2.2. Estate Tax Exercsies PDF

I.
Classification of Property
Instruction: Classify each property by indicating the appropriate letter in the space
provided.
Choices:
a. Real Property
b. Tangible Personal Property
c. Intangible Personal Property
A 1. House and lot

C 2. Accounts Receivable
A 3. Building
A 4. Fishpond
B 5. Car
C 6. Franchise
B 7. Appliances
B 8. Jewelry
C 9. Bank deposit
C 10. Interest in a domestic industry
B 11. Fishing boat
A 12. Growing Fruits
C 13. Shares of stock
B 14. Paintings
B 15. Furniture and Fixtures
C 16. Copyright
C 17. Treasury bonds
C 18. Notes Receivable
A 19. Mango trees
C 20. Trademark
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II. Kind of Transfer
Instruction: Classify transfer by writing the correct letter.
Choices:
a. Transfer in Contemplation of Death
b. Revocable Transfer
c. Transfer Under a General Power of Appointment
d. Transfer Under a Special Power of Appointment
A 1. Mr Paterno has been fighting for his life since he was

diagnosed to have cancer of colon two months ago. The cancer
is already on its terminal stage. Accepting his fate, he sought the
assistance of his lawyer and made his will.
B 2. Mr. Paterno designated his wife as beneficiary of an insurance
which is took upon his own life.
B 3. Mr. Paterno transferred all his real property to Mr. Vicente in
trust for Junior, Mr. Paterno’s minor son but reserved his right to
terminate the transfer anytime.
D 4. Mr. Paterno transfers his property in trust for his son, Junior for
life and then in trust for the children of Junior as Junior may
appoint by will.
C 5. Mr. Paterno, in his last will, devised his real property in favor of
Mr. Vicente stating that Mr. Vicente’s subsequent transfer may be
made to any person. Mr. Vicente transferred the property to
Hospicio de San Jose.
A 6. Mr. Celerio just celebrated his 100 th birthday. Feeling that
death is not far, he transferred all his property to his heirs.
C 7. Mr. Paterno transfers his property in trust for his son, Junior for
life and in trust for whoever Junior shall designate by will to
succeed to the property.
D 8. Mr Paterno transfers his property in trust for his son, Junior for
life and then trust for any of Junior’s siblings as Junior may
appoint by will.
A 9. Mr. Paterno frequently travels abroad due to the nature of his
business. He thinks that he is not spared from meeting air
accidents considering the rampant occurrence of plane crash
these days. He decided to execute his last will and testament.
C 10. Mr. Paterno transfers his property in trust for his son, Junior
for life and then in trust for anybody whom Junior may, by will,
appoint and designate.
III. Adequacy of Consideration for Transfer:
A. For each case, determine the value to include in the gross estate computation
Case A Case B Case C
B. Consideration received by P1,000,000 P500,000 0
transferor-decedent at time of
transfer
A. Fair market value at the time of 1,000,000 1,000,000 1,000,000
transfer
C. Fair market value at the time of 1,250,000 1,250,000 1,250,000
death of transferor
Value to include in the gross estate 0 750,000 1,250,000
of the decedent
Steps to follow in knowing if there

is inadequacy of the consideration.
Step 1: Compare the FMV at the

time of transfer with the
Consideration Received, FMV =
CR , meaning no inadequacy,
therefore no value to be included
in the gross estate.
what if, FMV < Consideration

