ESTATE TAX

MODULE 1 – Estate Tax

1. Amendments to Estate Tax Provisions of the NIRC

Before the effectivity of R.A. 10963 (TRAIN Law)

The estate tax rate ranged from 5% to 20%, the application of which depended on the
value of the net estate.
Net Estate Bracket Tax Rate
Over But not over
200,000 Exempt
200,000 500,000 5% of excess over 200,000
500,000 2M 15k + 8% of excess over 500,000
2M 5M 135k + 11% of excess over P2M
5M 10M 465k + 15% of excess over P5M
10M 1,215,000M + 20% of excess over P10M

Amendments introduced by the TRAIN Law

Tax Base Tax Rate
Value of Net Estate* 6%
*Value of Net Estate = Value of gross estate less allowable deductions

OTHER CHANGES
On the computation of Estate Tax, the TRAIN Law:
1) Removed the allowable deductions from the gross estate pertaining to actual
funeral expenses or 5% of the gross estate, whichever is lower; judicial
expenses; and medical expenses but increased the amount of standard
deduction from P1 million to P5 million;

2) Increased the amount of deduction for family home from up to P1 million to up to

P10 million and removed the sine qua non condition for the exemption or
deduction that the family home must have been the decedent’s family home as
certified by the barangay captain of the locality;
 3) Removed the deductions for nonresident estates pertaining to expenses,
losses, indebtedness, and taxes, but provided for a standard deduction
amounting to P500,000;

4) Deleted the provision that requires executors, administrators, or anyone of the

heirs to include in the estate tax return that part of the nonresident alien’s gross
estate not situated in the Philippines to be able to claim deductions;

5) Increased the amount of gross value of the estate provided in estate tax returns
that is required to be supported with a statement duly certified by a Certified
Public Accountant (CPA) from P2 million to P5 million.

On Administrative Procedures
Filing of Notice of Death
 Repealed the provision requiring the filing of notice of death of the decedent by
his/her executor, administrator, or any of the legal heirs within two (2) months
after the decedent’s death.

Deadline of Filing
 Extended the period within which the estate tax return should be filed, from 6
months to 1 year from the decedent’s death.

Payment on Installment Basis.

 Provided for the payment by installment basis in case available cash is
insufficient to pay the estate tax due. Payment shall be allowed within 2 years
from the statutory date for its payment without civil penalty and interest.

Withdrawal Limit
 Removed the P20,000 limit that may be withdrawn from the bank account of the
decedent without certification from the BIR and allows for the withdrawal of any
amount but subject to a final withholding tax of 6%.

2. Estate tax, definition

  Estate tax is the tax on the right to transmit property at death and on certain
transfers by the decedent during his lifetime which are made by the law
equivalent of testamentary dispositions.

 Estate tax is measured by the value of the property transmitted at the time of
death, regardless of its appreciation or depreciation.

 Inheritance Tax vs. Estate Tax - If you inherited an asset after a loved one dies,
you need to pay an inheritance tax. It’s a tax imposed on the heir or beneficiary
receiving any asset from a deceased person. In the Philippines, inheritance tax is
the same as estate tax. You don’t have to pay for separate taxes when assets
are transferred, you only need to settle the fees for the estate tax.

3. Nature of estate tax

 Estate tax is not a tax on property. Estate tax is held to be an excise tax imposed
on the privilege of transmitting property upon the death of the owner.

4. Purposes of imposing estate tax

 Pag ako tinanong nito sa recit, same answer lang on why taxes in general are
collected. Sources of revenue for the government/taxes are the lifeblood of the
government. Hahahaha.

5. Law that governs the imposition of estate tax

 Answer: Obviously, NIRC, as amended by the TRAIN Law.

 In the Philippines, the Congress has enacted Republic Act No. 10963 or Tax
Reform for Acceleration and Inclusion (TRAIN) Law, which took effect on 01
January 2018. Before the effectivity of the TRAIN Law, Republic Act No. 8424 or
the National Internal Revenue Code of 1997 governs the imposition of estate tax.

