Chapter 3 : Computation of Gross Estate

LEARNING OBJECTIVES

After studying this chapter, the students are expected to be able to:
• Understand the nature and composition of the gross estate.
• Know the factors affecting the computation of the gross estate.
• Classify the decedents for gross estate computation purposes.
• Enumerate the properties actually included in the gross estate.
• Understand the property relationships of spouses in case of married decedent.
• Differentiate between exclusive and common properties under existing property regimes.
• Know which properties are common and exclusive under both conjugal partnership of gains and
absolute community of property.
• Determine when properties not physically and actually in the custody of the decedent are
deemed owned by him/her as of the time of death.
• Know the exempted transfers under estate taxation.
• Determine the valuation of the properties in the gross estate.

Gross Estate

Estate refers to the mass of properties left by the decedent. The decedent is the person whose property is transmitted
through succession whenever with or without a will.

Gross estate is therefore equal to the total value of the estate considered by law for the purpose of determining the net
estate subject to estate tax as previously discussed in Chapter 3.

Factors affecting the computation of Gross Estate

The composition of the decedent’s gross estate depends upon the following factors:

• Citizenship or residence of the decedent

• Tax (civil) Status of the decedent
• Property relationship (if decedent is married)

Classification of Decedents

For purposes of computing the gross estate, the following classification of the decedent may be made:
1. Resident or Citizen
2. Nonresident Alien

Decedents need to be classified as listed above because there are decedents whose transfers of properties (or estate) are
subject to estate tax based on property situated (or with situs) in the Philippines only and there are those whose transfers
of property upon their death are taxed based on property situated within or without (world) the Philippines.

Properties in the Gross Estate of a Resident or Citizen Decedent

The gross estate of either a resident (resident citizen and resident alien) or citizen (whether resident or not) shall include
all properties left by him upon his death, wherever situated (within or without the Philippines).

Properties in the Gross Estate of a Nonresident Alien Decedent

The gross estate of a nonresident alien decedent shall consist of all properties left by him at the time of his death which
are situated within the Philippines only. The gross estate of a nonresidents alien shall not include those properties owned
by him at the time of his death but are situated or with situs outside the Philippines.

Civil Status of the Decedent

A decedent may have any of the following tax (civil) status for estate tax purposes:
1. Single
2. Head of the Family
3. Married

The foregoing classification is necessary because the property left by a single or head of the family decedent is all
considered as exclusive property. While a married decedent shall include in his gross estate both exclusive and conjugal
1

properties.
Page
 Simplified Transfer & Business Taxation

Property Relationship (Marriage Settlements) of Married Couple

When decedent is married, it is also important to know the property relationship entered into by the spouses at the time
of their marriage (if there is any). In the Philippines, spouses may enter in any of the following property regimes which
are separately discussed in the succeeding paragraphs.
1. Conjugal Partnership of Gains
2. Absolute Community of Property
3. Absolute Separation of Property

It should be noted that the gross estate of a married decedent includes the conjugal or community property of the
spouses at the time of his death but it does not include the exclusive property of the surviving spouse. The property
relationship of the spouses guides the determination of which property belongs to each of them exclusively or part of the
common properties.

Conjugal Partnership of Gains

The regime of Conjugal Partnership of Gains which is also called Relative Community of Property classifies the properties
owned by the spouses during the marital period as follows:

• Conjugal Properties
Under the conjugal partnership of gains, the following are considered as conjugal properties
a. Those acquired by onerous title during the marriage at the expense of the common fund, whether the acquisition
be for the partnership, or for only one of the spouses;
b. Those obtained from the labor, industry, work or profession of either or both of the spouses;
c. The fruits, natural, industrial or civil, due or received during the marriage from the exclusive property of each
spouse (including those from any property acquired through gratuitous title by either spouses);
d. The share of either spouse in the hidden treasure which the law awards to the finder or owner of the property
where the treasure is found;
e. Those acquired through occupation such as fishing and hunting;
f. Livestock existing upon the dissolution of the partnership in excess of the number of each kind brought to the
marriage by either spouse; and
g. Those which are a quired by chance, such as winnings from gambling or betting. However, losses therefrom shall
be borne exclusively by the loser-spouse.

