Estate Tax

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 transferee or recipient. The transfer of ownership is
free because of the absence of financial consideration. Hence, gratuitous
transfers are essentially donations. The applicable taxes on gratuitous transfers
are as follows:

Effectivity Type Tax Object of Nature

Taxation
Upon death Mortis Estate tax
of the donor causa Privilege to
DONATION During the Inter-vivos Donor’s tax transfer Excise tax
lifetime of gratuitously
the donor
and the
donee

Estate Tax
Estate Tax is a 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. As shown in the table above, Estate Tax is an excise tax imposed on the
act of passing the ownership of the property at the time of death and not on the
value of the property or right.
 Accrual: It accrues as of the death of the decedent, notwithstanding the
postponement of the actual possession or enjoyment of the estate by the
beneficiary. 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 (RR 2-2003).

 Filing of Estate Tax Returns:

o Decedent died before 2018: within 6 months after death
o Decedent died upon/during the effectivity of TRAIN Law: 1 year
from date of death
 The accrual of the tax is distinct from the obligation to pay
the same (filing period)
 Under meritorious cases (to be determined by the BIR), filing
of estate tax return may be extended for a period of not more
than 30 days.

 Taxpayer. The “estate” of the decedent as a judicial person, represented

by the administrator, executor or legal heirs.

 Personal obligation to file and pay the applicable taxes:

o Primary liable: administrator or executor
o Secondarily liable: any of the heirs
  Law to be applied: The law/statute in force as of the date of death of the
decedent.

Succession
It 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 will or by operation of
law (Art. 774, Civil Code of the Philippines).

TYPES:
1. Testamentary. That which results from the designation of an heir,
made in a will executed in the form prescribed by law.
2. Legal or Intestate. That which is affected by operation of law or
transmission of properties where
o There is no will; or
o If there is a will, the same is void or lost its validity, or
nobody succeeds in the will.

3. Mixed. That which is effected partly by will or by operation of law.

 The value of obligations that may be transferred from the

decedent to his or her heir(s) should not exceed the value of
the properties and rights (inheritance) transferred.

 Will- an act whereby a person is permitted with the formalities

prescribed by law, to control to s=certain degree the disposition of
his estate, to take effect after his death (Art. 783, CCP) from the
moment of the death of the decedent, the rights to the succession
are transmitted, and the possession of the hereditary property is
deemed transmitted to the heir (Art. 777, CCP).

 Kinds of Wills:

1. Notarial or Ordinary or Attested Will – is one which is

executed in accordance with the formalities prescribed by
Art. 804-808 of the new Civil Code. It is a will that is
created for the testator by a third party. Usually his
lawyer, follows proper form, signed and dated in front of
the required number of witnesses (3 or more) and
acknowledged by the presence of a notary public.
2. Holographic Will – is a written will which must be entirely
written, dated and signed by the hand of the testator
himself, without the necessity of any witness. This kind of
will does not need formalities because many people can
recognize his handwriting and it can be verified by a
penmanship expert.
o Codicil- a supplement or addition to a will,
made after the execution of a will and annexed
to be taken as a part thereof, by which any
disposition in the original will is explained,
added to or altered.
Element of Succession
Succession takes place if the following elements are present:
a. DECEDENT – the person whose property is transmitted through
succession, whether or not he left a will (Art. 775, CCP).
b. HEIR – the person called to the succession either by the provision of a will
or by operation of law (Art. 782, CCP).
c. ESTATE – refers to all the property, rights and obligations of a person
which are not extinguished by his death (Art. 776, CCP).

Decedent’s Estate
1. LEGITIME is the portion of the testator’s property which could not be
disposed freely because the law has reserved it for the compulsory heirs.
(Art. 886, CCP)
2. FREE POORTION is that part of the whole estate the testator could
dispose of freely through written will irrespective of his relationship to the
recipient.

