Estate tax (TRAIN LAW)
104)
Donations
1. Donation Inter Vivos – take effect during the lifetime of the
donor; hence subject to donor’s tax.
2. Donation Mortis Causa – take effect at the death of the donor;
hence subject to estate tax.
Theories on Imposing Estate Tax
1. Benefits – Received Theory –
○ Government services as to the distribution of the
estate of the decedent;
2. Privilege or State Partnership Theory –
○ The State is a silent partner as to the accumulation of
property;
○ Inheritance is a privilege; it acquired by another thru
the protection of the State;
3. Ability to Pay Theory –
○ The heirs and the beneficiaries must pay the tax;
4. Redistribution of Wealth Theory –
○ The tax reduces the property received by the
successor.
Rate of Estate Tax (Sec. 84)
● The tax rate is 6% of the net estate in excess of P 5,000,000;
● Whether resident or non – resident decedent;
Gross Estate Inclusions (Sec. 85)
● The value of the all property, real or personal, tangible or
intangible, at the time of death of the decedent;
○ Wherever situated except for;
○ Non – resident, non – citizen decedent (meaning,
nonresident alien) – within the Philippines only; for
intangible property, it is subject to reciprocity
agreement.
Provided…
That amount withdrawn from the deposit accounts of a
decedent subjected to the 6% final withholding tax imposed
under Sec. 97 of the NIRC, shall be excluded from the gross
estate for purposes of computing tax.
Situs of Gross Estate
Intangible Personal Property Situated in the Philippines (Sec.
● Franchise which must be exercised in the Philippines;
● Shares, obligations, or bonds issued by any corporation or
sociedad anima organized or constituted in the Philippines in
accordance with its law;
● Shares, obligations, or bonds by any foreign corporation 85%
of the business of which is located in the Philippines;
● Shares, obligations, or bonds have acquired a business situs in
the Philippines;
● Shares or rights in any partnership, business, or industry
established in the Philippines.
Reciprocity Agreement When –
1. If the decedent at the time of his death was a citizen and
resident of foreign country which at the time of his death did
not impose an estate tax of any character, in respect of
intangible personal property of citizens of the Philippines not
residing in that foreign country, or
2. If the laws of the foreign country of which the decedent was a
citizen and resident at the time of his death 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)
Gross Estate Inclusion(Sec. 85)
● Decedent’s interest
○ All interest at the time of decedent’s death;
● Transfer in contemplation of death
○ Transferred them during the lifetime of the decedent
in anticipation of his death.
○ “Death must be contemplated, and the thought of
death, as distinguished from purposes associated with
life, must be the impelling cause of the transfer.”
● Revocable transfer
○ Enjoyment of property transferred by decedent is
subject at the date of his death to any change through
the exercise of a power to revoke, alter, amend, or
terminate the transfer.
● Property Passing Under General power of appointment
○ “Means that the decedent must have had a power
exercisable in favor of himself, his estate, or creditors
of his estate.”
○ Special – decedent appointed only among a restricted
or designated class of persons other than himself, his
estate, his creditors, or creditors of his estate.
● Proceeds of life insurance
○ When the beneficiary is the estate, the decedent’s
executor, or administrator, whether revocable or not;
○ When the beneficiary is other than those mentioned,
provided the designation is revocable;
● Transfer for insufficient consideration
○ Insufficient when fair market value of the property at
the time of sale or transfer is greater than the
consideration.
○ Part of the gross estate is the excess of the fair market
value at the time of death over the consideration;
○ Except those subject to CGT.
Application: ● Car, cost P 600,000; book value – P 350,000; market value –
1. Pedro, decedent, owns a property valued at P 1,500,000 at the time 400,000
of his death. The said property was sold by Pedro during his ● Real Properties, zonal value – P 120,000; assessed value – P
lifetime to Juan for P 700,000 when its value was P 1,200,000. It was 72,000.
agreed by Pedro and Juan that the former will enjoy the income of the The gross estate of Binat is –
property as long as he lives. For Philippine estate tax purposes, how a. P 817,500 c. P 824,000
much will be included in determining gross estate? b. P 816,500 d. P 846,500
a. P 500,000 c. P 800,000
b. P 1,200,000 d. P 0 24. Nila Langaw, Filipina, died in Cambodia leaving the following
Based on the preceding number, if the fair market value of the property properties:
at the time of death is only P 600,000, how much is the gross estate? House and lot in Cambodia 1,000,000
a. P 500,000 c. P 800,000 Vacant lot in Manila 2,000,000
b. P 1,200,000 d. P 0 Shares of stock in a domestic
Corp., 60% of the business is
2. Yna died on October 20, 2018. During his lifetime, upon knowing Located in the Philippines 100,000
that she had stage 4 cancer, sold her car to her son for P4M. The fair Shares of stock in a foreign
market value of the car at the time of sale is P 3,000,000 while it is Corp., 70% of the business is
