ST.

ANTHONY’S COLLEGE
San Jose, Antique

BUSINES EDUCATION DEPARTMENT

AEC 215 Business Taxation

Transfer Taxes and Succession

I. Transfer Taxes and Succession Defined

a. Transfer taxes are taxes imposed upon the gratuitous disposition of private properties or rights.
- Gratuitous transfer is one that neither imposes burden nor requires consideration from transferee or
recipient.
- The reverse side of gratuitous transfer is onerous, one where the transferee gives consideration in
return for the property or right(s) received. However, onerous transfers are subject to business
taxes instead of transfer taxes.
- Gratuitous transfer or donation may take effect at the time of death of the donor or during the
lifetime of both the donor and the donee.
- The former is known as "donation mortis causa" subject to estate tax while the latter is known as
"donation inter vivos" subject to donor's tax.

b. Succession is a mode of acquisition by virtue of which, the property, rights and obligations to the
extent of the value of inheritance, of a person are transmitted through his death to another or others
either by his will or by operation of law (Art. 774 NCC).

II. Kinds of Succession

Succession may be classified as:

1. Testamentary or testate succession. A type of succession that results from the designation of an
heir, made in a will executed in the form prescribed by law.
2. Legal or intestate succession. A type of succession which is effected by operations of law (based on
the provisions of the civil code regarding succession) since the decedent did not execute a will or if
the last will and testament executed by him is void.

Causes of Legal Succession or Intestacy

i. If a person dies without a will, or with a void will, or one which has subsequently lost its
validity.
ii. When the “will” does not institute an heir.
iii. Partial institution of heir.
iv. When the heir instituted is incapable of succeeding.
v. Other causes such as: non-fulfillment of the suspensive condition; preterition; fulfillment of
“resolutory condition”; expiration of term or period of institution; non-compliance or
impossibility of compliance with the will; and repudiation of the instituted heir.

3. Mixed succession. A type of succession which is effected partly by "will” and partly by operation of
law.

III. Elements of Succession

1. Decedent is the general term applied to the person whose property is transmitted through succession,
whether or not he left a will. If he left a will, he is called a testator (Art 775 NCC).
- Executor is a person designated in the last will and testament to carry out the provisions of the
decedent's will.
- Administrator is a person appointed by the court and performs the same duty, in lieu of an
executor, if the latter refused to accept the appointment, failed to qualify under the law or the last
will and testament did not appoint one.

2. Inheritance (Estate) include all the property, rights and obligations of a person which are not
extinguished by death and all which have accrued thereto since the opening of succession.

3. Successors/ Heir is a person who is called to the succession either the provision of a will or by
operation of law (Art. 782 NCC). Devisees and legatees are persons to whom gifts of real and
personal property are respectively given by virtue of a will.

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 ST. ANTHONY’S COLLEGE
San Jose, Antique

BUSINES EDUCATION DEPARTMENT

AEC 215 Business Taxation

Successors or heirs are classified under the law as follows:

1. Compulsory Heirs. Those who succeed by force of law to some portion of the inheritance, in an
amount predetermined by law, known as the legitime.

Kinds of Compulsory Heirs

a. Primary - those who have precedence over and exclude other compulsory heirs (i.e., legitimate
children and descendants).
b. Secondary - those who succeed only in the absence of the primary compulsory heirs; (i.e.,
legitimate parents and ascendants).
c. Concurring - those who succeed together with the primary or secondary compulsory heirs,
(e.g., illegitimate children and descendants and surviving spouse).

2. Voluntary Heirs. Those instituted by the testator in his will to succeed to the inheritance of the
portion thereof of which the testator can freely dispose.

3. Legal or Intestate Heirs. Those who succeed to the estate of the decedent by operation of law
(decedent died without a valid will or his estate was not entirely disposed of by will).

IV. Composition of Gross Estate

The gross estate is divided into two main categories for succession purposes, the legitime and free
portion as shown below:

Legitime is part of a testator's

property which he cannot dispose of
because the law has reserved it for
certain heirs who are, therefore,
called compulsory heirs (Art.886
NCC).

Free Portion is that portion of the

estate which the testator can freely
dispose of. Hence, anyone may
inherit from free portion
(compulsory or voluntary heirs).

V. Order of Intestate Succession

Voluntary heirs may inherit only if mentioned in the will. In the absence of a provision in the will,
voluntary heirs will not inherit anything. In such cases, the free portion shall be disposed of to intestate
heirs based in the order of priority as presented below:
i. Legitimate children or descendants.
ii. Legitimate parents or ascendants.
iii. Illegitimate children or descendants.
iv. Surviving spouse.
v. Brothers and sisters, nephews, and nieces.
vi. Other collateral relatives within the 5th degree.
vii. State.

The distribution of free portion in intestate succession is based in the order of priority because in every
inheritance, the relative nearest in degree excludes the more distant ones, saving the right of
representation when it properly takes place.

VI. Collateral Relatives

Consanguinity is the relation of persons descending from the same stock or common ancestors. These
persons are known as blood relatives and are said to be related by blood or consanguinity. It may be
lineal or collateral.

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 ST. ANTHONY’S COLLEGE
San Jose, Antique

BUSINES EDUCATION DEPARTMENT

AEC 215 Business Taxation

i. Lineal consanguinity, which may be descending or ascending, is that which subsists between
persons of whom one is descended in a direct line from the other.
ii. Collateral consanguinity is that which subsists between persons who have the same ancestors,
but who not descend (or ascend) one from the other.