Kind of Heirs
1. Compulsory Heirs. They inherit with or without a will.
 Primary Compulsory Heirs
o Legitimate children and descendants
o Illegitimate children
o Widow or widower
 Secondary Compulsory Heirs
 In default of legitimate children and descendants, legitimate
parents and ascendants
 The compulsory heirs are entitled to their legitime, with or without a
will, unless validity “dis-inherited”.
2. Voluntary Heirs. They inherit only if they are in the will.
3. Intestate Heirs
 The compulsory heirs in testamentary succession. They are entitled
to their legitime. However, as to the free portion of the estate, it
shall be distributed to the following intestate heirs as follows (order
of priority):
a. Legitimate children
b. Legitimate parents
c. Illegitimate children
d. Spouse
e. Brothers and sisters
f. Relatives by consanguinity up to 5th civil degree
g. State

TABLE OF LEGITIME
Survivor Legitime Notes
LC ½ Divide by the number of LC, whether survive
alone or with concurring compulsory heir(CH)
1LC ½
SS ¼
2 or more LC ½
SS Equal to 1
LC
 LC ½ All the concurring CH get from the half free
SS ¼ portion, the share of the SS having preference
IC ½ of 1 LC over that of the IC, whose share may suffer
reduction pro-rata because there is no preference
among themselves
LPA ½ Whether they survive alone or with concurring CH
LPA ½ IC succeed in the ¼ in equal shares
IC ¼
LPA ½
SS ¼
LPA ½
SS 1/8
IC ¼
IC ½ Divide equally among IC
SS 1/3
IC 1/3
SS ½ 1/3 if marriage is in articulo mortis and deceased
spouse dies within 3 months after the marriage
IP ½
IP Excluded Children inherit in the amounts established in the
forgoing rules
Any Child It depends
IP ¼ Only the parents of IC are included. Grandparents
SS ¼ and other ascendants are excluded.

FORMAT OF COMPUTATION:
SINGLE DECEDENT
Gross Estate Pxx Estate Tax Due** Pxx
LESS: Less: Tax Credit (xx)
Ordinary Deductions (xx) Estate Tax Payable Pxx
Special Deductions (xx) **(prior to 2018: Tax Table)
Net Taxable Net Estate Pxx (Beg. Jan. 1, 2018: 6%)

MARRIED DECEDENT:
Conj/Comm. Exclusive Total
GROSS ESTATE
 Real immovable property xx xx
 Tangible personal property xx xx
 Intangible property* xx xx
 Certain Transfers** xx xx
Total xx xx xx
LESS: ORDINARY DEDUCTIONS
1. ELITe
a. Funeral Expenses (repealed
under the TRAIN Law) (xx) -
b. Judicial Expenses (repealed
under the TRAIN Law) (xx) -
c. Losses (xx) (xx)
d. Indebtedness or Claims against
the estate (xx) (xx)
e. Unpaid Taxes (xx) (xx)
f. Etc. suach as claims against
Insolent persons (xx) (xx)

2. Vanishing Deduction
 Property relationship: CPG - (xx)
 Property relationship: ACoP (xx) (xx)
 3. Transfer for Public Use - (xx) (xx)
Net Community/Exclusive before SD xx xx xx
LESS: SPECIAL DEDUCTIONS
Prior to Train Law; not allowed to NRA
TRAIN Law; NRAs are allowed of standard deductions
1. Standard Deduction (xx)
 Prior to TRAIN Law: P1M
 TRAIN Law:
Citizen/resident decedents- P5M
NRA decedents- P500,000
2. Medical Expenses (xx)
 Prior to TRAIN Law: maximum of P500,000
 TRAIN Law: Repealed
3. Family Home (xx)
 Prior to TRAIN Law: maximum of P1M
 TRAIN Law: maximum of P10M
4. Amount Received under RA 4917 (xx)
Net Estate before share of the surviving spouse xx
less: share of the surviving spouse(1/2 of the common property before SD) (xx)
NET TAXABLE ESTATE Pxx
ESTATE TAX DUE(tax table or 6%, as the case may be) Pxx
*intangible properties including rights accruing before the death, claims against
insolvent persons, RA 4917, and other receivable as proceeds from life
insurance taken out by the decedent.
**refer to certain transfers made before death but will take effect upon death
(transfer mortis causa) as well as transfer under general power of appointment,
transfers made to qualified charitable organizations and transfer for public
purpose.

