CHAPTER 2

GROSS ESTATE
 GROSS ESTATE
- total value of the decedent’s properties, real or personal, tangible or
intangible, at the time of his/ her death

REAL PROPERTIES – immovable properties

TANGIBLE PERSONAL PROPERTIES – movable properties with physical

form that could be seen or touched

INTANGIBLE PERSONAL PROPERTIES – they have no physical form and

their reportable values are determined by the rights and privileges conveyed in
them
 ESTATE TAX
– tax imposed on the privilege that a person is given in controlling to a
certain extent, the disposition of his property to take effect upon death

JUSTIFICATION FOR THE

IMPOSITION OF ESTATE TAX
1. BENEFIT-RECEIVED THEORY
– the law considers the service rendered by the government in the
distribution of the estate of the decedent, either by law or in
accordance with his wishes. For the performance of these services
and other benefits that accrue to the estate and the heirs, the State
collects the tax.
2. PRIVILEGE OR STATE PARTNERSHIP
THEORY
– inheritance is not a right but a privilege granted by the State and
legatees have been acquired only with the protection of the State.
Consequently, the State as a passive silent partner in the accumulation of
property has the right to collect the share which is properly due to it.

3. ABILITY TO PAY THEORY

– receipt of inheritance which is in the nature of an unearned wealth or
windfall, are place assets into the hands of the heirs and beneficiaries.
This creates an ability to pay the tax and thus contributes to
government income.
4. REDISTRIBUTION OF WEALTH
THEORY
The receipt of inheritance is a contributing factor to the inequalities in
wealth and incomes. The imposition of estate tax reduces the property
received by the successor, thus helping to promote equitable distribution
of wealth in society. The 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.
SITUS OF REPORTABLE GROSS
ESTATE
NON- NON-
RESIDENT RESIDENT
RESIDENT RESIDENT
CITIZEN ALIEN
CITIZEN ALIEN
REAL
W/I & W/O W/I & W/O W/I & W/O W/I
PROPERTIES
TANGIBLE
PERSONAL W/I & W/O W/I & W/O W/I & W/O W/I
PROPERTIES
INTANGIBLE
PERSONAL W/I & W/O W/I & W/O W/I & W/O W/I
PROPERTIES
 RECIPROCI
a tax exemption principle arising from mutual agreement between or among
RECIPROCITY
TY
Sovereign States to free from tax some objects of taxation
THERE IS RECIPROCITY IF:
• The 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;

• The laws of foreign country of which the decedent was a resident citizen at the time
of his death allow a similar exemption from estate taxes of every character, in
respect of intangible personal property owned by citizens of the Philippines not
residing in that foreign country.
 RECIPROCI
RECIPROCITY
TY
NRA in Philippines
NRA in China

INTANGIBLE
PROPERTIES -
Philippines
INTANGIBLE PERSONAL PROPERTY WITH SITUS IN
THE PHILIPPINES FOR ESTATE TAX PURPOSES
1. Franchise which must be exercised in the Philippines.
2. Shares, obligations or bonds issued by any corporation or Sociedad
Anonima organized or constituted in the Philippines in accordance with its
laws.
INTANGIBLE PERSONAL PROPERTY WITH SITUS IN
3. Shares, obligations or bonds issued by any foreign corporation, 85% of the
THE PHILIPPINES FOR ESTATE TAX PURPOSES
business of which is located in the Philippines.
4. Shares, obligations, or bonds issued by any foreign corporation if such
shares, obligations or bonds have acquired a business situs in the Philippines.

5. Shares or rights in any partnership, business or industry established in

the Philippines.
 SITUS OF TANGIBLE
AND INTANGIBLE
PROPERTYPROPERTY
SITUS
Real Property and Tangible Location of the Property
Personal Property
Shares, franchise, Where the intangible is exercised regardless
copyright, and the like of
where the corresponding certificate is stored