 Sec. 84. Rates of Estate Tax. – There shall be levied, assessed, collected and
paid upon the transfer of the net estate as determined in accordance with
Sections 85 and 86 of every decedent, whether resident or nonresident of the
Philippines, a tax at the rate of six percent (6%) based on the value of such net
estate. (As amended by TRAIN)
6. When estate tax accrues
 Estate tax is generated by death and accrues at the time of death. It is governed
by the law in force at the time of death notwithstanding the postponement of
the actual possession or enjoyment of the estate by the beneficiary.

7. Rates
 As it now stands, estate tax has a flat rate of 6% based on the value of the net
estate. See Sec. 84 of the NIRC (Cited in No. 5 above).

8. Situs of estate taxation

 Situs of taxation literally means place of taxation. The general rule is that the
taxing power cannot go beyond the territorial limits of the taxing authority.
Basically, the state where the subject to be taxed has a situs may rightfully levy
and collect the tax.

 In excise, donor's and estate tax laws, nationality, residence, and source, are the
factors to consider in determining the situs of estate tax.

 For citizens of the Philippines, whether resident or not, all their properties
included in their gross estate WHEREVER situated are subject to estate tax. (In
other words, basta Pilipino ka, lahat ng property mo pag namatay ka subject to
payment of estate tax)

 For residents, whether a citizen or not of the Philippines, all their properties
included in their gross estate WHEREVER situated are LIKEWISE subject to
estate tax. (Tagalugin ko na rin para mas maintindihan ko, haha. Basta nakatira
ka sa Pilipinas, Pilipino ka man o afam, lahat ng property mo pag namatay ka
subject rin sa payment of estate tax)

 For nonresident aliens, only their properties situated in the Philippines are
subject to estate tax. (Kung afam ka at hindi ka naman nakatira sa Pilipinas,
yung property mo lang na nasa Pilipinas ang maaaring ma-subject sa payment
of estate tax)

XPN: Intangible property (IPP). Its inclusion to the gross estate is subject to the
rule of reciprocity.

 What is the rule of reciprocity being meant here? If the foreign country of such
nonresident alien DOES NOT impose a transfer tax of any character on the IPP
 of Filipinos who are not residents of that foreign country, and vice-versa, then
IPPs of nonresident aliens are likewise EXEMPT from the payment of estate tax.
(Note: IPP lang, ha.)

 For estate tax purposes, residence refers to the domicile of the person. (As
opposed to the consti law definition of residence, where intent to reside and
abandon the old domicile is required/animus manendi coupled with animus non
revertendi.)

9. Gross estate
 Gross estate – includes any interest or right in the nature of property, but less
than title, having value or capable of having value.

 Sec. 85. Gross Estate. – The value of the gross estate of the decedent shall be
determined by including the value at the time of his death of all property, whether
real or personal, tangible or intangible, wherever situated: Provided, however,
That in the case of a nonresident decedent who at the time of his death was not
a citizen of the Philippines, only that part of the entire gross estate which is
situated in the Philippines shall be included in his taxable estate.

a. Real property
b. Personal property
 Sabi sa Sec. 85, NIRC, kasama sa gross estate ang personal at real property
wherever situated. However, dapat nating tandan na naga-apply lang itong rule
na ito kapag ikaw ay RESIDENT or CITIZEN ng Pilipinas.

i. Tangible personal property

ii. Intangible personal property
 Same rule as above as regards tangible property. If resident or citizen of the PH,
tangible property is also included in the determination of your gross estate.

 But when it comes to intangible personal property (Iyong IPP acronym na

nabanggit natin kanina, dapat alam mo na rule dian, kasi kaka daan lang natin
sa kanya haha.) But to reiterate, IPPs of NONRESIDENT ALIENS may be
exempt from estate tax, subject to the rule on reciprocity.
10. Kinds of estates of decedents for the purpose of imposing estate tax
a. Estates of decedent resident citizen, non-resident citizens and resident
aliens
b. Estates of decedent non-resident aliens

11. Gross estate of decedent resident citizen, non-resident citizens and resident
aliens (within and without the Philippines) and non-resident aliens (within the
Philippines)
 Properties not in the estate – there may be properties, which at the time of the
decedent’s death, are not in the estate because they were transferred by him
during his lifetime. These transfers are: transfers in contemplation of death;
revocable transfers; transfers under a general power of appointment; and
transfers for an insufficient consideration.

