Chapter 2 Gross Estate The first estate tax law in the Philippines is embodied in Act 2601 which took effect on July 1, 1916. It imposes graduated estate tax rates computed on net inventoried property left by a decedent. It was subsequently amended by the Revised Administrative Code of the Philippines imposing upon “every transmission by virtue of inheritance, devise, bequest, gift mortis causa, or advance in anticipation of inheritance, devise or bequest.” Since then, several laws were introduced to amending Act 2601 RA 8424 also known as “Tax Reform Act” or the National Internal Revenue Code (NIRC) Effective Jan.1, 1998 further restructured the tax base and rates of both estate and donor's taxes in addition to allowing the deduction of medical expenses from the gross estate. Bulk of the estate tax law aside from determining the tax base and rates which are found in NIRC are embodied in the Civil Code and Family Code of the Philippines. The recent amendment to Estate Tax law was introduced by RA 10963, or the “Tax Reform for Acceleration and Inclusion (TRAIN) Act” which took effect on January 1, 2018. It substantially amended the estate tax law by getting rid of the use of graduated tax rate and changed it to a single rate of 6% of the net taxable estate as well as revising the thresholds for Standard Deduction, Family Home and other amendments such as repealing funeral expenses, judicial expenses and medical expenses. 33, Scanned with CamScannerGross Ey Stay Estate Tax - Definition and Nature {In the Philippines, Estate Tax is a tax ee eee tha @ person is given in controlling fo a certain extent, a he ne : n of Property to take effect upon death. As discussed in a ler 1, it is ay excise tax imposed on the act of passing the ownership of eee at the time of death and not on the value of the property or right. On this basis, @state tax should not be construed as a direct tax on the property Of the ‘decedent although the tax is based thereon. Since estate tax accrues as. Of the time death, the right of the State to tax the Privilege ‘fo transmit the estate vests instantly upon death. The accrual of the tax is distinct from the obligation to pay the same. Justification for the Imposition of Estate Tax 1. Benefit-Received The law considers the service rendered by distribution of the estate of the decedent, either by law or in accordance with his wishes. For the performance of these ‘services and other benefits that accrue to the estate and the heirs, the State collects the tax. y the government in the "Privilege or State Partnership Theory pincer this theory, inheritance is nota right but a privilege granted by the State and legatces have been acquired only with the protection of the State. Consequently, the State as a Passive silent Partner in the accumulation of property has the ‘ight to collect the share which is Properly due to it, 3. Ability to Pay Theory Receipt of inheritance which is in the nature of a 7 : N unearnes Wealth or windfall, are place assets into the hands of the heirs and beneficiaries. This creates 80 ability to pay the tax and thus “contributes to government income, 4. Redistribution of Wealth The The receipt of inheritance & a contributi i it ‘ ¢ a ing factor to the inequalities in wealth and ved ones. _ The imposition ef estate tax reduces the rope roe by the successor, thus, helping to promote equitable Tope ec, Neath In sociey. "The ye base is the value of the Frere the care ae, Scheme of tensa’ precisely motvaed by Wigate the evis of inheritence in the Scanned with CamScannerGross Estate Classification of Decedents and Composition of Gross Estate For estate taxation purposes, decedents are classified into three (3); citizens, resident aliens and nonresident aliens. Section 85 of the Tax Code provides that the value of the gross estate of the decedent should 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 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. The composition of the estate may be summarized as follows: PLES Reece kak ie eects DECEDENT GROSS ESTATE Citizen ) Property (Real or Personal) wherever situated Resident alien Intangible personal property wherever situated = Nonresident alien 1) Real property situated in the Philippines 2) Tangible personal property situated in the Philippines 3) Intangible personal property with situs in the Philippines, unless excluded on the basis of reciprocity. RECIPROCITY CLAUSE (Section 104 of the Tax Code, as amended) The Tax Code excludes “intangible” personal property with situs in the Philippines from the gross estate of a non-resident alien decedent if there is reciprocity. There is reciprocity if: «The decedent at the time of his death was a resident citizen of a 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 + The laws of the foreign country of which the decedent was a resident citizen at the time of his death allow a similar exemption from estate taxes of every character, in respect of intangible personal property owned by citizens of the Philippines not residing in that foreign country. 35 Scanned with CamScannerGross Estate Intangible Asset The term “intangible asset’ was not defined in the Tax Code, nonetheless, Accounting Standards defines intangible asset as an “identifiable nonmonetary asset without physical substance”. They derive their value from intellectual or legal rights, and from the value they add to the other assets. As a rule, the situs of intangible personal property is the domicile of the owner, also known as “mobilia sequntur personam”. However, such tule is not applicable if the intangible property has situs elsewhere or where the intangible property has acquired a business situs in another jurisdiction because the principle of “mobilia sequntur personam’ is only used for convenience. !t must yield to the actual situs of such property. The situs of Franchise, for instance, should not be based on the domicile of the owner but the place where such franchise is exercised. INTANGIBLE ASSETS WITH SITUS “WITHIN” THE PHILIPPINES ‘Section 104 of the Tax Code enumerates the following intangible personal property with situs in the Philippines, for estate tax purposes: 1. Franchise which must be exercised in the Philippines. 2. Shares, obligations or bonds issued by any corporation or sociedad anonima organized or constituted in the Philippines in accordance with its laws. 3. Shares, obligations or bonds issued by any foreign corporation, 85% of the business of which is located in the Philippines. 4. Shares, obligations, or bonds issued by any foreign corporation if such shares, obligations or bonds have acquired a business situs in the Philippines. 5. Shares or rights in any partnership, business or industry established in the Philippines. PROPERTY ‘SITUS Real Property and Location ofthe property ‘Tangible personal property * Shares, franchise, Where the intangible is exercised regardless of | copyright, and the ie. where the corresponding certificate is stored = Receivables Residence of the debtor Bank deposit Location ofthe depository bank 36 Scanned with CamScannerGross Estate [ILLUSTRATION | Anonresident alien decedent left the following estate | | House and Lot - Hongkong, inherited before marriage 15,000,000 Car, acquited during marriage in Cebu 1,500,000 ‘Shares of stocks issued by a foreign corporation, 20% ofits | operation is in the Philippines 250,000 Bank deposit with PNB branch in New York, New York | representing income earned during marriage 500,000 | ‘Shares of stocks issued by PLDT group of companies, @ 500,000 corporation organized under Philippine laws 5-year, 12% promissory note, received 2 years ago, during mariage. The debtor is a resident of Q.C 500,000 Case A: Assume there is no reciprocity, what is the correct value of the gross estate? “Answer: P2,620,000 Solution: Car, acquired during mariage in Cebu 1,500,000 Shares of stocks - PLOT 5 500,000 5-year, 10% Promissory Note $00,000 Interest income (P500,000 x 12% x 2) 120,000 Gross Estate 2,620,000 +The shares of stock issued by a foreign corporation (20% of is operations isin the | Philipines) is considered situated outside of the Philippines. Under the tax code, @ nonresident alien decedent is taxable only for properties situated in the Philippines. Same rule applies to the House and Lot as well as the bank deposit in New York, USA = Interest income eamed before or at the time of death shall likewise form part of the decedent's gross estate, Case B: Assume there is reciprocity, whatis the correct value of the gross estate? “Answer: P1,500,000 (Only the car in Cebu acquired during marriage shall be included in the decedent's gross estate. Intangible properties with situs within the Philippines are excluded in the determination of gross estate if there is reciprocity. 