• Exclusive Properties

Under the conjugal partnership of gains, the following are considered as exclusive properties of each of the spouses:
a. That which is brought to marriage as his or her own;
b. That which each acquires through gratuitous title during the marital period (marriage);
c. That which is acquired by right of redemption, by barter or by exchange with property belonging to only one of the
spouses; and
d. That which is purchased with the exclusive money of either of the spouses.

Absolute Community of Property

The absolute community of property between the spouses shall commence at the precise moment that the marriage is
celebrated. Under this marriage settlement, properties of the spouses include the following:

• Community properties
Under the absolute community of property, the following are considered as community properties:
a. All properties owned by the spouses at the time of the marriage.
b. All properties acquired thereafter through onerous title.

• Exclusive properties

Under the absolute community property, the following are considered as exclusive properties of each of the
spouses-
a. Property acquired during the marriage by gratuitous title by either spouse, and the fruits as well as
income thereof, 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; and
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.

1- 2
Chapter 3 : Computation of Gross Estate

Composition of the Gross Estate

Aside from the factors previously discussed, the properties included in the gross estate may also be classified
as either those of properties which are actually owned and possessed by the decedent at the time of his death
and/or those properties which may have been transferred by the decedent during his lifetime or are still to be
received by his or her beneficiaries upon his death but the transfers of which are considered by law to take
effect only upon his death because the transfers were made in the nature of testamentary dispositions and
therefore subject to the estate tax. These taxable transfers are also referred to as properties deemed owned.

In other words, gross estate shall consists of all properties, whether real or personal (tangible or intangible),
exclusively owned or jointly owned with his or her spouse (in case of married decedent), whether actually or
deemed owned, either within the Philippines only or within and without the Philippines (depending on residence
or citizenship).

Properties Deemed Owned (Taxable Transfers)

As mentioned in the previous section of this chapter, properties deemed owned might include those properties
which may have been transferred by the decedent during his lifetime but is considered by law as if the transfer
took effect upon his death because the transmission partakes of testamentary disposition. These transfers
include the following:
• Transfers in contemplation of death;
• Revocable transfers;
• Property passing under a general power of appointment;
• Transfer for insufficient consideration in money or money’s worth;
• Proceeds of Life Insurance Policy taken by the decedent upon his own life subject to certain conditions.

Transfers in contemplation of death

For estate tax purposes, the phrase “in contemplation of death” is different from the common general expectation of
death.

A transfer is in contemplation of death if the transfer is impelled by the thought of death, or the motivating factor or
controlling motive for the transfer of the property is the thought of death, without regards to the state of health of the
transferor.

The thought of death, as distinguished from motives associated with life, must be the impelling cause of the transfer.

There are motives associated with life that preclude a transfer in contemplation of death. Some of these motives are the
following:

a. To see the children enjoy the property while the donor is alive;
b. To save on income taxes;
c. To make the children financially independent;
d. To settle family disputes; and
e. To relieve the donor of the burden of management of the property.

Donation Mortis Causa

A donation mortis causa is a donation which takes effect upon the death of the donor. It partakes of the nature of a
testamentary disposition. It is an example of transfer in contemplation of death.

The characteristics of a donation mortis causa are the following:

• There is no conveyance of title or ownership to the done or transferee. The transferor retains either the beneficial
ownership or the naked title to the property. He is in full control of the property during his lifetime.
• The transfer is revocable by the donor or transferor at will during his lifetime. The revocability of the transfer is
usually provided through the reservation or retention of power by the donor or transferor to dispose of the
property transferred; and
• The transfer shall be void if the donor or transferor survives the done or transferee.

Revocable Transfers

The gross estate shall include the value of any property which the decedent transferred during life, whether
the transfer at the time of death was subject to a reserved power to alter, amend, revoke or terminate.
3
Page
 Simplified Transfer & Business Taxation

The transfer is revocable where the enjoyment of the property transferred may be altered, amended, revoked,
or terminated by the decedent. The revocability of the transfer is not affected by the failure of the decedent
to exercise the power to revoke during his lifetime or before his death. If the notice has not been given, or
the power to revoke has not been exercised on or before the death of the decedent, such notice shall be
considered to have been, or the power exercised, on the date of his death.

Property Passing Under a General Power of Appointment

A power of appointment is the right to designate the person or persons who will succeed to the property of a
prior decedent.

