G R O S S

E S TAT E
Gross Estate
• Nature and Object of Estate Tax
• Purpose and Justification of Estate Tax
• Amendments introduced by TRAIN Law
• Taxability of Estate based on Classification of Decedent
• Composition of Gross Estate
• Difference between Conjugal Partnership of Gains and Absolute
Community of Property
• Exemptions from Gross Estate
Estate Tax
• Estate tax is defined as the tax imposed upon the privilege of
individuals to transfer properties occasioned by death.
• It 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.
• It is in the nature of national excise tax
Nature and Object of Estate Tax
• Nature: Obligation of the estate imposed indirectly on the
heirs having inchoate rights in the estate to his heirs and/or
beneficiaries at the time of his death
• Object: to tax the shifting of economic benefits and
enjoyment of property from the dead to the living
Purpose and Justification of Estate Tax
1. Benefit Received Theory
This theory considers the services the government renders in
the distribution of the estate of the decedent either by law or in
accordance with his wishes. For the performance of these
services and the benefits that accrue to the estate and the heirs,
the State collects the tax.
Purpose and Justification of Estate Tax
2. Privilege or State Partnership Theory
Inheritance is not a right but a privilege granted by the State,
and large estates have been acquired only with the protection
of the State. The State, as a passive and silent partner in the
accumulation of property, has the right to collect the share
properly due it
Purpose and Justification of Estate Tax
3. Ability to pay theory
The receipt of inheritance, which is in the nature of unearned
wealth, places assets in the hands of the heirs and beneficiaries
thereby creating an ability to pay the tax and thus to contribute
to governmental income
Purpose and Justification of Estate Tax
4. Redistribution of wealth theory
The receipt of inheritance is a contributing factor to the
inequalities in wealth and income. The imposition of death tax
reduces the property received by the successor, thus helping
bring about a more equitable distribution of wealth in society.
Power to impose tax
The power to tax estates and inheritance is based on the
general discretionary taxing power of the State legislature to
select the subjects of taxation, and this power extends to all the
usual objects within its sovereignty.
Law at the time of death applicable
The law in force at the time of the death of decedent shall
govern the computation for the estate tax.

The value of the property at the time of death of the decedent

shall be the basis for the valuation of the estate. The tax accrues
as of the date of the decedent’s death although the amount of
the tax may then be unknown, but on determination thereof, it
relates back to the time of death.
Amendments to Estate Tax under the
TRAIN law
• TRAIN law (RA 10963) took effect on January 1, 2018
• Prior to TRAIN law, RA 8424 or the National Internal Revenue
Code of 1997 governs the imposition of estate tax
Amendments under TRAIN law
1. Amendment to the Estate Tax Rate
Amendments under TRAIN law
2. Amendments on bank deposits left by decedent
• Prior to amendment, withdrawal limit is P20,000.00
• Per RMC No. 62-2018, bank deposits may be validly
withdrawn by the heirs:
• The executor, administrator, or any of the legal heirs who
maintained a bank deposit with the decedent may be allowed
to withdraw within one year from the date of death, provided
that the amount withdrawn shall be subject to a 6%
withholding tax
Amendments under TRAIN law
2. Amendments on bank deposits left by decedent
Per RMC No. 62-2018, bank deposits may be validly withdrawn
by the heirs:
• For joint accounts, the 6% withholding tax shall only be
applied on the share of the decedent on the joint account
• Prior to the withdrawal, the bank shall require the executor,
administrator or legal heirs to present copy of the TIN of the
estate of the decedent as well as BIR form 1904
Amendments under TRAIN law
2. Amendments on bank deposits left by decedent
Per RMC No. 62-2018, bank deposits may be validly withdrawn
by the heirs:
• Bank deposit slips shall contain the terms and conditions:
• Sworn statement that the surviving joint depositor to the effect
that all the other joint depositor/s is/are still living at the time
of withdrawal
• Statement that the withdrawal is subject to 6% FWT
Amendments under TRAIN law
3. Amendments to the certification requirement by a Certified
Public Accountant

• Increases the amount of gross value of estate provided in

estate tax returns that requires to be supported with a
statement duly certified by a Certified Public Accountant
from P2 million to P5 million
 Amendments under TRAIN law
4. Amendments on Administrative Procedures:
• Repeals 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
• Extends the period of filing of the estate tax return from 6 months to
up to 1 year from decedent’s death
• Provides for the payment by installment basis in case available cash is
insufficient to pay the estate tax. Payment shall be allowed within 2
years from the statutory date for it payment without civil penalty and
interest
GROSS ESTATE
GROSS ESTATE
Sec 85 of the NIRC:

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, real or personal, tangible or intangible,
wherever situated: Provided, however, that in case of
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 include in
his taxable estate
Taxability of Estate based on
Classification of Decedent
IF Resident or Filipino Decedent
• If the decedent is a RESIDENT, whether citizen or not, or CITIZEN of
the Philippines, whether resident or not, the estate will include:
1. ALL properties wherever situated
Properties include:
1. Real or immovable property
2. Tangible personal property
3. Intangible personal property (ex. Shares of stocks, dividends,
bank deposits, promissory notes)
IF Nonresident ALIEN
• If the decedent is a NONRESIDENT who is also NOT A
CITIZEN of the Philippines, the gross estate shall include:
1. Real or immovable property – situated in the Philippines
2. Tangible personal property – situated in the Philippines
3. Intangible personal property with a situs in the Philippines
(unless exempted on the basis of reciprocity/international
comity)
IF Nonresident ALIEN
(Rule of Reciprocity)
• Properties covered by Reciprocity: INTANGIBLE PERSONAL
PROPERTY
• Reciprocity takes place when the foreign country where the
non-resident alien was a citizen and resident:
a) Does not have any kind of death taxes
b) Has death tax but allows exemption to non-resident Filipinos
IF Nonresident ALIEN
(Rule of Reciprocity)
• BASIC RULES:
a) When there is reciprocity – The intangible personal property
of non-resident alien situated in the Philippines are NOT
included in the gross estate
b) When there is no reciprocity – The intangible personal
property of non-resident alien situated in the Philippines are
included in the gross estate
Residence same as Domicile for tax
purposes
• A person can have multiple residence but only one domicile.
Residence is place of abode whether permanent or temporary
while Domicile is a fixed permanent residence under the Civil
Code
• Residence and domicile are synonymous in taxation; it means
the permanent home, or the place to which whenever absent,
one intends to return.
• INTENTION is important
Situs of Intangible Personal Property
• Examples of Intangible Personal Property: credit, bills, receivables,
bank deposits, bonds, promissory notes, judgements, and
corporate stocks
• General Rule: Situs is the domicile or residence of the owner
• Exceptions:
• When it is consistent with the express provision of the statute
• When justice does not demand does not demand that it should be.
Example: shares of stock in a domestic corp. of a nonresident foreigner are
taxable in the PH;
Sometimes, the written document is the property itself and not merely as
evidence of the interests which it represents.
Composition of Gross Estate
What is part of the Gross Estate?
I. Decedent’s Interest
II. Transfer in Contemplation of Death
III. Revocable Transfer
IV. Property Passing Under General Power of Appointment
V. Proceeds of Life Insurance
VI. Prior Interests
VII. Transfers for Insufficient Consideration
VIII.Capital of the Surviving Spouse
1. Decedent’s Interest
Includes not only property owned but also includes property
rights and other intangibles
• Interest in property possessed – value of any interest in property
which at the time of his death are in his actual or constructive
possession
• Interest in property owned
• Property or interest transferred – value of transfers of property or
interest in property made by the decedent during his lifetime
which partake of the nature of testamentary dispositions
1. Decedent’s Interest/
6. Prior Interest
Examples or property rights and other intangibles:
• Dividends declared by a corporation before the death of the
stockholder
• Partnership profits even if paid after the death of the partner
• Usufructuary rights (right to receive rents); rents accruing
before the death of the decedent but collection of money is
made after death
 Specific property included in the Gross
Estate (sec. 104)
A. Real and personal property
B. Franchise which must be exercised in the Philippines
C. Shares, obligations, or bonds issued by any corporation organized under
Philippine laws
D. Share, obligations, or bonds issued by any foreign corporation 85% of
the business is located in the Philippines
E. Share, obligations, or bonds issued by any foreign corporation with a
Philippine business situs
F. Shares or rights in any partnership, business or industry established in
the Philippines
 Other Interests
1. Claims against insolvent persons
a) Claims of the deceased against insolvent persons where the value of the
decedent’s interest therein is included in the value of the gross estate
b) The full amount of the claim is included in the gross estate
c) The uncollectible amount of the claim is deducted from the gross estate
2. Amount received by heirs under RA 4917
a) Any amount received by the heirs from the decedent’s employer as his
retirement benefit should be included in the gross estate and deducted in
computing the net estate
b) RA 4917 – an act providing that Retirement Benefits of employees of
private firms shall not be subjected to levy, attachment, execution or
garnishment
2. Transfer in Contemplation of Death
Transfer of property motivated by the thought of death
although death is not yet imminent