37 Scanned with CamScanner“TLLUSTRATION 2: | From the list of properties shown below, determine the following: | 41) Situs of the Property | 2) Whether or not the property is included in the decedent's gross eslate. —— |___ Composition of Gross Estate, Citizen NRA or with ‘Without SITUS | Resident | Reciprocity | Reciprocity | | No. | PARTICULARS 40_| BPI Deposit U.S. branch 41 ABN Amro Bank (Foreign bank) ~ | Phiippine Branch 12 ABN Amro Bank (Foreign bank) — London Branch 13_| Recewvables-debtor from Phiippines | 14 | Receivables-debtor from Canada | [15-7 Shares of stocks of domestic corporations. | | The certficates are stored in the | | Philippines 16 | Shares of stocks of domestic corporations. | The certificates are stored abroad | 47_| Shares of stocks of foreign corporations, | The certificates are stored in the | Philippines 18 | Shares of stocks of foreign corporations. ‘The certificates are stored abroad 49 | Shares of stocks of foreign corporations, | 20% of its operations isn the Philippines 2 | Shares of stocks of foreign corporations, | 80% ofits operations isin the Philippines a | ‘Shares of socks of forige corporasene hich acquired business situs inthe | Philippines ‘22 Patents and copyrights exercised in the Scanned with CamScannerPesan “Citizen | or | With No. | PARTICULARS SmTUS | Resident __ Reciprocity [Within Tncude | Include Exclude Rest House =Balagas Rest House -Palawan “ABN Amro Bank (Foreign bank) - London Branch _ 14 45 | Shares of stock of domestic corporations. | The certificates are stored in the | Philippines _ 76 | Shares of stock of domestic corporations. | With _| The certifica 2 77 | Shares of stock of foreign corporations, | The certificates are stored in the |__| Philippines _ 78 | Shares of stock of foreign corporations. | The tes are stored abroad _ Shares of stock of foreign corporations, | 90% of its operations is in the Philippines: 7 Shares of stock of foreign corporations, 24. | Shares of stocks of foreign corporations | which acquired business stus in the | Philippines. 2. | Patents and copyights exercised in the Philippines _ ._| Patents and jhts exercised abroad 39 Scanned with CamScannerValuation of Gross Estate (as amended by RA10963; RR 12-2018) The estate of the decedent shall be appraised at its fair market value at the time of his death. Since succession and the accrual of the corresponding estate tax takes effect upon death, it shall only be fair to appraise the estate at its fair market value at the time of the decedent's death Specifically, the following rules shall apply in determining the valuation of the estate: 1. In General : Fair Market Value at the time of death 2. Real Property The higher value between: + FMV determined by the Commissioner; and + FMV as shown in the schedule of values fixed by the provincial and city assessors (also known as assessed value or FMV for real estate tax Purposes). a For purposes of prescribing real property values, the CIR is authorized to divide the Phiippne info diferent zones of areas and shall, upon consuitaton wih ‘competent apprarsers, both from the prvate and public sectors, determine the fair market value of reat propertes located in each zone or area. If there is an improvement, the value of mprovement is the construction cost per buiking permit or the fair market value per latest tax declaration 3. Personal Property * Fair market value at the time of death 4. Shares of stock * Unlisted common share: Book value per share of the issuing corporation (Appraisal surplus shall not be considered, as well as the assigned amount to preference shares, if any). Unlisted Preference share: Par value per share Listed shares: FMV shall be the arithmetic mean between the highest and lowest quotation at a date nearest the date of death if none is available on the date of death itself (RR 2-2003/ RR 12-2018). 5. Units of "The bid price nearest the date of death published Participation in in any newspaper or publication for general any association, circulation recreation or ? amusement club ffe.,gotf, polo, similar clubs) 6, Right to usutruct, * - In accordance with the latest Basic Standard use or habitation, Mortality Table taking into account the probable life nd annuity of the beneficiary. to be approved by the Secretary of Finance upon recommendation of the Insurance Commissioner (Section 88(A)-NIRC]. 40 Scanned with CamScannerGress Estate ILLUSTRATION 3: Jetermine the correct amount to be included in the gross estate of the decedent in the | | following independent cases: | Case A: | Pedro bought a brand new car with a cash price of 3,000,000. He bought the car on | | installment with the following terms: down payment of P5Q0,000 and annual instaiment | | f P700,000 for four years. On his way home, he run aver an approaching truck and | | died. | | | Case B: | | The decedent granted a P2,000,000 loan to his bestfriend two years before his death | | with a 10% interest per annum evidenced by a note. Both the principal and interest are | due after three years | se Answer: P2,400,000. Principal amount plus interest of 10% for 2 years | “Answer: P3,000,000 Case C: | The decedent devised to his son a 1,000 square meter lot in Global City, Taguig with the | | following valuation: | Fair value as determined by city assessors 20,000/sq.m. | | Zonal value as determined by the CIR 17,000,000 | | FV determined by independent assessors 48,500,000 | + Answer: P20,000,000 (1,000 sq.m x P20,000) | The higher between the far value as determined by city assessors and the zonal value as determined by the Commissioner of Intemal Revenue (CIR) CaseD: Decedent owns 100,000 ordinary shares of Alpha Company at the time of his death. At that time, Alpha's outstanding shares were 1,000,000 with P10 par value and Retained Eamings amounting to 5,000,000. The shares are not traded in the stock exchange. Answer: P1,500,000 | Book value per share of Alpha Company multiplied by the number of shares held by the decedent at the time of death PiOM + 5M 1,000,000 shares X 100,000 shares Case E: | ‘A decedent left 10,000 Pinoy Telecom shares. The shares were traded in the local stock exchange. At the time of death, the folowing were available: Highest quotation 800 per share Lowest quotation 200 per share Book value P3650 per share Answer: P5,000,000 __[10,000sh. x ((800+200)/2)) 4 Scanned with CamScannerGross Estate EXEMPTIONS AND EXCLUSIONS FROM THE GROSS ESTATE The following shall be excluded from the gross estate of a decedent: A. Exclusions under Sections 85 and 104 of the Tax Code 1. Exclusive property of the surviving spouse [Sec. 85(H)]. The gross estate in case of married decedents, is composed of: = Exclusive properties of the decedent; and * Common properties of the decedent and the surviving spouse Exclusive properties of the surviving spouse should be excluded in the gross estate because these properties are not owned by the decedent upon his death. For estate tax purposes, exclusive properties of the husband are known as “capital” while exclusive properties of the wife are known as “paraphernal" properties (Article 135 of the Civil Code). Whether such property is exclusive or common will depend on the type of property relations or marriage settlement of the husband and wife. Marriage settlements are discussed in Chapter 4 of this book. 2. Property outside the Philippines of a non-resident alien decedent (Sec. 85 and 104). The Tax Code provides that for nonresident alien decedents, only his properties situated or with situs within the Philippines shall be included in his gross estate. Consequently, properties outside of the Philippines are excluded in determining the gross estate of a nonresident alien decedent. 