ILLUSTRATIVE PROBLEM: VALUATION OF ASSETS IN THE GROSS ESTATE

1. Mr. AA, single and a resident of the Philippines died on Jan. 31, 2020 leaving the following
properties:
Land:
Zonal value of BIR at the date of death 3,000,000.00
Market value of the Assessor at the
date of death 2,500,000.00
Appraised value at the date of death 3,500,000.00

Receivable:
Principal 100,000.00
Accrued Interest at the date of death 25,000.00
Accrued Interest from date of death
to present 15,000.00

Shares of stock:
Common stock - unlisted (Book value
per share - P50; Par value - P25, # of
shares held - 10,000 shares

Preferred stock - unlisted (Book value

per share - P50; Par value - P100, # of
shares held - 5,000 shares

Common stock - listed in the local

stock exchange, # of shares held 25,000
Opening price at the date of death, P70 per share
Closing price at the date of death, P75 per share
Highest price at the date of death, P100 per share
Lowest price at the date of death, P60 per share

Car
Fair market value at the date of death, P500,000
Acquisition Cost, P800,000

Pawned jewelry
Loan granted, P25,000
Loan to value ratio - 1:4

Compute for the total gross estate of the decedent:

Answer:
Land 3,000,000.00
Receivables (P100,000+25,000) 125,000.00
Shares of stock
Common - unlisted (P50x10,000 sh.) 500,000.00 Book value X no. of shares held
Preferred stock - unlisted (P100x5,000 sh.) 500,000.00 Par value X no. of shares held
Common - listed
((P60+P100)/2)x25,000 shares 2,000,000.00 (highest price + lowest price)/2) X no. of shares h
Car 500,000.00
Jewelry (P25,000/25%) 100,000.00 for every P4 value of the property, the loanable
Gross Estate 6,725,000.00
t price)/2) X no. of shares held

he property, the loanable amount is P1 (1/4)

ALLOWABLE DEDUCTIONS FROM THE GROSS ESTATE
RESIDENT CITIZENS, NON-RESIDENT CITIZENS AND RESIDENT ALIENS
ORDINARY DEDUCTIONS
1. LOSSES, INDEBTEDNESS AND TAXES (LIT)
A. Losses - casualty loss such as fires, storms, shipwreck, robbery, theft and embezzlement
Requisites:
1. Not compensated by insurance or otherwise
2. Must occur during the settlement of the estate up to the deadline of the filing of the
estate tax return (1 year from the date of death)
3. Not claimed for income tax purposes
4. Property is included in the gross estate.

Ex. Mr. A died on Jan. 15, 2020 leaving a car with a fair market value at the date of death of P1,000,000.
It was acquired for P1,800,000. On Nov. 30, 2020, the car was totally destroyed by fire.

Determine the following:

A. What is the value of the the car in the gross estate?
B. Assuming that the car was insured for P800,000, how much is the allowable deduction from
the gross estate?
C. Assuming that the car was not insured, how much is the deduction from the gross estate?
D. Assuming that the car was not insured but the date of the settlement of the estate is
Oct. 25, 2020, how much is the allowable deduction from the gross estate?
E. Assuming that the loss was claimed for income tax purposes, how much is the allowable
deduction from the gross estate?
F. Assuming that the loss occurred on Jan. 25, 2021 and the car was not insured, how much is
allowable deduction from the gross estate?

B. Claims against insolvent persons - decedent is the creditor

Receivable which can no longer be collected because the debtor is financially insolvent.
A form of loss but is shown separately in the computation of the gross estate.
Requisite:
1. The receivable is forming part of the inventory of the estate

Ex. Mr. A died on Jan. 26, 2020. At the date of death, he has a receivable of P500,000
from Mr. B.

Determine the following:

1. How much is the amount to be included in the gross estate?
2. If the gross estate does not include the receivable of P500,000 from Mr. B and the latter is
declared as fully insolvent, how much is the allowable deduction?
3. If Mr. B can pay 40% of his debt, how much is the allowable deduction?
4. If Mr. B is 60% insolvent, how much is the allowable deduction?
5. If the debt to asset ratio is 5:2, how much is the allowable deduction?

C. Claims against the estate - indebtedness of the decedent which remained unpaid at the
date of death. decedent is the debtor
- uncollateralized indebtedness
Requisites:
1. The liability represents a personal obligations of the deceased existing at the time of death
except unpaid medical expenses.
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.
5. The debt instrument must be notarized
6. If the loan is contracted within three years prior to the date of death of the decedent, the
executor or administrator of the estate must be able to determine how the proceeds of the
 loan were disposed.

Classification Rules for Claims against the Estate

1. Family Benefit Rule
If the obligation was contracted or incurred for the benefit of the family, the claim shall be
classified as deduction against common property (conjugal or communal). Otherwise, the property classification rule
shall apply.
Ex.
1. A mortgage which was contracted for the education of the children of the spouses shall be
deducted against common properties even if the same is constituted against a separate property
of either spouse.
2. An unpaid real property tax on the family home shall be deducted against common property
even if the family home is a separate property of either spouse.
3. Obligations constituted for the support expenses of any family member shall be considered
deductions against common properties.
Ex. Mr. A, single and a resident citizen of the Philippines died on Jan. 20, 2020. He has a
gross estate valued at P10,000,000 at the date of his death. He owed Mr. B P2,000,000.
Determine the following:
1. If the debt instrument is not notarized, how much is the allowable deduction?
2. If the debt instrument is notarized, how much is the allowable deduction?
3. If the loan was contracted 2 years before the date of death of the decedent and the
administrator of the estate cannot determine how the proceeds of the loan were disposed,
how much is the allowable deduction?

