6. Expenses to enable either spouse to commence or complete a
professional or vocational course, or other activity for self-
improvement;
7. Antenuptial debts of either spouse insofar as they have
redounded to the benefit of the family;
8. The value of what is donated or promised by both spouses in favor
of their common legitimate children for the exclusive purpose of
commencing or completing a professional or vocational course or
other activity for self-improvement;
9. Antenuptial debts of either spouse other than those falling under
paragraph (7) of this Article, the support of illegitimate children
of either spouse, and liabilities incurred by either spouse by
reason of a crime or a quasi-delict, in case of absence or
insufficiency of the exclusive property of the debtor-spouse, the
payment of which shall be considered as advances to be deducted
from the share of the debtor-spouse upon liquidation of the
community; and
10. Expenses of litigation between the spouses unless the suit is
found to be groundless.
Charges to absolute community of
property
If the community property is insufficient to
cover the foregoing liabilities, except those
falling under paragraph (9), the spouses shall be
solidarily liable for the unpaid balance with their
separate properties. (Art. 94, FC)
Conjugal partnership of gains
The husband and wife place in a common fund the
1. proceeds, products, fruits and income from
their separate properties and;
2. those acquired by either or both spouses
through their efforts or by chance
Upon dissolution of the marriage or of the
partnership
• The net gains or benefits obtained by either or
both spouses shall be divided equally between
them
– Exception:
• Unless otherwise agreed in the marriage settlements. (Art.
106 FC)
The following are conjugal partnership properties
1. Those acquired by onerous title during the marriage at the
expense of the common fund, whether the acquisition be for the
partnership, or for only one of the spouses;
2. Those obtained from the labor, industry, work or profession of
either or both of the spouses;
3. The fruits, natural, industrial, or civil, due or received during the
marriage from the common property, as well as the net fruits
from the exclusive property of each spouse;
4. The share of either spouse in the hidden treasure which the law
awards to the finder or owner of the property where the treasure
is found;
5. Those acquired through occupation such as fishing or hunting;
6. Livestock existing upon the dissolution of the partnership in excess
of the number of each kind brought to the marriage by either
spouse; and
7. Those which are acquired by chance, such as winnings from
gambling or betting. However, losses therefrom shall be borne
exclusively by the loser-spouse. (Art. 117, FC)
Excluded from the conjugal partnership of gain
Exclusive property of the spouse

1. That which is brought to the marriage as his or
her own;
2. That which each acquires during the marriage by
gratuitous title;
3. That which is acquired by right of redemption,
by barter or by exchange with property
belonging to only one of the spouses; and
4. That which is purchased with exclusive money of
the wife or of the husband. (Art. 109, FC)
Charges to the conjugal partnership
1. The support of the spouse, their common children,
and the legitimate children of either spouse; however,
the support of illegitimate children shall be governed
by the provisions of this Code on Support;
2. All debts and obligations contracted during the
marriage by the designated administrator-spouse for
the benefit of the conjugal partnership of gains, or by
both spouses or by one of them with the consent of
the other;
3. Debts and obligations contracted by either spouse
without the consent of the other to the extent that
the family may have benefited;
4. All taxes, liens, charges, and expenses, including
major or minor repairs upon the conjugal partnership
property;
5. All taxes and expenses for mere preservation made
during the marriage upon the separate property of
either spouse;
6. Expenses to enable either spouse to commence or
complete a professional, vocational, or other activity
for self-improvement;
7. Antenuptial debts of either spouse insofar as they
have redounded to the benefit of the family;
8. The value of what is donated or promised by both
spouses in favor of their common legitimate children
for the exclusive purpose of commencing or
completing a professional or vocational course or
other activity for self-improvement; and
9. Expenses of litigation between the spouses unless the
suit is found to groundless.
• If the conjugal partnership is insufficient to
cover the foregoing liabilities, the spouses
shall be solidarily liable for the unpaid
balance with their separate properties. (Art.
121, FC)
Allowable deduction for non-
residents alien
1. Standard deduction. – A deduction in the amount of Five
Hundred Thousand Pesos (P500,000) shall be allowed without
need of substantiation. The full amount of P500,000 shall be
allowed as deduction for the benefit of the decedent.
2. The proportion of the total losses and indebtedness which
the value of such part bears to the value of his entire gross
estate wherever situated. Losses and indebtedness shall
include the following:
– Claims against the estate.
– Claims of the deceased against insolvent persons where the value of
the interest therein is included in the value of the gross estate.
– Unpaid mortgages, taxes and casualty losses.
The allowable deduction shall be computed using the following
formula:
Allowable deduction for non-
residents alien
3. Property previously taxed.
4. Transfers for public use.
5. Net share of the surviving spouse in the
conjugal property or community property
Comparison of allowable deduction for Resident
or citizen and nonresident alien under R.A. 10963
Resident or citizen Nonresident alien
Standard deduction P5,000,000 P500,000
Losses, Indebtedness and Taxes (LIT) Full amount Proportion of the total
a. Claims against the estate. losses and indebtedness
b. Claims of the deceased against which the value of such
insolvent persons, part bears to the value
c. Unpaid mortgages, taxes and of his entire gross estate
casualty losses wherever situated
Vanishing deduction Same Same