Receivables Residence of the debtor

Bank deposits Location of the depository bank

 CITIZEN NRA NRA
PROPERTY SITUS OR WITH WITHOUT
RESIDENT RECIPROCITY RECIPROCITY
Shares of stocks of domestic
corporations. The certificates are W/I INCLUDE EXCLUDE INCLUDE
stored in the Philippines.
Cars – Philippines W/I INCLUDE INCLUDE INCLUDE
House and Lot – Cebu W/I INCLUDE INCLUDE INCLUDE
Receivables – debtor from
Philippines W/I INCLUDE EXCLUDE INCLUDE
Patents and copyrights exercised
in the Philippines W/I INCLUDE EXCLUDE INCLUDE
Shares of stocks of foreign
corporations which acquired W/I INCLUDE EXCLUDE INCLUDE
business situs in the Philippines
Shares of stocks of foreign
corporations. The certificates are W/O INCLUDE EXCLUDE EXCLUDE
store abroad.
 CITIZEN NRA NRA
PROPERTY SITUS OR WITH WITHOUT
RESIDENT RECIPROCITY RECIPROCITY
Parcel of Land – Leyte W/I INCLUDE INCLUDE INCLUDE
Rest House - Maldives W/O INCLUDE EXCLUDE EXCLUDE
Shares of stocks of foreign
corporations. The certificates are W/O INCLUDE EXCLUDE EXCLUDE
stored in the Philippines.
ABC Bank (Foreign Bank) –
New York Branch W/O INCLUDE EXCLUDE EXCLUDE
ABC Bank (Foreign Bank) –
Philippine Branch W/I INCLUDE EXCLUDE INCLUDE
Receivables – debtor from
California W/O INCLUDE EXCLUDE EXCLUDE
Shares of stocks of domestic
corporations. The certificates are W/I INCLUDE EXCLUDE INCLUDE
stored abroad.
 CITIZEN NRA NRA
PROPERTY SITUS OR WITH WITHOUT
RESIDENT RECIPROCITY RECIPROCITY
Rest House – Baguio W/I INCLUDE INCLUDE INCLUDE
Cars – Abroad W/O INCLUDE EXCLUDE EXCLUDE
BPI Deposit – Philippine Branch
W/I INCLUDE EXCLUDE INCLUDE
Shares of stocks of foreign
corporations, 90% of its W/I INCLUDE EXCLUDE INCLUDE
operations is in the Philippines
Parcel of land – Jeju Island W/O INCLUDE EXCLUDE EXCLUDE
Patents and copyrights exercised
abroad W/O INCLUDE EXCLUDE EXCLUDE
Shares of stocks of foreign
corporations, 80% of its W/O INCLUDE EXCLUDE EXCLUDE
operations is in the Philippines
BDO Deposit – US Branch W/O INCLUDE EXCLUDE EXCLUDE
The following properties are listed as part of the estate of the decedent:

Shares of stocks of foreign corporations, 85% of its W/I 4M

operations is in the Philippines
Condominium in Manila W/I 5M
Bond Certificate – debtor from Malaysia W/O 1M
Time Deposit – LBP Cebu Branch W/I 2M
Compute the gross estate of the decedent if he is a:
a. Resident Alien = 4M + 5M + 1M + 2M = 12M
b. Non-resident Alien without Reciprocity = 4M + 5M + 2M = 11M
c. Non-resident Citizen = 4M + 5M + 1M + 2M = 12M
d. Non-resident Alien with Reciprocity = 5M
 VALUATION OF GROSS ESTATE
GENERAL RULE FMV at the time of the decedent’s death
Example: The estates of a decedent, Mr. X, are shown as follows:
Acquisition Cost FMV time of death
House and Lot 3,000,000 4,500,000
Car 750,000 500,000
Various Receivables 200,000 400,000
Mortgage Payable 300,000

How much would be the total gross estate of Mr. X?

4,500,000 + 500,000 + 400,000 = 5,400,000
REAL PROPERTIES
FMV determined by the Commissioner (Zonal Value)
HIGHER FMV as shown in the schedule of values fixed by the
provincial and city assessors
Example: The decedent devised to his son a 1,000 sq.m lot in Cebu City with
the following valuation:
Fair value as determined by city 20,000 / sq.m 20,000,000
assessors
Zonal value as determined by the CIR 21,000,000 higher
FV determined by
22,500,000
independent assessors
How much would be included in the gross estate of the decedent?
21,000,000
PERSONAL PROPERTY FMV at the time of the death

Current Market Price (Purchase Value)

- For recently or newly acquired personal properties

Example: Pedro bought a brand new car with a cash price of P3,000,000. He
bought the car on installment with the following terms: down payment of
P500,000 and annual installment of P700,000 for four years. On his way
home, he run over an approaching truck and died. How much would be
included in Pedro’s gross estate?