Any interest in property of which the decedent has at any time

made a transfer by trust or otherwise
i. Transfer without retention of interest, but effect postponed
to after the death of the transferor
ii. Transfer with retention of interest to income or with right to
designate persons who will enjoy income or property
2. Transfer in Contemplation of Death
Circumstances to be considered in determining whether the
transfer is made in contemplation of death:
1. Age and state of health of the decedent at the time of the
transfer
2. When the transfer was made when the transferor is
terminally ill
3. Concurrent making of a will or making a will within a short
time after the transfer
2. Transfer in Contemplation of Death
Examples of motives precluding the category of a transfer in
contemplation of death:
1. To relieve the donor from the burden of management;
2. To save income or property taxes;
3. To settle family litigated and unlitigated disputes
4. To provide independent income for dependents
5. To see the children enjoy the property while the donor is alive
6. To protect the family from hazards of business operation
7. To reward services rendered
2. Transfer in Contemplation of Death
Not included in gross estate:
1. Transfers made in contemplation of death, through a bona
fide sale and for an adequate and full consideration in
money or money’s worth
2. Gifts inter vivos not made in contemplation of death
2. Transfer in Contemplation of Death
Examples:
1. A transfers property to B but the rent income from the
property will be for the account of A for a period of 15 years.
A died in the 10th year. The property is included in the gross
estate of A. The enjoyment of income of A did not end
before his death or by reason of his death.
2. C creates a trust fund for the benefit of D for life but C
retains the power to revoke the trust fund or to designate to
another person
3. Revocable Transfers
A transfer where the enjoyment of the property may be altered,
amended, or revoked.

The transfer which involves no actual transfer of ownership and

the transferor still retains beneficial ownership is still considered
gross estate subject to estate tax. To be exempt, the transfer
inter vivos must be absolute and outright with no strings
attached whatsoever by the transferor.
3. Revocable Transfers
Example:

X transfers his property in trust with the income payable to Y

and Z for their joint live, and in the event of their death, the
remainder to W. However, X retains the power to alter, amend,
revoke, or terminate the income interest of Y and/or Z.

The value of the property is includible in the gross estate of X

upon his death.
4. Transfer of Property under General
Power of Appointment
• Among those to be included in the gross estate is property
passing under a general power of appointment exercised by
the decedent.
• A General Power of Appointment grants the holder to appoint
the asset to anyone, including himself. The transferee having
full dominion over the property as though he owned it.
• It is special when the transferee can appoint only among a
restricted or designated class of persons other than himself.
4. Transfer of Property under General
Power of Appointment
Example:
D creates a trust and directs the trustee to pay the income to D’s
child, C, for C’s life. At C’s death, the property is to pass to C’s
child, X. C is given the power to appoint the property to his own
estate. If he exercises the power, the property will pass pursuant
to the terms of C’s Last Will and Testament (rather than pursuant
to the terms of the trust). C possesses a general power of
appointment—even though he does not personally benefit from
the exercise of the power of appointment
4. Transfer of Property under General
Power of Appointment
Example:
D creates a trust to pay the income to C for life and then to pay
the remainder to C’s issue. D also gives C the power to alter this
plan of distribution by designating by his Last Will and
Testament which among C’s issue are to receive the trust
property and in what proportions. C’s power is a limited power
of appointment because C may not exercise the power in favor
of C, C’s estate, C’s creditors, or the creditors of C’s estate.
5. Proceeds of Life Insurance
Included in the gross estate:
• The extent of the amount receivable by the estate of the
deceased, his executor, or administrator, as insurance under
policies taken out by the decedent upon his own life,
irrespective of whether or not the insured retained the power
of revocation.
• When no beneficiary is designated or is unclear, the
presumption is revocable designation, therefore, part of gross
estate
5. Proceeds of Life Insurance
Not included in the gross estate:
a) Beneficiary is not the estate, his executor, or his
administrator
b) Expressly stipulated in the policy that the designation is
irrevocable
c) Proceeds/benefits from SSS and/or GSIS
d) Proceeds coming from a group insurance
7. Transfers for Insufficient Consideration
• If any of the transfers, interests, rights or powers enumerated
(transfer in contemplation of death, revocable transfer,
property under general power of appointment) is made,
created, exercised, or relinquished but is not a bona fide sale
for an adequate and full consideration in money or money’s
worth, then the excess of the fair market value of the
transferred property at the time of death over the value of the
consideration received, shall be included in the gross estate
7. Transfers for Insufficient Consideration
• Example:
A sold his car to his friend B for P300,000.00. A week after this
sale, A died from some unknown disease. A purchased this car
in cash 2 years prior when the value of the car was around
P800,000.00. At the time of his death, the fair market value of
the car is at P500,000.00. How much should be included in the
gross estate of A?