already valued at P 5,000,000 at the time of death. The amount that Located in the Philippines 200,000
will be added to gross estate is: Car in Manila 500,000
a. P 1,000,000 c. P 2,000,000
b. P 5,000,000 d. nil How much is the gross estate?
a. P 3,800,000 c. P 2,500,000
Based on the preceding number, if the consideration is fictitious, how b. P 2,600,000 d. P 2,000,000
much is the gross estate?
a. P 1,000,000 c. P 2,000,000 25. Based on the preceding number, but assuming the decedent is a
b. P 5,000,000 d. 0 non-resident alien, the gross estate is:
a. P 3,800,000 c. P 2,500,000
Gross Estate Inclusion(Sec. 85) b. P 2,600,000 d. P 2,000,000
● Capital of the surviving spouse
○ Excluded as part of the gross estate of the decedent. 26. Continuing number 25, and the rule of reciprocity applies, the gross
● Claims against insolvent person estate is:
○ Also as allowable deduction from the gross estate a. P 3,800,000 c. P 2,500,000
● Property undiminished by unpaid mortgage b. P 2,600,000 d. P 2,000,000
● RA 4917
Property Relations
Determination of the value (Sec. 88) 1. Conjugal partnership of gains – date of marriage before Aug.
● Usufruct 3, 1988 –
○ Probable life of the beneficiary based on the latest ○ Before the marriage – exclusive properties
basic mortality table, to be approved by the secretary ○ During the marriage – conjugal
of finance, upon recommendation of the insurance
commissioner. 2. Absolute Community of Property – date of marriage on or after
● Properties (Real) Aug. 3, 1988
○ Fair market value at the time of death; the higher ○ Before and during the marriage, all properties of the
between the zonal value or assessed value. spouses is absolute community
● Properties (Personal) Application:
○ Fair market value at the time of death. Mr. J Chavez died leaving the following properties:
● Rest house in Cebu, acquired before marriage, P 6M
Determination of the value (RR 12-2018) ● Income from rest house in Cebu, P 600,000
Shares of stock: ● Condominium in Davao, brough to marriage by wife, P3.6M;
● Listed – arithmetic mean between the lowest and highest ● Income from condominium in Davao, P 360,000, -
quotation at a date nearest the date of death; ● Town house in Quezon City, acquired during marriage,
● Unlisted common shares – book value of the share; P10.5M –
● Unlisted preference shares – par value of the share; ● Income from town house in Quezon City, P 1,050,000 –
● Car, inherited by wife during marriage (the decedent provided
in his will that it shall form part of the common properties of
23. Binat died on April 13, 2018, leaving the following properties: the spouses), P 1.3M.
● Common stock of Chris Corporation, 2,000 shares, listed in the ● Jewelry, acquired during marriage for exclusive use of the
PSE, highest – P 40; lowest – P 39; (40+39)/2 = 39.50 x 2,000 wife, P 200,000 –
= 79,000
● Common stocks of Cristina Corporation, 1,500 shares, not Questions:
listed in the stock exchange. Cost – P 50 per share; book value ● How much is the conjugal properties under CPG?
– P 45 per share; 1,500 shares x 45 = 67,500 ● How much is the gross estate under CPG?
● Preference shares of Christopher Corp., 3,000 shares, not listed ● How much is the community properties under ACP?
in the stock exchange. Cost – P 70 per share; book value – P 60 ● How much is the gross estate under ACP?
per share; par value – P 50 per share; 3,000 shares x 50 =
150,000
ALLOWABLE DEDUCTIONS (Sec. 86) ● Claims against Manuel (insolvent), P 200,000, 50% collectible,
FOR CITIZEN OR RESIDENT 100,000
1. Standard deduction – P 5,000,000 ● Claims against a person who absconded, P 300,000.
2. Claims against the estate
● Debt instrument is notarized, except loans granted by Based on the data provided, how much should be deducted from the
the financial institutions. gross estate? 200,000
● Executor or administrator to submit statement
showing the disposition of the proceeds of the loan, if ALLOWABLE DEDUCTIONS (Sec. 86)
it is contracted within 3 years before the death of the FOR CITIZEN OR RESIDENT
decedent. 7. Vanishing deduction (previously taxed), requisites
● Property must be situated In the Philippines;
ALLOWABLE DEDUCTIONS (Sec. 86) ● Part of the gross estate of the prior decedent;
FOR CITIZEN OR RESIDENT ● Decedent died within five (5) years prior to his death;
● Claims against the estate ● Received as gift, bequest, devise, or inheritance, or
○ Arise out of contract, tort or operation of law; acquired in exchange for property so received;
○ Personal obligation; contracted in good faith; ● Donors tax or estate tax has been paid;
○ Adequate and full consideration; ● Not part of the deduction of the prior decedent;
○ Valid in law and enforceable in court;
○ Not condoned; Not prescribed. FOR CITIZEN OR RESIDENT
Vanishing deduction, deductible rate
3. Claims against insolvent person ● Amount equal to the following if the prior decedent died
● Part of the gross estate; within 1 year prior to the death of the decedent;
4. Unpaid mortgage ○ 100%, within 1 year;
● Property undiminished of mortgage shall be part of ○ 80%, more than 1 year but not more than 2 years;
the gross estate ○ 60%, more than 2 years but not more than 3 years;
5. Unpaid taxes EXCEPT (1) Income taxes after death; (2) ○ 40%, more than 3 years but not more than 4 years;
Property taxes not accrued before death; (3) estate tax. ○ 20%, more than 4 years but not more than 5 years;