3. Intangible personal property in the Philippines of a non-resident alien under the Reciprocity Law. Section 104 of the Tax Code expressly provides that ."intangible” personal property in the Philippines of a nonresident alien decedent shall be excluded from the gross estate if there is reciprocity. 42 Scanned with CamScannerB. Exclusions under Section 87 of the Tax Code . The merger of usufruct in the owner of the naked title. . The transmission or delivery of the inheritance or legacy by the fiduciary heir (also known as the 1" heir) or legatee to the fideicommisary (also known as the 2° heir). 3. The transmission from the first heir, legatee or donee in favor of another beneficiary, in accordance with the desire of the predecessor (also known as “Transfer under Special Power of Appointment’). 4, All bequest devises, legacies or transfers to social welfare, cultural and charitable institutions, no part of the net income of which inures to the benefit of any individual: Provided, however, that not more than thirty percent (30%) of the said bequest, devises, legacies or transfers shall be used by such institutions for administration purposes. pa ‘The government agency which is empowered to determine the exemption is the BIR. To enable it to exercise such power, the value of transfer to social welfare, cultural and charitable institutions should be included in the gross estate. An equal amount, however, may be taken up as a deduction, THE MERGER OF USUFRUCT IN THE OWNER OF THE NAKED TITLE The decedent in this particular case (known as donee-decedent or current decedent) only received from the prior decedent (donor-decedent or prior decedent) usufruct over the latter's property. Usufruct pertains only to the right or privilege to enjoy the use and advantages of another's property. Thus, the current decedent is not considered the owner of the property. Consequently upon his death, the usufruct will be merged to the ‘owner of the naked title, the intended beneficiary of the property. ILLUSTRATION 4: In the last will and testament of Mr. Yumao, he assigned the usufruct of one of his parcels of land to his son (Juan) while his grandson (Pedro) was named the owner of the naked tile. Upon the death of Mr. Yumao, the parcel of land should be included in his gross estate. However, upon the death of Juan (the current decedent), the parcel of land should be “excluded” in his gross estate because he is not the intended owner/beneficiary of the land but his son, Pedro. Upon Juan's death, there will be merger of usufruct in the owner of the naked fitle (Pedro). Meaning, Pedro will be entitled to both the usufruct and ownership of the naked tille upon Juan's death. 43 Scanned with CamScannerGross Extate ee Merger of usufruct in the owner of the naked title IT Co + The intended owner rottheintended of the land oo ‘owner oftheland J (naked ttle) The usufruct wil be merged to his naked title upon Juan's death ecto ‘= +in GE upon death +in GE Subject to Subject to Estate Tax |e Not Subject to Estate Tox Estate Tax TRANSMISSION FROM THE FIRST HEIR, LEGATEE OR DONEE IN FAVOR OF ANOTHER BENEFICIARY (Also known as 2nd Heir), IN ACCORDANCE WITH THE DESIRE OF THE PREDECESSOR (Also known as Transfer under Special Power of Appointment) ILLUSTRATION 5: {n the last will and testament of Mr. Yumao, he devised a parcel of land fo Juan but with a condition that such property should be given to Pedro upon Juan's death, Thus, the parcel of land is intended to be inherited by Pedro, not Juan. Juan is acting only as a trustee or fiduciary until such time that the property is transferred to Pedro. Upon Juan's death, the parcel of land should be “excluded” in hs gross estate simply because he is not the owner of the property In the illustration provided, Juan only received the parcel of land under a Special Power of Appointment (SPA) from Mr. Yumao, the prior decedent/predecessor or also known as the donor of the power ‘or donor-decedent. Thus, Juan is known as the donee-of the power or donee-decedent or current decedent. Special Power of Appointment exists when the donee-decedent (Juan) can appoint only from a restricted or designated class of persons other than himself. In the problem above, Juan is restricted to transfer such property only to Pedro, in accordance with the desire of the Predecessor (Prior Decedent or Donor-Decedent). Property transferred under a special power of appointment should be excluded from the gross estate of the donee of the power because the donee- decedent only holds the property in trust. Scanned with CamScannerGress Estate Special Power of Appoii tment Ca Dan shee CL TEETER, «The parcelofland + The intended | RD) iircenced tor” penetrate fee ma Yume + etn onty 2s + singe + Subject to Estate Tax + NotSubjectto —* + in GE upon death Estate Tax * Subj. to Estate Tax TRANSMISSION OR DELIVERY OF THE INHERITANCE OR LEGACY BY THE FIDUCIARY HEIR/LEGATEE (Also known as the 1st heir) TO THE FIDEICOMMISARY (Also known as the 2nd heir). ILLUSTRATION 6: Using the same information in the immediately preceding ilustration (llustration No. 5) and assuming further that Juan is the father of Pedro. Since Juan is the father of Pedro and both were alive at the time of the testator's death (Mr. Yumao), the substitution or transfer from Juan to Pedro is known as fideicommissary substitution, Upon the death of Mr. Yumao, the parcel of land should be included in his gross estate. However, upon the death of Juan, the parce! of land should be “excluded in his gross estate because Juan is acting only as the trustee of Pedro. Fideicommisary transfer of property is in substance, the same with transfer of property received under Special Power of Appointment (SPA), except that the felationship of the ‘st heir and the 2nd heir should not be more than one (1) degree apart (Refer to illustration #7 of Chapter 1 for the determination of degree of relationship). Elements of a fideicommissary substitution: = The substitution must not go beyond one degree from the heir originally instituted (ie. father to son). = The fiduciary(frst heir) and the fideicommissary(second heir) must be both living at the time of the testator's death. 45 Scanned with CamScannerGross Estate C. Exclusions under Special Laws 1. Proceeds of life insurance and benefits repelved by members of the GSIS (RA728). 2. Accruals and benefits received by members from the SSS by reason of death (RA1792). 3. Amounts received from Philippines and United States governments for war damages (RA227). 4. Amounts received from United States Veterans Administration. 5. 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). 6. Retirement benefits of officials/employees of a private firm (RA4917). 7. Personal Equity and Retirement Account (PERA) assets of the . decedent-contributor (Sec. 14, RA 9505 — Personal Equity and a Retirement Account Act of 2008). 