ESTATE TAX

I. SUCCESSION

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

The rights to the succession are transmitted from the moment of the death of the decedent. (Art. 777, supra.)

Estate Tax is the tax imposed on the transfer of property from the decedent to the heirs. It is an excise tax on the privilege/right to transfer property gratuitously
at the time of death.

Applicable Law: estate taxation is governed by the law in force at the time of death of the decedent. (Sec. 3, RR No. 2-2003) Accordingly, the provisions
of the Tax Reform for Acceleration and Inclusion Act (TRAIN) amending pertinent portions of the estate tax would apply only to deaths that
occurred January 1, 2018 onwards. For deaths prior to said date, the provisions of the Tax Code before the amendment would apply.

Accrual vs. Payment of Tax: the estate tax accrues from the time of death; while payment of the estate tax is at the time the estate tax return is filed, which
is 1 year from the date of the decedent’s death (6 months prior to the TRAIN), except in cases when extensions are granted by the Commissioner or when
installment payment of the estate tax is allowed.

II. GROSS ESTATE

KINDS OF DECEDENT FOR ESTATE TAX PURPOSES:

1. Resident and/or citizens:

“Residence” refers to the permanent home, the place to which, whenever absent for business or pleasure, one intends to return, and depends on facts
and circumstances, in the sense that they disclose intent. (Lorenzo vs. Posadas, Jr.; GR No. L-43082; June 18, 1937)

Rules on Domicile:
a. A man must have a residence or domicile somewhere;
b. That where once established it remains until a new one is acquired;
c. A man cannot have but one domicile at a time. (Limbona vs. COMELEC, GR No. 181097, June 25, 2008; Ugdoracion vs. COMELEC, GR No. 179851, April 18, 2008)

Acquisition of new domicile; Requisites:

a. Residence or bodily presence in the new locality;
b. Intention to remain there (animus manendi); and
c. Intention to abandon old domicile (animus non-revertendi). (Jalosjos vs. COMELEC, GR No. 193314, Feb. 26, 2013)

Note that in income tax, the term “non-resident citizen” includes a citizen who is physically present abroad “most of the time” which is understood to be
183 days. This rule is not applicable to estate taxation. As long as the decedent had the intention of returning to the Philippines (animus revertendi), he/she
will be considered resident of the Philippines for estate tax purposes.

Resident Aliens: necessary falls within this classification since they are “residents” of the Philippines. But still, the rule is the intention to make the
Philippines the domicile and not that for income tax purposes.

2. Non-resident aliens: are individuals who are not citizens of the Philippines nor residents herein.

Importance of classification:
1. A resident and/or citizen of the Philippines is taxed on his worldwide property, i.e., all real and personal property, wherever situated; while,
2. A non-resident alien is taxable only for his properties within the Philippines.

VALUATION

In general, the value of the properties shall be determined as the fair market value at the time of the decedent’s death.

Section 88 of the Tax Code, as implemented by RR No. 2-03, as reiterated under RR No. 12-18, prescribes the valuations as follows:
1. Real Property – whichever is higher of the following:
a. Fair market value as determined by the Commissioner of Internal Revenue; or
b. Fair market value as shown in the schedule of values fixed by the provincial or city assessors. (Sec. 5, RR No. 2-03)

Note that fair market values as determined by an Independent Assessor is not an available option and will be used only if both of the above are not
available.

2. Shares of Stock – depending whether:

a. Listed or traded in the stock exchange –
(1) The quotation available at the date of death; or
(2) the arithmetic mean between the highest and lowest quotation at the date nearest the date of death, if none is available on the date itself (Sec.
5, RR No. 2-03);
b. Not listed or traded in the stock exchange
(1) Common shares - book value for the common shares;
Cesar Nickolai F. Soriano Jr.
1 University of Santo Tomas – AMV College of Accountancy 2010-6213
Arellano University School of Law 2011-0303
ESTATE TAX
 (2) Preferred shares – par value.

RR No. 6-2013 which requires the use of the Adjusted Net Asset Method for purposes of computing book value per share does NOT apply to estate
taxation since it is applicable only for onerous transfers.

3. 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.

4. 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,
RR No. 2-03)

PROPERTIES PHYSICALLY IN THE ESTATE

These are the properties which are in the name of the decedent at the time of his death.

Real properties and tangible personal properties – the location of the properties would be determinative of inclusion in the gross estate. Thus, if the
properties are located in the Philippines, they are deemed to be “within the Philippines”; if located not within the Philippines, they are deemed to be properties
outside of the Philippines.

The location is material since residents and/or citizens are taxable on their worldwide estate regardless of location, but non-resident aliens are taxable only on
properties within the Philippines.

Intangible personal properties – the following are considered to be intangible personal properties located within the Philippines:

(1) 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 issued 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; and
(5) Shares or rights in any partnership, business, or industry.

Reciprocity Clause: “no tax shall be collected xxx in respect of intangible personal property:
(a) 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
(b) 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 of the Tax Code)

Applicability: the exemption by virtue of the reciprocity clause applies only to:
1. Estate of Non-Resident Alien Decedents; and
2. Only as to their intangible properties located in the Philippines (note that if the intangible is located in outside the Philippines, it is already excluded in the
estate of the non-resident alient with or without a reciprocity clause).

Thus, if the decedent is a non-resident alien and the intangible property is located in the Philippines, it wlll still be deemed excluded by virtue of the reciprocity
clause.

Donor’s Tax: The reciprocity clause likewise applies to Donor’s Tax.