ALLOWABLE DEDUCTIONS (Sec. 86) FOR CITIZEN OR RESIDENT

FOR CITIZEN OR RESIDENT Formula
❖ Requisites for claim against the estate, unpaid mortgage or Value to take (lower amount) P xxx
indebtedness: Less: Assumed mortgage xxx
➢ Founded upon promise or agreement; Initial basis P xxx
➢ Contracted bona fide Less: proportionate deduction xxx
➢ For adequate and full consideration. Final basis P xxx
X Vanishing deduction rate xxx
6. Losses Vanishing deduction P xxx
● Incurred during the settlement of the estate; and not
later than the last day of payment of estate tax; FOR CITIZEN OR RESIDENT
● Arises from fire, storm, shipwreck, or other casualties, Formula for proportionate deduction
or from robbery, theft, or embezzlement; initial basis/ gross estate x allowable deductions
● Not compensated by insurance;
● Not claimed as deduction from income tax. Allowable deductions include: (1) claims against insolvent person; (2)
claims against the estate; (3) unpaid mortgage or indebtedness; (4)
ALLOWABLE DEDUCTIONS (Sec. 86) unpaid taxes; (5) losses; (6) transfer for public use. (LIT + TP)_
If the loan is found to be merely an accommodation loan
where the loan proceeds went to another person , the value of FOR CITIZEN OR RESIDENT
the unpaid loan must be included as a receivable of the estate. 8. Transfer for public use
If there is a legal impediment to recognize the same as ● For government or political subdivisions’ use for
receivable of the estate, said unpaid obligations/mortgage public purpose only.
payable shall not be allowed as a deduction from the gross 9. Family home
estate. ● Equal to Current fair market value of decedent family
home;
In all instances, the mortgaged property, to the extent of the
If more than P 10,000,000, then the excess shall be subject to estate tax.
decedent’s interest therein, should always form part of the
10. Ra 4917, amount received by heirs from the employer for
gross taxable estate.
the death of the decedent; provided it shall be part of the
gross estate.
Question:
11. Share of the surviving spouse
Mr. Pobre is in need of money to start a small business. However, he
has no property to secure a loan from a bank so he sought the help of his
Application:
good friend, Mr. Rich. Mr. Rich obtained a loan from Banco de Oro
Mr. Sibillo, a resident decedent, married, died, leaving
amounting to P1M pesos secured by a real property worth P2M to
the following properties:
accommodate the request of Mr. Pobre. If subsequent to securing the
● Real and personal properties acquired during the marriage, P
loan and delivering to Mr. Pobre the proceeds, Mr. Rich died, how much
3M
gross estate should be reported?
● House and lot inherited from his father one year and 3 months
before he died (FMV when inherited, P1.5M) used as the
The following data were taken from estate of Pedro:
decedent’s family home, P2M
● Claims against Juan (insolvent), P 100,000 fully uncollectible.
 ● Car purchased with cash received as gift from his mother PET:
during the year he died, P 500,000 Net estate 13,500,000
● Cash (inclusive of P 500,000 received as inheritance from the SD (5,000,000)
father), P 1.5M Taxable net estate 8,500,000
X 6%
The following obligations and expenses were also made Estate tax 510,000
available: Tax paid in USA (200,000)
● Claims against conjugal properties, P 600,000; Payable 310,000
● Unpaid mortgage on the inherited house and lot (original Limitation A:
mortgage was P 600,000), P 100,000; 4,500,000/8,500,000 x 510,000 = 270,000 vs. 200,000

