Estate Tax

(TRAIN)
SUCCESSION
Atty. Ida Marie V. Escolano-Canton
 Onerous Transfer
• Exchange of property for a monetary
consideration or in return for
something of equal value
 Gratuitous Transfer
• Conveyance of property without any
consideration involved in exchange for
the property given away
 Transfer of Property

Gratuitous
Onerous Transfer
Transfer

Normal Course of
Business Casual Transfer TRANSFER TAXES
(Sale or Exchange

Business Taxes
(VAT, Percentage, Capital Gains Tax Thru Death Thru Donation
Excise)

Estate Tax Donor’s Tax

 Transfer Taxes
• Also called as excise or privilege taxes
• Are imposed for gratuitous passing of
private owned properties to the heirs
in case of death, or to the donee in
case of donation.
 Gratuitous Transfers
Donor’s Tax Estate Tax
Donation Inter Vivos Donation Mortis
Causa
Testamentary
Transfer (by will)
Intestate Transfer
Effectivity – during Effectivity – upon
the lifetime of donor death of property
owner
 Estate Tax
(Sec. 22-26, TRAIN)
• Is a tax on the transfer of the net estate of the
decedent
• The obligation to pay the estate tax accrues
at the moment of death
• The object of estate tax is to tax the transfer
of economic benefits and enjoyment of
property from a decedent person to the heir
• The state protects the rights of the individual
on his property and supervises its transfer
from one generation to the next, thus,
considers it as appropriate object of taxation
Justification of Estate Tax
1. Redistribution of wealth theory
2. Benefit-received theory
3. Privilege or state partnership theory
4. Ability to pay theory
 Estate Tax
Effectivity of transfer Upon the death of the
of property decedent
Taxpayer Estate of the deceased
person
Basis of Tax Net Estate
Exempt amount Net Estate of
P200,000 and below
Filing and payment Within 6 months 1
year from the
decedent’s death
 NIRC VS TRAIN
• NIRC – Jan. 1, 1998 to Dec. 31, 2017
• TRAIN – Jan. 1, 2018 onwards
– Republic Act No. 10963, otherwise known
as Tax Reform for Acceleration and
Inclusion (TRAIN) Law
– Signed into law Dec 19, 2017
– BIR issued Rev Reg No. 12-2018,
Consolidated Revenue Regulation on
Estate Tax and Donor’s Tax Incorporating
the Amendment Introduced by RA 10963
 GROSS ESTATE
• The starting point in computing estate
tax liability is the determination and
valuation of the gross estate
• Consists of all properties (real, personal,
tangible, intangible) owned by the
decedent at the time of his death
• For the purposes of computing estate
tax, it is necessary that the gross estate
of the decedent be appraised or valued at
the time of death.
• Would depend whether decedent, is
citizen, alien, resident or non-resident
 All properties,
real or personal,
Resident tangible or
(RC) intangible,
WHEREVER
situated
Citizen
Non-Resident
Same as RC
(NRC)
Decedent
Resident (RA) Same as RC

Alien Only properties

situated in the
Philippines are
Non-Resident included. In respect
(NRA) to intangible, its
inclusion is subject
to the RECIPROCITY
rule.
 ADDITIONS TO THE
GROSS ESTATE
1. Taxable Transfers (during lifetime of
the decedent)
• Revocable Transfers
• Transfers in contemplation of death
• Property passing under general power of
appointment
• Transfers for insufficient consideration
 ADDITIONS TO THE
GROSS ESTATE
2. Others
• Decedent’s interest accrued at the time
of death
• Proceeds of life insurance with revocable
beneficiary
• Claims against an insolvent debtor
• Amount received by heirs under RA No.
4917
(Basis: Art. 781)
 EXCLUSIONS FROM GROSS
ESTATE
Sec. 87, 85 NIRC
Note: Exclusive Separate
(capital/paraphernal) property of the
surviving spouse should not be
included in the computation of gross
estate
Why? Because only properties owned by
the decedent should be included in the
gross estate
How determined? –Property Relations
between Spouses
 Property Regime
1. Absolute Community of Property (92,
FC)
2. Conjugal Partnership of Gains (109,
FC))
3. Complete Separation of Properties