Transfer for public use Same Same
Family home FMV of Family home Not allowed
but not to exceed P10
Million
Amount received by heirs under Allowed Not allowed
Republic Act No. 4917
Net share of the surviving spouse in Same Same
the conjugal property or community
property
Comparison of Allowable deduction
for non-resident citizen
R.A. 8424 R.A. 10963
Expenses, That proportion of the That proportion of the
Losses, deductions specified in deductions specified in
Indebtedness paragraph (1) of Subsection paragraphs (2), (3), and (4) of
and Taxes (A) of this Section which the Subsection (A) of this Section
value of such part bears to which the value of such part
the value of his entire gross bears to the value of his entire
estate wherever situated. gross estate wherever
(i.e. Expenses, Losses, situated. (i.e. Losses,
Indebtedness and taxes Indebtedness and taxes (LIT)
(ELIT)
Property previously taxed
R.A. 8424 R.A. 10963
Transfers for The amount of all bequests, legacies, devises or transfers to or
Public Use for the use of the Government of the Republic of the Philippines
or any political subdivision thereof, for exclusively public
purposes
Standard Not allowed An amount Equivalent to Five
deduction hundred thousand pesos
(P500,000)
Administration No deduction shall be allowed Excluded
requirement in the case of a nonresident
not a citizen of the Philippines,
unless the executor,
administrator, or anyone of the
heirs, as the case may be,
includes in the return required
to be filed under Section 90
the value at the time of his
death of that part of the gross
estate of the nonresident not
situated in the Philippines.
Illustration R.A. 8424
Based on R.R. 2-2003