A power of appointment may be a general power of appointment or a limited (special) power of appointment.
A general power of appointment is one which may be exercised in favor of anybody. A limited or special
power of appointment is one which may be exercised only in favor of a certain person or persons designated
by the prior decedent. In order that the property passing under a power of appointment may be included in
the gross estate of the decedent, the power of appointment should be a general power of appointment.

Transfer with Retention or Reservation of Certain Rights

These refer to those transfers of property where the donor reserves the right to:

a. The income of the property until death; or

b. The possession or enjoyment of the property until death.

Transfers with retention or reservation of certain rights over the income, possession or enjoyment of the
property transferred until death do not actually convey full ownership or dominion over the property
transferred. The transferor retains the beneficial ownership of the property. Thus, the property shall form
part of the gross estate of the transferor or donor upon his death.

Transfer for Insufficient Consideration

In a transfer in contemplation of death, revocable transfer, or transfer under a general power of appointment,
the value of the properties transferred shall be determined in accordance with the following rules:

• If the transfer was in the nature of a bona fide sale for an adequate and full consideration in money or
money’s worth, no value shall be included in the gross estate.
• If the consideration received on the transfer was less than adequate and full, the value to include in
the gross estate shall be the excess of the fair market value of the property at the time of the
decedent’s death over the consideration received.
• If there was no consideration received on the transfer ( as in donation mortis causa), the value to
include in the gross estate shall be the fair market value of the property at the time of the decedent’s
death.

For the purposes of computing the amount to be included in the gross estate, the following steps are
necessary:

1. Determine whether the consideration is sufficient or not by comparing the fair market value at the time
of transfer and the consideration received.
2. If the consideration is insufficient, determine the taxable amount to be included in the gross estate by
deducting the consideration received from the fair market value at the time of the decedent’s death.
Take note that the fair market value at the time of transfer is used only to determine whether the
consideration received is sufficient or not. In determining the taxable amount to be included in the gross
estate, comparison is made with the fair value at the time of death. Needless to say, if there is adequate
consideration, no value is to be included in the gross estate. Likewise, if the fair value at the time of death is
equal to or less than the consideration received, nothing is also includible in the taxable gross estate.

Illustrative Example:

Assume the following information about a decedent’s particular estate:

Fair Value at the time of transfer P500,000

1- 4
Chapter 3 : Computation of Gross Estate

Consideration received 450,000

Fair value at the time of death:

a. P600,000
b. P450,000
c. P400,000

Requirement: Determine the amount to be included in the gross estate in each of the above independent
cases.

Answers:

Because the fair value of the property at the time of transfer is more than the consideration received, this
transfer is considered made for inadequate consideration with the following tax consequences:

a. The P600,000 fair value of the property at the time of death is more than the P450,000 consideration
received at the date of transfer. Hence, an amount equal to P150,000 (P600,000 – P450,000) shall be
included in the gross estate subject to estate tax.
b. The P450,000 fair value of the property at the time of death is equal to the P450,000 consideration
received. In this case, no amount is to be included in the gross estate.
c. The same thing is true in this case. For an amount to be included in the gross estate, the fair value of
the property at the time of death must be more than the amount of consideration received at the time
of transfer of the property.

It should be remembered, however, that for the transfer made for inadequate consideration to be covered by
estate tax, the element of revocability or motivation of thought of death must be present, otherwise, it shall be
considered as a simple act of generosity or liberality or donation subject to donor’s tax rather than estate tax.

Proceeds of Life Insurance

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

• The estate of the decedent, his executor or his administrator, or

• A third person (i.e., a person other than the estate, executor or administrator), when the designation
of the beneficiary is revocable.

Under the law, unless it is expressly stated, the designation of a beneficiary is revocable. Generally, any
beneficiary designated in the policy is presumed to be a third person.

Claims against insolvent persons

A decedent’s claims against insolvent person shall be included in the gross estate at the full amount of the
claim. The fact that it is not collectible in whole or in part shall be recognized when a deduction is taken from
the gross estate for the uncollectible portion of the claim. (This is more thoroughly discussed in chapter 5 of
this book).