Decedent’s Interest: To the extent of the interest therein of the decedent at the time of his death. (Sec. 85, Tax Code)

Joint Account: Interest on a deposit account maintained by two persons is deemed to be equally owned by them for income tax purposes. The same
presumption may likewise apply for estate tax purposes, thus, only half of the balance of the deposit should be reported for estate tax purposes pertaining to
the decedent. (BIR Ruling No. 023-12)

Right to Redeem for a valuable consideration: the right to redeem by the various lot owners, which was assigned in favor of the decedent for a considerable
price, and which is the subject of the various deeds of assignment in question is property duly includible in determining the value of the gross estate of the
decedent. The value indicated in the deeds of assignment are conclusive on the value of these properties in the determination of his "gross estate" to determine
the applicable estate tax on his estate. (BIR Ruling No. 169-98)

Foreclosed property forms part of the gross estate of a deceased borrower when he dies prior to the expiration of the redemption period thereof. However,
the unpaid mortgage or indebtedness must be deducted from the gross estate for purposes of computing the net estate. (BIR Ruling No. DA-540-04)

Transferred real property to a corporation; only the value of the shares of stock will be included: Considering that at the time of death of the
decedent, the only property left by the latter consists merely of shares of stock in a corporation to which he had beneficial interest, it is this value of corporate
stocks owned by the decedent that should be included in his gross estate for purposes of estate tax. Accordingly, the properties which are now registered in the
name of the corporation should now be excluded from his gross estate. (BIR Ruling [DA-091-05] dated March 14, 2005)

Dividends already declared prior to decedent’s death: are likewise included in the computation of the gross estate, regardless if they have not been paid
yet.
Cesar Nickolai F. Soriano Jr.
2 University of Santo Tomas – AMV College of Accountancy 2010-6213
Arellano University School of Law 2011-0303
ESTATE TAX
PROPERTIES NOT PHYSICALLY IN THE ESTATE: these are properties no longer in the name of the decedent but may still be considered as part of his
gross estate:
1. 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 (1) the possession or enjoyment of, or the
right to the income from the property, or (2) 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. (Sec. 85, Tax
Code)

Transfer in Contemplation of Death covers two types of transfers:

a. Transfer in contemplation of death – the purpose of which is to avoid payment of estate tax on the property;
b. Transfer to take effect after death or a donation mortis causa where the decedent retained the possession or enjoyment of, or the right to the income from
the property, or the right to designate the person who shall possess or enjoy the property or the income therefrom.

Exception: if the transfer was made under a bona fide sale for an adequate and full consideration in money or money’s worth.

Survivorship Agreement: Survivorship Agreement executed by the joint depositors of a joint bank/deposit account which expressly stipulates that upon death
of any one of the joint depositors, the entire remaining balance of the deposit shall belong to the surviving depositor/s and, in effect, may be forthwith withdrawn
by the latter, has an effect of a gift or donation mortis causa made by the deceased co-depositor during his lifetime but effective upon death. The acquisition
by the survivor of the share of the decedent in the joint account is considered to be acquired by bequest and hence subject to estate tax as transfer in
contemplation of death under Section 85(B) above. (BIR Ruling No. 010-03)

2. Revocable Transfers

A revocable transfer is one where the terms of enjoyment of the property may be altered, amended, revoked or terminated by the decedent. It is sufficient that
the decedent had the power to revoke, though he did not exercise the power to revoke.

Revocable Trust Agreement: In a revocable transfer of property, the property continues to be owned by the transferor during his lifetime notwithstanding
the transfer, as he still retains beneficial ownership. The rationale for taxing such transfer in trust at the time of death of the trustor is to reach transfers which
are really substitutes for testamentary disposition and thus prevent evasion of estate tax. To be exempt from estate tax, the transfer by inter vivos must be
absolute and outright with no strings attached whatsoever by the transferor, which is not the case in a revocable trust agreement.

In other words, all properties covered by the Revocable Living Trust Agreement of the spouses shall be considered as forming part of the decedent's gross
estate subject to estate tax upon the death of the owner of the property. (BIR Ruling No. 013-05 dated Aug. 16, 2005)

3. Transfer under a general power of appointment

A power of appointment is the right to designate the person or persons who will succeed to the property of a prior decedent.

a. General Power of Appointment – is one which may be exercised in favor of anybody, including the decedent.
b. Special Power of Appointment – is one which may be exercised only in favor of a certain person or persons designated by the prior decedent.

In order that property passing under a power of appointment may be included in the estate of the transferor, the power of appointment must be a general
power of appointment.

Note that the exemption related to a special power of appointment pertains only to the subsequent transfer, which, in effect, is still the transfer made by the
earlier decedent for which the estate tax was already paid.

ILLUSTRATION: A died leaving a parcel of land in favor of B under a special power of appointment, where B is required to transfer the same parcel of land
to C upon B’s death.

• The parcel of land will form part of A’s estate

• Upon the death of B, the parcel of land will be transferred to C, but will not be included in the gross estate of B.

4. Proceeds of Life Insurance

Proceeds of life insurance under policies taken out by the decedent upon his life shall constitute part of the gross estate if the beneficiary is:
a. The estate of the decedent, his executor or administrator;
b. A third person and the designation of the beneficiary is revocable.

Presumption of revocability: Under the Insurance Code, a designation is revocable, unless stated expressly by the insured, and indicated in the policy, that the
designation is irrevocable.

Therefore, to be excluded from the gross estate, two things must concur:
a. The beneficiary designated is a third person, i.e., NOT the estate, executor or administrator thereof; AND
b. The designation is irrevocable.

Life insurance taken by an employer not included: Considering that the insurance policies upon the life of the decedent were taken by his employer for

Cesar Nickolai F. Soriano Jr.

3 University of Santo Tomas – AMV College of Accountancy 2010-6213
Arellano University School of Law 2011-0303
ESTATE TAX
its employees, the proceeds thereof shall not form part of the gross estate of the decedent for the purpose of determining the estate tax due. (BIR Ruling No.
DA-396-98) The designation of the beneficiary whether revocable or irrevocable is immaterial. (BIR Ruling DA-[ET-016] 485-09)\

5. Claims against insolvent person

Under Sec. 86 of the NIRC, claims against insolvent persons which are not collectible may be considered as deductions from the gross estate. For this to apply,
the whole amount of the claim must be included in the gross estate, regardless of collectability, and the amount uncollectible will be considered as a deduction.

6. Prior Interests

Prior interests are included in the gross estate regardless if it was made, created, arising, existing or exercised before or after the effectivity of the NIRC. (Sec.
85[F])

7. Transfers of Insufficient Consideration

Here, the property is no longer included in the gross estate if the transfer was made under a bona fide sale for a consideration in money or money’s worth.

However, if the transfer is made for less than the market value of the property, the excess of the fair market value of the property at the time of death over the
amount of consideration received is included in the gross estate. (Sec. 85[G])
Steps to be taken:
a. Compare the fair market value at the time of transfer to the proceeds thereof;
(1) If the proceeds are higher or equal to the fair market value, then there is nothing to include in the gross estate since the transfer is considered as a
bona fide sale;
(2) If the proceeds are less than the fair market value at the time of transfer, it is considered as a transfer for insufficient consideration.
b. If it is considered as a transfer for insufficient consideration, compare the fair market value at the time of death with the proceeds;
(1) If the proceeds are less, the difference will be included in the gross estate;
(2) If the proceeds are higher, there is nothing to include in the gross estate anymore.