Answer: P200,000
7. Transfers for Insufficient Consideration
• If the purported absolute sale inter vivos by the decedent is
shown to be fictitious, then the total value of the property
transferred is subject to inclusion in the taxable estate.

Note: Estate taxes are higher compared to Capital Gains Tax

prior to the amendments introduced by TRAIN Law. Since the
amendment, the issue on purporting a transfer to be a sale has
already been addressed.
 7. Transfers for Insufficient Consideration
Example:
In order to escape paying estate taxes, A, father of B, purportedly sold
his lot to B in the amount of P1,000,000. The lot has a fair market value
of P4,000,000.
Capital Gains Tax is at 6% (rate for capital gains on sale of RP)
= 4,000,000 x 6%
= 240,000.00

Estate tax of property at 4M (using old schedule)

= 135,000 + 11%(4,000,000-2,000,000)
= 355,000.00
8. Capital of the Surviving Spouse
• The capital of the surviving spouse of a decedent shall not be
deemed part of his or her gross estate
Conjugal Partnership of Gains
and Absolute Community of
Property
Exclusive property of each spouse
• Under the Tax Code, the separate or exclusive property of the
surviving spouse (i.e., the husband’s capital or wife’s
paraphernal or separate property) is not deemed part of the
gross estate of the decedent’s spouse. IF the decedent was
married, his gross estate would consist of his exclusive
properties and his share in the conjugal or community
properties.
Absolute Community of Property
• In the absence of a marriage settlement executed before the
celebration of the marriage or when the regime agreed upon
is void
• The default property regime between husband and wife on or
after August 3, 1988
Absolute Community of Property
• The community of property shall consist of: ALL PROPERTIES
OWNED BY THE SPOUSES at the time of the celebration of
marriage.

• Excluded (Exclusive property of each spouse):

A. Property
Absolute Community of Property
• Excluded (Exclusive property of each spouse):
A. Property acquired by gratuitous title by either spouse, and the
fruits as well as the income, if any, unless it is expressly provided
by the donor, testator or grantor that they shall form part of the
community property
B. Property for personal and exclusive use of either spouse;
however, jewelry shall form part of the community property
C. Property acquired before the marriage by either spouse who has
legitimate descendants by a former marriage, and the fruits as
well as the income, if any, of such property.
Conjugal Partnership of Gains
• When the spouses agree in their marriage settlements that the
regime of conjugal partnership of gains shall govern their property
relations during the marriage

• What constitutes conjugal property?

1. Property bought on installments paid partly from exclusive funds
of either or both spouse and partly from conjugal funds belongs
to the buyers if full ownership was vested before the marriage
and to the conjugal partnership if ownership is vested during the
marriage, subject to reimbursement of the amounts advanced by
the conjugal partnership or by either or both spouses
Conjugal Partnership of Gains
• What constitutes conjugal property?
2. The husband and wife place in a common fund the
proceeds, products, fruits and income from their separate
properties and those acquired by either or both spouses
through their efforts or by chance, and the net gains or
benefits obtained by either or both spouses shall be divided
equally between them, unless otherwise agreed upon in the
marriage settlements
(properties obtained from labor, industry, work or profession)
Conjugal Partnership of Gains
• What constitutes conjugal property?
3. All properties acquired during the marriage whether the
acquisition appears to have been made, contracted, or
registered in the name of one or both spouses, unless it is
proved that it pertains exclusively to the husband or to the
wife
4. The fruits (natural, industrial, or civil) due or received during
the marriage from the conjugal property as well as the net
fruits from the exclusive property of each spouse
Conjugal Partnership of Gains
• Excluded (Exclusive Property of Each Spouse):

A. That which is brought to the marriage as his or her own

B. That which each acquires during the marriage by gratuitous
(or lucrative) title
C. That which is acquired by right of redemption, by barter, or
by exchange with property belonging to only one of the
spouses
D. That which is purchased with exclusive money of the wife or
the husband
 Similarities between CPOG and ACP
Property CPOG ACP
A Property inherited or received as Exclusive Exclusive
donation during the marriage

B Property acquired during the Conjugal Community

marriage (other than inheritance)
c Property acquired from labor, Conjugal Community
industry, work or profession of
spouses
 Differences between CPOG and ACP
Property CPOG ACP
A Property before marriage brought Exclusive Community
to the marriage