Transfers Exempt from Estate Tax

The following transfers of property are not subject to tax under the Revised National Internal Revenue Code:
a. The merger of usufruct in the owner of the naked title;
b. The transmission or delivery of the inheritance or legacy of the fiduciary heir or legatee to the
fideicommissary;
c. The transmission form the first heir, legatee or done in favor of another beneficiary, in accordance with
the will of the predecessor;
d. All bequests, devices, 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, that not more than thirty
percent (30%) of the said bequests, legacies or transfers shall be used by such institution for
administration purposes.

Items (a) through (c) are exempted in order to prevent indirect double taxation. This is so because the same
items were previously taxed already.
5
Page
 Simplified Transfer & Business Taxation

In item (a), there is only one transfer that should be taxed, the transfer from the testator to the owners of the
naked title and the usufruct which should be different persons. The merger of the usufruct and the owner of
the naked title (or transfer of usufruct to the holder of naked title) should therefore be exempted.

In item (b), the transfer from the testator to the fideicommissary through fiduciary heir is considered only as
one transfer, hence, the transmission of the property from the fiduciary heir to the fideicommissary shall be
exempted.

In item (c), the transfer is from the testator to the second beneficiary through the first heir, legatee or done.
The transfer to the first heir, legatee or done is taxable but the transmission from the latter to the second
beneficiary should be exempt.

The fiduciary heir is a person to whom property or power is entrusted for the benefit of another. A
fideicommissary is the recipient of a fideicommissum, which is a request by a decedent that the heir or legatee
to the estate convey a specified part of the estate to another person, or permit another person to enjoy such a
part. A testator is a person who died with a will and testament.

In addition to the foregoing, the following properties are also not subject to estate tax under the provisions of
special laws:

e. Amounts received for war damages;

f. Amounts received from the United States Veterans Administration;
g. Benefits received from the Government Service Insurance System (GSIS);
h. Benefits received from Social Security System (SSS);
i. Retirement benefits received by employees of private firms;
j. Intangible personal properties of non-resident alien decedents, as provided for under a reciprocity
clause.

Note: Except for item (d) in the list (which is subject to verification by the BIR pending compliance with
certain administrative provisions), all the items enumerated in the preceding section are excluded outright
from gross estate.

Valuation of Properties in the Gross Estate

The gross estate shall be valued at its fair market value at the time of the decedent’s death.

In the case of real property, the value shall be the higher amount between:
• The current and fair market value, as shown in the schedule of values fixed by the Provincial and City
Assessor; or
• The fair market value as determined by the Commissioner of Internal Revenue (zonal value).

In case of personal property, fair market value refers to the purchase price if the property is brand new and, in
general, to the pawned value times three (3), if it second hand.

In case of securities, fair market value depends on whether or not the securities are traded in the stock
exchange. If securities are traded, fair market value refers to the mean value between the highest and lowest
quotation price of the security on the valuation date, or on the date nearest the valuation date. If the security
is not traded in an exchange, the fair market value shall be the book value of the security on the valuation
date, or on the date nearest the valuation date.

😊 END 😊

Thoughts to ponder on:

“If you think education is expensive, try ignorance.”

1- 6
Chapter 3 : Computation of Gross Estate

I. True or False Questions 1

Instruction: State whether the following statements are true or false.