Illustration 1:
Decedent is an unmarried head of a family
Real and personal properties P 5,000,000
Family Home 2,000,000
Gross Estate P 7,000,000
Less: Deductions
Ordinary Deductions
Funeral Expenses P 200,000
Other Deductions 1,300,000 P 1,500,000
Special Deductions
Standard Deduction 1,000,000
Medical Expenses* 500,000 2,500,000
Total Deductions P 4,000,000
Net Taxable Estate P 3,000,000
Although the family home is valued at P2 million, the maximum allowable deduction
for the family home is P1million only.
Note: * Medical expenses are not included in the deductions referred under Expenses,
Losses, indebtedness and taxes (ELIT) but are treated as a special item of deduction
under medical expenses.
Illustration 2:
Decedent is a married man with surviving spouse. The family home is
his exclusive property
Real properties P 5,000,000 5,000,000
Exclusive Properties 5,000,000
Family Home 2,000,000 2,000,000
Other Exclusive properties 2,500,000 2,500,000
Gross Estate 4,500,000 5,000,000 P9,500,000
Less:
Ordinary Deductions
Conjugal Deductions
Funeral expenses (P 200,000) ( 200,000)
Other deductions (1,300,000) (1,300,000)
Total conjugal deduction (1,500,000) (1,500,000)
Net conjugal estate 3,500,000
Special Deductions
Family Home (1,000,000)
Standard Deduction (1,000,000)
Medical expenses ( 500,000)
Total Deductions (4,000,000)
Net Estate 5,500,000
Less:
½ Share of Surviving Spouse (3,500,000/2) (1,750,000)
NET TAXABLE ESTATE P3,750,000
Illustration 3: Decedent is a married man with surviving spouse. The
family home is his conjugal property
Family Home 2,000,000 2,000,000
Exclusive Properties 2,000,000 2,000,000
Gross Estate 2,000,000 7,000,000 P9,000,000
Less:
Ordinary Deductions
Conjugal Deductions
Net conjugal estate P5,500,000
Special Deductions
Less:
Illustration 4: Decedent is a married man with surviving spouse:
The family home is his conjugal property and the family home
has a fair market value/zonal value of only P1,500,000
Family Home 1,500,000 1,500,000
Gross Estate 2,000,000 6,500,000 P8,500,000
Less:
Ordinary Deductions
Conjugal Deductions
Net conjugal estate P5,000,000
Special Deductions
Family Home (750,000)
Less:
Illustration 5: Family home is conjugal property, but lot on
which it stands is exclusive property
Family Home 1,000,000 1,000,000
Exclusive Properties
Other Real Properties 2,000,000 2,000,000
Family lot 400,000 400,000
Gross Estate 2,400,000 4,000,000 P6,400,000
Less:
Ordinary Deductions
Conjugal Deductions
Net conjugal estate 2,500,000
Special Deductions
Family Home
Exclusive Lot P400,000
Conjugal Home 500,000 ( 900,000)
Less:
ILLUSTRATION UNDER
R.A. 10963
Based on R.R. 12-2018
Decedent is unmarried, family home
more than P10,000,000:
Gross Estate P44,000,000
Less: Deductions
Ordinary Deductions
Unpaid real estate tax (2,000,000)
Special Deductions
Illustration: Decedent is married, the family home
is conjugal property, more than P10,000,000
Family Home P30,000,000 P30,000,000
Real and personal properties 14,000,000 14,000,000
Gross Estate 5,000,000 44,000,000 P49,000,000
Less:
Ordinary Deductions
Conjugal Ordinary Deductions (2,000,000) (2,000,000)
Net Conjugal Estate 42,000,000
Special Deductions
Less:
exclusive property, more than P10,000,000
Family Home 30,000,000 30,000,000
Gross Estate 30,000,000 14,000,000 P44,000,000
Less:
Ordinary Deductions
Special Deductions
Less:
Illustration: Decedent is an unmarried, the
family home is below P10,000,000
Gross Estate P23,000,000
Less: Deductions
Ordinary Deductions 2,000,000
Special Deductions
Standard Deduction 5,000,000 14,000,000
is conjugal property and is below P10,000,000:
Family Home 9,000,000 9,000,000
Gross Estate 5,000,000 23,000,000 P28,000,000
Less:
Ordinary Deductions
Special Deductions
Family Home (4.500,000)
Less:
exclusive property and below P10,000,000:
Family Home 9,000,000 9,000,000
Gross Estate 9,000,000 14,000,000 P23,000,000
Less:
Ordinary Deductions
Special Deductions
Less:
Exemption of Certain Acquisitions and
Transmissions
The following shall not be taxed:
1. The merger of usufruct in the owner of the naked title;
2. The transmission or delivery of the inheritance or legacy
by the fiduciary heir or legatee to the fideicommissary;
3. The transmission from the first heir, legatee or donee in
favor of another beneficiary, in accordance with the desire
of the predecessor; and
4. All bequests, devises, legacies or transfers to social
welfare, cultural and charitable institutions, no part of the
net income of which insures to the benefit of any
individual: Provided, however, That not more than thirty
percent (30%) of the said bequests, devises, legacies or
transfers shall be used by such institutions for
administration purposes. (SEC. 87. R.A. 8424)
Tax credit
Tax Credit for Estate Taxes paid to a
Foreign Country
R.A. 8424 R.A. 10963
In general The tax imposed by this Title shall be credited with the
amounts of any estate tax imposed by the authority of a
foreign country.
Limitations on The amount of the credit taken under this Section shall be
Credit. subject to each of the following limitations:
(a) The amount of the credit in respect to the tax paid to any
country shall not exceed the same proportion of the tax
against which such credit is taken, which the decedent's net
estate situated within such country taxable under this Title
bears to his entire net estate; and
(b) The total amount of the credit shall not exceed the same
proportion of the tax against which such credit is taken,
which the decedent's net estate situated outside the
Philippines taxable under this Title bears to his entire net
estate.
Illustration
Mr. Eugene Villa, an unmarried resident citizen
of the Philippines, died leaving the following
properties:
Location of Net taxable estate Estate tax paid

properties foreign country
Philippines 8,000,000
United states 2,000,000 100,000
Japan 2,000,000 155,000
Total 12,000,000 255,000
Computation
Estate tax Due (P12,000,000 X 6%) P720,000
Less: Estate Tax Credit 220,000
Philippines estate tax payable P500,000
Global
Limit 1 4/12 X P720,000 = P240,000
Actual 255,000
Allowed 240,000
Per country
Limit 2
US 2/12 X 720,000 = 120,000
Actual 100,000
Allowed 100,000
Japan 2/12 X 720,000 = 120,000