8. Capital of the Surviving Spouse

For purposes of determining the gross estate, the exclusive property of the surviving spouse is not included. (Sec. 85[H])

EXEMPTIONS

The following acquisitions and transmissions will not be subject to the estate tax:
a. The merger of usufruct in the owner of the naked title;

In this case, the usufruct and the naked title to the property were given to different persons. Upon the death of the usufructuary, the usufruct merges with
the naked title. This merger is no longer subject to estate tax since it has already been subjected thereto upon the death of the original owner thereof.

b. The transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to the fideicommissary;

A fideicommissary substitution by virtue of which the fiduciary or first heir instituted is entrusted with the obligation to preserve and to transmit to a second
heir the whole or part of the inheritance, shall be valid and shall take effect, provided such substitution does not go beyond one degree from the heir
originally instituted, and provided further, that the fiduciary or first heir and the second heir are living at the time of the death of the testator. (Art. 863,
Civil Code)

Elements of Fideicommissary Substitution:

(1) There is a first heir who is tasked to preserve the property and transmit it to the second heir;
(2) There is a second heir to whom the property will be transferred once the right of the first heir expires;
(3) The second heir is one degree from the first heir – which can either mean by relationship or by degree of transfer.

c. The transmission from the first heir, legatee or donee in favor of another beneficiary, in accordance with the desire of the predecessor; and

This is the transfer subject to a special power of appointment and the rules are similar to a fideicommissary substitution. However, the requirement of one-
degree transfer is not applicable.

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.

Does not include religious institutions: are not included in the above exemptions. Accordingly, it is subject to estate tax. Note that the estate tax is an
excise tax and not a property tax. As such, it is not covered by the exemption under Sec. 28(3), Art. VI of the 1987 Constitution, since such exemption
covers only property taxes.

In the above enumeration, the transfers under (a), (b) and (c) need not be included in the gross estate. While under (d), the conditions must be complied with
and may not be included in the gross estate upon verification by the Bureau of Internal Revenue that the conditions have been complied with.

III. DEDUCTIONS

Cesar Nickolai F. Soriano Jr.

4 University of Santo Tomas – AMV College of Accountancy 2010-6213
Arellano University School of Law 2011-0303
ESTATE TAX
DEDUCTIONS FOR CITIZENS AND RESIDENT ALIENS

A. Ordinary Deductions

1. EXPENSES, LOSSES, INDEBTEDNESS, TAXES, ETC. (ELITE)

a. Funeral Expense – under the TRAIN, Funeral Expenses are no longer deductible. However, for deaths prior to the effectivity of the TRAIN, funeral
expenses are still allowable deductions.

The value deductible is the lowest among:

(1) Actual funeral expenses - include mourning apparel of the surviving spouse and unmarried minor children of the deceased bought and used for
the occasion of the burial, expenses during the decedent’s wake, including food and drinks, publications charges of death notices,
telecommunication expense incurred in informing relatives of the deceased, cost of burial plot, tombstone, monument or mausoleum, but not
their upkeep, interment and/or cremation fees and charges and all other expenses incurred in the performance of the rites and ceremonies
incident to interment. (Sec. 6[A][1], RR No. 2-03) In short, the reckoning period shall be the date of interment – all expenses after shall no
longer form part of actual funeral expenses.
(2) 5% of the gross estate;
(3) P200,000

Any amount in excess of the P200,000 shall not be allowed as a deduction, neither can the unpaid amount in excess of the P200,000 can be claimed
as a deduction under “claims against the estate.” (Sec. 6[A][1], RR No. 2-03)

Medical expenses as of the last illness of the decedent will not form part of funeral expenses but should be claimed under “medical expenses.”

Note, however, that the amount deductible must be advanced by the estate of the deceased to be deductible. Accordingly, if the expenses are paid
for by relatives or friends, then such will not be considered deductible.

b. Judicial Expense – under the TRAIN, judicial expenses are no longer deductible. However, for deaths prior to the effectivity of the TRAIN, judicial
expenses are still deductible for estate tax purposes.

It includes fees of the executor or administrator, attorney’s fees, court fees, accountant’s fees, appraiser’s fees, costs of preserving and distributing
the estate, costs of storing or maintaining the property of the estate, and brokerage fees for selling the property.

There is no limit as to the amount which may be claimed for judicial expenses.

What constitutes judicial expenses: Judicial expenses include those "essential to (1) the collection of the assets, (2) payment of debts or (3) the
distribution of the property to the persons entitled to it." In other words, the expenses must be essential to the proper settlement of the estate. (CIR
vs. Pajonar)

Notarial Fee: paid for the extrajudicial settlement is clearly a deductible expense since such settlement effected a distribution of the estate to the
lawful heirs.

Attorney’s Fees: paid for acting as the guardian of the decedent’s property during his lifetime should also be considered as a deductible administration
expense. The administrator provided a detailed accounting of decedent's property and gave advice as to the proper settlement of the latter's estate,
acts which contributed towards the collection of decedent's assets and the subsequent settlement of the estate.

Items not deductible:

1. Expenditures incurred for the individual benefit of the heirs, devisees or legatees are not deductible.
2. Compensation paid to a trustee of the decedent's estate when it appeared that such trustee was appointed for the purpose of managing the
decedent's real estate for the benefit of the testamentary heir.
3. Premiums paid on the bond filed by the administrator as an expense of administration since the giving of a bond is in the nature of a qualification
for the office, and not necessary in the settlement of the estate.
4. Attorney's fees incident to litigation incurred by the heirs in asserting their respective rights.

c. Claims against the estate – refer to obligations contracted by the deceased, which is still enforceable after his death, for which his estate is now
liable for. Under RR No. 12-18, 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 judgments. Claims against the estate or indebtedness in
respect of property may arise out of: (1) contract; (2) tort; or (3) operation of law.