ESTATE TAX RATE

 If the decedent died before 2018
OVER BUT NOT TAX SHALL PLUS
OVER BE
- P200,000 Exempt -
P200,000 500,000 P0 5% of excess over
200,000
500,000 2,000,000 15,000 8% of excess over
500,000
2,000,000 5,000,000 135,000 11% of excess over
2,000,000
5,000,000 10,000,000 465,000 15% of excess over
P5,000,000
10,000,000 - 1,215,000 20% of excess over
10,000,000

 If the decedent died on or after January 1, 2018

 6% of net taxable estate

GROSS ESTATE
Consists of all properties and interests in properties of the decedent at the
time of his death as well as properties transferred during lifetime (only in form),
but in substance was only transferred at the time of death.
1. Components of the Gross Estate
Properties existing at the time of death such as:
a. Real Property and other Tangible Personal Property
b. Decedent’s interests and intangibles
 Decedent’s Interest – refers to the extent of equity or ownership
participation of the decedent on any property physically existing
and present in the gross estate, whether or not in his
possession, control or dominion. It also refers 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, transferred).
 Intangible Properties considered located in the Philippines:
 Franchise which must be exercised in the Philippines;
 Shares, obligations or bonds by any corporation or
sociedad anonima organized or constituted in the
Philippines;
 Shares, obligations or bonds issued by any foreign
corporation, at least 85% of the business of which is
located in the Philippines;
 Shares, obligations or bonds issued by any foreign
corporation if such shares, obligations or bonds have
acquired in a business situs (used in the furtherance of
its business in the Philippines) in the Philippines;
 Shares or rights in partnership, business or industry
established in the Philippines.

c. Properties transferred gratuitously during the lifetime, but in substance,

transferred upon death:
1. Transfer in contemplation of death- the thought of death must be
the
2. Transfer with retention or reservation of certain right- allows the
transferor to continue enjoying, possessing or controlling the
property (beneficial ownership) because only the naked title has
been transferred.
3. Revocable Transfer- decedent transfers the enjoyment of his
property to another, subject to his right to revoke the transfer at will,
with or without notifying the transferee, any time before he dies.
4. Property passing under General Power of Appointment (GPA).
5. Transfers for insufficient consideration- sale of property below the
fair market value (FMV):
 Amount included in gross estate:
FMV at the time of death Pxxx
Less: Selling price (xxx)
Included in Gross Estate Pxxx
6. Proceeds from life insurance- the following are included in the
gross estate:
a. Whether REVOCABLE or IRREVOCABLE, when the beneficiary
is the:
 Estate of the deceased
 His executor: or
 Administrator
b. When the beneficiary is a third person, only if REVOCABLE.

2. Exemptions and Exclusions from Gross Estate

a. Under section 85 and 86, NIRC
 Capital or exclusive property of the surviving spouse
  Properties outside the Philippines of a non-resident alien
decedent
 Intangible personal property in the Philippines of a non-resident
alien when the rule of reciprocity applies.
b. Under section 87, NIRC
1. The merger of the usufruct (right to use) in the owner of the naked
title.
2. The transmission from the first heir, legatee or done in favor of
another beneficiary in accordance with the will of the predecessor.
This type of transfer is most commonly known as “transfer under
Special Power of Appointment (SPA)”.
o GPA vs SPA
 GPA- addition to gross estate
 SPA- exclusion from the gross estate
3. The transmission or delivery of the inheritance or legacy of the
fiduciary heir or legatee to the fedeicomissary.
o This is the same with SPA above. The only difference
is, in fedeicomissary transfer, the relationship of the
donor and donee is one degree apart (i.e., from a
parent to his/her son)
4. All bequests, devices, legacies or transfers to social welfare,
cultural and charitable institutions, provided:
1. No part of the net income of said institutions inure to the benefit
of any individual;
2. Not more than 30% of such transfers shall be used for
administration purposes.
c. Under Special Laws
 Proceeds of life insurance and benefits received by members of
the GSIS (RA 728).
 Benefits received by members from the SSS by reason of death
( RA 1792)
 Amounts received from Philippine and United States
governments for war damages.
 Amounts received from United States Veterans Administration.
 Benefits received from the Philippines and US government for
damages suffered during World War II (RA 227)
 Retirement benefits of officials/employees of a private firm (RA
4917).
 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 (RA 136).
 Proceeds of life insurance under a group insurance taken out by
employer (not taken out upon his life)
 Transfers by way of bona fide sales
 Transfer of property to the national government or to any of its
political subdivisions.
 Personal Equity and Retirement Account (PERA) assets of the
decedent –contributor (RA 9505)