Te Pok died on November 20, 2018. Some of the properties he left are ALLOWABLE DEDUCTIONS (Sec. 86)
the following: For non resident alien decedent (within the Philippines)
Mode of Date FMV 1. Standard deduction – P 500,000
Asset Acquisition Acquired Acquired Death 2. Proportionate deduction of claims against the estate, claims
Land Purchase 7-3-14 500,000 350,000 against insolvent person, unpaid mortgage or indebtedness,
Car Donation 10-2-17 800,000 980,000 unpaid taxes and losses (without VD and TPU).
3. Vanishing deduction
Other information: 4. Transfer for public use
a. The gross estate of the decedent, P3M. 5. Share of the surviving spouse
b. The car was mortgaged for P50,000 when it was acquired and
Te Pok paid the same before he died. Exemptions (Sec. 87)
c. The allowable deductions totaled P125,000, which includes The following shall not be taxed:
medical expenses of P 30,000. It excludes bequest to a ● The merger or usufruct in the owner of the naked title;
charitable institution in the amount of P 50,000. ● The transmission or delivery of the inheritance or legacy by the
fiduciary heir or legatee to the fideicommissary;
The vanishing deduction is: ● The transmission from the first heir, legatee, or donee in favor
a. P 581,000 c. P 648,783 of another beneficiary, in accordance with the desire of the
b. P 571,000 d. P 637,617 predecessor;

Initial value to take (800T) 800,000 Merger of the Usufruct

Paid mortgage (50,000)
Initial basis 750,000
Proportionate deduction
750,000/3,000,000 x 95,000 (23,750)
Final basis 726,250
Vanishing rate 80%
VD 581,000

Family home
A decedent died leaving a family home composed of the following:
Conjugal house worth P 8M, and the land which he exclusively owned
valued at P4M. He also owns a vacation house in Baguio worth P7M. Fideicommissary Substitution

The deductible amount of family home is:

If the house is also an exclusive property, how much is the deductible

family home?

Tax Credit (Sec. 86)

● Tax credit – estate tax imposed by foreign authority
○ Limitation
■ Allowed tax credit
■ Foreign net estate/ world net estate x
Philippine estate tax
○ The tax due shall be the lower amount between actual Desired by the Predecessor
tax credit and the allowed tax credit

Application:
Mr. A, died, resident citizen, leaving the following properties:
● Properties – USA 5,000,000
● Properties – Philippines 10,000,000
● Allowable deductions – USA 500,000
● Allowable deductions – Phils 1,000,000
● Tax paid in USA 200,000