Requisites:
(1) The liability represents a personal obligation of the deceased existing at the time of his death except unpaid obligations incident to his death
such as unpaid funeral expenses and unpaid medical expenses which are classified under subsection F of Sec. 6, RR No. 2-03;
(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 been prescribed. (Sec.
6[A][3][i], RR No. 2-03)

Substantiation requirements (Sec. 6[A][3][ii], RR No. 2-03)

1. Simple loan (including advances):
a. Debt instrument duly notarized at the time the indebtedness was incurred except for loans granted by financial institutions where notarization
Cesar Nickolai F. Soriano Jr.
5 University of Santo Tomas – AMV College of Accountancy 2010-6213
Arellano University School of Law 2011-0303
ESTATE TAX
 is not part of the business practice/policy of the financial institution-lender;
b. Notarized certification from the creditor as to the unpaid balance including interest upto the time of death;
c. Proof of financial capacity of the creditor to the 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 debtor;
d. A statement under oath of the administrator or executor reflecting the disposition of the loan proceeds if said loan was contracted within 3
years from the decedent’s death.
2. Unpaid obligation from purchase of goods or services:
a. Pertinent documents evidencing the purchase;
b. Duly notarized certification from the creditor as to the unpaid balance including interest upto the time of death;
c. 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 debtor and a certified true copy of the updated latest subsidiary ledger/records of the debtor-decedent;
3. Where the settlement is made through the Court, pertinent documents filed with the Court evidencing the claim against the estate, and the Court
Order approving said claims, if already issued, in addition to the documents mentioned in the preceding paragraph.

The requirement of notarization does not apply to financial institutions where notarization is not part of the business practice or policy of the financial
institution. (Reyes, Philippine Business and Transfer Taxes, November 2006, p. 35)

DATE OF DEATH VALUATION RULE: amount deductible is the amount enforceable at the time of death: The actual claims of the creditors
at the time of death is the amount deductible for estate tax purposes regardless of the fact that the said claims were reduced or condoned through
compromise agreements entered into by the estate with the creditors. xxx “post-death developments are not material in determining the
amount of the deduction. (Dizon vs. CTA; GR No. 140944; April 30, 2008)

Where a lien claimed against the estate was certain and enforceable on the date of the decedent's death, the fact that the claimant subsequently
settled for lesser amount did not preclude the estate from deducting the entire amount of the claim for estate tax purposes. (Propstra v. U.S., cited
in the Dizon case)

Medical and Funeral Expenses: not paid cannot be claimed under this category, particularly if only to avoid the limit imposed by law.

d. Claims against insolvent persons – since the debtor’s properties are not sufficient to pay for all its obligations, the claims of his creditors will be
satisfied out of the available properties only and thus may not be fully paid.

In the settlement of the obligations of the insolvent debtor, preferred creditors (e.g., Government for unpaid taxes) will first be paid in full and the
balance distributed pro rata to the ordinary creditors.

The amount that cannot be collected by the estate of the deceased will be the amount deductible for estate tax purposes. Provided, that the full
amount of the claim is first included in the Gross Estate.

e. Unpaid mortgage or indebtedness on property – similar to claims against insolvent persons, the full value of the property, to which the mortgage
or indebtedness attaches to, must be included first in the Gross Estate before any deduction for such mortgage or indebtedness can be made.

If a loan is merely an accommodation loan, where the proceeds of such went to another person, for there to be a deductible amount, the loan must
first be included as a receivable of the estate. If there is an impediment to recognize the same as receivable of the estate, said unpaid obligation shall
not be allowed as a deduction from the gross estate.

Note that unpaid mortgages on properties subject to vanishing deductions are still deductible under this category.

f. Taxes – that accrued prior to the death of the decedent, but remain unpaid, are also deductible for estate tax purposes.

Under Sec. 86(A)(1)(e) of the NIRC, the following taxes are not deductible:
(1) Income tax on income received after death;
(2) Property taxes that accrued after death; and
(3) Estate tax.

g. Losses are deductible when all of the following conditions are satisfied:
(1) The loss arose from fire, storm, shipwreck, or other casualty, robbery, theft or embezzlement;
(2) Not compensated by insurance or otherwise;
(3) Not claimed as deduction in an income tax return of the estate subject to income tax;
(4) Occurring during the settlement of the estate and before the last day for the payment of the estate tax or within 1 year from the date of death
of the decedent (or 6 months for deaths that occurred prior to the TRAIN)

However, the property subject to the loss, must be included in the gross estate for the item to be deductible.

2. TRANSFER FOR PUBLIC USE

The amount of all the bequests, legacies, devises or transfers to or for the use of the Government of the Republic of the Philippines, or any political subdivision
thereof, for exclusively public purposes. The political subdivisions of the Philippines include provinces, cities, municipalities and barangays.

The property must first be included in the gross estate for this item to be deductible.

3. VANISHING DEDUCTION or PROPERTY PREVIOUSLY TAXED

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6 University of Santo Tomas – AMV College of Accountancy 2010-6213
Arellano University School of Law 2011-0303
ESTATE TAX
Since a transfer tax (i.e., estate or donor’s tax) is imposed on each transfer, a vanishing deduction is allowed to ease the burden of heavy taxes on properties
that switch hands within a short period of time.

REQUISITES:
a. The current decedent died within 5 years from receipt of the property from the prior decedent/donor;
b. The property on which the vanishing deduction is being claimed is located in the Philippines;
c. The property must have formed part of the taxable estate of the prior decedent or of the taxable gift of the donor;
d. The estate tax/donor’s tax must have been finally determined and paid;
e. The property on which vanishing deduction is being claimed must be identified as the one received from the prior decedent, or from the donor, or something
acquired in exchanged therefor;
f. No vanishing deduction was allowable to the estate of the prior decedent.

NOTE: There is no need for there to be two succeeding deaths for the deduction to apply, since the deduction will also apply if the property was received as a
gift from the previous owner and the donor’s tax has already been paid therefor.

COMPUTATION: the formula for computing vanishing deductions is as follows:

Value to take xx
Less First Deduction (xx)
Initial Basis xx
Less Second Deduction (xx)
Final Basis xx
Applicable rate %
Vanishing deduction xx

1. Value to take, is the lower between the fair market value at the time of death of the decedent and the fair market value at the time it was transferred to
him (either by donation or succession);
2. First deduction – is the amount of indebtedness on the property paid for by the current decedent;
3. Initial basis - the difference between the value to take and first deduction;
4. Second deduction – is the ratio of the initial basis to the gross estate multiplied by the sum of ELITe and Transfer for Public Use.