THE COMPOSITION OF THE ESTATE TAX MAYBE SUMMARIZED AS

FOLLOWS:
DECEDENT GROSS ESTATE
Citizen or Resident alien 1. Property (real or personal)
 property wherever situated
2. Intangible property wherever
situated
Nonresident Alien 1. Real property situated in the
Philippines
2. Tangible personal property
situated in the Philippines
3. Intangible personal property with
situs in the Philippines, unless
excluded on the basis of
reciprocity as described below.

RECIPROCITY CLAUSE – no tax shall be imposed with respect to intangible

personal properties of NRA situated in the Philippines:
1. When the foreign country where such NRA is a resident and citizen does
not impose transfer tax with respect to intangible personal properties of
Filipino citizens not residing in that country; or
2. When the foreign country imposes transfer taxes, but grants similar
exemption with respect to intangible personal properties of Filipino citizens
not residing in that country.

VALUATION OF GROSS ESTATE

 In general- fair market value upon death
 Personal properties- fair market value
 Real property- the higher amount between:
 Fair market value
 Zonal value
 Shares of stock
a. Traded in the Local Stock Exchange (LSE) – mean between the
highest and lowest quotations nearest the date of death, if none is
available on the date of death itself.
b. Not traded in local stock exchange:
1. Common (ordinary) shares- book value
2. Preferred (preference) shares- par value
 Usufruct- based on latest Basic Mortality Table to be approved by the
Secretary of Finance, upon recommendation of the Insurance
Commissioner.

PROPERTY RELATIONSHIP BETWEEN SPOUSES

The relationship or marriage settlement of the spouses shall be determined as
follows (order of priority):
1. BASED ON AGREEMENT
If there was an agreement entered into by the parties before marriage,
apply the type of settlement entered into by the parties such as:
 Absolute community of Property (ACoP)
 Conjugal Partnership Gains (CPG)
 Complete Separation

2. BY OPERATION OF LAW (New Family Code)

 In the absence of an agreement, the marriage settlement will depend on
the date of marriage as provided under the law [New family Code (NFC)]
as follows:
 Date: before the effectivity of the NFC (Aug. 3, 1988), apply CPG
 Date: on or after the effectiviy of the NFC (Aug 3, 1988), apply
ACoP

3. BY CUSTOMS OR TRADITION

Conjugal Partnership of Gains (CPG)

1) Exclusive Properties:
 That which is brought to the marriage as his or her own (properties
before marriage);
 That which each acquires during marriage by gratuitous title;
 That which is acquired by right of redemption, by barter or by
exchange with property belonging to any one of the spouses; and
 That which is purchased with exclusive money of the wife or the
husband.

2) Conjugal Properties:
 Those acquired by onerous title during marriage at the expense of
the common fund, whether the acquisition be for the partnership, ar
for only one of the spouses;
 Those obtained from labor, industry, work or profession of either or
both spouses;
 The FRUITS (or income), natural or industrial, or civil due or
received during marriage from common property, as well as the net
fruits from the exclusive property of each spouse;
o rule on fruits under CPG: “AFC-All Fruits are
Common”
 The share of either spouse in the hidden treasure which the law
awards to the finder or owner of the property where the treasure is
found;
 Those acquired through occupation such as fishing or haunting;
 Livestock existing upon dissolution of the partnership in excess of
the number of each kind brought to the marriage by either spouse;
and
 Those are acquired by chance, such as winning from gambling or
betting. However, losses there from shall be borne exclusively by
the loser-spouse.

Absolute Community of Property (ACoP)

1) Community Properties:
 All properties owned by the spouses at the time of celebration of
the marriage (properties before marriage); or
 Acquired thereafter, unless proven otherwise, as well as the fruits
or income thereof.
o Rule on fruits: “FFS- The Fruit will Follow the Source”

2) Exclusive Properties :
  Property acquired during marriage by gratuitous title by spouse, as
well as the fruits or income thereof.
EXCEPTION: unless it is expressly provided by the donor, testator
or grantor that they shall form part of the community property.
o Rule on fruits: FFS
 Property for personal and exclusive use of either spouse.
EXCEPTION: jewelry shall form part of the community property.
Property acquired before the marriage by either spouse who has
legitimate descendants by the former marriage, and the fruits as
well as the income, if any of such property.