VII. Table of Legitime

VIII. Wills

A will is an act whereby a person is permitted, with the formalities prescribed by law, to control to a
certain degree the disposition of his estate to take effect after his death (Art 783 NCC). It is a document
whereby a person, called the “testator”, disposes of his or her properties or "estate" to take effect upon
his or her death.

Kinds of Wills

1. Notarial or Ordinary or Attested Will is one which is executed in accordance with the formalities
prescribed by Art. 804 to 808 of the New Civil Code.

Requisites for a Valid Notarial Will:

a. It must be in writing and executed in a language or dialect known to the testator.
b. It must be subscribed at the end thereof by the testator himself or by the testator's name written by
some other person in his presence and by his express direction.
c. It must be attested and subscribed by three or more credible witnesses in the presence of the
testator and of one another.

Persons disqualified from being witnesses to a will (Art. 821 NCC):

a. Any person not domiciled in the Philippines.
b. Those who have been convicted of falsification of a document, perjury, or false testimony.
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 ST. ANTHONY’S COLLEGE
San Jose, Antique

BUSINES EDUCATION DEPARTMENT

AEC 215 Business Taxation

2. Holographic Will is a written will which must be entirely written, dated and signed by the hand of
the testator himself. It subject to no other form and it may be made in or out of the Philippines and
need not be witnessed (Art. 811 NCC).

3. Foreign Wills. The will of an alien who is abroad produces effect in the Philippines if made with the
formalities prescribed by the law of the place in which he resides, of according to the formalities
observed in his country, of in conformity with those which the Philippine civil code prescribes.

IX. Revocation of Wills and Testamentary Dispositions

A will may be revoked by the testator at any time before his death any waiver or restriction of this right
is void (Art. 828).

Modes of Revoking a Will

a. By implication of law.
b. By some will, codicil, or other writing executed as provided in case of wills.
c. By burning, tearing, cancelling, or obliterating the will with the intention of revoking it, by the
testator himself, or by some other person in his presence, and by his express direction. If burned, torn,
cancelled, obliterated by some other person, without the express direction of the testator, the will may
still be established, and the estate distributed in accordance therewith, if its contents, and due
execution, and the fact of to its unauthorized destruction, cancellation, or obliteration are established
according to the Rules of Court.

X. Institution of Heir

Institution of an heir is an act by virtue of which a testator designates in his will the person or persons
who are to succeed him in his property and transmissible rights and obligations.

A will shall be valid even though it should not contain an institution of an heir, or such institution should
not comprise the entire estate, and even though the person so instituted should not accept the inheritance
or should be incapacitated to succeed.

XI. Disinheritance

Disinheritance is a testamentary disposition by which a compulsory heir is deprived of or excluded from

the inheritance to which he has right. Disinheritance is not applicable to voluntary heirs.

Requisites for Disinheritance

a. Effected only through a valid will.
b. For a cause expressly stated by law.
c. Cause must be stated in the will itself.
d. Cause must be certain and true.
e. Unconditional.
f. Total (there is no partial disinheritance).
g. The heir disinherited must be designated in such a manner that there can be no doubt as to his
identity.

Common Causes for Disinheritance of Children or Descendants, Parents or Ascendants, and

Spouse:
a. When the heir has been found guilty of an attempt against the life of the testator, his/her descendants
or ascendants, and spouse in case of children and parents.
b. When the heir has accused the testator of a crime for which the law prescribes imprisonment for 6
years or more, if the accusation has been found groundless.
c. When the heir by fraud, violence, intimidation or undue influence causes the testator to make a will or
to change one already made.
d. Refusal without justifiable cause to support the testator who disinherits such heir.

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 ST. ANTHONY’S COLLEGE
San Jose, Antique

BUSINES EDUCATION DEPARTMENT

AEC 215 Business Taxation

Peculiar Causes for Disinheritance:

a. Children/Descendants:
i. When the child or descendant has been convicted of adultery or concubinage with the spouse of
the testator.
ii. Maltreatment of the testator by word or deed by the child/descendant.
iii. When the child or descendant leads a dishonorable or disgraceful life.
iv. When the child or descendant is convicted of a crime which carries with it a penalty of civil
interdiction.

b. Parents/Ascendants:
i. When the parents have abandoned their children or induced their daughters to live a corrupt or
immoral life or attempted against their virtue.
ii. When the parent or ascendant has been convicted of adultery or concubinage with the spouse of
the testator.
iii. Loss of parental authority for causes specified in the Civil Code; and
iv. Attempt by one of the parents against the life of the other unless there has been reconciliation
between them.

c. Spouse:
i. When the spouse has given cause for legal separation.
ii. When the spouse has given grounds for loss of parental authority.

XII. Right of Representation

If a "right” created by fiction of law where the representative is raised to the place and degree of the
person represented and acquires the rights which the latter would have if he were living or could have
inherited.

Representation may arise either because of:

i. Death.
ii. Incapacity.
iii. Disinheritance.

The representative(s) shall not inherit more than what the person they represent would inherit if he were
living or could inherit. (Art. 974).

The law further provides that “representation” is not available to:

a. As to compulsory heirs: In case of repudiation, the one who repudiates his inheritance cannot be
represented. Their own heirs inherit in their own right.
b. As to voluntary heirs.
c. Voluntary heirs, legatees and devisees who:
i. Predecease the testator; or
ii. Renounce the inheritance cannot be represented by their own heirs, with respect to their
supposed inheritance.

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