Initial Basis
x (ELIT* + Transfer for Public Use) = Second Deduction
Gross Estate

*For deaths that occurred after the TRAIN, this amount shall no longer include judicial and funeral expenses

5. Final basis – the difference between the initial basis and the second deduction.
6. Applicable Rate – shall depend on the length of time from the first transfer to the death of the decedent, as follows:
a. 100% - if the prior decedent died within one 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;
b. 80% - if more than 1 year but not more than 2 years;
c. 60% - if more than 2 years but not more than 3 years;
d. 40% if more than 3 years but not more than 4 years;
e. 20% if more than 4 years but not more than 5 years.

ILLUSTRATION: A, decedent, inherited a piece of land 1 and ½ years before his death from his late father, which had a value of P550,000 at the time of his
father’s death and subject to P100,000 mortgage, of which P50,000 was already paid by A. The land, at the time of A’s death, is worth P600,000 and part of
the P2,000,000 gross estate of A for which deductions (not including family home, medical expenses, standard deduction or amount received under RA No.
4917) of P400,000 is allowed. The vanishing deduction is computed as follows:

Initial value to take (whichever is lower of the value at the time of death or P 550,000
at the time of initial transfer)
Less First Deduction: Amount paid on mortgage (50,000)
Initial Basis 500,000
Less Second Deduction: Ratio of property to gross estate as to deductions
500,000/2,000,000*400,000 (100,000)
Basis of vanishing deduction 400,000
Applicable rate 80%
Vanishing deduction P 320,000

B. Special Deductions

1. FAMILY HOME

Amount deductible: An amount equivalent to the current fair market value of the decedent's family home not exceeding ten million pesos (P10,000,000)
(P1,000,000 prior to the TRAIN). As a condition for the deduction, said family home must be included first in the gross estate.

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Note: the certification from the Barangay is no longer required under the TRAIN.

FAMILY HOME: A “family home” is 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. (Sec. 6[D], RR No. 2-03)

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 of the Family Code)

The family home may be constituted either by married individuals or an unmarried head of the family. In the case of the former, only the interest of the decedent
shall be deductible.

NO INTERRUPTION: Following the animus revertendi rule, 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.

ONE FAMILY HOME: For purposes of availing of a family home deduction to the extent allowable, a person may constitute only one family home. (Art. 161,
Family Code, Sec. 6[D], RR No. 2-03)

CONDITIONS FOR DEDUCTIBILITY: (Sec. 6[D][b], RR No. 2-03)

a. The family home must be the actual residential home of the decedent and his family at the time of death, as certified by the Barangay Captain of the
locality where the family home is situated (note, however that the TRAIN removed the requirement of the certification from the Barangay, even if RR No.
12-18 still provides the requirement);
b. The total value of the family home must be included as part of the gross estate of the decedent; and
c. Allowable deduction must be 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 (P1,000,000 prior to the
TRAIN).

ILLUSTRATIONS:
1. The family home is conjugal property with a fair market value of P10,000,000. Deductible Family Home is only P5,000,000 which represents the decedent’s
interest.
2. The family home is composed of the house which is conjugal property with a market value of P5,000,000 and land which is exclusive to the decedent
with a fair market value of P7,000,000. Deductible Family Home is P9,500,000, which is half of the house (P2,500,000) and the land (P7,000,000).
3. The conjugal family home and the land it is situated it has a total value of P30,000,000. The amount of deductible Family Home is P10,000,000. The
share of the decedent is P15,000,000 but the allowable limit is only P10,000,000.

2. STANDARD DEDUCTION

A deduction in the amount of P5,000,000 (P1,000,000 prior to the TRAIN) shall be allowed without need of substantiation. The full amount of P5,000,000 shall
be allowed as a deduction for the benefit of the decedent.

3. MEDICAL EXPENSES

TRAIN AMENDMENT: Under the TRAIN, Medical Expenses are no longer allowable as deductions. However still, for deaths prior to the TRAIN, the computation
of the estate tax may still include deductions for Medical Expenses.

REQUISITES: (Sec. 6[F], RR No. 2-03)

1. All medical expenses (cost of medicines, hospital bills, doctors’ fees, etc.), incurred (whether paid or unpaid) within 1 year before the death of the decedent;
2. 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;
3. That the amount thereof, whether paid or unpaid, does not exceed P500,000.

Any amount of medical expenses incurred within 1 year before the death of the decedent which exceeds the P500,000 cannot be claimed as a deduction. If the
same is unpaid, it cannot be claimed as part of “claims against the estate.”

4. AMOUNT RECEIVED UNDER RA No. 4917

Any amount received by the heirs from the decedent-employee as a consequence of the death of the decedent-employee in accordance with Republic Act No.
4917. Provided, that such amount is included in the gross estate of the decedent.

DEDUCTIONS FOR NON-RESIDENT ALIENS:

The following are the allowable deductions from the gross estate of a non-resident aliens:
1. A ratable portion of ELIT*, as discussed earlier, regardless of where it was incurred or paid, as follows:

Gross Estate, Philippines

X World ELIT
Gross Estate, World

*Note that under the TRAIN, Expenses (Funeral and Judicial) are no longer allowable deductions

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2. Transfer for public use;
3. Vanishing deductions; and
4. Net share of the surviving spouse in the conjugal or community property. (Sec. 7[4], RR No. 2-03)

Standard Deduction: Prior to the TRAIN, no special deduction is allowed for a non-resident alien decedent. However, Section 86(B)(1) of the Tax Code, as
amended by the TRAIN, now allows a standard deduction of in the amount of P500,000 without need of substantiation.

SHARE IN THE CONJUGAL PROPERTY

The net share of the surviving spouse in the conjugal partnership property as 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.

The Gross Estate of a married individual will consist of his exclusive properties and the conjugal properties, which are to be determined based on the husband
and wife’s marital property relations:

1. ABSOLUTE COMMUNITY OF PROPERTY (ACP)– in the absence of a marriage settlement, or when the regime agreed upon is void, the system of
absolute community of property as established in this Code shall govern. (Art. 75, Family Code of the Philippines, effective Aug. 3, 1988) This is applicable
to marriages solemnized after Aug. 3, 1988 the effectivity of the Family Code; prior to said date, marriages solemnized without a marriage settlement (pre-
nuptial agreement) will be governed by CPG.

a. Exclusive Properties: 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, Family Code)

b. Conjugal/Community Properties: the 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)

2. CONJUGAL PARTNERSHIP OF GAINS (CPG) – In case the future spouses agree in the marriage settlements that the regime of conjugal partnership
gains shall govern their property relations during marriage (Art. 105, Family Code). The CPG will be the default marital property relations that will govern
marriages solemnized prior to Aug. 3, 1988 (the effectivity of the Family Code); after said date, the CPG will govern only if contained in a marriage
settlement (pre-nuptial agreement), the default being ACP.

a. Exclusive Properties: The following shall be the exclusive property of each 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, Family Code)

b. Conjugal Properties: 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, Family Code)

3. COMPLETE SEPARATION OF PROPERTY: Should the future spouses agree in the marriage settlements that their property relations during marriage
shall be governed by the regime of separation of property, the provisions of the Family Code shall be suppletory. (Art. 143, Family Code)

Under a complete separation of property, there wouldn’t be any problem in determining which are conjugal/community property or the exclusive property
of a deceased since there is no conjugal property in such a regime. All properties of the wife and husband before and during marriage are their own
respective exclusive properties.