3,000,000
Second-Hand Market Price (Second-hand Value)
– for the previously acquired personal and used properties
Example: At the time of death of X, one of his properties is a used personal
computer with an acquisition cost of P100,000 and second hand value of
P20,000. How much would be included in his gross estate?
20,000
Grossed-Up Loan Value
- for loaned or pawned personal properties
Example: At the time of death of X, one of his properties are his jewelries at
Palawan Pawnshop worth P70,000 which is at 40% pawn value. How much
would be included in his gross estate?
70,000 / 40% = 175,000
Fair Value plus Accrued Interest
- for interest-bearing receivables and bank deposits
Example: The decedent granted a P2,000,000 loan to his best friend two years
before his death with a 10% interest per annum evidenced by a note. Both the
principal and interest are due after three years. How much shall be included in
the decedent’s gross estate?

Principal Amount 2,000,000

Accrued Interest 400,000
2,000,000 x 10% x 2 yrs
TOTAL 2,400,000
Discounted Value
– for non-interest-bearing notes receivables

Example: At the time of death of X, one of his properties is a 2-year non-

interest bearing notes receivable of P500,000 (effective interest 10%, 1 year
remaining period). How much would be included in his gross estate?

Notes Receivable 500,000

PV Factor 0.909
Discounted Value 454,500
Face value – for Philippine peso currency
Converted Philippine Peso – for foreign currencies
Value
Example: At the time of death of X, his properties consist of the following:
Time deposit at 3% interest per year 200,000
(deposited 4 months before death)
Cash on hand in Philippine Peso 80,000
Cash on hand in USD $ 3,000
(conversion rate is P50 per $1)
How much would be included in his gross estate?

Time ([200,000 x 3% x 4/12] + 200,000) 202,000

Cash in Philippine
Deposit 80,000 432,000
Cash in USD
Peso (3,000 x 50) 150,000
 SHARES OF STOCK
UNLISTE LISTED
D SHARE
COMMON
FMV shall be the arithmetic
- Book Value per Share
mean between the highest and
= (Stockholder’s Equity – lowest quotation at a date
Preference Shares) / Outstanding nearest the date of death, if none
Common Shares is available on the date of death
itself
PREFERENCE
SHARE
- Par Value Per Share
= (Highest + Lowest) / 2
EXAMPLE : Decedent owns 10,000 ordinary shares of Alpha Company
at the time of his death. At that time, Alpha’s outstanding shares were
1,000,000 with P10 par value and Retained Earnings amounting to
P5,000,000. The shares are not traded in the stock exchange. How much
would be included in the decedent’s gross estate?

BV = (Stockholder’s Equity – Preference Shares) / Outstanding

Common Shares
= ( [ 1,000,000 x 10 ] + 5,000,000) / 1,000,000
BV = P 15 per share
GROSS ESTATE = 15 per share x 10,000 shares
= P 150,000
EXAMPLE : A decedent left 10,000 ABS GMA shares. The shares were
traded in the local stock exchange. At the time of death, the following were
available:
Highest Quotation P800 per share
Lowest Quotation P200 per share
Book Value P350 per share
How much would be included in the decedent’s gross estate?
= (Highest + Lowest) / 2
= (800 + 200) / 2
= 500 per share
= 500 per share x 10,000 shares
= P 5,000,000
UNITS OF PARTICIPATION IN ANY ASSOCIATION,
RECREATION OR AMUSEMENT CLUB (ie., golf, Polo,
similar clubs)
- The BID price nearest the date of death published in any newspaper or
publication for general circulation.

RIGHT TO USUFRUCT, USE OR HABITATION, AND

ANNUITY
USUFRUCT
- Legal right to use and enjoy the benefits and profits of property
belonging to another
 PROPERTY FAIR MARKET VALUE = Full Ownership
BARE DOMINIUM VALUE NAKED TITLE
= FMV of property less Usufruct Value
USUFRUCT VALUE USUFRUCT
= Usufruct Value of the remaining years of the usufructuary right
= annual value multiplied by PV of ordinary annuity

