FS2223-ESTATETAX-18A

BSA 2105 Atty. F. R. Soriano

ADDITIONAL TOPICS

Exclusions from gross estate (Per BIR Website)

1. GSIS proceeds/benefits

2. Accruals from SSS

3. Proceeds of life insurance where the beneficiary, other than the estate, executor or administrator, is
irrevocably appointed

4. Proceeds of life insurance under a group insurance taken by employer (not taken out upon the
decedent’s life)

5. War damage payments (from US and Philippine Governments)

6. Transfer by way of bona fide sales

7. Transfer of property to the National Government or to any of its political subdivisions

8. Separate property of the surviving spouse

9. Merger of usufruct in the owner of the naked title (Other exempt transmissions shown hereunder).

10. Properties held in trust by the decedent

11. Acquisitions and/or transfers expressly declared as not taxable.

Other exclusions from the gross estate are:

1. Benefits from the U. S. Veterans Administration.

2. Bequests, devices, legacies or transfers to social welfare, cultural and charitable institutions no part of
the net income of which inures to the benefit of any individual: Provided, that not more than thirty
percent (30%) of the said bequests, legacies or transfers shall be used by such institutions for
administrative purposes.

Exempt transmissions
1. The merger of usufruct in the owner of the naked title.
a. Usufruct means the right to enjoy the fruits a property. Naked title means ownership of the
property without the right to enjoy the fruits.
b. Example:
Mr. A died leaving an agricultural lot to Mr. B in usufruct (right to enjoy crops harvested
from the lot), and to Mr. C in naked ownership, i.e., C becomes the owner of the lot but has no
right to enjoy the crops harvested therefrom. The transfer of the lot upon the death of Mr. A is
subject to estate tax. Upon the death of Mr. B, the right to enjoy the crops shall now belong to
Mr. C. Thus, there is a merger of the usufruct in Mr. C, who is the owner of the naked title.
The transfer of the usufruct to Mr. C makes him the absolute owner of the agricultural lot. Such
transfer is exempt from estate tax. (Note: If Mr. C dies ahead of Mr. B, the naked ownership
shall be transferred to Mr. C’s heir/s which transfer will be subject to estate tax. On the death of
Mr. B, the usufruct and naked ownership will merge in the heir/s of Mr. C. The merger is
exempt from estate tax.)

2. The transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to the
fideicommissary.
a. Fiduciary heir refers to the first heir who has the obligation of preserving and transmitting the
property received by him from a prior decedent. Fideicommissary refers to the second heir who

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 FS2223-ESTATETAX-18A
eventually receives the property. The substitution of heirs is referred to as fideicommissary
substitution. In fideicommissary substitution, The relationship of the first heir and the second
heir should be just one degree, as in the case of a parent and child.
b. Example
Mr. A, in his last will and testament, instituted Mr. B as his first heir (fiduciary heir) of a
parcel of land. The will provides that Mr. B shall preserve the property and transmit it later to
Mr. C, B’s son, referred to as the second heir or fideicommissary. The estate of Mr. A was
subjected to estate tax. The transmission from the Mr. B to Mr. C is exempt from estate tax.

3. The transmission from the first heir, legatee or donee in favor of another beneficiary, in accordance
with the desire of the predecessor.
Example:
Mr. A, in his will, left a parcel of land to Mr. B, with the condition that Mr. B will transfer
such parcel of land to Mr. C when the latter reaches 18 years. The transfer of the parcel of land to Mr.
B is subject to estate tax, but the transfer of the lot to Mr. C is exempt from estate tax.

Valuation of shares of stock (not listed and traded in the local stock exchange) for purposes of the estate
tax, donor’s tax and capital gains tax (Revenue Regulation No. 20-2020 dated August 3, 2020)
1. For common shares of stock, the prima facie fair market value shall be the book value based on the
latest available financial statements duly certified by an independent public accountant prior to the
date of death or donation, but not earlier than the immediately preceding taxable year.

2. For preferred shares of stock, the fair market value shall be liquidation value, which is equal to the
redemption price of the preferred shares as of the balance sheet date nearest to the date of death or
donation, including any premium and cumulative preferred dividends in arrears.

3. In case there are both common and preferred shares, the fair market value of the common shares shall
be the book value computed by deducting the liquidation value of the preferred shares, from the total
equity of the corporation and dividing the result by the number of outstanding common shares as of
the balance sheet date nearest to the date of death or donation.
Illustration:
Assume that Mr. A sold 10,000 shares in X Corporation on June 30, 2020. The corporation’s
accounting period is on the calendar basis. In this case, the book value as the fair market value of the
shares of stock in X Corporation shall be determined based on its audited financial statements for the
year ending December 31, 2019, since the audited financial statements for taxable year 2020 are not
yet existent of the date of the sale of the shares.
Assume further that based on the audited financial statements as of December 31, 2019, the total
assets of X Corporation amounted to P50,000,000, while its liabilities amounted to P20,000,000,
resulting in an equity of P30,000,000. Its outstanding shares total 200,000 shares. For this purpose,
the net book value as the fair market value of each share shall be computed as follows:

P30,000,000/200,000 outstanding shares = P150 net book value per share

In this case, the net book value of the shares of stock in X Corporation based on its latest audited
financial statements shall be P150 per share, which shall be considered as the fair market value of each
share.

4. The book value of the common shares of stock or the liquidation value of the preferred shares of stock
need not be adjusted to include any appraisal surplus from any property of the corporation not
reflected or included in the latest audited financial statements, in order to determine the fair market
value of the shares of stock.

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