Once the inventory of the properties has been properly determined as conjugal/exclusive, the ½ of the conjugal/community properties included in the gross
estate of the deceased shall be deductible for estate tax purposes.

FORMAT OF COMPUTATION

Exclusive Conjugal Total

Property Property
Family Home xxx xxx xxx

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 Add: Other properties part of the gross estate xxx xxx xxx
Gross Estate xxx xxx xxx
Ordinary Deductions
Funeral Expenses* (xxx)
Judicial Expenses* (xxx)
Claims against the estate (xx)** (xxx)
Claims against insolvent persons (xx)** (xxx)
Unpaid taxes, mortgages, and casualty losses (xx)** (xxx)
Net Exclusive/Conjugal Estate xxx
Special Deductions
Medical Expenses* (xxx)
Family Home (xxx)
Standard Deduction (xxx)
Vanishing Deduction (xxx)
Transfer for Public Use (xxx)
Amount received under RA 4917 (xxx)
Net Estate xxx
Share of the surviving spouse (xxx)
(50% of the net conjugal estate above)
Net Taxable Estate xxx

*Funeral, Judicial and Medical Expenses are not allowable deductions for deaths that occurred after the effectivity of the TRAIN.
**Deductions would follow the corresponding property. As such, for claims against the estate, claims agains insolvent persons, unpaid taxes, loans secured by
the mortgage and casualty losses are deductions from the exclusive property if the property to which they relate are likewise exclusive; on the other hand, if
the property to which they relate are conjugal, then they are deductions from the conjugal property.

IV. ESTATE TAX DUE

RATE OF ESTATE TAX: for deaths that occurred Jan. 1, 2018 or after, the rate of tax is 6% based on the net taxable estate.

For deaths prior to Jan. 1, 2018, the rate shall be the following based on the net taxable estate:

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 CREDITS FOR ESTATE TAXES PAID TO A FOREIGN COUNTRY:

Taxes paid to a foreign country can be claimed as tax credits, i.e., a direct deduction from the estate tax due to arrive at estate tax still payable.

Applicability: tax credits apply only to estate tax of resident citizens, non-resident citizens and resident aliens who are taxable for their worldwide
estate. Accordingly, only decedents classified as such may have foreign taxes paid on the estate located abroad, which will likewise be taxable here in the
Philippines.

To provide a relief, under Sec. 86(E) of the Tax Code, a tax credit for the taxes paid in the foreign country is allowed against the Philippine estate tax.

Limitation: the allowable tax credits shall be subject to the following limit:

ILLUSTRATION:
1. One foreign country:
X, decedent, left a net estate of P900,000 in the Philippines and P600,000 in Foreign Country Z which was subjected to a P40,000 estate tax in Z.

The estate tax due is P90,000 (Net Worldwide Estate of P1,500,000 * 6%)

The limit is P36,000, computed as follows:

Limit:

Net Estate, abroad

x Estate tax due = Limit
Net Estate, world

Applying the above formula:

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 P600,000
x P90,000 = P36,000
P1,500,000

The allowable tax credit will be the actual amount paid or the limit, whichever is lower. As such, the tax credit which can be claimed is only P36,000 – the
lower amount.

Estate tax payable would then be P54,000, computed as follows:

Estate Tax Due P 90,000

Tax Credits for Foreign Taxes Paid (36,000)
Tax Still Payable P 54,000

2. Two or more foreign countries:

A, decedent, left a net estate of P1,050,000 in the Philippines, P300,000 in Foreign Country Y and P150,000 in Foreign Country Z, where he paid P25,000
and P8,000, respectively.

The estate tax due shall be P90,000 (Net World Estate of P1,500,000 * 6%)

The limit shall be computed as follows:

a. Limitation (a), per country:

Country Net Estate Limit Paid Allowed

Y P300,000 300,000/1,500,000 P25,000 P18,000
* 90,000 = 18,000
Z 150,000 150,000/1,500,000 8,000 8,000
* 90,000 = 9,000
PH 1,050,000
Total 1,500,000 P26,000

Under limit (a), the limit is computed on a per country basis, using the same formula as that used in a single country limit

b. Limitation (b), total:

Net Estate, abroad

(all countries) x Estate tax due = Limit
Net Estate, world

Applying the above formula:

P450,000
x P90,000 = P27,000
P1,500,000

The result is then compared to the actual amount paid, and the lower amount shall be limit (b). In this case, since the total amount paid is P33,000
and the computed amount is P27,000, limit (b) would then be P27,000 – the lower amount.

c. Limit (a) = P26,000, is then compared with Limit (b) = P27,000; and the lower amount will be the allowable tax credit. In this case, P26,000.

The estate tax still payable would then be P64,000 computed as follows:

Estate Tax Due P 90,000

Tax Credits for Foreign Taxes Paid (26,000)
Tax Still Payable P 64,000

V. ADMINISTRATIVE REQUIREMENTS

NOTICE:
1. Prior to TRAIN: whenever the gross estate tax exceeds P20,000, a written notice is required to be provided to the Commission within 2 months from the
decedent’s death.
2. Undet the TRAIN, the Notice is no longer required.

ESTATE TAX RETURN (BIR Form No. 1801)

An estate tax is required to be filed when:

1. The estate is subject to tax;
2. If exempt from tax, but the gross estate exceeds P200,000;
3. Regardless of the amount of the gross estate, where said estate consists of registered or registrable property, motor vehicle, shares of stock, or other
similar property for which a Certificate Authorizing Registration from the BIR is required as a condition precedent for the transfer of ownership thereof in

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 the name of the transferee.