= FMV X EIR
WITH LIMIT WITHOUT LIMIT
= Total years – Used years = probable life of the
beneficiary in accordance with
the latest BSMT
Example: A, a Filipino, inherited a usufructuary right over a family apartment building
with an annual rent income of P300,000. The property is registered in the name of A’s
sister, B. After 7 years of enjoying the usufruct right (to use and to receive rent income), A
died at the age of 70 and his son, C who is 39 years old, will continue the inherited
usufruct.
Additional information:
Zonal value of apartment at A’s death 5,000,000
Assessed value of apartment at A’s death 3,000,000
Prevailing effective interest rate per year 10%
BSMT life expectancy of male with 40 age 37.36 years
Compute for the reportable usufruct value of A and bare dominium value of B assuming
that the usufructuary right is:
1. Within 10 years
2. Life-long
1. WITHIN 10 YEARS Annual Value
= FMV x Effective Int.
Usufruct = annual value X Rate
= 5,000,000 X 10%
Value PV Factor
= 500,000
= 500,000 X 2.487 ZV = 5,000,000 HIGHER
= 1,243,500 AV = 3,000,000

BARE = FMV – Period to be used

DOMINIU USUFRUCT VALUE = 10 – 7 = 3
M VALUE = 5,000,000 –
INCLUDED IN
1,243,500 GROSS ESTATE IS
= 3,756,500 1,243,500
2. LIFE-LONG Annual Value
= FMV x Effective Int.
Usufruct = annual value X Rate
= 5,000,000 X 10%
Value PV Factor
= 500,000
= 500,000 X 9.706 ZV = 5,000,000 HIGHER
= 4,853,000 AV = 3,000,000

BARE = FMV – Period to be used

DOMINIU USUFRUCT VALUE = BSMT life expectancy
M VALUE = 5,000,000 – = 37 years

4,853,000 INCLUDED IN
GROSS ESTATE IS
= 147,000 4,853,000
 EXEMPTIONS AND EXCLUSIONS
FROM THE GROSS ESTATE
A. EXCLUSIONS UNDER SECTIONS 85 AND 86 OF
THE TAX CODE
1. EXCLUSIVE PROPERTY OF THE SURVIVING SPOUSE
GROSS ESTATE OF MARRIED
DECEDENTS
EXCLUSIVE COMMO
CAPITAL = HUSBAND N
PARAPHERNAL = WIFE
*Whether such property is exclusive or common will depend on the type of
property relations of the husband and wife.
2. PROPERTY OUTSIDE THE PHILIPPINES OF A NON-
RESIDENT ALIEN DECEDENT.
3. INTANGIBLE PERSONAL PROPERTY IN THE
PHILIPPINES OF A NON-RESIDENT ALIEN UNDER THE
RECIPROCITY LAW.
B. EXCLUSIONS UNDER SEC 87 OF THE TAX CODE
1. The MERGER of USUFRUCT in the OWNER OF
THE NAKED TITLE.
USUFRUCTUARY OWNER OF THE
NAKED TITLE
 MR. YUMAO LAND

USUFRUCT TITLE
PEDRO
JUAN
(grandson)
(son)

MR. YUMAO JUAN AND PEDRO LAND IS INCLUDED

JUAN PEDR MERGER LAND IS
O EXCLUDED
PEDRO ANYONE LAND IS INCLUDED
PEDRO JUAN MERGER LAND IS INCLUDED
 2. TRANSMISSION OF LEGACY BY THE
FIDUCIARY HEIR TO THE FIDEICOMMISSARY
FIDUCIARY HEIR An heir who takes property as a trustee on behalf of
(FIRST HEIR) a person who is not eligible to receive the property
immediately
FIDEICOMMISSAR one that receives property from a fiduciary heir
Y (SECOND HEIR)
Elements Of A Fideicommissary Substitution
• The substitution must not go beyond one degree from the heir originally instituted

• The fiduciary and the fideicommissary must be both living at the time of the
testator’s death
 LAND
JUAN PEDRO (Son)
MR. YUMAO (Father)
DECEDEN 1ST HEIR 2ND HEIR
T
1 Element – One Degree
ST

Fideicommissary Substitution
2 Element – Both Living
nd

MR. YUMAO JUAN LAND IS INCLUDED

(Decedent) (1st heir /
fiduciary heir)
JUAN PEDR LAND IS
Decedent - (1st heir / (2
O heir /
nd
EXCLUDED
fiduciary heir) fideicommissary heir)
3. SECOND TRANSFER AS DESIRED BY THE
PREDECESSOR
JUAN PEDRO
MR. YUMAO (son) (nephew)
DECEDEN 1ST HEIR 2ND HEIR
T
1 Element – One Degree
ST
Not a Fideicommissary
2nd Element – Both Living Substitution
MR. YUMAO JUAN LAND IS INCLUDED
(Decedent) (1st heir)

JUAN PEDR LAND IS

(Decedent - 1st heir) O
(2nd heir) EXCLUDED
4. TRANSFERS TO SOCIAL WELFARE, CULTURAL
AND CHARITABLE INSTITUTIONS
Requisites:
• The donation is given to a duly accredited institution

• No part of the net income inures to the benefit of any individual

• Not more than thirty percent of the said bequest, devises, legacies or transfers
shall be used by such institutions for administration purposes.

