Extrajudicial Settlement of Estate in the Philippines

Settlement of an estate need not undergo judicial proceedings all the time. Rule 74, Section 1 of the
Rules of Court allows the extrajudicial settlement of estate by agreement among the heirs. Said Rule
states:

Sec. 1. Extrajudicial settlement by agreement between heirs. – If the decedent left no will and no debts
and the heirs are all of age, or the minors are represented by their judicial or legal representatives duly
authorized for the purpose, the parties may, without securing letters of administration, divide the estate
among themselves as they see fit by means of a public instrument filed in the office of the register of
deeds, and should they disagree, they may do so in an ordinary action of partition. If there is only one
heir, he may adjudicate to himself the entire estate by means of an affidavit filed in the office of the
register of deeds. The parties to an extrajudicial settlement, whether by public instrument or by
stipulation in a pending action for partition, or the sole heir who adjudicates the entire estate to himself
by means of an affidavit shall file, simultaneously with and as a condition precedent to the filing of the
public instrument, or stipulation in the action for partition, or of the affidavit in the office of the register
of deeds, a bond with the said register of deeds, in an amount equivalent to the value of the personal
property involved as certified to under oath by the parties concerned and conditioned upon the
payment of any just claim that may be filed under Section 4 of this rule. It shall be presumed that the
decedent left no debts if no creditor files a petition for letters of administration within two (2) years
after the death of the decedent.

The fact of the extrajudicial settlement or administration shall be published in a newspaper of general
circulation in the manner provided in the next succeeding section; but no extrajudicial settlement shall
be binding upon any person who has not participated therein or had no notice thereof.

However, extrajudicial settlement of estate cannot be resorted to every time. There are conditions
which must be satisfied such as:

1. The decedent left no will

2. The decedent has no debts or his debts have been fully paid.
3. The heirs are all of legal age or the minors are duly represented by their judicial or legal
representatives.
4. A public instrument is duly executed by the heirs and filed with the Register of Deeds.

Extrajudicial settlement of estate is often recommended to expedite the transfer of properties of the
decedent to his heirs. This is in view of the fact that judicial settlement of estate takes years before the
case is concluded. Furthermore, this is more adversarial and is resorted to when the heirs disagree on
the properties to be partitioned and the corresponding shares of the respective heirs.

An extrajudicial settlement of estate is done by executing an “Extrajudicial Settlement Among Heirs”.

This is a legal document specifying:
1. Compliance with the legal conditions for an extrajudicial settlement
2. Description of the properties to be extrajudicially settled (title number, value, location, lot size,
technical description, etc.)
3. Nature of the property (if conjugal property)
4. Name of the heirs
5. How the properties shall be divided amongst the heirs.
6. Posting of a bond if there is personal property involved.
7. Undertaking that the Deed will be published in a newspaper of general circulation once a week for 3
consecutive weeks.

It must be noted that the Deed of Extrajudicial Settlement must be published in a newspaper of general
circulation once a week for 3 consecutive weeks. Kindly consult with the Register of Deeds where the
property is located for the listing of these newspapers.

Before filing the Deed of Extrajudicial Settlement with the Register of Deeds where the land is located, it
is necessary that the estate taxes be paid first. Under Philippine laws, estate tax is defined as a tax on
the right of the deceased person to transmit his estate to his lawful heirs and beneficiaries at the time of
death and on certain transfers, which are made by law as equivalent to testamentary disposition.
According to the Bureau of Internal Revenue, estate tax is not a tax on property but rather imposed on
the privilege of transmitting property upon the death of the owner.

It bears great emphasis that the Estate Tax Return must be filed within six (6) months from the
decedent’s death. The deadline may be extended by the Commissioner of the BIR, in meritorious cases,
not exceeding thirty (30) days. It must be noted that the estate itself is assigned its own Tax
Identification Number (TIN). The Estate Tax Return is filed with Revenue District Office (RDO) having
jurisdiction over the place of residence of the decedent at the time of his death. If the decedent has no
legal residence in the Philippines, then the return can be filed with:

1. The Office of the Revenue District Officer, Revenue District Office No. 39, South Quezon City; or

2. The Philippine Embassy or Consulate in the country where decedent is residing at the time of his
death.

Furthermore, the estate tax shall be paid at the time the return is filed. However, upon request and if
the Commissioner of the BIR finds that payment on the due date 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 or two (2) years in case the estate is settled extra-judicially. If an extension is granted, the BIR
Commissioner may require a bond in such amount, not exceeding double the amount of tax, as it deems
necessary.
The estate tax is based on the value of the net estate as follows:

1. If not over P200,000, it is exempt

2. If over P200,000 but not over P500,000, then tax is 5% of the excess over P200,000
3. If over P500,000 but not over P2,000,000, then tax is P15,000 PLUS 8% of the excess over P500,000
4. If over P2,000,000 but not over P5,000,000, then tax is P135,000 PLUS 11% of the excess over
P2,000,000
5. If over P5,000,000 but not over P10,000,000, then tax is P465,000 PLUS 15% of the excess over
P5,000,000
6. If over P10,000,000, then tax is P1,215,000 PLUS 20% of the excess over P10,000,000

The basis shall be the net estate. That means that there are allowable deductions on the estate. These
deductions include funeral expenses, share of the surviving spouse, medical expenses incurred by the
decedent within 1 year prior to his death, family home deduction of not more than P1,000,000.00,
standard deduction of P1,000,000.00, among others. It is best to consult with an accountant on this
matter to determine the accurate estate tax.

For extrajudicial settlement of estate, the following documents must be submitted with the BIR:

1. Notice of Death
2. Certified true copy of the Death Certificate
3. Deed of Extra-Judicial Settlement of the Estate
4. Certified true copy of the land titles involved
5. Certified true copy of the latest Tax Declaration of real properties at the time of death
6. Photo copy of Certificate of Registration of vehicles and other proofs showing their correct value
7. Photo copy of certificate of stocks
8. Proof of valuation of shares of stocks at the time of death
a. For listed stocks – newspaper clippings or certification from the Stock Exchange
b. For unlisted stocks – latest audited Financial Statement of issuing corporation with computation of
book value per share
9. Proof of valuation of other types of personal property
10. CPA Statement on the itemized assets of the decedent, itemized deductions from gross estate and
the amount due if the gross value of the estate exceeds two million pesos
11. Certification of Barangay Captain for claimed Family Home

Other documents may also be requested by the BIR.

After the estate taxes have been paid, the heirs may proceed to the Register of Deeds where the land is
situated. If the Register of Deeds would allow it, the filing with the BIR and Register of Deeds may be
simultaneous. The proof of payment of the estate tax, Affidavit of Publication of the Deed, the Deed of
Extrajudicial Settlement of Estate are the basic requirements to be submitted to the Register of Deeds.
When all pertinent documents are submitted, the Register of Deeds will correspondingly issue the
Transfer of Certificates of Title to the proper heirs.

On a final note, it must be borne in mind that the extrajudicial settlement can be nullified if it was done
in fraud of creditors or other rightful heirs. Furthermore, this can open the erring heirs to criminal
liabilities.
If you need any help in extrajudicial settlement of estate in the Philippines, call any of our lawyers at
(632) 4016392 or (632) 4706126 or e-mail us at info @ndvlaw.com.

Nicolas & De Vega Law Offices is a full-service law firm located at the 16th Flr. Suite 1607 AIC Burgundy
Empire Tower, ADB Ave., Ortigas Center, Pasig City, Metro Manila, Philippines.

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