8. Compensation paid to private and public health workers who have contracted COVID-19 in case of death, the said amount shall not be included as part of the gross estate of the decedent subject to estate tax as provided under Republic Act No. 11494 or the “Bayanihan to Recover as One Act”. COMPOSITION OF THE GROSS ESTATE Generally, gross estate consists of all the property owned by a decedent or which the decedent had an interest at the time of death, such as: = Real property = Personal tangible property . Intangible personal property (shares of stocks, ‘Shares of stock Bank deposit Dividends dectared before his death but received after death, ‘Partnership profit which have accrued before his death. Usufructuary & rights KARR 46 Scanned with CamScannerGross Estate Section 85 of the Tax Code enumerates the composition of the Gross Estate. Property owned by the decedent that are actually and physically present in his estate at the time of his death such as land, buildings, shares of stock, vehicles, bank deposit, and the like. Decedent's Interest [Sec. 85(A)] The Tax Code provides that Decedent's Interest to the extent of the interest therein of the decedent at the time of death shall be included in the gross estate Decedent Interest refers to the extent of equity or ownership participation of the decedent on any property physically existing and present in the gross estate, whether or not in his possession, control or dominion. It also refer to the value of any interest in property owned or possessed by the decedent at the time of his death (interest having value or capable of being valued or transferred). Property NOT PHYSICALLY IN THE ESTATE but are still subject to payment of estate tax. These properties have already been transferred during the lifetime of the decedent, however, such properties shall still form part of his gross estate because the transfers were either intended to take effect only upon his death or does not actually convey full ownership over the property transferred. a. Transfers in Contemplation of Death (Sec. 85(8)] The Tax Code, as amended, provides: To the extent of any interest therein of which the decedent has at any time made a transfer, by trust or otherwise, in contemplation of or intended to take effect in possession or enjoyment at or after death, or of which he has at any time made a transfer, by trust or otherwise, under which he has retained for his life or for any period which does not in fact tend before his death (1) the possession or enjoyment of, or the right to the income from the property, or (2) the righ, either alone or in conjunction with ‘any person, to designate the person who shall possess or enjoy the property or the income therefrom; except in case of a bonafide sale for an ‘adequate and full consideration in money or money's worth. 47 Scanned with CamScannerGross Estate A transfer in contemplation of death is a disposition of property prompted by thought of death. It is the thought of death, as a controlling motive which induces the disposition of the property. Included within this concept is donation mortis causa. The gross estate shall include the value of property transferred by the decedent during his lifetime in anticipation of his death ({ransfer in contemplation of death) such as: 1) Transfer of property in favor of another person, but the transfer was intended to take effect only upon the transferor's death. 2) Transfer by gift intended to take effect at death, or after death, or under which the donor reserved the. income or the right to designate the persons who should enjoy the income. 3) Transfer with retention or reservation of certain rights. The decedent had transferred his property during his lifetime, but retained for himself beneficial enjoyment of the thing or the right to receive income from the same. Section 85 of the Tax Code, as amended; provides that there is no transfer in contemplation of death when the transfer of property is a bonafide sale for an adequate and full consideration in money or money's worth. b. Revocable Transfers [Sec. 85(C)] It is a transfer where the terms of enjoyment of the property may be altered, amended, revoked or terminated by the decedent. It is sufficient that the decedent had the power to revoke though he did not exercise the power. Section 85(C) of the Tax Code, as amended, provides: (1) To the extent of any interest therein, of which the decedent has at any time made a transfer (except in case of @ bonafide sale for an adequate and full consideration in money or money's worth) by trust ‘or otherwise, where the enjoyment thereof was subject at the date of this death fo any change through the exercise of a power (in whatever capacity exercisable) by the decedent alone or by the decedent in conjunction with any other person (without regard to when or from what source the decedent acquired such power), to alter, amend, revoke, or terminate, or where any such power is relinquished in Contemplation ofthe decedent's death 48 Scanned with CamScannerGross Estate (2) For the purpose of this Subsection, the power to alter, amend or revoke shall be considered to exist on the date of the decedent's death even though the exercise of the power is subject to a precedent giving of notice or even though the alteration, amendment or revocation takes effect only on the exprration of a stated period after the exercise of the power, whether or not an ar before the date ofthe decedent's death notice has been given or the power has been exercised. In such cases, proper adjustment shal be made representing the interests which would have been excluded from the power if the decedent had lived, and for such purpose if the notice has ‘not been gwen or the power has not been exercised on or before the date of his death, such notice shall be considered to have been given, or the power exercised, on the date of his death STRATI a Case A A high ranking official realized that due to the nature of his illness, age and the pressure | brought about by the various legal cases filed against him, death might not be that far. | Hence, he gratuitously transferred most of his properties to his children while still alive. Should the properties transferred be included in the gross estate of the decedent- transferor upon his death? |= Answer: Yes ‘ ; The properties transferred should be included in the estate of the decedent because the transfers were intended to take effect upon his death (donation mortis causa), regardless of the date of the actual transfer to the beneficiaries or heirs. Case B: Renato, a natural philanthropist, gratuitously transferred a property to Cd worth 50,000,000 during his ifetime. What amount should be included in the gross estate of Renato upon his death? Answer: PO. The transfer was not intended to take effect upon his death but during his ifetme, thus, it should be treated as a ‘donation inter-vivos” rather than inheritance (donation movts- causa). The transfer is subject to donor's tax instead of estate tax. Case C: Due to an unstable medical condition, Pedro thought that it is only proper for him to gratuitously transfer his properties to his love ones now instead of waiting for his death He then transferred various condominium units to his children worth P200,000,000 while he was undergoing major medical operation. At the time of Pedro's death, the fair market value of the properties transferred increased to P250,000,000. What amount should be included in the computation of Pedro's gross estate? 