*The value of transfer should be INCLUDED first in the gross estate before it can be
deducted.
Don Juan died testate. His will provides that the following transfers of some of his
properties shall be made upon his death to the following persons:

Mr. Bigay, his cousin P6,000,000

Blind Foundation, a charitable institution
(25% used for administration) 3,000,000
Ina, his secretary 2,000,000

How much is the amount to be excluded from the taxable estate?

3,000,000
C.EXCLUSIONS UNDER SPECIAL
LAWS
1. Proceeds of life insurance and benefits received by members of the GSIS
2. Accruals and benefits received by members from the SSS by reason of death
3. Life Insurance proceeds on life insurance policy taken out by the decedent himself,
upon his own life, where the beneficiary is a third person and is irrevocably designated.

4. Life Insurance proceeds on Insurance policy (group insurance) taken out by his
employer on the employee’s life, whoever the beneficiary maybe, whether the
designation as beneficiary is revocable or irrevocable.

5. Amounts received from Philippines and United States governments for war
damages.
 6. Payments from the Philippines of US government to the legal heirs of deceased
of World War II Veterans and deceased civilian for supplies/ services furnished to
the US and Philippine Army.
7. Amounts received from United States Veterans Administration

8. Transfer by way of bona fide sales

9. Properties held in trust by the decedent

10. Acquisition and/or transfer expressly declared as not taxable

11. Personal Equity and Retirement Account (PERA) assets of the decedent-
contributor
 ADDITIONS TO THE GROSS ESTATE
1. TRANSFER IN CONTEMPLATION OF
DEATH - A disposition of property prompted by thought 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.
 A high-ranking official realized that due to the nature of her illness, age and the
pressure brought about by the various legal cases filed against her, death might not be that
far. Hence, she gratuitously transferred most of her properties to her children while still
alive. Should the properties transferred be included in the gross estate of the decedent-
transferor upon her death? YES
 Due to an unstable medical condition, Pedro thought that it is only proper for him to
gratuitously transfer his properties to his love ones now instead of waiting for his death. He
then transferred various condominium units to his children worth P2,000,00 while he was
undergoing major medical operation. At the time of Pedro’s death, the fair market value of
the properties transferred increased to P3,000,000. What amount should be included in the
computation of Pedro’s gross estate? 3,000,000
 Renato, a natural philanthropist, gratuitously transferred a property to Marinel worth
P1,000,000 during his lifetime. What amount should be included in the gross estate of
Renato upon his death? 0
2. TRANSFER WITH RETENTION OR RESERVATION
OF CERTAIN RIGHTS
The decedent has transferred his property during his lifetime, but retained for himself
beneficial enjoyment of the thing or the right to received income from the same.
 Mr. Segurista donated his apartment building to his friend, Mr. Kalansay. The deed of
donation was executed under the condition that while Mr. Segurista is still living, he retains
the rights over the property and its income.

Upon his death, Mr. Segurista has a total intangible property amounting to P5,000,000. The
fair market value of the property donated was P9,000,000 and the related accrued rent
income on or before his death amounted to P1,000,000. How much is the amount applicable
as part of the gross estate? 15,000,000
3. REVOCABLE TRANSFERS
– 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.
 Pedro transferred all his real properties worth P5,000,000 to Juan, in trust for
Klien, Juan’s legitimate minor son. Pedro reserved his right to terminate the transfer
anytime.
QUESTION 1: What amount should be included in Pedro’s gross estate upon his
death? 5,000,000
QUESTION 2: Assume Juan subsequently died after Pedro’s death, what amount
should be included in Juan’s gross estate? 0
4. TRANSFERS UNDER A GENERAL POWER OF
APPOINTMENT
POWER OF APPOINTMENT – the right to designate the person
or persons who will succeed to the property of the prior decedent.