1. A property inherited by a spouse during the marriage is considered as a conjugal property.
2. Nonresident alien decedents are subject to estate tax on properties situated in the Philippines only.
3. The estate tax serves not only to raise revenues but also to reduce excessive inequalities of wealth.
4. The reciprocity theory also applies to real property.
5. The proceeds of life insurance policy that was taken by the decedent upon his own life are not included
in the gross estate if the beneficiary is the estate and its designation as such is revocable.
6. Jewelry for personal and exclusive use of one of the spouses is considered owned by both spouses
under the system of absolute community of property.
7. The estate tax is a property tax.
8. Under the system of absolute community, vanishing deduction could be a deduction from property
owned in common.
9. The gross estate of a foreigner residing in the Philippines includes his properties situated outside the
Philippines.
10. The estate tax is a tax on rights.
11. Donation mortis causa partakes of the nature of testamentary dispositions, hence, subject to estate
tax.
12. Only properties physically in the estate shall be included in the computation of the gross estate.
13. The gross estate of a citizen consists of real estate, tangible personal properties and intangible
personal properties, regardless of location.
14. The reciprocity theory applies only to intangible personal property of nonresident alien decedents.
15. All sales of real property for inadequate consideration will result in payment of estate tax.
16. Shares of a foreign corporation, belonging to a nonresident alien are taxable in the Philippines.
17. The proceeds of an irrevocable insurance policy payable to the estate of the decedent are taxable.
18. Proceeds from a GSIS policy upon the death of a decedent are taxable and therefore subject to estate
tax.
19. If the husband is jobless and has no income, he can not have a share in the conjugal property.
20. A transfer of property passing under a general power of appointment is one, where the decedent is
free to designate any person to receive and enjoy the property.
21. A donation mortis causa is a transfer in contemplation of death.
22. Estate tax is imposed on every property transferred by a resident or citizen decedent of the Philippines.
23. All properties acquired during marriage are presumed conjugal unless proven otherwise.
24. The gross estate of every resident decedent shall included the value of all properties wherever
situated.
25. Properties transferred during the lifetime of the decedent are still included in his gross estate if the
transferor had reserved his right on such property but failed to exercise his rights.
26. The gross estate of a married person excludes the share of the surviving spouse.
27. Estate tax is an excise tax because it is imposed on the privilege to transmit properties of one person
to another.
28. The principle of reciprocity applies on intangible owned by a resident or citizen decedent.
29. A sale of real property for inadequate consideration may not result in payment of estate tax.
30. Shares of foreign corporation belonging to a nonresident alien decedent are not taxable in the
Philippines.
😊 END 😊

II.True or False Questions 2

Instruction: State whether the following statements are true or false.

1. The proceeds of a revocable insurance policy payable to the estate of a decedent are not taxable.
2. If the husband is jobless and has no income he can have 50% share in the conjugal property.
3. The estate tax serves not only to raise revenue but also to increase the perceived inequalities of
wealth.
4. Estate tax is imposed on every property transferred by a resident or citizen decedent of the Philippines.
5. All properties acquired during marriage are presumed conjugal unless the contrary is proven.
6. The gross estate of every resident decedent shall include the value of all properties wherever situated.
7. The value of a real property to be included in the gross estate shall be whichever is lower between the
fair market value as determined by the Commissioner of Internal Revenue or that shown in the
assessment roll of the City or Municipal Assessor’s Office.
7
Page
 Simplified Transfer & Business Taxation

8. To determine the value of the right of usufruct, use or habitation as well as that of annuity, there shall
be taken into account the probable life of the beneficiary in accordance with the latest basic standard
mortality table.
9. The value of the decedent’s property, undiminished by any mortgage indebtedness should be included
in his gross estate.
10. Properties transferred during the lifetime of the decedent are not to be included in his gross estate if
the transferor had reserved his rights on such properties but failed to exercise his rights.
11. Proceeds of a life insurance policy taken out by the decedent upon his own life shall form part of his
gross estate if the beneficiary is his wife who is irrevocably designated.
12. The gross estate of a married person excludes the share of the surviving spouse.
13. Only a resident decedent’s estate can avail of the estate tax credit.
14. The principle of reciprocity applies on intangible property owned by a resident decedent or donor.
15. Proceeds of a group insurance policy formed part of the gross estate of a decedent if the designation of
the beneficiary is revocable.
16. In claims against the estate, the decedent was the debtor during his lifetime.

-End-

III. Matching Type Questions

Instructions: Match each of the numbered statements or clauses with the correct term in the list below.
Write only the letter corresponding to the answer of your choice in the answer sheet provided in this book.
LIST OF POSSIBLE ANSWERS
A. Intestate Succession G. Reciprocity Rule
B. Administrator H. Testamentary Succession
C. Capital I. Beneficiary
D. Legatee J. Paraphernal Property
E. Donation Mortis Causa K. Devisee
F. Decedent L. None of the given choices

STATEMENTS/CLAUSES TO BE MATCHED
1. Rule that intangible personal property of a nonresident alien is exempt from the Philippine estate or gift
tax.
2. A person called to the succession either by the provision of a will or by operation of law.
3. Transfer of properties through an executed will.
4. A person or trust company appointed by the court to administer, distribute the estate where there is no
executor named in the will or if the executor does not want to act.
5. A deduction allowed to reduce the taxable estate of a decedent where property received from prior
decedent by gift, bequest devise or inheritance or from donor by gift has been subjected previously to
transfer taxes.
6. The exclusive property of the wife.
7. The person whose property is transmitted through succession whether with or without a will.
8. The exclusive property of the husband.
9. A person who receives real property by virtue of a will.’
10. Transfer or properties where there is no will or if there is a will it is void or nobody succeeds in the will.
-END-
IV. Multiple Choice Questions

Instruction: Select the letter corresponding to the best answer to each of the following questions.

