INTRODUCTION TO

TRANSFER TAXES
TRANSFER TAXES

Transfer taxes are taxes imposed upon the gratuitous disposition of private properties or
rights. Gratuitous transfer is one that neither imposes burden nor requires consideration
from the transferee or recipient.
Two Types of Transfer:
1. Gratuitous Transfer
2. Onerous Transfer
GRATUITOUS TRANSFER

Types of Donation Effectivity Tax

Donation inter vivos During the lifetime of both the Donor’s Tax
donor and the donee

Donation mortis causa At the time of death of the donor Estate Tax
NATURE OF TRANSFER TAXES
The subject matter of a transfer tax is the privilege of the transferor to gratuitously transfer
property or rights which takes effect at the date of death of the transferor or during the
lifetime of the donor and the donee. Although the amount of transfer tax is based on net
estate or net gifts, it shall not be construed as a property tax. On this basis, transfer tax is
classified as “excise tax” or privilege tax imppsed on the act of passing the ownership of
property and not on the value of the property or right.
THE LAW THAT GOVERNS THE IMPOSITION OF ESTATE TAX

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. Upon the death of the decedent, succession takes
place and the right of the State to the tax the privilege to transmit the estate
vests instantly upon death (Section 3, RR 2-2003). In the Philippines,
succession itself (excluding the tax aspect) is governed by the new civil
code.
SUCCESSION
Succession is a mode of acquisition by virtue of which, the property, rights and obligations
to the extent of the value of the inheritance, of a person are transmitted through his death to
another or others either by his will or by operation of law (Art. 774 NCC). The inheritance
includes all the property, rights and obligations of a person which are not extinguished by
his death (Art. 776 NCC). The rights to the succession are transmitted from the moment of
death of the decedent (Art. 777 NCC), notwithstanding the postponement of the actual
possession or enjoyment of the estate by the beneficiary.
MODES OF ACQUIRING PROPERTY(NCC)

• Occupation
• Intellectual creation
• Law
• Donation
• Tradition
• Contract
• Prescription
• Succession
KINDS OF SUCCESSION

1. Testamentary or testate succession

2. Legal or intestate succession
3. Mixed succession
TESTAMENTARY OR TESTATE SUCCESSION

A type of succession that results from the designation of an heir,

made in a will executed in the form prescribed by law.
LEGAL OR INTESTATE SUCCESSION

A type of succession which is affected by operations of law

(based on the provisions of the civil code regarding succession)
since the decedent did not execute a will or if the last will and
testament executed by him is void.
MIXED SUCCESSION

A type of succession which is effected partly by will and partly by

operation of law.
CAUSES OF LEGAL SUCCESSION OR INTESTACY

1. If a person dies without a will, or with a void will, or one which has
subsequently lost its validity
2. When the “Will” does not institute an heir.
3. Partial institution of heir. Consequently, intestacy takes place as to the
undisposed portion.
4. When the heir instituded is incapable of succeeding.
5. Other causes such as:
• Non-fulfillment of the suspensive condition attached to the institution of heir. Suspensive condition is a
condition depending upon the happening of an uncertain event which must be fulfilled before an obligation
arises.
• Preterition (omission in the testator’s will of one, some or all of the compulsory heirs in the direct line which
has the effect of annuling the institution of heir).
• Fulfillment of “resolutory conditon”. A resolutory condition refers to a condition whereby, upon fulfillment
terminates an already enforceable obligation.
• Expiration of term or period of institution.
• Non-compliance or impossibility of compliance with the will.
• Repudiation of the instituted heir.
ELEMENTS OF SUCCESSION

1. Decedent
2. Estate
3. Successors
DECEDENT

The general term applied to the person whose property is transmitted through succession,
whether or not he left a will. If he left a will, he is called a testator (Art. 775 NCC).
• Executor-person designated in the last will and testament to carry out the provisions of
the decedent’s will.
• Administrator-person appointed by the court and performs the same duty, in lieu of an
executor, if the latter refused to accept the appointment, failed to qualify under the law or
the last will and testament did not appoint one.
ESTATE

• Include all the property, rights and obligations of a person which are not
extinguished by death and all which have accrued thereto since the
opening of succession. Rights which are purely personal are not
transmissible for they are extinguished by death (Art. 776 NCC).
SUCCESSORS

An heir or successor is a person who is called to the succession either the provision of a will
or by operation of law (Art. 782 NCC).
CLASSIFICATION OF HEIRS

1. Compulsory heirs
2. Voluntary heirs
3. Legal or intestate heirs
COMPULSORY HEIRS

• Those who succeed by force of law to some portion of the inheritance, in an amount
predetermined by law, known as the legitime. They succeed whether the testator likes it or
not. They cannot be deprived by the testator of their legitime except by disinheritance
properly affected.
Kinds of compulsory heirs:
1. Primary-those who have precedence over and exclude other compulsory heirs.
2. Secondary-those who succeed only in the absence of the compulsory heirs.
3. Concurring- those who succeed together with the primary or secondary compulsory heirs.
VOLUNTARY HEIRS

Those instituted by the testator in his will to succeed to the inheritance of the
portion thereof of which the testator can freely dispose. Free portion refers
to the portion or value left in the estate after deducting the legitimes of the
compulsory heirs. A voluntary heir is determined through the last will and
testament.
LEGAL OR INTESTATE HEIRS

Those who succeed to the estate of the decedent by the operation

of law (decedent died without a valid will or his estate was not
entirely disposed of by will).
 COMPOSITION OF GROSS ESTATE

DECEDENT’S ESTATE TO BE INHERITED BY:

Compulsory Heirs:
LEGITIME
Reserved by law specifically to compulsory
(i.e. 75%of the
estate) heirs regardless of whether or not a last will and
testament was prepared.

Compulsory Heirs and/or Voluntary Heirs.

• As provided in the last will and testament.
• In the absence of a will, this portion of the estate
FREE PORTION shall be distributed to “intestate heirs” based in
(i.e. 25% of the the order of priority
estate)
 ORDER OF INTESTATE SUCCESSION

1. Legitimate children or descendants

2. Legitimate parents or ascendants
3. Illegitimate children or descendants
4. Surviving Spouse
5. Brothers and sisters, nephews and nieces
6. Other collateral relatives within the fifth degree
7. State
BLOOD RELATIONSHIP