SUMMARY:
PROPERTY ACoP CPG
Properties acquired before marriage Common Exclusive
Properties acquired during marriage:
 From exclusive property Exclusive Exclusive
 From common property Common Common
 Those obtained from labor, industry, work or Common Common
profession of either or both spouses
 From gratuitous transfer(inheritance or donation):
o CPG - Exclusive
o ACoP:
 Generally Exclusive -
 The donor/testator expressly Common -
provided that it shall form
part of the community
property
FRUITS or Income on properties: apply the following rules:
 ACoP: the fruit shall follow the source (FFS)
 CPG: all fruits are common (AFC)
Property for personal and exclusive use of either spouse
 Generally Exclusive Excusive
 Except jewelry under ACoP Common -

ALLOWABLE DEDUCTIONS DEFINED

1) Deductions are items which the law on estate tax allows, as amended, to
be subtracted from the value of the gross estate in order to arrive at the
net taxable estate.
2) As a rule, deductions from gross from gross estate are presumed to be
common deductions unless specially identified as exclusive.
3) Refer also to the format of computation for married decedents.

Deductions
Deductions from gross estate
 Residents and Citizens: ELITE + PP + VD + FH + STD + R + M +
Share of the Surviving Spouse
 Nonresident Aliens: ELITE+ PP + VD + Share of the Surviving
Spouse

1. Expenses, losses, indebtedness and taxes (please see discussions

below).
 a. If decedent was a citizen or resident alien, deduct all ELIT.
b. If decedent was a non-resident alien, prorate ELITE as follows:

Phil. Gross Estate x Total ELITE

World Estate

2. Transfers for PUBLIC PURPOSE. These are bequests, legacies,

devises or transfers for the use of the government of the Phil. or any
political subdivision thereof, exclusively for public purpose.
3. Deduction for property previously taxed (VANISHING DEDUCTION).
4. The family home not exceeding P10,000,000.
5. Standard deduction for citizen or resident alien decedent only of
P5,000,000 and an amount of P500,000 applies for nonresident alien
decedents.
6. Retirement benefits received by employees of private firms from
private pension plan approved by the BIR under R.A. 4917.
7. Medical expenses paid or incurred within 1 year prior to decedent’s
death duly substantiated with receipts but not to exceed P500,000 for
citizen or resident decedent.
8. Net share of the surviving spouse in the conjugal partnership property
or community property as diminished by the expenses properly
chargeable to such property shall be deducted from the estate.

ORDINARY DEDUCTIONS
Expenses, losses, indebtedness, and taxes deductible from gross estate
(ELIT)
1. Funeral expenses.(Repealed under TRAIN Law)
Requisites:
 Must be incurred prior to interment;
 Shouldered by the estate; and
 Not to exceed the limit set by law.
Amount deductible:
1. Actual funeral expenses
2. 5% of gross estate
3. P200,000

2. Judicial expenses(repealed under TRAIN Law)

Requisites:
 Must be incurred during the settlement of the estate, but not
beyond the last day prescribed for the filing of the estate tax
return (within 6 months);
 Must be essential to the collection of the assets, payment of
debts or the distribution of the estate.
Amount deductible – expenses incurred in:
1. Inventory-taking of assets comprising the gross estate;
2. Their administration;
3. Payment of debts of the estate; and
4. Distribution of the estate among the heirs.
 3. Losses due to fire, storm, shipwreck, or other casualty.

4. Losses due to theft, robbery or embezzlement.

5. Claims of the decedent against insolvent persons, where the value of

the decedent’s interest therein is included in the gross estate.

6. Claims against the estate, provided that the debt instrument was
notarized at the time the indebtedness was incurred; and, if the loan
was contracted within three years before the death of the decedent, a
statement showing the disposition of the proceeds of the loan (or how
the proceeds of the loan was used) must accompany the estate tax
return.

7. Unpaid mortgage, where the value of the decedent’s interest,

undiminished by the mortgage, is included in the gross estate.

