Gross Estate

 Act 2601 - July 1, 1916

 1st estate tax law in the Philippines

 Imposes Graduated Estate Tax Rates computed on Net inventoried property left by a
decedent

 Subsequently amended by the “Revised Administrative Code of the Philippines”

o Imposing upon ‘Every transmission by virtue of inheritance, devise, bequest,

gift mortis causa, or advance in anticipation of inheritance, devise or bequest’

 RA 8424 - January 1, 1998

 Tax Reform Act or National Internal Revenue Code (NIRC)

 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

o 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

 RA 10963 - January 1, 2018

 Tax Reform for Acceleration and Inclusion (TRAIN) Act

 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

 Revising the thresholds for Standard Deduction, Family Home, and other
amendments (Repealing funeral expenses, judicial expenses, and medical
expenses)

Estate Tax

 A tax imposed on the privilege that a person is given in controlling to a certain extent, the
disposition of his property to take upon death

 It is an excise tax imposed on the act of passing the ownership of property at the time of death
and not on the value of the property or right

o Estate tax should not be construed as a direct tax on the property of the decedent
although the tax is based thereon

 Estate tax accrues as of the time of death, the right of the State to tax the privilege to
transmit the estate vests instantly upon death

o Accrual of the estates tax is DISTINCT FROM THE OBLIGATION TO PAY the same
Justification for the Imposition of Estate Tax

(I) Benefit Received Theory

 The law considers the service rendered by government in distribution the estate of the
decedent either by law or according to his testament (will)

 State wants to get something in the disposition

(II) Privilege or State Partnership Theory

 Inheritance is not a right, but a privilege granted by the State;

 Legatees is only acquired with the protection of the State

 State is considered a passive silent partner in accumulation of property and has the
right to collect the share, which is properly due to the state

(III) Ability to Pay Theory

 Receipt of inheritance, in the nature of unearned wealth or windfall, are placed assets
into the hands of the heirs and beneficiaries

 This creates an ability to pay tax and contributes to the government income

 State views the estate as full of property and the heirs get the payment from taxes, it
able the heirs to pay the estate tax

(IV) Redistribution of Wealth Theory

 Receipt of the inheritance is a contributing factor to the inequalities in wealth and

income

 The imposition of the estate taxes reduces the property received by the heir, in which
the heirs helps in promoting equitable distribution of wealth in society

o Tax base is the VALUE OF THE PROPERTY and the PROGRESSIVE SCHEME of
taxation is precisely motivated by the desire to mitigate the evils of inheritance
in the present form

o Ex: A wealth person dies and a portion which the estate paid will go to the
state and will be used in order to help to those in need

Composition of Gross Estate

Decedent Gross Estate

Citizen All property wherever situated, tangible or
Non-resident Citizen intangible
Resident Alien
Only property located in the Philippines in
Non-resident Alien computing the gross estate

(Intangible personal property is excluded in the

computation if it is on the basis of reciprocity)

Reciprocity Clause

 Intangible personal property with situs in the Philippines are excluded from the gross estate of
a non-resident alien decedent if there is reciprocity
  Has reciprocity when:

(a) The NRA 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

o Example: The country of a foreigner here in the Philippines will not impose
estate tax on the same intangible personal property of a Filipino not residing in
their country; the intangible personal property of the foreigner is excluded in
the computation of the gross estate in relation to the reciprocity rule

(b) 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 the estate taxes of every
character, in respect of INTANGIBLE PERSONAL PROPERTY owned by citizens of the
Philippines not residing in that foreign country

o If the same privilege is being granted in abroad to Filipino citizen the same
benefit will be granted to them, the foreign nationals not residing in the
Philippines

Intangible Asset

 (Accounting Standards) Identifiable non-monetary asset without physical substance

o Their value is derive from INTELLECTUAL or LEGAL RIGHTS, and from the VALUE
THEY ADD to the other assets

Doctrine of Mobilia Sequntur Personam

 Situs of intangible personal property is the domicile (place) of the owner

o Where the owner living it is where the situs of the intangible personal property

 Only used for convenience

 It is NOT APPLICABLE for gross estate computation

o Not applicable of the intangible property has situs elsewhere or intangible property has
acquired a business situs in another jurisdiction

 Must yield to the actual situs of such property

Intangible Assets with Situs “WITHIN” the Philippines

> Section 104 of Tax Code

(1) Franchise which must be exercised in the Philippines

(2) Shares or rights in any partnership, business, or industry established in the Philippines

(3) Shares, obligations, or bonds issued by:

a. Domestic corporation (sociedad anonima organized or constituted in the Philippines in

accordance with its laws)
 b. Any foreign corporation 85% of the business of which is located in the Philippines

c. Any foreign corporation if such shares, obligations, or bonds have acquired a business
situs in the Philippines

Situs of Tangible and Intangible Property

Property Situs

Real property and tangible personal property Location of the property

Shares, franchise, copyright, and the like.. Where the “INTANGIBLE” is exercised; regardless of
where the corresponding certificate is stored

