ESTATE TAX

Transfer taxes 1) Compulsory Heirs

a) Primary
 Taxes imposed upon the gratuitous disposition of private properties
 Legitimate children and descendants
or rights
 Illegitimate children
Effectivity Type Tax Object of  Widow or Widower
Taxation b) Secondary
During the lifetime Inter- Donor’s Tax  In default of legitimate children and descendants, legitimate parents
of the donor and Vivos and ascendants
Donation the donee Privilege to 2) Voluntary Heirs
transfer 3) Intestate Heirs
Upon the death of Mortis Estate Tax gratuitously a) Order of Priority
the Donor Causa I. Legitimate Children
II. Legitimate Parents
III. Illegitimate Children
Succession IV. Surviving Spouse
V. Brothers and sisters, nephews and nieces
 It is a mode of aquation by virtue of which the property, rights and
VI. Relatives by consanguinity up to 5th civil degree
obligations to the extent of the value of the inheritance, of a person
VII. State
are transmitted through his death to another or others either by will
or by operation of law. Gross Estate

Illustration:  Consists of all properties and interests in properties of the decedent

at the time of his death

Estate Tax

TESTAMENTARY LEGAL OR a) Accrual

MIXED
OR TESTATE INTESTATE  It accrues as of the death of the decedent, notwithstanding the
postponement of the actual possession or enjoyment of the
estate by the beneficiary.
b) Taxpayer
Decedent’s Estate (Art. 886, CCP)  Estate of the decedent – juridical person, represented by
administrator, executor or legal heirs.
To be Inherited by: c) Filing
LEGITIME Compulsory Heirs  Decedent died before 2018 – within 6 months after death
FREE PORTION Compulsory Heirs and/or  Decedent died during TRAIN law – 1 year from the date of death
Voluntary Heirs
 d) Law to be applied  Revocable transfer
 The law/statute in force as of the date of death of the decedent  *Property passing under General Power of Appointment (GPA)
 Example:
Rate
Manny donated property to Nonito through his last will and
Before TRAIN Law testament. It includes a provision that Nonito can transfer the
property to anyone. Nonito transferred the property to
IF THE NET ESTATE IS Boomboom intend to take effect at the time of Nonito’s death
Over But not over Tax Shall be Plus Of the excess  Transfers for insufficient consideration
over  FMV at the time of transfer
200,000 EXEMPT  FMV at the time of death
200,000 500,000 0 5% 200,000  Computation:
500,000 2,000,000 15,000 8% 500,000 FMV at the time of death xxx
2,000,000 5,000,000 135,000 11% 2,000,000 Less: Selling Price (xxx)
5,000,000 10,000,000 465,000 15% 5,000,000 Gross Estate (included) xxx
10,000,000 1,215,000 20% 10,000,000  Proceeds of Life Insurance

Beneficiary Designation Gross Estate

Train Law – Republic Act No. 10963 Estate Revocable/Irrevocable Included
Executor Revocable/Irrevocable Included
 6% based on the value of such Net Estate
Administrator Revocable/Irrevocable Included
Classification of Taxpayers and Composition of Gross Estate 3rd Party (i.e. wife) Revocable Included
Residents and Citizens Wherever Situated 3rd Party (i.e. wife) Irrevocable Excluded
Situated in the Philippines
* Refers to the right to designate the person/s who will succeed to the
Nonresident Alien Unless excluded on the basis of
property of the prior decedent.
reciprocity (Intangible Personal
Property