49 Scanned with CamScannerGross Estate Answer: P250,000,000. ] The transfer is a donation mortis causa intended to take effect at the time of the decedent's death. It is the thought of death, as a controlling motive which induces the disposition of the property. The fair market value of the property at the date of the actual transfer should be ignored. Case D: Pedro transferred all his real properties worth P 10,000,000 to Juan, in trust for Boy, Juan's legitimate minor son. Pedro reserved his right to terminate the transfer anytime. Question 1: What amount should be included in Pedro's gross estate upon his death? “Answer: P10,000,000. Question 2: ‘Assume Juan subsequently died a year after Pedro's death, what amount should be included in Juan's gross estate? Answer: PO s The transfer is revocable onthe part ofthe testator (Pedro). A revocable transfer does not actually convey ownership over the property transferred because it may be revoked anytime by the testator (regardless of whether the right to revoke was exercised). c. Transfers under a General Power of Appointment [Sec. 85(D)] Power of appointment refers to the right to designate the person or persons who will succeed to the property of the prior decedent. The power of appointment may be “general” or “special’. It is considered “general” when the power of appointment authorizes the donee of the power to appoint any person he pleases. The power may be exercised in favor of anybody including the donee-decedent. The donee of a general power of appointment holds the appointed property with all the attributes of ownership thus, the appointed property shall form part of the gross estate of the donee (beneficiary) of the power upon his death. Special Power of Appointment (SPA) exists when the donee can appoint only from a restricted or designated class of persons other than himself. Property transferred under a special power of appointment should be excluded from the gross estate of the donee of the power because the donee-decedent only holds the property in trust. Refer also to Exclusions under Section 87 of the Tax Code as discussed in illustration #5, #8 Case B and Page 45. Scanned with CamScannerGross Estate The power of appointment may be exercised by the donor decedent through the following modes: a) By will b) By deed to take effect in possession or enjoyment at or after his death. c) By deed under which he has retained for his life or any period not ascertainable without reference to his death or for any period which does not in fact end before his death d) The possession or enjoyment of, or the right to the income from the property. e) The right, either alone, or in conjunction with any person to designate the persons who shall possess or enjoy the property or the income therefrom. ILLUSTRATION 8 - GENERAL POWER OF APPOINTMENT (SPA): In the last will and testament of Mr. Yumao, he devised a parcel of land located in Batangas to Juan, with the power to appoint any person he pleases. Juan decided to transfer the property to Pedro through his last will and testament. In this illustration, Juan received the property under “General Power of Appointment (GPA)". GPA exists when the power of appointment authorizes the donee of the power to ‘appoint any person he pieases. The power may be exercised in favor of anybody including the donee-decedent. The donee of a general power of appointment holds the appointed property with all the attrbutes of ownership thus, the appointed property shail form part of the gross estate of the donee (beneficiary) ofthe power upon his death Mr.Yumao * Donor of the power Predecessor / Donordecedent Juan © Done of the power or 1st heir '* Current decedent / Donee decedent Parcel ofland = Appointed property General Power of Appointment Barreca cca cc eas + +in GE upon death * +1n GE + tinge + Subject to Estate Tax * Subjectto _* Subject to Estate EstateTox Tax 51 Scanned with CamScannerGross Ete eee eee eee eee ee ee eee ee ILLUSTRATION | Case A: General Power of Appointment | Manny donated property to Noni through his last will and testament. It includes a | provision that Nonito can transfer the property to anyone. Nonito transferred the | property to Boomboom intended to take effect atthe time of Nonito's death. Question 1: What type of power of appointment is illustrated above? + Answer: General Power of appointment The “wil” provides that Nonto may transfer the property ‘to anyone”. Therefore, the power may be exercised in favor of anybody including the donee-decedent (Noni). The power of appointment is “general” when the power of appointment ‘authorizes the donee of the power fo appoint any person he pleases. Question 2: ‘Should the property be included in the determination of Manny's gross estate? > Answer: Yes | Question 3: Should the property be included in Nonito's gross estate? > Answer: Yes The donee of a general power of appointment holds the appointed property with all the attributes of ownership. Thus, the appointed property shall form part of the ‘ross estate of the donee-decedent (Nonto) upon his death Case B: Special Power of Appointment Manny donated property to Nonito through his last will and testament, It includes provision that Nonito can transfer the property only to his son, Boomboom. Question 4: What type of power of appointment is ilustrated above? 4 Answer: Special Power of Appointment Special power of appointment exis's when the donee can appoint only from a restricted or designated class of persons other than himself. In the case provided, no other person should inhert the propery left by Manny but Boomboom. Question 2: Should the property be included in Manny's gross estate? “Answer: Yes Question 3: Should the property be included in Nonito's gross estate? “Answer: No The donee ofthe power (Nonto) only holds fhe property in trust. The intention of Menny isto transfer the property to Boomboom nol to Noni. Consequently, the property transferred by Manny should be excluded in Nonito's gross estate. Scanned with CamScannerGress d. Transfers for Insufficient Consideration [Sec. 85(G)] When a sale or transfer (other than a bonafide or valid sale) was made for a price less than its fair market value at the time of sale or transfer, the excess of the fair market value of the transferred property at the time of death over the value of the consideration received should be included in the gross estate. For this purpose, the following fair market values shall be used: Fair Market Values (FMV): + FMV of the property at the time of sale or transfer. This is use to determine whether or not the consideration was full and adequate. If the consideration received is substantially the same with the fair market value at the time of transfer, such sale or transfer is considered a bona fide sale, hence, not subject to estate tax. FMV of the property at the time of death. This is used to determine the amount to be included in the gross estate. If the consideration received is substantially lower or for less than full and adequate consideration compared to the fair market value at the time of sale or transfer, such sale or transfer was made for insufficient consideration. In such cases, the excess of the fair market value at the time of death over the consideration received at the time of sale or transfer should be included in the gross estate of the decedent. If there was no consideration received at the date of transfer and such transfer was made “in contemplation of death” (donation mortis causa), the fair market value of the property at the date of death, not at the date of transfer, should be included in the gross estate of the decedent. If there was no consideration received at the date of transfer and such transfer was not made ‘in contemplation of deat’, such transfer shall be considered donation inter-vivos subject to donor's tax based on the fair market value of the property at the date the donation was made. Donor's tax is discussed in Chapter 6. The above rules on insufficient consideration are summarized in Table 2-3 below: 83 Scanned with CamScannerGg ass Estate Table 2-3: Rules on insufficient consideration Consideration = FMV at the mmmp- Bonafide sale, Excluded from the time of transfer. decedent's gross estate. Consideration < FMV at the sammy» Insufficient consideration time of transfer. Include in the’ gross estate the excess of FMV @ the time of death over the consideration received. Sale was made in the Bonafide sale regardless of the ordinary course of trade amount of consideration, No consideration received sama Either donation morfis causa (Subject to estate tax) or donation inter-vivos (subject to donor's tax ILLUSTRATION 1 CASE A On January 2021, Juan sold for P5,000,000 an apartment with carrying value of | 3,500,000 to Pedro. At the time of sale, the property has a prevaling market price | cf P7,000,000, Juan died on June 2021. At the time of death, the prevailing fat | market value of the property was P8,000,000. Question 1: What amount should be included in the gross estate of the decedent? Answer: P3,000,000. © The excess of the fair value of the property at the time of death over the ‘consideration received (P8,000,000 vs. P5,000,000). The carrying value of the property transferred is disregarded for purposes of detennining whether ‘or not the transfer was made for an adequate and full consideration Question 2; What amount should be included in the gross estate of the decedent ‘assuming the fair market value of the property at the time of death was P4,000,000? Answer: PO. The fair market value at the time of death was lower than the amount of consideration received. Hence, the PS,000,000 is considered adequate and full ‘consideration. Question 3: Assume that the property sold is classified as an ordinary asset and the | sale or transler was made in the ordinary course of trade or business. What amount should be included as part of the gross eslate of the decedent? | Answer: PO. The sale or transfer isa result of @ bona fide sele r Scanned with CamScannerMl. [CASES | On January 2021, Juan sold for P5,000,000 an apartment with carrying value of | 3,500,000 to Pedro. At the time of sale, the property has a prevailing market price | ‘of P5,000,000. Juan died on June 2021. At the time of death, the prevaiing fair | market value of the property was P8.000,000 | Question 1: What amount should be included in the gross estate of the decedent? | Answer: PO | if the consideration received is substantially the same with the fair market value at | the time of transfer, such sale or transfer is considered @ bonafide sale, hence, not | ‘subject to estate tax. | | | | Question 2: Assume Juan transferred the property without consideration, what | | amount should be included in his gross estate at the time of his death? | © Answer: P8,000,000 The transfer is considered transfer in contemplation of death. Thus the transfer ‘should take effect upon Juan's death. The fair market value of the property at the time Juan's death should be included in his gross estate. Question 3: Assume Juan transferred the property during his lifetime and the corresponding donor's tax was paid, what amount should be included in his gross estate atthe time of his death? * Answer: PO. The transfers subject fo donor's fax, not estate fax MISCELLANEOUS ITEMS a. Claims against insolvent persons (Sec. 85) For estate tax purposes, an insolvent is a person whose properties are not sufficient to satisfy, whether fully or partially, his debt(s). A judicial declaration of insolvency is not required but the incapacity of the debtor to pay his obligation should be proven. As a rule regardless of the amount the debtor is unable to pay, the full amount of the claim against the insolvent person should be included in the gross estate of the decedent. The portion of the claim which is not collectible should be allowed as a deduction from the gross estate. ILLUSTRATION 11: CASE A Juan died with an existing collectible of P5,000,000 against Pedro. Since Pedro is financially stable, Juan exerted all possible efforts to collect the amount during his lifetime, however, Pedro failed settle the same before Juan's death. Question 1: How much should be included in the gross estate of Juan? ‘+ Answer: the entire amount of the claim, P5,000,000. Question 2: How much is the deduction from the gross estate of Juan? “Answer: PO. 55, Scanned with CamScannerGress Estate fe ‘The deblor Is nol an insolvent parson, The incapacity of the debtor to pay his | obligation should be proven before a deduction under this calegory is allowed. | Question 3: Assume that after Juan failed to collect the amount due from Pedro, he | decided to just condone the claim. The condonation was gladly weleomed by Pedro. | Ayear later, Juan died. How much should be included inthe gross estate of Juan? | “Answer: PO. | The claim was condoned by him prior to his death. Therefore, the condonation { ‘should be classified as donation inter-vivos subject fo donor's tax. CASE B | Juan died with an existing collectible of P5,000,000 against Pedro whose properties | ate not sufficient to satisfy his debts. Pedro's properties are valued at P6,000,000 while his liabilities amounted to P10,000,000. Question 1: How much should be included in the gross estate of Juan? Answer: The entire amount of the claim, P5,000,000 | Question 2: How much is the deduction from the gross estate of Juan? | + Answer: P2,000,000. } ‘Only the uncoliectible portion. 2 | Collectible portion = Debtors assets/Deblors Liabiltes x Claims | Collectible = P6M/P10M x PEM = P3,000,000 | Uncollectible = PSM ~ 3M = P2,000,000 | Question 3: Assume that P2M of Pedro's liabilities are unpaid taxes from the government, how much should be included as a deduction from the gross estate of > Answer: P2,500,000. Only the uncollectble portion. Pedro's assets after unpaid taxes = P6M-2M = PAM b. Proceeds of life insurance [Sec. 85(E)] Proceeds of life insurance taken out by the by the decedent on his own life should be included in the gross estate if the following requisites are present: 1. It must be an insurance on the life of the decedent; and 2. The beneficiary must be either of the following; © His estate or executor/administrator (revocable or not) o Any third person (other than estate. or administrator/executor) provided that the designation is not irrevocable Scanned with CamScannerstate Gas Ifthe policy does not expressly say that the designation of the beneficiary is irrevocable, then it is presumed to be revocable. Also, proceeds of life insurance under a group insurance taken by the employer are not subject to estate tax. The Philippine Insurance Code presumes that the designation of a policy is revocable in case the designation of the beneficiary is not clear or silent. Section 11 of the Insurance Code (RA 10607) states that “the insured should have the right to change the beneficiary he designated in the policy, unless he has expressly waived this right in said policy. Notwithstanding the foregoing, in the event the insured does not change beneficiary during his lifetime, the designation shall be deemed irrevocable.” TABLE 2-49" PROCEEDS OF LIFE INSURANCE (Taken out by the Decedent) Beneficiary Designation Gross Estate Estate Revocable or revocable Included Executor Revocable or Irrevocable Included Administrator Revocable or lrevocable Included 94Party (ie. wile) Revocable included 34Party (ie. wife) Irrevocable Excluded (ZY Exclude proceeds from SSS and GSIS as provided by aw. ILLUSTRATION 12: Case A: A life insurance worth P10,000,000 was taken out by Pedro upon his life. He designated his friend, Juan, as beneficiary. Should the proceeds be included in the gross estate of Pedro upon his death? > Answer: Yes The beneficiary was his friend (other than the decedent's estate, executor or administrator). Since the designation is silent, it should be assumed