Receivables Residence of debtor

Bank deposits Location of depositary bank

Valuation of Gross Estate

> Estate of the decedent is appraised at its FMV at the time of his death

> Succession and Accrual of estate tax takes effect upon death

Type Valuation

In General and Personal Property Fair market value at the time of death

Real property Higher value between:

 Zonal value or FMV determined by the Commissioner

 FMV as shown in the schedule of values fixed by the

provincial and city assessors

Shares of Stock 1. Unlisted common share: Book Value per share of the
issuing corporation

 (((Outs. Share * par) + RE) / Outs share) *

Owned shares

2. Unlisted preference share: Par value per share

3. Listed shares: FMV using 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

 ((High + Low) / 2) * Owned shares

Units of participation in any Bid price NEAREST the date of death published in any newspaper
association, recreation, or or publication for general circulation
amusement club

Right to usufruct, use or habitation, Accordance with the LATEST ‘Basic Standard Mortality Table’
and annuity taking into account the probable life of the beneficiary, to be
approved by the Secretary of Finance upon recommendation of
the Insurance Commissioner

Exclusions from the Gross Estate - The law which the Tax law or the Special law explicitly excludes. Not
longer be part of the Gross Estate computation.

*** Know that Gross Estate and Taxable Estate are different. Exclusions means not included in the
computation, while deductions are included in the computation but is deducted

(A) Exclusions under Section 85 and 86 of the Tax Code

1. Exclusive property of the SURVIVING SPOUSE

 Gross estate of Married decedents:

(1) Exclusive properties of the decedent

(2) Common properties of the decedent and the surviving spouse

 Estate tax purposes, the exclusive properties of the husband are known as
CAPITAL

 Exclusive properties of the wife are known as PARAPHERNAL PROPERTIES

o When there’s a separation of properties, certain portion of the

properties will be considered as Paraphernal of each spouse, they own
it separately and the other has nothing to do with it.

o If one spouse dies, the exclusive property of the surviving spouse will
be excluded because it is not part of the conjugal property (Chapter 4)

2. Property OUTSIDE the Philippines of a NON-RESIDENT ALIEN decedent

 Citizen and alien, resident or not, will all be taxable.

 Non-resident alien’s property OUTSIDE the Philippines are NOT TAXABLE

3. Intangible personal property in the Philippines of NON-RESIDENT ALIEN under the

“Reciprocity Law”

(B) Exclusions under Section 87 of the Tax Code

1. Merger of usufruct in the owner of the naked title

  A person is entitled for the use of the property

 Usufruct - Pertains ONLY to the right or privilege to enjoy the use

and advantages of another’s property

 The title of the property is hold by another person different from the one
enjoying the property

 Decedent (Donee-decedent or current decedent) only received from the prior

decedent (Donor-decedent or prior decedent) usufruct over the prior
decedent’s property

 The person using the property is excluded but the owner of the property is
included

2. Fideicommissary substitution

 Transmission or delivery of the inheritance or legacy by the fiduciary heir (1st

heir or legatee - trustee) to the fideicommissary (2nd heir - true heir)

o The transfer is delayed because of circumstances like the child if

young

Elements of a fideicommissary substitution:

a. Substitution MUST NOT GO BEYOND 1 degree from the heir originally instituted

b. Fiduciary (1st heir) and the fideicommissary (2nd heir) must be both LIVING at
the time of the testator’s death

3. The transmission from the 1st heir, legatee, or donee in favor of another beneficiary,
in accordance with the desire of the predecessor (’Special power of appointment’)

 Special appointment meaning it is specially designated

 Can go BEYOND ANY Degree but it is LIMITED

 Special Power of Appointment

 It exists when the donee-decedent 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

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, that NOT MORE THAN 30% of the said bequest, devises, legacies, or
transfers shall be USED by such institutions for administration purposes
(paying salaries, etc.)

 General exclusion; If a person donated to social welfare or charitable institution,

it will be excluded in the computation of their gross estate.

 Government agency which is empowered to determine the exemption is the

BIR

o For BIR enable to exercise such power, the Value of Transfer to social
welfare, cultural, and charitable institutions should be INCLUDED in the
gross estate.

o An equal amount may taken up as a DEDUCTION

(C) Exclusions under Special Laws

1. (RA 728) Proceeds from LIFE INSURANCE and BENEFITS received by members of the
GSIS

2. (RA 1792) ACCRUALS and BENEFITS received by members from the SSS by reason of
death

3. (RA 227) Amounts received from Philippines and United States government for WAR
DAMAGES

4. Amounts received from US Veterans Administration

5. (RA 136) Payments from the Philippines of US government to the LEGAL HEIRS of
deceased of the WORLD WAR II veterans and deceased civilian for supplies/services
furnished to the US and Philippine Army

6. (RA 4917) RETIREMENT BENEFITS of official/employees of a PRIVATE FIRM

7. PERSONAL EQUITY and RETIREMENT ACCOUNT (PERA) assets of the decedent

contributor

8. (RA no. 11494 or Bayanihan to Recover as One Act) COMPENSATION paid to private and
public health workers who have contracted COVID-19 in case of death