In all cases where the law requires a return to be filed, the same shall be filed, in duplicate by the executor, administrator, or any of the legal heirs, and shall
set forth the following:

(1) The value of the gross estate of the decedent at the time of his death, or in case of a non-resident, not a citizen of the Philippines, of that part of his
gross estate situated in the Philippines;

(2) The deductions allowed from gross estate in determining the estate as defined in Section 86; and

(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.

Provided, however, That estate tax returns showing a gross value exceeding Five million pesos (P5,000,000, this is P2,000,000 prior to the TRAIN) 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 non-resident, not a citizen of the
Philippines, of that part of his gross estate situated in the Philippines;
(b) Itemized deductions from gross estate allowed in Section 86; and
(c) The amount of tax due whether paid or still due and outstanding.

(Sec. 90, NIRC)

IMPORANT PERIODS (Sec. 90, NIRC)

What to Submit Period Reference

Estate Tax Return 1 year (6 months prior to the TRAIN) from Sec. 90(B), NIRC
the decedent’s death
A certified copy of the schedule of 30 days after promulgation of such order Sec. 90(B), NIRC
partition and the order of the court
approving the same
Extension of time to file under Not exceeding 30 days for filing of the Sec. 90(C), NIRC
meritorious cases return.
Payment of estate tax Same period with filing of the return Sec. 91(A), NIRC
Extension of time of payment Not to exceed 5 years for judicial settlement Sec. 91(B), NIRC

2 years for extrajudicial settlement

However, installment payments may be

made within 2 years from the date of death
without any interests under the TRAIN (with
interests prior to the TRAIN)

Extension for filing of tax: in meritorious cases, an extension not exceeding 30 days may be granted by the Commissioner or any other Revenue Officer authorized
by him, for the filing of the return.

Where the taxes are assessed by reason of negligence, intentional disregard of rules and regulations, or fraud on the part of the taxpayer, no extension will be
granted by the Commissioner.

Extension for payment of tax: an extension not to exceed 5 years in case of judicial settlements, or 2 years in extrajudicial settlements, may be granted if the
Commissioner finds that the payment of estate tax or any part thereof would impose undue hardship upon the estate or any of the heirs. The running of the
statute of limitations for deficiency assessment shall be suspended for the period of such extension. (Sec. 9 of RR No. 2-2003)

If an extension is granted, the Commissioner may require the executor, or administrator, or beneficiary, as the case may be, to furnish a bond in such amount,
not exceeding double the amount of the tax and with such sureties as the Commissioner deems necessary, conditioned upon the payment of the said tax in
accordance with the terms of the extension. (Sec. 91[B], NIRC)

Installment payment: in case of insufficiency of cash for the immediate payment of the total estate tax due, the estate may be allowed to pay the estate tax
due through cash installment within two years from the date of filing of the estate tax return, subject to the following conditions under RR No. 12-18:
a. The estate tax return shall be filed within one year from the date of decedent’s death;
b. The frequency (i.e., monthly, quarterly, semi-annually or annually), deadline and amount of each installment shall be indicated in the estate tax return
subject to the prior approval by the BIR;
c. In case of lapse of two years without the payment of the entire tax due, the remaining balance thereof shall be due and demandable subject to the
applicable penalties and interest reckoned from the prescribed deadline for the filing for the return and payment of the estate tax; and
d. No civil penalties or interest may be imposed on estates permitted to pay the estate tax due by installment. The Commissioner, however, is allowed to
execute enforcement action against the estate after the due date of the estate tax provided that all the applicable laws and required procedures are
followed/observed. (Section 6.1 of RR No. 12-2018)

Before the TRAIN, interest is imposable on payments made after the statutory due date, even if the estate tax was allowed to be paid on installments. (Section
9[F] of RR No. 2-03)

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Surcharges and Interest: any amount paid after the statutory period to pay the tax, but within the extension period shall not be subject to surcharge.
However, the 12% interest (20% prior to the TRAIN) continues to run until actual date of payment. (Sec. 9[E] of RR No. 2-03) Except, however, for payment
of estate tax by installment under the TRAIN, where no interest or civil penalties shall be charged within the 2-year period.

Liability for the estate tax is with the administrator or executor: before the delivery of the distributive share in the inheritance to any heir or beneficiary.
When there are two or more executors or administrators, all of them are severally liable for the payment of tax.

Subsidiary liability of heir: the executor or administrator of an estate has the primary obligation to pay the estate tax but the heir or beneficiary has subsidiary
liability for the payment of that portion of the estate which his distributive share bears to the value of the total net estate. The extent of his liability, however,
shall in no case exceed the value of his share in the inheritance. (Sec. 9[G] of RR No. 2-2003)

However, in case there has been distribution of the estate and a deficiency is thereafter determined by the BIR, it has two options to collect such deficiency:
1. Enforce the lien on the property previously belonging to the estate against the heir-transferee of such property. Thereafter, the heir has a right to be
reimbursed from the other heirs of their share in the deficiency tax; or
2. Going after all the heirs for their proportionate share of the deficiency estate tax. (CIR vs. Pineda)

Approval of the probate court is not necessary for the payment of estate tax: estate tax is not covered by the Statute of Claims under Rule 94 of the Rules of
Court.

There is nothing in the Tax Code, and in the pertinent remedial laws that implies the necessity of the probate or estate settlement court's approval of the state's
claim for estate taxes, before the same can be enforced and collected.

On the contrary, under Section 87 (now 94) of the NIRC, it is the probate or settlement court which is bidden not to authorize the executor or judicial administrator
of the decedent's estate to deliver any distributive share to any party interested in the estate, unless it is shown a Certification by the CIR that the estate taxes
have been paid. This provision disproves the contention that it is the probate court which approves the assessment and collection of the estate tax. (Marcos II
vs. CA 273 SCRA 105)

Partial distribution of the estate and application of its proceeds to the estate tax due:
1. The disposition shall refer to the conveyance of the property, whether real, personal or intangible property, with the equivalent cash consideration;
2. The estate tax return shall be filed within one year from the date of decedent’s death;
3. The written request for the partial disposition of estate shall be approved by the BIR. The said request shall be filed, together with a notarized undertaking
that the proceeds thereof shall be exclusively used for the payment of the total estate tax due;
4. The computed estate tax due shall be allocated in proportion to the value of each property;
5. The estate shall pay to the BIR the proportionate estate tax due of the property intended to be disposed of;
6. An electronic Certificate Authorizing Registration (eCAR) shall be issued upon presentation of proof of payment of the proportionate estate tax due of the
property intended to be disposed. Accordingly, eCARs shall be issued as many as there are properties intended to be disposed to cover the total estate tax
due, net of the appropriate estate tax(es) previously paid;
7. In case of failure to pay the total estate tax due out from the proceeds of the said disposition, the estate tax due shall be immediately due and demandable
subject to the applicable penalties and interest reckoned from the prescribed deadline for filing the return and payment of the estate tax, without prejudice
to the withholding of the issuance of the eCAR(s) on the remaining properties until the payment of the remaining balance of the estate tax due including
the penalties and interest.