Tax to be paid?
Exemptions (Sec. 87)
The following shall not be taxed:
● All bequests, devises, legacies, or transfers to social welfare,
cultural, and charitable institutions: provided:
● That not more than thirty percent (30%) of the said bequest,
devises, legacies, or transfers shall be used for administration
purposes.
Exclusion under Special Laws
1. Proceeds of life insurance and benefits received by members of
the GSIS (RA 728);
2. Accruals and benefits received by members from SSS by
reason of death (RA 1792);
3. Life insurance proceeds on life insurance policy taken out by
the decedent for himself, upon his own life, where the
beneficiary is a third person and is irrevocably designated;
4. Life insurance proceeds on insurance policy (group insurance)
taken out by his employer on the employees life, whoever the
beneficiary maybe , whether the designation as beneficiary is
revocable or irrevocable.
5. Amount received from the Philippines and the United States
governments for war damages (RA227);
6. Payments from the Philippines of US government to the legal
heirs of deceased of World War II Veterans and deceased
civilian for supplies/ services furnished to the US and
Philippine Army (RA136);
7. Amount received from United States Veterans Administration;
8. Transfer by way of bona fide sales;
9. Properties held in trust by the decedent;
10. Acquisition and/ or transfer expressly declared as not taxable;
11. Personal Equity and Retirement Account (PERA) assets of the
decedent – contributor (Sec. 14, RA9505 – Personal Equity
and Retirement Act of 2008).
Estate tax returns (Sec. 90) Requirements
● When the gross estate, regardless of the value, consists of
registered or registrable property, motor vehicle, shares of
stock or other similar property, a clearance from the BIR is
required to transfer the ownership.
● In lieu of this, the executor or administrator, or any of the legal
heirs, shall file a return under oath in duplicate, setting forth:
○ The value of the gross estate;
○ Allowable deductions;
○ Other information necessary to establish the correct
taxes.
● When the gross estate exceeds P 5,000,000, the return shall be
supported with a statement duly certified to by a certified
public accountant containing the following:
○ Itemized assets of the decedent;
○ Itemized deductions;
○ Tax due whether paid or still outstanding.
Estate Tax Returns (Sec. 90) Time for filing
● Within 1 year from the decedent’s death;
● A certified copy of the schedule of partition and the order of
the court approving the same shall be furnished the
commissioner within thirty (30) days after the promulgation of
such order.
Estate Tax Returns (Sec. 90) Extension of time
● In meritorious cases, a reasonable extension not exceeding
thirty (30) days
Place of filing
● Authorized agent bank, Revenue district officer, collection
officer, or duly authorized Treasurer of the city or municipality
in which the decedent was domiciled at the time of his death;
● If there be no legal residence in the Philippines, with the office
of the commissioner;
Payment of Tax (Sec. 91) Time of payment
● Pay as you file system
Extension of time
● Applicable it there would be undue hardship upon the estate or
any of the heirs;
● Judicial settlement – 5 years;
● Extra judicial settlement – 2 years;
● Statute of limitations as provided in Sec. 203 is suspended;
Payment of Tax (Sec. 91) Extension of time
● No extension when there is negligence, intentional disregard of
rules and regulations, or fraud on the part of the taxpayer;
● When the extension is granted, a bond must be furnished by
the executor, administrator, or beneficiary;
Payment by installment
● Within 2 years from the statutory date for its payment without
civil liability and interest.
Payment of Tax (Sec. 91) Liability for payment
● The estate tax shall be paid by the executor or administrator
before delivery to any beneficiary of the distributive share of
the estate.
● The beneficiary to the extent of his distributive share shall be
subsidiary liable.
● If there are no executor or administrator, then any person in
actual or constructive possession of any property of the
decedent.
Discharge of Executor or Administrator (Sec. 92 )
● After payment of the estate tax due;
● Subject to 3 – year period assessment under sec. 203;
● Certification from the commissioner is necessary before the
judge ordered the distribution of the property (sec. 94)
Duties of Certain Officers and Debtors (Sec. 95)
● Register of deeds shall not register the transfer unless a
certification from the commissioner that the estate tax due has
been paid; also, they have to inform revenue officers of the non
payment of tax discovered by them;
● Lawyer, notary public, or government who intervenes shall
furnish the BIR officers with copies of information which will
facilitate the collection of taxes.
● The debtor of the deceased shall not pay the latter’s heirs,
legatee, executor, or administrator or his creditor unless the
certification has been issued;
● However, he may pay the executor or judicial administrator
without certification if the credit is included in the inventory of
the estate of the deceased.
Restitution of the Tax Upon Satisfaction (Sec. 96)
● If after the payment of the estate tax, new obligation of the
decedent shall appear, and the person interested shall have
satisfied them by order of the court, they shall have the right to
the restitution of the proportional part of the tax paid.
Transfer of shares, bonds or rights (Sec. 97)
● Can only be made after the certification has been issued by the
commissioner;
● The heirs, executor, or administrator are allowed to withdraw
from the decedent’s bank account subject to 6% withholding
tax;
● The withdrawn amount will be excluded from the gross estate
subject to estate tax.