A B
 POWER OF
INCLUDE APPOINTMENT EXCLUDE
DGENERAL SPECIAL
D POWER
POWER
any person he pleases restricted or designated class of
persons other than himself

 Manny donated property to Nonito through his last will and testament. It includes a
provision that Nonito can transfer the property to anyone. Nonito transferred the property
to Boomboom intended to take effect at the time of Nonito’s death.
QUESTION 1: What type of power of appointment is illustrated above?

GENERAL POWER OF
 Manny donated property to Nonito through his last will and testament. It includes a
provision that Nonito can transfer the property to anyone. Nonito transferred the property
to Boomboom intended to take effect at the time of Nonito’s death.

QUESTION 2: Should the property be included in the determination of Manny’s gross

estate? YES
QUESTION 3: Should the property be included in Nonito’s gross estate? YES
 Manny donated property to Nonito through his last will and testament. It includes a
provision that Nonito can transfer the property only to his son, Boomboom.
QUESTION 1: What type of power of appointment is illustrated above?
SPECIAL POWER OF APPOINTMENT
  Manny donated property to Nonito through his last will and testament. It includes a
provision that Nonito can transfer the property only to his son, Boomboom.

QUESTION 2: Should the property be included in Manny’s gross estate?

YES
QUESTION 3: Should the property be included in Nonito’s gross estate?
NO
5. TRANSFER FOR INSUFFICIENT
- when a sale or transfer was made for a price less than its fair market value
CONSIDERATION
at the time of sale or transfer
ORDINARY SALE - made in the ordinary course of business
CASUAL SALE - not made in the ordinary course of business
CONSIDERATION
≥ FMV of the property
at the time of SALE Bona Fide Sale
OR TRANSFER

CONSIDERATION
< FMV of the property at
the time of SALE OR Insufficient
TRANSFER

GROSS = FMV of the property at the CONSIDERATION

ESTATE time of DEATH less
 In January 2015, Juan sold for P1,500,000 an apartment with carrying value of
P3,500,000 to Pedro. At the time of sale, the property has a prevailing market price of
P7,000,000. Juan died on June 2015. At the time of death, the prevailing fair market
value of the property was P8,000,000.
QUESTION 1: What amount should be included in the gross estate of the decedent?
Casual Sale
CONSIDERATION FMV of the property at the time of SALE OR TRANSFER
1,500,000 7,000,000
GROSS ESTATE = FMV of the property at the time of DEATH - Consideration

= 8,000,000 – 1,500,000
= 6,500,000
  In January 2015, Juan sold for P1,500,000 an apartment with carrying value of
P3,500,000 to Pedro. At the time of sale, the property has a prevailing market price of
P7,000,000. Juan died on June 2015. At the time of death, the prevailing fair market
value of the property was P8,000,000.
QUESTION 2: What amount should be included in the gross estate of the decedent
assuming the fair market value of the property at the time of delivery was P4,000,000.
= 8,000,000 – 1,500,000 = 6,500,000
QUESTION 3: What amount should be included in the gross estate of the decedent
assuming the fair market value of the property at the time of delivery was P1,000,000.
0
QUESTION 4: Assume that the property sold is classified as an ordinary asset and the sale
or transfer was made in the ordinary course of trade or business. What amount should be
included as part of the gross estate of the decedent?
0
  In January 2015, Juan sold for P5,000,000 an apartment with carrying value of
P3,500,000 to Pedro. At the time of sale, the property has a prevailing market price of
P5,000,000. Just died on June 2015. At the time of death, the prevailing fair market value
of the property was P8,000,000.
QUESTION 1: What amount should be included in the gross estate of the decedent?
0
QUESTION 2: Assume Juan transferred the property (in contemplation of death) without
consideration, what amount should be included in his gross estate at the time of his
death?
8,000,000
QUESTION 3: Assume Juan transferred the property during his lifetime, what amount
should be included in his gross estate at the time of his death?
0
6. CLAIMS AGAINST INSOLVENT PERSONS
A judicial declaration of insolvency is not required but the incapacity of the debtor
to pay his obligation should be proven.
FULL AMOUNT OF THE CLAIM INCLUDE
UNCOLLECTIBLE PORTION OF THE D
DEDUCTE
CLAIM
D
 Juan died with an existing collectible of P5,000,000 against Pedro. Since Pedro is
financially stable, Juan exerted all possible efforts to collect the amount during his lifetime,
however, Pedro failed to settle the same before Juan's death.
QUESTION 1: How much should be included to the gross estate of Juan?