B Fruits or income due or derived Conjugal Exclusive

during the marriage coming from
exclusive property
 Exercises

In no. 10, either exclusive or community is correct BUT for practicality, consider as community
property so that you can still deduct ½ of this as part of your ALLOWABLE DEDUCTIONS
 Exercises
• Mr. Dulay died on November 1,2019. An inventory of his properties was conducted for
estate tax purposes on January 1,2020. On that date, he had properties with an aggregate
fair value of P7,000,000. This amount includes P300,000 income received by the estate
since his death and is net of P600,000 used during his funeral

• Answer: 7,300,000
Work back the balance of properties at the time of death:

Fair Market Value 7,000,000

Funeral expenses 600,000 – this amount was deducted to get 7M
Income ( 300,000) – this income accrued AFTER death already
Total prop. at time of death 7,300,000
Exercises
• Mr. Baldomero had the following properties with their respective fair
values in his possession at the date of his death:
Agricultural land, held in trust P 200,000
Car, registered in the name of his brother 300,000
Motorcycle 80,000
Residential lot 900,000
Other personal properties 70,000
• Compute the gross estate:
Answer: (80+900+70) = 1,050,000
Exercises
• A Korean citizen residing in the Philippines died with the
following properties:

• Answer: 24,000,000
Exercises
• The following relates to the withdrawals from the account of a
decedent who died January 8,2019:

• Assuming the bank was notified of his death, how much should be
excluded in the gross estate?
• Answer: 1,000,000; withdrawals on Jan. 9-10 are subject to final tax
of 6% instead
Exercises

Answer: 800,000 (insurance A & insurance D

Exercises

Answer: 12,000,000 (3M + 9M)

Exercises
• Before their marriage, Mr. and Mrs. Zuela had salary savings
respectively of P2,000,000 and P1,500,000. Mr. and Mrs. Zuela
earned respectively P200,000 and P180,000 income from these
savings during the marriage. Mr. and Mrs. Zuela also earned
respectively P400,000 and P500,000 from their separate industries.
Under the ACP compute for the ff:
a. Mr. Zuela’s separate property 0

b. Mrs. Zuela’s separate property 0

c. Common property 4,780,000

d. Mr. Zuelas Gross Estate 4,780,000

Exercises
• Before their marriage, Mr. and Mrs. Zuela had salary savings
respectively of P2,000,000 and P1,500,000. Mr. and Mrs. Zuela
earned respectively P200,000 and P180,000 income from these
savings during the marriage. Mr. and Mrs. Zuela also earned
respectively P400,000 and P500,000 from their separate industries.
Under the CPG compute for the ff:
a. Mr. Zuela’s separate property 2,000,000

b. Mrs. Zuela’s separate property 1,500,000

c. Common property 1,280,000

d. Mr. Zuelas Gross Estate 3,280,000

Note: share of the surviving spouse in the net estate will be treated as an allowable
deduction in computing for the net estate
 Resident/ NRA No NRA with
Citizen Reciprocity Reciprocity
House and Lot USA; FMV at time of death 4M, cost 2M 4,000,000
House and Lot PH; FMV at time of death 2.5M value per tax 2,500.000 2,500,000 2,500,000
declaration 2M
Furniture and appliances PH P500,000 500,000 500,000 500,000
Car, Japan, purchase price P1.8M 1,800,000
Preference shares in PH sold for 300,000 1 day before death;
FMV on date of sale P250,000; par value on date of death
P350,000 (reason of death: car accident)
Bonds, issued by a Philippine corporation cost P450,000 450,000 450,000
Shares in foreign company 90% of business is in the PH 200,000 200,000 200,000
Shares in foreign company, 20% of business in the PH, with PH 100,000 100,000
business situs 100,000
Shares in foreign company, 40% of business in the PH 50,000 50,000 50,000
Total 9,600,000 3,800,000
3,750,000 3,000,000
Exclusions and Exemptions
from Gross Estate
Exclusion and Exemption
1. The merger of the usufruct in the owner of the naked title
• USUFRUCT – the legal right to use and enjoy the benefits and profits
of a property belonging to another
• USUFRUCTUARY – the person who was given the right to use
2. The transmission or delivery of the inheritance or legacy of
the fiduciary heir or legatee to the fideicommissary
• FIDUCIARY HEIR – the first heir
• FIDEICOMMISSARY – the SECOND heir whose relationship to the
fiduciary heir must be one degree
 Exclusion and Exemption
3. The transmission from the first heir, legatee or donee in favor of
another beneficiary, in accordance with the desire of the
predecessor
• The second transfer must be expressly stated by the predecessor in the will
• There is ONLY ONE transfer
4. All bequests, legacies, devises or transfer to social welfare, cultural
and charitable institutions
• No part of the net income of which inures to the benefit of any individuals
• Not more than 30% of such transfer shall be used for administrative purposes
• The value should be included in the gross estate and also deducted therefrom