that Juan's designation as beneficiary is revocable. As a rue, when the beneficiary is thd person and the designation is revocable, the amount of proceeds should form part of the decedent's gross estate. revocable designation of a beneficiary is not presumed. To be excluded from the gross estate, Juan's designation should be leary stated as irrevocable beneficiary. Case B: Assume the same data in case A, except that Juan's designation as beneficiary is imevocable. Should the proceeds be included in the gross estate of Pedro upon his death? Answer: No 57 Scanned with CamScannerGross Estate [ Case C: ‘Assume the same data in case A, except that the beneficiary was Pedro's executor The designation of the beneficiary was irrevocable. Should the proceeds be included in the gross estate of Pedro upon his death? “Answer: Yes The designation ofthe beneficiary as revocable beneficiary should be ignored if the beneficiary is the estate, executor or administrator. In such a case, the proceeds of life insurance should always be included in the gross estate of the decedent regardless ofthe beneficiary's designation ESTATE TAX RATE The transfer of the net estate of every decedent, whether resident or non-resident of the Philippines, as determined in accordance with the Tax Code, as amended, should be subject to the estate tax. Beginning January 1, 2018 or upon the effectivity of RA 10963, otherwise known as the “Tax Reform for Acceleration and Inclusion Act” (TRAIN Law), the net estate of every decedent, whether resident or non-resident of the Philippines, shall be subject to an estate tax rate of six percent (6%). The law that Governs the imposition of Estate Tax and Accrual of Estate Tax As discussed in Chapter 1, it is a well settled rule that estate taxation is governed by the statute in force at the time of death of the decedent. The estate tax accrues as the date of death of the decedent and the accrual of the tax is distinct from the obligation to pay the same (RR 2-2003). Refer to Chapter 1 for additional discussions and illustrations. Filing of Estate Tax Return and Payment of Estate Tax Due The Tax Code, as amended, provides that the estate tax shall be paid by the executor/administrator or any of the legal heirs at the time the return is filed (Pay as you file system). FILING and PAYMENT: = Primary responsibility to file and pay — Executor or administrator; * Secondary responsibility to file and pay ~ any of the heirs An estate tax return shall be filed under oath in any of the following situation (RR 12-2018): 4. In cases of transfer subject to Estate Tax; and 58 Scanned with CamScannerGress Estate 2. Where regardless of the gross value, the estate consists of registered or registrable property such as real property, motor vehicle, share of stocks or other similar property for which a Certificate Authorizing Registration from the Bureau of Internal Revenue (BIR) is required as a condition precedent for the transfer of ownership thereof in the name of the transferee, the executor or the administrator, or any of the legal heirs, as the case may be. Estate tax returns showing gross value exceeding five million pesos (P5,000,000) shall be supported with a statement duly certified to by @ Certified Public Accountant containing the following: a. Itemized assets of the decedent with their corresponding gross value at the time of his death, or in the case of nonresident, not a citizen of the Philippines, of that part of his gross estate situated in the Philippines; b. Itemized deductions allowed from the gross estate under Section 86 of the Tax Code, as amended; c. The amount of tax due, whether paid or still due and outstanding. TIME for FILING the Estate Tax Return Section 90(B) of the Tax Code, as amended, provides that the estate tax return is required to be filed within one (1) year from the decedent's death. The court approving the project of partition shall furnish the Commissioner with certified copy thereof and its order within thirty days (30) after promulgation of such order. The period allowed to file the estate tax retum shall be distinguished from the “accrual” date of the estate tax due. The accrual of the estate tax is distinct from the obligation to pay the same [(RR 2-2003); (Lorenzo vs. Posadas, 64 Phil. 353)]. As discussed in page 1, the estate tax due “accrues” immediately at the time of death, The one-year time of filing is the allowable period of filing the return without incurring surcharge/penalty and interest. EXTENSION of Time to File the Estate Tax Return Under Sec. 90(C) of the Tax Code, “the Commissioner or any Revenue Officer authorized by him pursuant to the NIRC shall have the authority to grant, in meritorious cases, a reasonable extension not exceeding thirty (30) days for filing the retu”. The application for the 59 Scanned with CamScannerGuess Extate extension of time to file the estate tax return must be filed with the Revenue District Office (RDO) where the estate is required to secure its Taxpayer Identification Number (TIN) and file the tax returns of the estate, which RDO, likewise, has jurisdiction over the estate tax return required to be fied by any party a8 a result ofthe distribution of the assets and liabilities of the decedent. TIME for PAYMENT of the Estate Tax As a general rule, the estate tax imposed under the Tax Code shall be paid at the time the retum is filed (Pay as File system) by the executor, administrator, or the heir(s). Consequently, the estate tax due may be paid within the one-year period allowed to file the estate tax return EXTENSION OF TIME TO PAY ESTATE TAX When the Commissioner finds that the payment of the estate tax or of any part thereof would impose undue hardship upon the estate or any of the heirs, he may extend the time for payment of such tax or any part thereof not to exceed five (5) years in case the estate is settled through the courts (Judicial Settlement), or two (2) years in case the estate is settled extrajudicially (extrajudicial settlement). In such case, the amount in respect of which the extension is granted shall be paid on or before the date of the expiration of the period of the extension, and the running of the statute of limitations for deficiency assessment shall be suspended for the period of any such extension. The application for extension of time to file the retum and extension of time to pay estate tax shall be filed with the Revenue District Officer (RDO) where the estate is required to secure its TIN and file the estate tax return. This application shall be approved by the ‘Commissioner or his duly authorized representative. Where the request for extension is by reason of negligence, intentional disregard of rules and regulations, or fraud on the part of the taxpayer, no extension will be granted by the Commissioner. If an extension is granted, the Commissioner or his duly authorized representative may require the executor, or administrator, or beneficiary, as the case may be, to fumish a bond in such amount, not exceeding double the amount of the tax and with such sureties as the Commissioner deems necessary, conditioned upon the payment of the said tax in accordance with the terms of the extension. Scanned with CamScannerGress Estate Payment of Estate Tax by installment and partial dispositi estate (RR 12-2018 as amended by RR 2010) ae In case of insufficiency of cash for the imm jediate payment of the total estate tax due, the estate may be allowed to pay the estate tax due twough the following options, including corresponding terms and conditions: 1. Cash Instaliment a) The cash installments shall be made within two (2) years from the date of the filing of the estate tax return, using the payment form {BIR Form 0605) or a payment form dedicated for this transaction for succeeding