You are on page 1of 3

ESTATE TAX Gross Estate, Exceptions and Allowable Deductions QUIZ No. 2 Reviewer Danika S.

Santos Formula: GROSS ESTATE Less: ALLOWABLE DEDUCTIONS NET ESTATE X TAX RATE__________________ ESTATE TAX DUE Gross Estate shall include the value of: a. Properties in the estate; b. Properties NOT in the estate, under certain conditions, depending on whether the decedent, at the time of his death was: a. A citizen of the Philippines; or b. NOT a citizen of the Philippines and NOT residing in the Phil. CLASSIFICATION OF A DECEDENT *Class A (Resident or Citizen) *Class B (Non-resident, Non-Citizen) At the time of his death, the decedent was: Citizen of the Phil, residing in the Phil Citizen of the Phil, residing abroad Citizen of a foreign country, residing in the Phil Citizen of a foreign country, residing abroad a. b. c. Transfer in Contemplation of Death Revocable Transfer Transfer under General Power of Appointment

TRANSFER IN CONTEMPLATION OF DEATH Donation Mortis Causa (made during the lifetime of the transferor but intended to take effect after death) REVOCABLE TRANSFER -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 to revoke) TRANSFER UNDER GENERAL POWER OF APPOINTMENT *power of appointment, per se ± right to designate the person or persons who will succeed to the property of a prior decedent. It has 2 types (general and limited): General Power of Appointment Exercised on favor of ANYBODY Ex: P transferred property to Q, with a provision that should Q transfer the property, such transfer may be in favor of anybody. Q transferred the property to R. Limited Power of Appointment Exercised only in favor of a certain person or persons designated by the prior decedent Ex: S transferred property to T, with a provision that should T transfer the property, such transfer should be in favor of U. T transferred the property to U. N.B.: in order that property passing under the power of appointment may be INCLUDED in the GE of the transferor, POA must be a GENERAL power of appointment. (in the examples given, value of the property should be included in the GE of Q, while value shall not be included in the GE of T) RULES IN DETERMINING THE VALUES INCLUDED IN THE GE IN CASES OF TOCD, RT AND GPOA: a. Transfer was in the nature of a bona fide sale (adequate and full consideration in money or money¶s worth): NO VALUE WILL BE INCLUDED IN THE GE; b. Consideration received on the transfer was less than adequate and full: EXCESS OF THE FMV at the time of decedent¶s death over the CONSIDERATION RECEIVED (FMV ± CR) c. No consideration received (donation mortis causa): FMV at the time of decedent¶s death PROCEEDS OF LIFE INSURANCE - shall constitute part of the GE if the beneficiary is: a. the estate of the decedent, his executor or administrator; rd b. 3 person (person other than the estate, executor, administrator) and the designation of the beneficiary is revocable. Illustrations: Mr. V took an insurance on his life and designated his estate as IRREVOCABLE beneficiary. Upon his death, the insurance proceeds receivable must be part of the gross estate.

A A A B

*For Class A: GE is consist of real estate and personal property REGARDLESS OF LOCATION. *For Class B: GE is consists of (a) real estate located in the Phil, (b) tangible personal property in the Phil and (c) intangible personal property in the Phil (subject to statutory enumeration below) - franchise which must be exercised in the Phil - Shares, obligations or bonds (SOB) issued by any corporation organized or constituted in the Phil - SOB by any foreign corporation, 85% of its business located in the Phil - SOB issued by any foreign corporation where business situs in the Phil has been acquired - shares/rights in any partnership, business or industry in the Phil GEN.RULE: Intangible Properties located in the Phil are INCLUDED in the GE EXCEPTION: Reciprocity Clause (Page5, Reyes) ITEMS INCLUDED IN THE GROSS ESTATE (GE): A. DECEDENT¶S INTEREST ± to the extent of the interest therein of the decedent at the time of his death; B. TRANSFER IN CONTEMPLATION OF DEATH C. REVOCABLE TRANSFER D. PROPERTY PASSING UNDER A GENERAL POWER OF APPOINTMENT E. PROCEEDS OF LIFE INSURANCE F. PRIOR INTERESTS G. TRANSFERS FOR INSUFFICIENT CONSIDERATION Properties NOT in the Estate - Properties which at the time of the decedent¶s death are not in the estate because they were transferred by him during his lifetime - a value will be borrowed and INCLUDED in the computation of GE if transferred under the ff. circumstances:

SMILE

Page 1

not exceeding P500. 2 conditions must be satisfied: (A) No part of the NI of the institution shall inure benefit of any individual. Upon her death. so that the net taxable estate from it will be zero (P0). including food and drinks. whichever is LOWER.Real property outside the Philippines I NI 3. par value if preferred. value of the property must be included in the GE.000. unpaid mortgage or indebtedness on property. THAT NOT MORE THAN 30% OF THE SAID BEQUESTS. or transfer under general power of appointment. or FMV as determined by the Commissioner of Internal Revenue (zonal value). VALUATION OF GROSS ESTATE =FMV at the time of the decedent¶s death Real Property: current FMV fixed by the Provincial and City Assessors. and the same value shall be deducted from the GE. claims against insolvent persons e. LEGACIES OR TRANSFERS TO SOCIAL WELFARE. 4917** a. but NOT to exceed P200.family home (in excess of P1. C.000. judicial expenses c.standard deduction (P1. THE MERGER OF USUFRUCT IN THE OWNER OF THE NAKED TITLE.Tangible personal property in the Phil I I 4. legacies.Property subject of the transfer in contemplation of death.property previously taxes b. D. Why? Because to be ³exempt´. claims against estate d. subj. As to D.Tangible personal property outside the Phil I NI 5. ALL BEQUESTS. acquisitions and transmissions will NOT be taxed (Section 87. Exceptions and Allowable Deductions QUIZ No.transfers for public use c.: The value of exemption A.transfers for public use **Not available to the estate of a non-resident.000) f.ESTATE TAX Gross Estate. taxes and losses 2.amount received by heirs under RA No. CULTURE AND CHARITABLE INSTITUTIONS NO PART OF THE NEW INCOME OF WHICH INURES TO THE BENEFIT OF ANY INDIVIDUAL: PROVIDED. Santos Mr. are deductions to GE SMILE Page 2 .Intangible personal property in the Phil I I 6. *funeral expenses. Upon his death. WHICHEVER IS HIGHER. Personal Property: (if recently acquired) purchase price (if not recently acquired) evidence of FMV Shares of Stocks: (if listed and traded in stock exchange) mean between the highest and lowest quotation of the shares of stock on the valuation date (if unlisted in stock exchange) book value if common. funeral expenses (actual funeral expenses OR amount equal to 5% of the GE. to estates tax) d. COMPARATIVE COMPOSITION OF GROSS ESTATE RC NN 1. B. Expenses.Intangible personal property outside the Phil I NI 7. DEVISES.000) e. W took insurance on his life and designated his estate as the revocable beneficiary.medical expenses (incurred 1 year before the death. expenses of decedent¶s wake. OR amount equal to 5% of GE. and transfers shall be used for administrative purposes. THE TRANSMISSION FROM THE LAST HEIR. Y took an insurance on her life and designated her mother as irrevocable beneficiary. THE TRANSMISSION OR DELIVERY OF THE INHERITANCE OR LEGACY BY THE FIDUCIARY HEIR OR LEGATEEE TO THE FIDEICOMMISSARY. revocable transfer. not citizen of the Philippines Funeral Expenses =amount of actual funeral expense. the insurance proceeds receivable must be part of his gross estate. and (B) not more than 30% of the bequest. NIRC) A. =includes mourning apparel of the surviving spouse and unmarried minor children. Indebtedness and Taxes a. telecom expenses informing relatives of the deceased. Ms.Real property in the Philippines I I 2. Losses. B and C need NOT be included in the GE anymore. paid or unpaid. ALLOWABLE DEDUCTIONS: Citizen or Resident Nonresident Non-Citizen 1. Upon her death. LEGACIES OR TRANSFERS SHALL BE USED BY SUCH INSTITUTIONS FOR ADMINISTRATIVE PURPOSES.B. interment/cremation fees. LEGATEEE OR DONEE IN FAVOR OF ANOTHER BENEFICIARY. the insurance proceeds receivable by the mother must not be included in her gross estate.000. N. if the property was: In the Phil at the time of transfer but outside the I NI Phil at the time of death Outside the Phil at the time of transfer but in the I I Phil at the time of death In the Phil both at the time of transfer and at the I I time of death Outside the Phil at the time of transfer and at I NI the time of death RC= Resident/ Citizen NN= Non-resident/ Non-Citizen I= Included NI= Not Included EXCEPTIONS The ff. but not to exceed P200. publication charges of death notices. X took an insurance on her life and designated her mother as revocable beneficiary. the insurance proceeds receivable must be part of her gross estate. Ms. whichever is lower.000) b.property previously taxed b. IN ACCORDANCE WITH THE WILL OF THE PREDECESSOR. cost of burial plot.000. Special Deductions a. 2 Reviewer Danika S.