REGISTRATION AND PLACE OF PAYMENT:

1. Resident decedent – the estate shall be registered and a new TIN secured therefor from the Revenue District Office (RDO) where the decedent was
domiciled at the time of his death. The Estate Tax Return and the tax due thereon shall be paid with the Authorized Agent Bank (AAB), RDO, Collection
Officer or duly authorized city or municipal treasurer where the decedent was domiciled at the time of death, whichever is applicable, following prevailing
collection rules and procedures. (Sec. 9[C], RR No. 2-03)
2. Non-resident citizen or alien, with executor or administrator in the Philippines, the estate tax return shall be filed and the TIN for the estate secured from
the RDO where such executor or administrator is registered, or if not registered, the RDO having jurisdiction over his residence.
3. Non-resident citizen or alien, without an executor or administrator in the Philippines – the estate tax shall be filed and the TIN for the estate shall be
secured from the Office of the Commissioner through RDO 39 – South Quezon City.

CERTIFICATION FROM A CERTIFIED PUBLIC ACCOUNTANT: is required whenever the gross estate exceeds P5,000,000 (P2,000,000 prior to the TRAIN)
containing the following:
1. Itemized assets of the decedent with their corresponding gross value at the time of his death, or in case of a non-resident alien, of the part of his gross
estate situated in the Philippines;
2. Itemized deductions from gross estate; and
3. The amount of tax due whether paid or still due and outstanding.

DISCHARGE OF EXECUTOR/ADMINISTRATOR FROM PERSONAL LIABILITY: If the executor or administrator makes a written application to the
Commissioner for determination of the amount of the estate tax and discharge from personal liability therefore, the Commissioner (as soon as possible, and in
any event within one (1) year after the making of such application, or if the application is made before the return is filed, then within one (1) year after the
return is filed, but not after the expiration of the period prescribed for the assessment of the tax in Section 203 shall not notify the executor or administrator of
the amount of the tax. The executor or administrator, upon payment of the amount of which he is notified, shall be discharged from personal liability for any
deficiency in the tax thereafter found to be due and shall be entitled to a receipt or writing showing such discharge. (Sec. 92, Tax Code)

WITHDRAWAL FROM BANK DEPOSITS OF THE DECEASED: Under the TRAIN, as implemented by Section 10 of RR No. 12-18, if a Bank has knowledge
of the death of a perons, who maintained a bank deposit account alone, or jointly with another, it shall allow the withdrawal from the said deposit account,
subject to a final withholding tax of 6% of the amount to be withdrawn, provided that the withdrawal shall only be made within one year from the date of
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death of the decedent.

The Bank is required to file the prescribed quarterly return on the final tax withheld on or before the last day of the month following the close of the quarter
during which the withholding was made. The bank shall issue the corresponding BIR Form No. 2306 certifying such withholding. In all cases, the final tax
withheld shall not be refunded, or credited on the tax due on the net taxable estate of the decedent.

The executor, administrator, or any legal heirs, withdrawing from the deposit shall provide the bank with the TIN of the estate of the decedent. For this purpose,
the bank shall require prior to such withdrawal, the presentation of BIR Form No. 1904 of the estate, duly stamped received by the BIR.

Further, all withdrawal slips shall contain the following terms and conditions:
a. A sworn statement by any one of the joint depositors to the effect that all of the joint depositors are still living at the time of withdrawal; and
b. A statement that the withdrawal is subject to the final withholding tax of 6%.

Not subject to 6% Final Tax: in instances where the bank deposit accounts have been duly included in the gross estate of the decedent and the estate tax due
thereon paid, the executor, administrator or any of the legal heirs shall present the eCAR issued for the said estate prior to withdrawing from the bank deposit
account. Such withdrawal shall no longer be subject to the withholding tax of 6%.

Prior to the TRAIN: a withdrawal is not allowed without a certification from the Commissioner that the estate tax has been paid or if the amount to be withdrawn
is not exceeding P20,000, the withdrawal will be allowed only if there is an authorization from the Commissioner.

MISCELLANEOUS PROVISIONS
1. Duties of Certain Officers and Debtors
a. Registers of Deeds
(1) Shall not register in the Registry of Property any document transferring real property or real rights therein or any chattel mortgage, by way of
gifts inter vivos or mortis causa, legacy or inheritance, unless a certification from the Commissioner that the tax fixed in this Title and actually
due thereon had been paid is show, and
(2) They shall immediately notify the Commissioner, Regional Director, Revenue District Officer, or Revenue Collection Officer or Treasurer of the
city or municipality where their offices are located, of the non-payment of the tax discovered by them.
b. Any lawyer, notary public, or any government officer who, by reason of his official duties, intervenes in the preparation or acknowledgment of
documents regarding partition or disposal of donation inter vivos or mortis causa, legacy or inheritance, shall have the duty of furnishing the
Commissioner, Regional Director, Revenue District Officer or Revenue Collection Officer of the place where he may have his principal office, with
copies of such documents and any information whatsoever which may facilitate the collection of the aforementioned tax.
c. A debtor of the deceased shall not pay his debts to the heirs, legatee, executor or administrator of his creditor, unless the certification of the
Commissioner that the tax fixed in this Chapter had been paid is shown; but he may pay the executor or judicial administrator without said certification
if the credit is included in the inventory of the estate of the deceased.
2. Restitution of Tax Upon Satisfaction of Outstanding Obligations - If after the payment of the estate tax, new obligations of the decedent shall
appear, and the persons interested shall have satisfied them by order of the court, they shall have a right to the restitution of the proportional part of the
tax paid.
3. 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.

Cesar Nickolai F. Soriano Jr.

14 University of Santo Tomas – AMV College of Accountancy 2010-6213
Arellano University School of Law 2011-0303
ESTATE TAX