1. Which of the following properties should be included in the gross estate of a decedent person?
a. Real Property
b. Intangible personal property
c. Tangible personal property
d. All of the above

2. All is true about properties not physically included in the estate on the date of death, but still to be included
in the computation of the gross estate of the decedent, except one.

1- 8
Chapter 3 : Computation of Gross Estate

a. Dividends declared before the death of the stockholder and received by the estate after the death of the
stockholder.
b. Revocable transfer
c. Partnership’s profit earned prior to death of the partner.
d. Irrevocable transfer.

3. All of the following properties are excluded from the gross estate, except one, which is it?
a. Amount received as war damages.
b. Benefit received from SSS.
c. Benefits received from GSIS.
d. Proceeds from insurance policy

4. The following are transactions and acquisitions exempt from transfer tax, except one, which is it?
a. Transmission from the first heir or done in favor of another beneficiary in accordance with the desire of
the predecessor.
b. Transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to the
fideicommissary.
c. The merger of usufruct in the owner of the naked title.
d. All bequests, devises, legacies or transfers to social welfare, cultural and charitable institutions.

5. Which of the following proceeds of life insurance is includible in the taxable gross estate?
a. Insurance proceeds from SSS or GSIS.
b. Amount receivable by any beneficiary irrevocably designated in the policy by the insured.
c. Amount receivable by any beneficiary designated in the insurance policy.
d. Proceeds of group insurance policy, taken out by a company for its employees.

6. The personal properties of a non-resident, not a citizen of the Philippines would not be included in the gross
estate if:
a. The intangible personal property is in the Philippines.
b. The intangible personal property is in the Philippines and the reciprocity clause is applicable.
c. The tangible personal property is in the Philippines.
d. The personal property is shares of stock of a domestic corporation 90% of whose business is in the
Philippines.

7. Which of the following is not included in the gross estate?

a. Revocable transfers where the consideration is not sufficient.
b. Revocable transfers where the power of revocation was not exercised.
c. Proceeds of life insurance where the designated beneficiary is the estate and the designation is
irrevocable.
d. Proceeds of life insurance where the designated beneficiary is the mother and the designation is
irrevocable.

8. Which of the following exempt transmissions will still require inclusion of the property in the gross estate?
a. Merger of the usufruct in the owner of the naked title.
b. Legacy to a charitable institution whose administrative expenses did not exceed 30% of the legacy.
c. Transfer from a first heir to a second heir designated by the decedent.
d. Death benefits under the GSIS and SSS.

9. Which statement is wrong? The gross estate shall be valued at,

a. Its fair market value at the time of the death.
b. Its fair market value at the time the return is due.
c. In real property, the zonal value, which may be higher than the fair market value.
d. In the case of shares of stock, at book value.

10. A revocable transfer with the following circumstances: Fair market value at the time of transfer-800,000;
fair market value at the time of death-P680,000; consideration received when transferred-P700,000.
a. Shall be included in the gross estate at P800,000,
b. Shall be included in the gross estate at P100,000;
c. Shall be included in the gross estate at P680,000;
d. Shall not be included in the gross estate.
9
Page
 Simplified Transfer & Business Taxation

11. Which of the following statements is not correct?

a. The gross estate shall be valued at its fair market value at the time of death
b. The gross estate shall be valued at its fair market value at the time notice of death is filed
c. The gross estate shall be valued, in the case of real property, at the higher amount between the values
determined by the BIR and the City Assessor’s Office
d. The gross estate shall be valued, in the case of tangible personal assets not being sold, at its pawn
value times three (3)

12. 1st Statement: A “fiduciary heir” is the first heir of the property while a “fideicommissary” is the second
heir whose relationship to the fiduciary heir must be five degree of generation.
2nd Statement: Under the conjugal partnership of gains, the properties belonging to each spouse before
marriage shall be treated as exclusive properties, but the income derived there from during marriage shall
be conjugal properties
a. Both statements are true.
b. Both statements are false.
c. Only the 1st statement is true.
d. Only the 2nd statement is true.