Actual 155,000
Allowed 120,000
Total P 220,000
Exemption of Certain Acquisitions
and Transmissions
The following shall not be taxed:
(A) The merger of usufruct in the owner of the naked title;
(B) The transmission or delivery of the inheritance or legacy by the
fiduciary heir or legatee to the fideicommissary;
(C) The transmission from the first heir, legatee or donee in favor of
another beneficiary, in accordance with the desire of the
predecessor; and
(D) All bequests, devises, legacies or transfers to social welfare,
cultural and charitable institutions, no part of the net income of
which insures to the benefit of any individual: Provided,
however, That not more than thirty percent (30%) of the said
bequests, devises, legacies or transfers shall be used by such
institutions for administration purposes.
Administrative requirements
R.A 8424
Value of Gross estate
Requirements Exceeds Exceeds Exceeds
P20,000 P200,000 P2,000,000
Notice of death Yes Yes Yes
(within 2 months)
Estate tax return No Yes Yes
(Within 6 months, extendible
in meritorious cases, a
reasonable extension not
exceeding thirty
(30) days)
CPA certificate No No Yes
(within 6 months, extendible in
meritorious cases, a
reasonable extension not
exceeding thirty
(30) days)
R.A 10963
Value of Gross estate
Requirements Exceeds Exceeds Exceeds
P20,000 P200,000 P5,000,000
Notice of death No No No
(Not applicable)
Estate tax return No No Yes
(within 1 year, extendible in
meritorious cases, a reasonable
extension not exceeding thirty
(30) days)
CPA certificate No No Yes
(within 1 year, extendible in
meritorious cases, a reasonable
extension not exceeding thirty
(30) days)
Notice of Death
Notice of Death to be Filed
R.A. 8424 R.A. 10963
In all cases of transfers subject to Written notice of death to the
tax, or where, though exempt from Commissioner is no longer required.
tax, the gross value of the estate (Repealed by Sec 24, R.A. 10963)
exceeds Twenty thousand pesos
(P20,000), the executor,
administrator or any of the legal
heirs, as the case may be, within
two (2) months after the
decedent's death, or within a like
period after qualifying as such
executor or administrator, shall
give a written notice thereof to the
Commissioner. (Sec 89, R.A. 8424)
Estate tax return
R.A. 10963
Who are required to file estate tax
return under oath in duplicate?
1. Those subject to estate tax
2. Regardless of the gross value of the estate,
where the said estate consists of registered or
registrable property (i.e real property, motor
vehicle, shares of stock or other similar
property)
– clearance from the Bureau of Internal Revenue is
required as a condition precedent for the transfer of
ownership thereof in the name of the transferee, the
executor, or the administrator, or any of the legal
heirs.
Content of estate tax return
(1) The value of the gross estate of the decedent at
the time of his death, or in case of a
nonresident, not a citizen of the Philippines, of
that part of his gross estate situated in the
Philippines;
(2) The deductions allowed from gross estate
(3) Such part of such information as may at the
time be ascertainable and such supplemental
data as may be necessary to establish the
correct taxes
Content of statement of CPA
• That estate tax returns showing a gross value
exceeding Five million pesos (P5,000,000) shall be
supported with a statement duly certified to by a
Certified Public Accountant containing the
following:
a. Itemized assets of the decedent with their
corresponding gross value at the time of his
death, or in the case of a nonresident, not a
citizen of the Philippines, of that part of his
gross estate situated in the Philippines;
b. Itemized deductions from gross estate
c. The amount of tax due whether paid or still due
and outstanding.
Time for filing
• For the purpose of determining the estate tax
provided for in Section 84 of this Code, the estate
tax return required under the preceding
Subsection (A) shall be filed within one (1) year
from the decedent's death.
• A certified copy of the schedule of partition and
the order of the court approving the same shall
be furnished the Commissioner within thirty (30)
after the promulgation of such order.
Extension of Time
• The Commissioner shall have authority to
grant, in meritorious cases, a reasonable
extension not exceeding thirty (30) days for
filing the return
Payment of Tax
Time of Payment
To be paid at the time the return is filed by the executor,
administrator or the heirs.
Extension of Time.
When the Commissioner finds that the payment on the due
date of the estate tax or of any part thereof would impose
undue hardship upon the estate or any of the heirs, he may
extend the time for payment of such tax or any part thereof
not to exceed five (5) years, in case the estate is settled
through the courts, or two (2) years in case the estate is
settled extrajudicially. (Sec 91, R.A. 10963)
Where to file estate tax return?
With legal residence in the Philippines
1. Authorized agent bank, or
2. Revenue District Officer,
3. Collection Officer, or
4. Duly authorized Treasurer of the city or
municipality in which the decedent was
domiciled at the time of his death or
No legal residence in the Philippines,
• with the Office of the Commissioner. (Sec 91. R.A.
8424)
The End

Estate Tax: Atty. Johnson A.H. Ong, Cpa, Mba

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Estate Tax

ATTY. JOHNSON A.H. ONG, CPA, MBA

– R.R. 12-2018 -READ-

2. Transfer in Contemplation of Death

The fair market value as determined by the

StockBuyers/Sellers Trade PricesI-ChartsProfileDividendsNewsValuationsHighlightsResearch

Some author use RR 6-2008. However it apply only to sale not

Note: Medical expenses are no longer allowed as deduction

fdevntaonr viasluhe ionf tghe dgifet adnduvcaltueioofnthe same

Exclusive property of the spouse

Vanishing deduction Same Same

Based on R.R. 2-2003

Location of Net taxable estate Estate tax paid

Japan 2/12 X 720,000 = 120,000

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