* Important to determine when the

marriage was celebrated
 Similarities
Property Conjugal Partnership Absolute Community
Property inherited or Exclusive Property Exclusive Property
received as donation
during marriage
Property acquired Conjugal Property Community Property
during marriage (other
than inheritance or
donation)
Property acquired Conjugal Property Community Property
from labor, industry
work or profession of
the spouses
Fruits or income due Conjugal Property Community Property
or derived during the
marriage coming from
common property
 Differences
Property Conjugal Absolute
Partnership Community
Property before Exclusive Community
marriage or Property Property
brought to the
marriage
Fruits or income Conjugal Exclusive
due or received Property Property
during the
marriage coming
from exclusive
property
Deductions from Gross Estate
1. Ordinary Deductions
2. Special Deductions
3. Share of the Surviving Spouse in the
Net Conjugal/Community Estate
(50%)
 Ordinary deductions
1. ELITE (expenses, losses,
indebtedness, taxes, etc.)
- Funeral Expenses (up to P200,000)
- Judicial Expenses
- Claims against the estate (incurred
by decedent during lifetime)
- Claims against insolvent persons
- Unpaid mortgage and taxes
(incurred by decedent during lifetime)
 Ordinary deductions

2. Transfers for Public Use

3. Vanishing Deductions (Property
Previously Taxed)
 Vanishing Deductions
100% Within the year of

More than 1 year,

80% Of the value of but less than 2
the property years from payment of
shall be More than 2 years, transfer taxes,
60% deducted from but less than 3 brought about
years from
the gross by death of
More than 3 years,
40% estate of the but less than 4
prior
decedent, who years from decedent.
died More than 4 years,
20% but less than 5
years from
Shall be deducted if payment of transfer taxes
0% and death of prior decedent occurred beyond
the five year period and onwards.
 Special deductions
• Are deductions that are categorically permitted
by special law as allowance to reduce the
taxable estate
• Deductible after deducting ordinary deductions
1. Standard deduction (P1,000,000 to 5,000,000)
* NRA up to 500,000
1. Family Home (CMV, not to exceed P1,000,000
to 10,000,000)
2. Medical Expenses (not to exceed P500,000,
within 1 year prior to death)
3. Amounts received by heirs under RA 4917
(retirement benefits and the like shall not be
subject to any tax)
 GROSS ESTATE

Net Taxable Estate

Net Hereditary
Estate

Legitime
 Net Taxable Estate
• The net amount of estate subject to
estate tax
 Rates of Estate Tax
NET ESTATE ESTATE TAX EXCESS
OVER NOT OVER TAX OF PLUS % OVER
-0- 200,000 Exempt -0- -0-
200,000 500,000 -0- 5% 200,000
500,000 2,000,000 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
 Rate of Estate Tax

The net estate of every

decedent shall be subject
to an estate tax at the
rate of 6 percent (6%)
 Net Hereditary Estate
• Art. 908
Property Left (Net Taxable Estate/Gross
Hereditary Estate)
LESS: Debts and Charges
ADD: Collationable Donations
Net Hereditary Estate
 Charges
• Which even without the will, would
be chargeable
 Collationable Donations
• Donations are advances to the
legitime (if compulsory heirs), to the
free portion (if voluntary heir) (Art.
909)
• Parable of the Prodigal Son
 Compute Estate Tax
NET NIRC TRAIN
ESTATE
150,000
350,000
2,800,000
 Assignment
• Complete Table of Legitime and Free
Portion
• BIR Form 1801 and 1901
• Administrative Requirements of
Estate Tax (NIRC vs TRAIN)
• Bring Family Tree