 While they are no longer properties in the estate (kasi nga pinamigay na, so
paano niya magiging property pa rin yun haha charot), the values of these
properties will still be included in the determination of the gross estate for estate
tax purposes.

 IMPORTANT: However, if the transfers are for a bona fide consideration (bona
fide sale for an adequate and full consideration in money or money’s worth), then
they will NOT form part of the gross estate.
a. Decedent’s interest
 Decedent’s interest means to the extent of the interest therein of
the decedent at the time of his death. (See Sec. 85 (A), NIRC)
b. Transfer in contemplation of death
 A transfer in contemplation of death is a transfer motivated by the thought
of death, although death may not be imminent. (See Sec. 85 (B), NIRC)

 Examples:
o Transfers, by trust or otherwise, in contemplation of or intended to
take effect (either in possession or enjoyment) at, or after death;

o Transfers, by trust or otherwise, under which the decedent has

retained for his life either 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.
c. Revocable transfer
 A revocable transfer is a transfer where the terms of enjoyment of the
property may be altered, amended, revoked, or terminated by the
decedent. (See Sec. 85 (C), NIRC)

 It is sufficient that the decedent had the power to revoke, even if he did not
actually exercise said power to revoke.
d. Property passing under general power of appointment
 A power of appointment refers to the right to designate the person or
persons who will succeed the property of a prior decedent.

 A general power of appointment is one which may be exercised in favor of

anybody. This forms part of the powerholder’s estate. (See Sec. 85 (D),
NIRC)

 A limited power of appointment is one which may be exercised only in

favor of a certain person or persons designated by the prior decedent.

 Only property passing under a general power of appointment should be

included in the gross estate of the transferor.
e. Proceeds of life insurance
 See Sec. 85 (E), NIRC.

 Proceeds of insurance under policies taken out by the decedent upon his
life shall constitute part of the gross estate if the beneficiary is:

(1) The estate of the decedent, his executor or administrator as

such; or

(2) A third person and the designation of the beneficiary is

REVOCABLE. (Corollary, kung irrevocable yung designation sa
third person-beneficiary, should not be included in the gross estate.
Dahil kung irrevocable yan, hindi naman kay decedent mapupunta
iyong proceeds)

 Life insurance proceeds must be taken out BY THE DECEDENT. Hence,

if the proceeds are from a company policy, GSIS, or SSS, not included in
the computation of gross income.
 f. Prior interest
 See Sec. 85 (F), NIRC.
g. Transfers for insufficient consideration
 See Sec. 85 (G), NIRC.
 Rules for transfers for insufficient consideration:

(1) If the transfer was in the nature of a bona fide sale for an
adequate and full consideration in money or money’s worth, do not
include in the GE;

(2) If the consideration was less than adequate and full, should be
included in the GE by adding the balance of the FMV at the time of
death and the consideration; and

(3) If there was no consideration received on the transfer (donation

mortis causa), the value to include in the GE will be the fair market
value of the property at the time of the decedent’s death.
h. Capital of the surviving spouse
 The capital of the surviving spouse of a decedent shall not be deemed a
part of his or her gross estate. (See Sec. 85 (H), NIRC)

In summary, gross estate is made up of:

1. The decedent’s interest at the time of his death

2. Transfers made during his lifetime (in contemplation of death, revocable, and
under a GPA)

3. Life insurance proceeds

4. Some other stuff required by law to be included in the gross estate in order to
allow deductions (claims against insolvent persons, unpaid mortgage, value of
the family home, vanishing deductions, and retirement benefits under R.A. 4917)