5,000,000
 Juan died with an existing collectible of P5,000,000 against Pedro. Since Pedro is
financially stable, Juan exerted all possible efforts to collect the amount during his lifetime,
however, Pedro failed to settle the same before Juan's death.
QUESTION 2: How much is the deduction from the gross estate of Juan? 0
QUESTION 3: Assume that after Juan failed to collect the amount due from Pedro, he
decided to just condone the claim. The condonation was gladly welcomed by Pedro. A year
later, Juan died. How much should be included in the gross estate of Juan?
0
 Juan died with an existing collectible of P5,000,000 whose properties are not sufficient
to satisfy his debts. Pedro's properties are valued at P6,000,000 while his liabilities
amounted to P10,000,000.
QUESTION 1: How much should be included in the gross estate of Juan?
5,000,000
 Juan died with an existing collectible of P5,000,000 whose properties are not sufficient
to satisfy his debts. Pedro's properties are valued at P6,000,000 while his liabilities
amounted to P10,000,000.
QUESTION 2: How much is the deduction from the gross estate of Juan?
Collectible = (5,000,000 / 10,000,000) x 6,000,000
Collectible = 3,000,000
Uncollectible = 5 ,000,000 - 3,000,000
= 2,000,000
QUESTION 3: Assume that P2M of Pedro’s liabilities are unpaid taxes from the
government, how much should be included as a deduction from the gross estate of Juan?
Collectible = (5,000,000 / 8,000,000) x 4,000,000
Collectible = 2,500,000
Uncollectible = 5 ,000,000 - 2,500,000
= 2,500,000
7. PROCEEDS OF LIFE INSURANCE (TAKEN OUT BY
THE DECEDENT)
BENEFICIARY DESIGNATION GROSS ESTATE

Estate Revocable or Irrevocable Included

Executor Revocable or Irrevocable Included
Administrator Revocable or Irrevocable Included
3rd Party (i.e. wife) Revocable Included
3rd Party (i.e. wife) Irrevocable Excluded

* The Philippine Insurance Code presumes that the designation of a policy is

REVOCABLE in case the designation of the beneficiary is NOT CLEAR OR SILENT.
 A life insurance worth P10,000,000 was taken out by Pedro upon his life. He
designated his friend, Juan, as beneficiary. Should the proceeds be included in the
gross estate of Pedro upon his death? YES
 Assume the same data above, except that the beneficiary was Pedro’s executor.
The designation of the beneficiary was irrevocable. Should the proceeds be included
in the gross estate of Pedro upon his death? YES
 Assume the same data above, except that the beneficiary was Pedro’s estate. The
designation of the beneficiary was revocable. Should the proceeds be included in the
gross estate of Pedro upon his death?
YES
 Assume the same data above, except that the beneficiary was Pedro’s wife. The
designation of the beneficiary was irrevocable. Should the proceeds be included in the
gross estate of Pedro upon his death?
NO
 Mr. Mister, a Filipino, died due to cancer, leaving the following assets:
House and lot 2,000,000
Time deposit in BDO 500,000 =500,000 x
Proceeds of life insurance received by his wife 400,000 10% x 9/12 =
Claims against insolvent person 300,000 37,500

Additional information:
1. The time deposit in BDO is subject to 10% annual interest. It has been deposited 9
months prior to his death (ignore tax).
2. The insolvent person has total assets of P400,000 and total liabilities of P600,000.
3. A week prior to his death, he gave a car worth P1,000,000 to his son.
How much is the total gross estate of the decedent?

= 2,000,000 + 500,000 + 37,500 + 400,000 + 300,000 + 1,000,000

= 4,237,500
TAX RATE
–SIX PERCENT (6%)

NOTICE OF
–filing of notice of death
DEATH
is no longer required

ESTATE TAX
RETURN
( BIR Form 1801 )
1. In cases of transfer subject to Estate
Tax
2. Where regardless of the gross value, the
estate consists of registered or registrable
property such as real property, motor
vehicle, share of stocks or other similar
property for which a CERTIFICATE
AUTHORIZING REGISTRATION from the
Bureau of Internal Revenue is required as a
condition precedent for the transfer of
ownership thereof in the name of the
transferee, the executor or the administrator,
or any of the legal heirs, as the case may
be.
Gross Value Exceeding Five Million Pesos