Received, there is inadequacy.
Step 2: if there is inadequacy,

compare the FMV at the time of
death with the consideration
received, then the difference will
be the value to be included in the
gross estate.
B. For each case, determine the value to include in the gross estate computation:
Case A Case B Case C
C. Fair market value at the time of P900,000 P900,000 P900,000
death of transferor
A. Fair market value at the time of 800,000 800,000 800,000
transfer
B.Consideration received by 0 500,000 800,000
transferor-decedent at the time of
transfer
Value to include 900,000 400,000 0
IV. Proceeds of Life Insurance
Instruction: In each case below, determine whether or not the proceeds of life insurance
shall be included in the gross estate of Mr. Paterno, the decedent. Justify your answer.
1. Mr. Paterno took insurance on his life for P5 million and designated his estate as the
revocable beneficiary.
Answer: Yes, includible in the gross estate, because the beneficiary is the estate
whether the designation is revocable or irrevocable, included.
2. Mr. Paterno took an insurance on his life for P10 million and designated the
administrator of his estate as the irrevocable beneficiary.
Answer: Yes, includible in the gross estate, because the beneficiary is the administrator
of the estate of the decedent, they are one of those persons incapable of succeeding
according to law.
3. Mr. Paterno took an insurance on his life for P15 million and designated his mother as
beneficiary.
Answer: Yes, includible in the gross estate even though the beneficiary is the third
person but it is silent as to revocable or irrevocable, if it is silent it is understood as
revocable. Therefore, includible.
4. Mr. Paterno took an insurance on his life for P20 million and designated his wife as
revocable beneficiary.
Answer: Yes
5. Mr. Paterno took an insurance on his life for P25 million and designated his son as
irrevocably beneficiary.
Answer: Not includible, because the beneficiary is the third person designate as
irrevocable transfer
V. Valuation of Property
Instruction: For each item that follows, indicate in the space provided the value which
must be included in the gross estate of the decedent:
1. Mr. Paterno devised to his son a 300 square meter lot in Manila. Values available
follow:
Approved zonal value for the locality - P10,000 per sq. m.
Assessed value per assessment roll - P2,500,000
Fair market value fixed by the assessor - P2,700,000
Solution:
Land:
Approved zonal value (300 sq meters @ P10,000 per sq meter) = P3,000,000
Assessed value per assessment roll 2,500,000
Fair market value fixed by the assessor 2,700,000
The answer should be the highest among the given values, therefore, P3,000,000.
2. Mr. Paterno died holding 8,000 shares issued by Warranty, Inc. At the time of his
death, the highest quotation in the stock exchange for each share was P200 while the
lowest P150.
Solution:
The mean value per share (P200 + P150)/2 = P175 per share @ 8,000 shares =
P1,400,000
3. Two years ago, Mr. Paterno lent his friend-debtor P200,000 evidenced by a note.
They mutually agreed that 18% simple interest per annum shall be charged. Exactly
two years after Mr. Paterno died.
Maturity value = Principal + Interest
= P200,000 + P72,000
= P272,000
Interest = P x R x T = P200,000@.18@2 years

P72,000
4. Mr. Paterno was about to present to his long-time girlfriend in a dinner date a 24K
gold engagement ring he bought that same day for P80,000. Had he opted to buy it in
one year installment scheme, it would have been more expensive by P20,000. On his
way to meet her, however, he met a car accident and died.
Answer: It should be valued at P80,000 because it was the fair market value of the 24K
gold.
5. Warranty, Inc, is the issuer of 100,000 shares of stock held by Mr. Paterno. The
decedent has the following financial data at the time of his death:
Par value per share - P4.00
Outstanding shares - 800,000 shs
Retained earnings – P1.2M
The shares of stock are not traded in the stock exchange.
Total Shareholders’ Equity

The formula: Book per share = No of outstanding shares
Solution:
Outstanding shares (800,000 shs@ P4.00 par value) P3,200,000
Retained earnings 1,200,000
TSE 4,400,000
800,000 shs
Book value per share = P5.5 @ 100,000 shares = P550,000
VI. Situs of Property
Indicate whether the situs of the property is within the Philippines or without.
1. Building and land in Makati City Within

2. Trees, plants, growing fruits and land in Bulacan Within
3. Fishpond in Batangas Within
4. Appliances in house and lot in the Philippines Within
5. Jewelry in the Philippines Within
6. Jewelry in Hongkong without
7. Appliances in apartment rented in California Without
8. House and lot in the Philippines Within
9. Bank deposit in Switzerland Without
10. Foreign bonds with business situs in the Philippines Within
11. Van in Canada without
12. Copyright exercised in Bulacan Within
13. Business right in a corporation established in China Without
14. Trademark used in Japan Without
15. Patent in Canada Without
16. Franchise in the Philippines Within
17. Car in the Philippines Within
18. Petron certificate of stocks kept in Singapore Within
19. House and lot in Spain Without
20. Foreign shares, 90% of the business in the Philippines Within
21. PLDT certificate of stocks kept in the Philippines Within
22. Treasury bonds issued in Bangko Sentral ng Pilipinas Within
23. Foreign shares, 80% of the business in the Philippines Without
24. Notes receivable, debtor residing in the Irag Without
25. Interest in an industry established in Guam. Without
VII. Gross Estate:
Instruction: For each type of decedent, compute the gross estate of Mr. Bo if he left the
property below.
Group 1 – RC, NRC, RA, the computation of the gross estate includes all property
regardless of the location
Group 2 – NRA – w/r, the computation of the gross estate includes only the property
within except intangible property
Group 3 – NRA – w/o reciprocity, the computation of the gross estate includes all
property within
RC NRC RA NRA-w/r NRA-w/o