Composition of Gross Estate

(1) Real property

(2) Personal tangible property

(3) Intangible personal property

a. Shares of stock

b. Bank deposit

c. Dividends declared before his death but received after death

d. Partnership profit which have accrued before his death

 e. Usufructuary & Rights

Inclusions in the Gross Estate - Within and Outside by Citizen and Resident Alien

(A) Properties owned by the decedent ACTUALLY and PHYSICALLY PRESENT in his estate at the
time of his death

 Decedent’s Interest Section 85 (A)

 The extent of equity or ownership participation of the decedent on any

property physical existing and present in the gross estate, whether or not in
his possession, control, or dominion

 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)

(B) Property NOT PHYSICALLY in the estate

> Properties have already been transferred during the lifetime of the decedent, 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

1. Transfer in contemplation of death and gift intended to take effect at death

 Due to impending death, the person want to transfer his property

 Gift will be given after the death of the person

 It is a disposition of property prompted by thought of death

o It is the thought of death, as a controlling motive which induces the

disposition of the property

Gross Estate shall include the Value of Property transferred by the decedent during
his lifetime in anticipation of death:

a. Transfer of PROPERTY in favor of another person, but the transfer was

intended to take effect ONLY UPON the transferor’s death

b. 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

c. 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 Tax Code, 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

2. Transfer with retention or reservation of certain rights

3. Revocable transfers

 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

a.

4. Transfer under GENERAL POWER OF APPOINTMENT

 Power of appointment

 Right to designate the person(s) who will succeed to the property of

the prior decedent

 General power of appointment

 The power of appointment which authorizes the donee of the power

to appoint any person he pleases

o If the property delegated to a person, they have the authority

to appoint anyone, it will form a part of your estate

 The power may be exercised in favor of anybody including

donee-decedent

o Donee holds the appointed property with all the attributes of

ownership, the appointed property shall form part of the
gross estate of the donee (beneficiary) of the power upon his
death

Power of appointment may be exercised by the donor-decedent

(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

5. Transfer for INSUFFICIENT CONSIDERATION

Consideration LESS than FMV at the time Included in the Gross Estate the excess of
 of transfer FMV at the time of death over the
consideration

6. Claims against Insolvent persons

 Judicial declaration to pay his obligation should be proven

 Portion of the claim which is UNCOLLECTIBLE should be allowed as a

DEDUCTION from the Gross Estate

 Uncollectible Portion

 Total collectible - Collectible

 Collectible Portion

 Debtor’s Assets / (Debtor’s Liabilities * Claims)

7. Proceeds of Life Insurance

 Requisites for Inclusions

a. It must be an Insurance on the Life of the Decedent

b. The beneficiary must be either of the following”

 His estate, executor, administrator (Revocable or not)

 Any 3rd person provided that the designation is REVOCABLE;

included in gross estate

o 3rd party IRREVOCABLE; Excluded in gross estate

 Exclude proceeds from SSS/GSIS

 If designation is NOT CLEAR, SILENT, REVOCABLE, conservative purposes

 Proceeds of life insurance under a group insurance taken by the employer are
NOT SUBJECT to estate tax; it is the leader who tooks the insurance

Estate Tax Filing

 Estate Tax shall be PAID by the executor/administrator or any legal heirs at the time the
return is filed

o Pay as you File

Filing Payment

(A) Primary responsible - Executor or Administrator

(B) Secondary responsible - Any of the heirs

 Estate Tax Filing

Estate Tax Rate 6% of NET ESTATE

Time of Filing 1 year from the date of death

** (1 year time of filing is the allowable period of

filing the return without incurring
surcharge/penalty and interest)

Extension of Filing Not exceeding 30 days for filing the return

Time of Payment Pay as you file

Extension of Payment 5 years - Judicial Settlement “Court”

2 years - Extrajudicial Settlement “Out of court”

Place of Filing and Payment Accredited Agent Bank (AAB), Revenue Collection
Officer or Revenue District Officer (RDO) having
jurisdiction on the place where the decedent was
domiciled at the time of death, whichever is
applicable

(I) Liability for the Payment of Estate Tax

 Executor/Administrator of an Estate has the primary obligation to pay the estate tax

 Heir or beneficiary has ‘subsidiary liability’ for the payment of the portion of the estate
which his distributive share bears to the value of the Total Net Estate

o Shall not exceed the value of his share in the inheritance

(II) Payment by Installment

 In case the available cash of the estate is INSUFFICIENT to pay the total estate tax due,
payment by Installment shall be allowed within 2 years from the statutory date for the
payment without civil penalty and interest
Chapter 3

Deductions from Gross Estate

1. Ordinary deductions

2. Special deductions

3. Share of Surviving Spouse

Deduction Citizen, NRC, and Resident Alien Non-resident Alien

Ordinary Deduction

 LITe (Losses,  Total LITe * (Gross Estate

Indebtedness, Taxes, Philippines/ Gross Estate World)
etc.)

 Vanishing Deductions  

 Transfer for Public Use  

Special Deduction

 Standard Deduction 5 Million 500,000

 Family Home  

 RA 4917 (Retirement  
benefits for Employees
of Private Firm)

Share of Surviving Spouse

 Wife/Husband of
decedent  