D. Unpaid Mortgage - decedent is the debtor collateralized loan

Requisites:
1. The property mortgaged must be included in the gross estate
Ex. Mr. A, single and a resident citizen of the Philippines died on Jan. 20, 2020 leaving a gross estate
of P15,000,000 which includes a land with a a zonal value of P5,000,000 and a market value per
assessor's roll of P4,950,000 and appraised value of P5,100,000. This piece of land was mortgaged
for P3,000,000.
Determine the following:
1. How much the is the fair market value of land?
2. What is the allowable deduction for unpaid mortgage?
3. What is the the allowable deduction if the land is not included in the gross estate?

Note: if accomodation loan, unpaid mortgage can be deducted from the gross estate if the
accomodation is presented as receivables.

E. Unpaid Taxes
Includes taxes such as income tax, business tax, and property tax which have accrued as of the
date of death of the decedent and which were unpaid as of the time of death.

2. TRANSFER FOR PUBLIC PURPOSE/USE - transfer (upon death) to government FOR PUBLIC PURPOSE
Includes the amount of all bequests, legacies, devises or transfer to or for the use of the
government of the Republic of the Philippines, or any political subdivision thereof, for the
exclusive public purposes. These must be indicated in the will.
Requisite:
1. The property to be transferred to the government for public purpose shall be included in the
gross estate and valued at its FMV at the date of death.

Ex. Mr. A devised in his will the following properties:

Commercial land, to a public school, P2,000,000
Land and building, to a government-owned and controlled corporation, P3,000,000
Determine the following:
A. How much is the amount to be included in the gross estate? P5,000,000
 B. How much is the deduction from the gross estate as transfer for public use? P2,000,000
C. If the commercial land devised to the public school is not included in the gross estate,
how much is the allowable deduction? Zero

3. PROPERTY PREVIOUSLY TAXED / VANISHING DEDUCTION

allowed to lessen the impact of successive taxation on the same property
Requisites:
A. The present decedent must have died within five (5) years from the date of death of the
prior decedent or date of gift (period of time: 5 years and mode of acquisition: donation or succession)
B. The property with respect to which the deduction is claimed must have been part of the
gross estate situated in the Philippines of the prior decedent or taxable gift of the donor
C. The property must be identified as the same property received from the prior decedent
or donor or the one received in exchange thereof
D. The estate taxes on the transmission of the prior estate or the donor's tax on the gift must
have been finally determined and paid.
E. No vanishing deduction on the property or the property given in exchange thereof was
allowed to the prior estate.

If the decedent died Vanishing Percentage

Not more than 1 year 100%
More than 1 year to 2 years 80%
More than 2 years to 3 years 60%
More than 3 years to 4 years 40%
More than 4 years to 5 years 20%

SPECIAL DEDUCTIONS
4. FAMILY HOME
Includes the dwelling house, and the land on which it is situated, where the decedent and/or
members of his family reside as certified by the Barangay Captain of the locality.
Requisites:
A. 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.
B. The value of the family home must be included as part of the gross estate of the decedent
C. The allowable deduction must not exceed the lowest of fair market value of the family home
as declared or included in gross estate, the extent of the decedent's interest therein, or
P10,000,000.

5. STANDARD DEDUCTION - P5,000,000

6. BENEFITS UNDER RA 4917 - retirement benefit or termination benefit received by employees

of private firms is not subject to attachment, levy, execution, or any tax whatsoever.
Requisite:
A. The amount of benefit received or receivable under RA 4917 shall be included in the gross
estate.
 1,000,000.00

200,000.00
1,000,000.00

zero after the settlement of the estate

zero claimed for income tax purposes

zero after 1 year from the date of death

500,000.00

zero not included in the gross estate

300,000.00
300,000.00
300,000.00
perty classification rule

zero debt instrument is not notarized

2,000,000.00
zero administrator cannot determine how the proceeds of the loan were disposed.

5,000,000.00
3,000,000.00
zero not included in the gross estate

5,000,000.00 Land
3,000,000.00 Receivables from Mr. B
-3,000,000.00 unpaid mortgage

OR PUBLIC PURPOSE/USE
 Seller Prior decedent
A Land B Land
n or succession) died on FMV=1,000,000 died on FMV=1,000,000
Jan. 15, 2019 (Bacolod City) Feb. 25, 2021

no vanishing deduction
Can be claimed bcoz
60%

case 1 (decedent is single)

Zonal value of BIR (family home) at the date of death, P15,000,000
Market value (family home) of the city assessor at the date of death, P15,500,000
Gross estate 15,500,000.00
deduction
for Family
Home 10,000,000.00
oan were disposed.
 Present decedent
C
FMV=1,000,000 died on
October 10, 2021

vanishing deduction
can be claimed
100%

8,000,000.00
7,000,000.00
8,000,000.00

8,000,000.00