000 1.000 ESTATE TAX If the net estate is But not Over over P200.000. estate tax Losses =deductible from GE if: a.000 2.000. income tax on income received after death. occurring during the settlement of the estate e.000) *there can only be one family home Standard Deduction -an amount equivalent to P1.ESTATE TAX Gross Estate.000. arising from fire. incurred by the decedent within 1 YEAR prior to his death (must be substantiated with receipts) -shall not exceed P500.000 2. attorney¶s fees.000. provided that the full amounts of the receivables are first included in the GE Unpaid Mortgage or Indebtedness on Property -when a person leaves property encumbered by a mortgage or indebtedness. will NOT be considered actual funeral expense (not deductable) *cut-off point is INTERMENT (expenses which accrue after interment are not considered funeral expenses) Judicial Expenses =testamentary and intestate proceedings =should NOT include those that were incurred BEYOND the period (within 6 months from the time of death) provided for filing the estate tax return and payment of the estate tax =includes executor and administrator fees. Santos *funeral expenses paid by somebody or out of contributions.215. (considered as an administration expense) *Attorney¶s fees paid by the heirs to their respective lawyers arising from conflicting claims are NOT deductible as judicial expense.000 10. and the land on which it is situated -value: FMV (not to exceed P1.000.000 5.000 Medical Expenses -whether paid or unpaid at the time of death. Claims against Insolvent Persons -deductions from GE.000. appraiser¶s fees. b. property tax not accrued before death c. requirement for notarization does NOT apply. barangays).000 465.000. or transfer to take effect after death. shipwreck or other casualty. storm. for exclusively public purposes.000 5% 8% 11% 15% 20% SMILE Page 3 . in favor of the Government of the Philippines or any political subdivision (provinces.000 5. it must be notarized *if a monetary claim did not arise out if a debt instrument. his GE must include the FMV of the property Taxes =deducted if such taxes accrued prior to the decedent¶s death *Taxes that can NOT be deducted: a. Claims against the Estate *if enforceable against him when alive ± obligations will be claims against his estate when he shall be dead *if unenforceable ± will not be a claim *if a claim against the estate arose out of a debt instrument. not claimed as a deduction in an income tax return of the estate d.000. theft and embezzlement b.000 500. Family Home -dwelling house where the person and his family reside.000 2. cities. municipalities.000.000. costs of preserving and distributing the estate.000 5.000 P200. clerk hire.000 135.000.000 500. not compensated by insurance c.000 500. robbery. court fees. occurring before the last day for the payment of the estate tax Transfer for Public Use -disposition in a last will and testament. Exceptions and Allowable Deductions QUIZ No.000 10.000 10.000 And over NOTES: The tax shall be Exempt 0 15.000 Plus Of excess over P200. costs of storing or maintaining property of the estate and brokerage fees for selling property of the estate *Can there be a deduction from the GE for expenses on extrajudicial settlement of the estate? YES. 2 Reviewer Danika S. accountant¶s fees.