r
1. Lot in Pakistan, 1,500,00 1,500,00 1,500,00 0 0
P1,500,000. 0 0 0
2. Accounts receivable, 150,000 150,000 150,000 0 150,000
debtor in Jolo, P150,000
(within)
3. Foreign bonds, 2,800,00 2,800,00 2,800,00 0 2,800,00
P2,800,000 0 0 0 0
4. Building in Quezon 5,000,00 5,000,00 5,000,00 5,000,00 5,000,00
City, 5,000,0000 0 0 0 0 0
5. Fishing boat in 175,000 175,000 175,000 175,000 175,000
Batangas, P175,000
6. Car in Pakistan, 1,200,00 1,200,00 1,200,00 0 0
1,200,0000 0 0 0
7. Van in Manila, 1,400,00 1,400,00 1,400,00 1,400,00 1,400,00
P1,400,000 0 0 0 0 0
8. Farm in Batangas, 550,000 550,00 550,000 550,000 550,000
550,000
9. Appliances in 550,000 550,000 550,000 550,000 550,000
Cotabato, P550,000
10. Jewelry in Dubai, 800,000 800,000 800,000 0 0
P800,000
11. Shares of stock, 250,000 250,000 250,000 0 250,000
domestic corporation,
P250,000.
12. Bank deposit in a 3,000,00 3,000,00 3,000,00 0 0
Swiss bank, P3,000,000. 0 0 0
13. Notes receivable, 700,000 700,000 700,000
debtor in Pakistan,
P700,000.
14. Copyright exercised 2,500,00 2,500,00 2,500,00 2,500,00
in the Philippines, 0 0 0 0
P2,500,000.
15. Patent in Paris, 4,500,00 4,500,00 4,500,00 0 0
P4,500,000. 0 0 0
16. Franchise used in 2,000,00 2,000,00 2,000,00 0 2,000,00
Laguna, P2,000,000. 0 0 0 0
17. Treasury bonds, 900,000 900,000 900,000 0 900,000
government corporation,
P900,000.
18. House and lot in 1,000,00 1,000,00 1,000,00 1,000,00 1,000,00
Cotabato City, 0 0 0 0 0
P1,000,000.
19. Fish pond in 300,000 300,000 300,000 300,000 300,000
Nasugbu, Batangas,
P300,000.
20. Mango fruits and 850,000 850,000 850,000 850,000 850,000
trees in Zambales,
P850,000.
21. Obligations by a 400,000 400,000 400,000 0 400,000
domestic corporation,
P400,000.
22. Interest in a domestic 475,000 475,000 475,000 0 475,000
industry, P475,000.
23. Library house in 250,000 250,000 250,000 250,000 250,000
Cotabato City, P250,000.
24. Paintings in the 1,200,00 1,200,00 1,200,00 1,200,00 1,200,00
Philippines, P1,200,000. 0 0 0 0 0
25. Rice Field in Nueva 450,000 450,000 450,000 450,000 450,000
Ecija, P450,000.
TOTAL
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I.

A 1. House and lot

A 1. Mr Paterno has been fighting for his life since he was

Steps to follow in knowing if there

Step 1: Compare the FMV at the

what if, FMV < Consideration

Step 2: if there is inadequacy,

Interest = P x R x T = P200,000@.18@2 years

The shares of stock are not traded in the stock exchange.

Total Shareholders’ Equity

Book value per share = P5.5 @ 100,000 shares = P550,000

1. Building and land in Makati City Within

RC NRC RA NRA-w/r NRA-w/o

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