13. Which of the following exempt transmissions will still require inclusion of the property in the gross estate?
a. Merger of the usufruct in the owner of the naked title;
b. Legacy to a charitable institutions whose administrative expense did not exceed 30% of the legacy;
c. Transfer from a first heir to a second heir designated by the decedent;
d. Death benefits under the GSIS and SSS

14. The following are transactions and acquisitions exempt from transfer tax except?
a. Transmission from the first heir or donee in favor of another beneficiary in accordance with the desire
of the predecessor;
b. Transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to the
fideicommissary;
c. The merger or usufruct in the owner of the naked title;
d. All bequests, devises, legacies or transfers to social welfare, cultural and charitable institutions

15. When a donation which paid a donor’s tax was actually a donation mortis causa, as ascertained by the
Bureau of Internal Revenue, which of the following is true?
a. The donation shall be required to pay the estate tax on its proper valuation at the time of death, and
there can be a refund for the wrong payment of the donor’s tax;
b. The donation shall be required to pay the estate tax so that the estate tax computed shall be reduced
by the donor’s tax already paid;
c. The donation shall not pay any transfer tax anymore;
d. The donation has to pay the estate tax in addition to the donor’s tax previously paid

16. In 2022, the decedent gave loan of P150,000 to his secretary. In 2022, as an act of generosity, the
decedent condoned the debt of his secretary in his last will and testament 2023. the condonation of the
debt of his secretary is
a. A donation inter vivos subject to donor's tax title;
b. payment or compensation for the services rendered;
c. A deduction from the gross estate of Juan Dela Cruz;
d. A donation mortis causa subject to estate tax

17. The gift tax paid on a donation mortis causa, if any?

a. Exempts the property from estate tax;
b. Has no effect since the gift will be subject to another gift tax;
c. Shall form as a tax credit to be deducted from the estate tax due;
d. Are invalid & the tax will not be credited at all

18. Arman devised in his will a piece of land; naked title to Berto and usufruct to Celso for as long as Celso
lives, thereafter to Berto. The transmission from Arman to Berto and Celso is subject to estate tax but the
merger of the usufruct and the naked title to Berto upon the death of Celso is exempt? Xerex devised in
his will real property to his brother Yano who is entrusted with the obligation to preserve and transmit the
property to Zito, a son of Yano, when Zito becomes of age. The transmission from Yano to his son Zito is
subject to tax

1- 10
Chapter 3 : Computation of Gross Estate

a. First statement is correct, second statement is wrong;

b. Both statements are not correct;
c. Both statements are correct;
d. First statements is wrong second statement is correct.

19. The following are the motivates of a taxpayer that preclude the transfer in contemplation of death, except
one, which is it?
a. To relieve the taxpayer of the burden of management;
b. To save income and property taxes;
c. To avoid payment of estate tax;
d. To make dependents financially independent

20. A revocable transfer with the following circumstances: Fair market value at the time of transfer –
P300,000; fair market value at the time of death P180,000; consideration received when transferred –
P200,000?
a. Shall be included in the gross estate at P180,000;
b. Shall be included in the gross estate at P200,000
c. Shall be included in the gross estate at P100,000;
d. Shall not be included in the gross estate;

21. Property with fair market at the time of death of P3,000,000, but subject to a mortgage of P200,000, shall
be
a. Included in the gross estate at P2,800,000;
b. Included in the gross estate at P3,000,000;
c. Included in the net estate at P2,500,000;
d. Excluded from the gross estate.
e. Answer not given

22. The total value of the property left behind by the decreased is P5,000,000. The total charges against the
estate amounted to P1,000,000. Immediately prior to date of death, the decedent transferred to his
children P2,000,000 portion of his existing property at the time as gift. The amount of hereditary estate
would be
a. 4,000,000 c. P6,000,000 e. Another amount
b. P5,000,000 d. P7,000,000

23. What would be the amount to be included in the gross estate of a resident, with a 40% equity investment
in San Miguel Corporation if the total book value of San Miguel Corporation before current income is
P1,250,000. Assume that prior to death, the net income of San Miguel Corporation was P100,000 and
P50,000 dividend declared but received after the death.
a. P540,000 c. P500,000 e. Another amount
b. P520,000 d. P220,000