Components of Gross Estate

 Real Property and tangible personal property

 Decedent’s interest and intangibles
 Capital of Surviving Spouse
 Properties transferred gratuitously during lifetime, but in substance,
transferred upon death:
 Transfer in Contemplation of Death
 Transfer with retention or reservation of certain rights
  Fair market value
 Shares of Stock
Exemptions of Certain Acquisitions and Transmissions
 Traded
 Merger of usufruct in the owner of the naked title  Arithmetic mean between the highest and lowest
 Illustration: In the last will and testament of Mr. Yumao, he assigned quotations nearest the date of death, if none is
the usufruct of his parcel of land to his son (Juan) while his grandson available on the date of death itself.
(Pedro) was named the owner of the naked title.  Not Traded
 The transmission or delivery of the inheritance or legacy by the  At the date of death/nearest to the date of death
fiduciary heir or legatee to the fideicommissary  Common (ordinary) shares – Book Value
 Illustration: In the last will and testament of Mr. Yumao, he devised  Preferred (preference) shares – Par Value
his parcel of land to his son (Juan) but with a condition that such  Club Shares – Bid Price
property should be given to his grandson (Pedro) when the former
dies. 3) Usufruct
 The transmission from the 1st heir, legatee or done in favor of another  Based on the latest Basic Morality Table to be approved by the
beneficiary, in accordance with the desire of the predecessors (Special Secretary of Finance, upon recommendation of the Insurance
Power of Appointment) Commissioner
 Illustration: In the last will and testament of Mr. Yumao, he devised
Property Relationship Between Spouses
his parcel of land to his son (Juan-Uncle) but with a condition that
such property should be given to his grandson (Pedro-Nephew) 1) Conjugal Property of Gains (CPG)
when the former dies.  Before August 3, 1988
 All bequests, devices, legacies or transfers to social welfare, cultural 2) Absolute Community of Property (ACP)
and charitable institutions, provided:  On/after August 3, 1988
a) No part of the net income of said institutions insure to the benefit
Similarities
of any individual
b) Not more than 30% of such transfers shall be used for Property CPG ACP
administration purposes Property inherited or received as Exclusive Exclusive
inheritance/donation during marriage
Valuation of Gross Estate
Property acquired during marriage (Other Conjugal Community
1) Real Property than inheritance/donation)
 The higher amount between: Property acquired from labor, industry, work Conjugal Community
 Fair market value as shown in the schedule of the values or profession of the spouse
fixed by the provincial and city assessors (per Tax Fruits or income due or derived during the Conjugal Community
marriage coming from common property
Declaration)
Personal Property for the exclusive use Exclusive Exclusive
 Fair market value as determined by the Commissioner
Differences
(Zonal Value)
2) Personal Properties Property before marriage or brought to the Exclusive Community
 marriage  Statement under oath executed by the administrator or
Fruits or income due or received during the Conjugal Exclusive executor of the estate reflecting the disposition of the proceeds
marriage coming from exclusive property of the loan (if contracted within 3 years prior to death)
Allowable Deduction
2) Purchase of goods/services
Citizens and Resident Decedents
 Documents evidencing the purchase
I. ORDINARY DEDUCTIONS  Duly notarized Certification from the creditor
1. Expenses, Losses, Indebtedness, Taxes, etc. (ELITe)  Certified true copy of the latest audited balance sheet of the
a) Funeral Expenses creditor
 Amount deductible - whichever is the lowest  Where the settlement is made through the Court, pertinent
Actual Funeral 5% of documents evidencing the claims and the Court order, if already
expenses issued.
Gross Estate P200,000
(paid/unpaid) Unpaid Mortgages
Community
b) Judicial Expenses  Amount Deductible – amount of unpaid mortgages
 Requisites:  Requisites:
 Must be incurred during the settlement of the  The FMV of the mortgaged property undiminished by the
estate, but not beyond the last day prescribed for mortgage indebtedness should be included in the gross estate
the filing of the estate tax return (w/in 6 months)  Contracted in good faith
 Must be essential to the collection of the assets,  For an adequate and full consideration
payments of debts or the distribution of the estate d) Claims against insolvent person
c) Indebtedness  Amount deductible – amount of claims/ receivables
 Requisites: that cannot be collected
 Personal debt of the decedent existing at the time  Requisites:
of his death  Value of the Claims is included in the gross
 Contracted in good faith estate
 Must be valid in law and enforceable in court  The insolvency of the debtor must be
 Must not have been condones by creditors established
 Must not have prescribed e) Taxes
 Complied with the substantiation requirements  Requisite – the tax must have accrued before the
death of the decedent
Substantiation Requirements
 Amount deductible – unpaid taxes accrued before
1) Simple Loan (inc. advances) the decedents death but not including:
 Debt instrument must be duly notarized  Income tax on income received after death
 Duly notarized Certification from the creditor  Property Taxes accrued after death
 Proof of Financial capacity of creditor to lend the amount  Estate Tax
 more than 3 years
More than 3 years but not 40%
more than 4 years
More than 4 years but not 20%
more than 5 years
f) Losses
 Amount deductible – value of property loss II. SPECIAL DEDUCTIONS
 Requisites:
 Arising exclusively from acts of God and acts Citizen/Resident NRA Decedent
Decedent
of man
STANDARD DEDUCTION
 Occurred during the settlement of the
Prior to TRAIN law 1,000,000 Not allowed
estate
TRAIN Law 5,000,000 500,000
 Not compensated by insurance
FAMILY HOME
 Not claimed as deduction from income tax Prior to TRAIN law 1,000,000 (max) Not allowed
purposes TRAIN Law 10,000,000 (max) Not allowed
MEDICAL EXPENSES
2. Transfer for Public Use Prior to TRAIN law 500,000 (max) Not allowed
3. Vanishing Deduction TRAIN law repealed Not allowed
 The decedent died within 5 years from receipt of the
property from a prior decedent or donor Benefits under RA 4917 As Provided Not allowed
 The property is located in the Philippines
 The property must have formed part of the taxable estate
of the prior decedent or the taxable gift of the donor and III. SHARE OF THE SURVIVING SPOUSE (for married decedents)
the transfer tax relative thereto has been paid
Nonresident Alien Decedents
 The property on which vanishing deduction is being taken
must be identified as the one received from the prior I. ORDINARY DEDUCTIONS
decedent, or from the donor, or something acquired in 1. Proportionate deductions for Expenses, Losses, Indebtedness,
exchange therefore. Taxes, etc. (ELITe)
 No vanishing deduction on the property was allowable to Gross Estate Phils .
a. × ELITE WORLD
the estate of the prior decedent Gross Estate World
 Rate: 2. TRANSFER FOR PUBLIC USE
3. VANISHING DEDUCTION
Interval of Acquisition and Rate
II. SPECIAL DEDUCTION
death of present decedent
III. SHARE OF SURVIVING SPOUSE (for married decedents)
Within 1 year 100%
More than 1 year but not 80%
more than 2 years
More than 2 years but not 60%
 impose undue hardship upon the estate or any of the heirs, he may
extend the time for payment as follows:

▫ Estate is settled extrajudicially (extra-judicial settlement) – 2

years

▫ Estate is settled judicially (judicial settlement) – 5 years 

Compliance Requirements
Insufficiency of cash for the payment of estate tax
Prior to TRAIN Law TRAIN Law
1. Cash installment
Notice of Death Date of Filing:
Gross Estate > P20,000  Withing 2  The cash installments shall be made within 2 years from the
months after date of the filing of the estate tax return
the
decedent’s N/A 2. Partial disposition of estate and application of its proceeds to the
death estate tax due
 Within 2
IF THE BANK HAS KNOWLEDGE OF THE DEATH OF A PERSON WHO
months after
the executor MAINTAINED A JOINT ACCOUNT 
or a. Prior to TRAIN law:
administrator
has qualified ▫ It shall not allow any withdrawal by a surviving
CPA Certification is If the gross estate exceeds: If the gross estate exceeds: depositor from the said joint account
required P2,000,000 P5,000,000
▫ Provided, however, that the administrator
of the estate or anyone of the heirs of the
Place of filing decedent may withdraw an amount not
exceeding P20,000 (upon authorization by
▪ Authorized Agent Bank (AAB) of the Revenue District Office (RDO)
the Commissioner)
having jurisdiction over the place of domicile of the decedent at the
time of his death b. Under TRAIN law (RR 12-2008):
▪ Office of the Commissioner (RDO No. 39, South Quezon City) - if the ▫ It shall allow any withdrawal from the said deposit
decedent has no legal residence in the Philippine account, subject to a final withholding tax of six
percent (6%)
Payment of Estate tax

▪ Estate tax shall be paid at the time the return is filed

▪ When the Commissioner of Internal Revenue finds that the payment

on the due date of the estate tax or of any part thereof would