-the Estate Tax Return shall be supported

with a statement duly certified to by a
Certified Public Accountant containing the
following:
a) Itemized assets of the decedent with their
corresponding gross value at the time of his
death
b) Itemized deductions allowed from the
gross estate
c) The amount of tax due, whether paid or
still due and outstanding.
TIME FOR FILING THE ESTATE TAX
- one year from the date of death
RETURN
TIME FOR PAYMENT OF THE ESTATE
- time the return is filed Pay as you file system
TAX
Project of Submitted to the Commissioner with certified copy thereof and its
Partition order within 30 days after promulgation of such order
EXTENSIONS OF TIME
FILING - not exceeding thirty days
- not to exceed five years in case the estate is settled through the
PAYMEN courts (Judicial Settlement)
T - not to exceed two years in case the estate is settled
extrajudicially (Extrajudicial Settlement)
- furnish a surety bond
PAYMENT OF ESTATE TAX BY
INSTALLMENT
a) The cash installments shall be made within two years from the date of the filing of
the estate tax return
b) The frequency (i.e., monthly, quarterly, semi-annually, annually) deadline and the
amount of each installment shall be indicated in the estate tax return, subject to the
approval by the BIR
c) No civil penalties or interest may be imposed on the estates permitted to pay the
estate tax due by installment.
d) In case of lapse of two years without the payment of entire tax due, the remaining
balance thereof shall be due and demandable subject to applicable penalties and
interest reckoned from the prescribed deadline for filing the return and payment of
estate tax
PARTIAL DISPOSITION OF ESTATE AND
APPLICATION OF ITS PROCEEDS TO THE
ESTATE TAX DUE
a) The disposition shall refer to the conveyance of property, whether real, personal or
intangible property, with the equivalent cash consideration
b) The written request for the partial disposition of estate shall be approve by the BIR.
The written request shall be filed, together with a notarized undertaking that the proceeds
thereof shall be exclusively used for the payment of the total estate tax due

c) The computed estate tax due shall be allocated in proportion to the value of each
property.
d) The estate shall pay to the BIR the proportionate estate tax due of the property
intended to be disposed of
e) An eCAR shall be issued upon presentation of the proof of payment of the
proportionate estate tax due of the property intended to be disposed.
f) In case of failure to pay the total estate tax due out from the proceeds of the said
disposition, the estate tax due shall be immediately due and demandable subject to the
applicable penalties and interest reckoned from the prescribed deadline for filing the
return and payment of the estate tax, without prejudice of withholding the issuance of
eCARs on the remaining properties until the payment of the remaining balance of the
estate tax due, including the penalties and interest.

WHERE TO FILE?
- RDO where the estate is required to secure its TIN and file the estate tax return
Resident - RDO where the decedent was domiciled at the time of his
Decedent death
Non-resident Decedent
With Executor Or Administrator in the Philippines
- RDO where such executor or administrator is registered
- If not registered, RDO having jurisdiction over the executor or
administrator’s legal residence
Without Executor Or Administrator in the Philippines
- Office of the Commissioner through RDO No. 39-South Quezon City
WHERE TO - RDO; RCO; Accredited Agent Bank

PAY?
LIABILITY FOR THE PAYMENT OF ESTATE
TAX
EXECUTOR/ ADMINISTRATOR - primary obligation severally liable
HEIR OR BENEFICIARY - subsidiary liability In proportion to his share
Estate Tax Clearance authority to distribute the inheritance
CIVIL PENALTIES AND
INTEREST 25% - no false or fraudulent intent on the taxpayer
Surcharge
50% - there is false, malice or fraudulent intent on the taxpayer
20% - Until December 31, 2017
Interes
12% - Starting January 1, 2018
t
 Assuming that on January 31, 2017, Mr. PP died. His executor, Mr. MM, determined
that the net taxable estate amounted to P4,000,000.
QUESTION: Mr. MM paid the estate tax due on July 30, 2017. How much will be the
total amount due?
 Assuming that on October 31, 2016, Mr. PP died. His executor, Mr. MM, determined
that the net taxable estate amounted to P4,000,000.
QUESTION: Mr. MM paid the estate tax due on December 1, 2017 without notice
from the BIR. How much will be the total amount due?
 Assuming that on October 31, 2016, Mr. PP died. His executor, Mr. MM, determined
that the net taxable estate amounted to P4,000,000.
QUESTION: Mr. MM paid only P100,000 and received a notice from the BIR to pay
the deficiency estate tax of P140,000 on February 1, 2018. How much will be the
total amount due?
THE

END!!!