24. Pedro died April 13, 2022, leaving the following properties:

Stocks of Peter Corporation (2,000 shares) - listed in the Philsex (highest - P40; lowest - P39).
Common Stocks of Petra Corp. (1,500 shares) - not listed in the stock exchange. Cost- P50 per share;
book value - P45 per share.
Car (cost - P600,000; book value - P350,000; market value - P400,000)
Real properties (zonal value - P120,000; assessed value - P72,000)

The gross estate of Pedro is -

a. P618,500 c. P624,000
b. P867,500 d. P666,500
e. Another amount

25. A citizen of China, residing in Beijing, with properties in the China and the Philippines, had the following
data on properties and the rights at the time of his death and their value:
Real estate, China P1,000,000
Real estate, Philippines 2,000,000
Stock of a domestic corporation 200,000
Stock of a Chinese corporation 300,000
11

Stock of a Chinese corp., doing business in the Philippines only

Page

100,000
 Simplified Transfer & Business Taxation

Phil. peso deposit in Allied Bank 500,000

Receivable under a life insurance with an insurance company doing
business in China
250,000
The gross estate that should be reported in the Philippines is:
a. P4,350,000; c. P3,700,000; e. Another amount
b. P4,000,000; d. P2,800,000.

Questions 26 through 29 are based on the following information:

A decedent left the following properties:

Land in Italy (with P1M unpaid
mortgage) P 2,000,000
Land in Cebu City, Phil.
(zonal value 750,000) 500,000
Franchise in Malaysia 100,000
Receivable from debtor in Phil. 50,000
Receivable from debtor in Malaysia 100,000
Bank deposit in Phil. 20,000
Bank deposit in Malaysia 80,000
Shares of stocks of PLDT, Phil. 75,000
Shares of stock of XXX Corp., foreign
Corporation 75% of the
business in the Phil. 125,000
Other personal properties in the Phils. 300,000

26. If the decedent is a non-resident citizen, how much is his gross estate?
a. P3,650,00 c. P2,500,000 e. Another amount
b. P3,600,000 d. P2,650,000

27. If the decedent is non-resident alien, how much is his gross estate?
a. P1,195,000 c. P1,250,000
b. P945,000 d. P1,070,000

28. If in the preceding number, reciprocity law can be applied, how much is the gross estate?
a. P1,050,000 c. P1,250,000
b. P945,000 d. P1,070,000

29. Based on the original problem but assuming the PLDT shares of stocks are not listed in the Local Stock
Exchange, and there are 1,000 shares at the time of death, the company’s outstanding shares were
10,000 shares. Its retained earnings was P2,000,000, par value per share was P50/share. The gross
estate should show the said shares at what amount?
a. Still at P75,000 c. P200,000
b. P250,000 d. P-0

30. A citizen and resident of the Philippines died leaving the following properties and rights:

Cash on hand and in banks (of which P150,000 was provided in the will to be
given to a charitable institution) P1,000,000
Real property in the Philippines:
Assessed value per assessment rolls of the city P100,000
Zonal value per Bureau of Internal Revenue
500,000
Selling price of adjacent piece of land the day preceding the date of death 600,000
Real property in Malaysia, fair market value 450,000
Car in the Philippines, with a mortgage of P200,000 400,000

Other assets included in the estate:

Receivable:
From a friend from whom there is no possibility of recovery 20,000
From a sister whose ratio of assets to liabilities is 1:3 15,000

1- 12
Chapter 3 : Computation of Gross Estate

Amounts under insurance contracts:

Receivable under life insurance, with the father as revocable beneficiary 250,000
Receivable under life insurance, with the mother as irrevocable beneficiary 200,000
Receivable under accident insurance, for accident that happened one year ago 50,000
Receivable under property insurance, for damage caused to his car 12,000
Revocable transfers:
To sister (FMV at the time of transfer was P40,000 and consideration received was 50,000
P10,000
To father FMV at the time of transfer was P30,000 and consideration received was 60,000
P30,000
To mother (fair market value was P40,000 and consideration received was P50,000) 70,000

Based on the foregoing information, compute the gross estate.

a. P2,737,000;
b. P2,807,000;
c. P2,627,000;
d. P1,350,000.
=end=

13
Page