installment payments after filing the first (1°, payment through the estate tax return. The estate tax return shall be filed within one (1) year from the date of the decedent's death; The frequency (i.e., monthly, quarterly, semi-annually, annually) deadline and the amount of each installment shall be indicated in the estate tax return, subject to the approval by the BIR; In case of lapse of two (2) years without the payment of entire tax due, the remaining balance thereof shall be due and demandable subject to applicable penalties and interest reckoned from the prescribed deadline for filing the return and payment of estate tax; and : No civil penalties or interest may be imposed on the estates permitted to pay the estate tax due by installment. Nothing in this subsection, however, prevents the Commissioner from. executing enforcement action against the estate tax due of the estate tax provided that all the applicable laws and required procedures are followed/observed. b) °) dg) e) 2. Partial disposition of estate and application of its proceeds to the estate tax due a) The disposition, for purpos conveyance of property, 0 propery, with the equivalent cash consideration; b) The estate tax return shall be filed within one (1) year from the 's death; «) $ateof the decedert for the partial disposition of estate shall be approve’ by the BIR. The written request shal be fled, together with a notarized undertaking that the proceeds thereof shall be exclusively used for the payment of the total estate fax due; ses of this option, shall refer to the whether real, personal or intangible 61 Scanned with CamScanner‘ae Gs d) The computed estate tax due shall be allocated in proportion to the value of each property. : €) The estate shall pay to the BIR the p proportionate estate tax due of | the property intended to be disposed of; | f) An Sleatronte Certificate Authorizing Registration (eCAR) shall ne } issued upon presentation of the proof of payment of the | Proportionate estate tax due of the property intended to be | disposed. Accordingly, eCARs shall be issued as many as there are properties to be disposed to cover the total estate tax due, net | of the proportionate estate tax(es) previously paid under this | option; and * } 9) In case of failure to pay the total estate tax due out from the i proceeds of the said disposition, the estate tax due shall be | immediately due and demandable subject to the applicable | penalties and interest reckoned from the prescribed deadline for filing the return and payment of the estate tax, without prejudice of | i | | withholding the issuance of eCARs on the remaining properties Until the payment of the remaining balance of the estate tax due, including the penalties and interest. REQUEST FOR EXTENSION OF TIME, INSTALLMENT PA‘ PARTIAL DISPOSITION OF ESTATE cane Request for extension to file the return, extension to pay the estate he Revenue District PLACE OF FILING THE RETURN In case of a resident decedent, the administ register the estate of the decedent and secure a nw TIN ty Beaten ie Revenue District Office where the deced; 'erefor from the edent was domici his death and shall file the estate tax retrs peels dL ie spondil estate tax with the Accredited Agent Bank (AA o or Revenue Collection Officer having jurists: one ee! Oot decedent was domiciled at the time of his desan whichesne ae oa . is applica following prevailing collection rules and regulations PLACE OF FILING THE RETURN In case of a non-resident deced, s lent, wheth: a 62 Scanned with CamScannerGpross Estate estate tax return shall be filed with and the TIN for the estate shall be secured from the Revenue District Office where such executor or administrator is registered. Provided, however, that in case the executor or administrator is not registered, the estate tax return shall be filed with and the TIN of the estate shall be secured from the Revenue District Office having jurisdiction over the executor or administrator's legal residence. Nonetheless, in case the non-resident decedent does not have an executor or administrator in the Philippines, the estate tax return shall be filed with and the TIN for the estate shall be secured from the Office of the Commissioner though RDO No. 39-South Quezon City. The foregoing provision, not withstanding, the Commissioner of Internal Revenue may continue to exercise his power to allow a different venue/place in the filing of tax returns. LIABILITY FOR THE PAYMENT OF ESTATE TAX The executor/administrator of an estate has the primary obligation to pay the estate tax but the heir or beneficiary has subsidiary liability for the payment of that portion of the estate which his distributive share bears to the value of the total net estate. The extent of his liability, however, shall in no case exceed the value of his share in the inheritance. Where there is no executor or administrator appointed, qualified and acting within the Philippines, then any person in actual or constructive possession of any property of the decedent must file the return. The Estate Tax imposed under the Tax Code shall be paid by the executor or administrator before the delivery of the distributive share in the inheritance to any heir or beneficiary. Where there are two or more executors or administrators, all of them are severally liable for the payment of the tax. The estate tax clearance issued by the Commissioner or the Revenue District Officer (RDO) having jurisdiction over the estate, will serve as the authority to distribute the femaining/distributable properties/share in the inheritance to the heir or beneficiary. PAYMENT BY INSTALLMENT In case the available cash of the estate is insufficient to pay the estate tax due, payment by installment shall be allowed within two (2) years from the statutory date for its payment without civil penalty and interest, using the payment form (BIR Form 0605) or a payment form dedicated for this transaction for succeeding installment payments after filing the first (1°) payment through the estate tax return. 63 Scanned with CamScannerGross Estate Civil penalties and interest Any amount paid after the statutory due date of the tax, but within ‘the extension period, shall be subject to interest but not to surcharge. Penalty of 25% if there is no false or fraudulent intent on the taxpayer. Penalty of 50% if there is false, malice or fraudulent intent on the taxpayer. Interest shall be computed on the unpaid amount of tax from the date computed until fully paid (20% prior to TRAIN Law; 12% upon effectivity of the TRAIN Law). Payment of Tax Antecedent to the Transfer of Shares, Bonds or Rights (Sec. 97, as amended) There shall not be transferred to any new owner in the books of any corporation, sociedad anonima, partnership, business, or industry organized or established in the Philippines any share, obligation, bond or right by way of gift inter-vivos or mortis causa, legacy or inheritance, unless a certification from the Commissioner that the applicable tax have been paid. Ifa bank has knowledge of the death of a person, who maintained a bank deposit account alone, or jointly with another, it shall allow any withdrawal from the said deposit account, subject to a final withholding tax of six percent (6%). For this purpose, all withdrawal slips shall contain a statement to the effect that all of the joint depositors are still living at the time of withdrawal by any one of the joint depositors and such statement shall be under oath by the said depositors, Under RA No. 10963 (TRAIN Law) in case the available cash of the estate is insufficient to pay the total estate tax due, payment by installment shall be allowed within two (2) years from the statutory date for its payment without civil penalty and interest: Scanned with CamScanner