8. Income tax on income prior to death of the decedent.

9. Property taxes which have accrued prior to death of decedent.

REQUISITES for deduction of losses in Nos. 3 and 4 above

a. The loss is not compensated by insurance or otherwise.
b. The loss is not claimed as a deduction in the estate income tax
return.
c. The loss must occur not later than the last day for payment of the
estate tax. (The last day for payment of the estate tax is 6 months
from the decedent’s death).

PROPERTY PREVIOUSLY TAXED (VANISHING DEDUCTION)

1. Purpose - to minimize the effects of a double tax on the same property
within a short period of time.
2. Conditions for allowance:
a. There is a property forming a part of the gross estate of the present
decedent situated in the Philippines;
b. The present decedent acquired the property by inheritance or donation
within 5 years prior to his death;
c. The property subject to vanishing deduction can be identified as the one
received from the prior decedent, or from the donor, or can be identified
as having been acquired in exchange for the property so received;
d. The property acquired formed part of the gross estate of the prior
decedent, or of the taxable gift of the donor;
e. The estate tax on the prior transfer or the gift tax on the gift must have
been paid; and
f. The estate of the prior decedent has not previously availed of the
vanishing deduction.

3. Percentage of vanishing deduction - the rate depends on the interval

between the death of present decedent and death of prior decedent (if the
property was acquired by inheritance) or death of present decedent and
date of gift (if the property was acquired by donation), as follows:
More than Not more than Percentage
 Xxx 1 years 100%
1 years 2 years 80%
2 years 3 years 60%
3 years 4 years 40%
4 years 5 years 20%
5 years Xxx Xxx
4. Procedures in computing vanishing deduction
a. Determine the initial value by comparing the FMV of the property used in
computing the first transfer tax paid with the FMV of the property in the
present decedent. The lower of the two is the initial value.
b. From the initial value taken, deduct any mortgage or lien on the property
previously taxed which was paid by the present decedent prior to his
death, where such mortgage or lien was a deduction from the gross
estate of the prior decedent or gross gift of the donor. This is the initial
basis.

c. The initial value taken, as reduced by Step (b), shall be further reduced
by prorated deductions for expenses, losses, indebtedness, taxes (ELIT)
and transfers for public purpose (PP) only, allocable to the property
previously taxed as follows:
Initial basis
x Deductions = Portion deductible

Gross estate

This is the final basis.

d. Determine the time interval between the death of present decedent and
death of prior decedent (if the property was acquired by inheritance) or
death of present decedent and date of gift (if the property was acquired
by donation) to find the applicable percentage of vanishing deduction.
e. Multiply the final basis by the percentage of vanishing deduction to arrive
at the VANISHING DEDUCTION.

SPECIAL DEDUCTIONS
1. The family home not exceeding P10,000,000.
Requisites:
 The decedent is married or head of the family
 The family home must be the actual residential home of the
decedent and his family at the time of his death, as certified by
the Brgy. Captain of the locality where the family home is
situated
 It is located in the Philippines
 The value of the family home is included in the gross estate.

2. Standard Deduction
The amount deductible without any required substantiation is
P1,000,000 if the decedent died before 2018 and P5,000,000 if the
decedent died on or after January 1, 2018. A standard deduction shall
 also be allowed to nonresident alien decedent beginning January 1,
2018.

3. Retirement benefits received by employees of private firms from

private pension plan approved by the BIR under R.A. 4917.
Requisites:
 Include such amount in the gross estate
 Amount deductible – amount received by the heirs from the
decedent’s employer as a consequence of the death of the
decedent-employee.

4. Medical Expenses (repealed under TRAIN Law)

Requisites (applicable only if the decedent died before 2018):
 Incurred within 1 year prior to the death of the decedent
 Duly substantiated
 Not to exceed P500,000

5. Net share of the surviving spouse in the conjugal partnership property

or community property as diminished by the expenses properly
chargeable to such property shall be deducted from the estate.
 Applicable only to married decedents
 Amount deductible:
Common properties Pxxx
Common deductions (xxx)
Net common properties before SD Pxxx
Multiply by: 50%
Share of the surviving spouse Pxxx

Tax credit for estate tax paid to a foreign country

1. Who can claim? Only citizen or resident alien decedent.
2. Amount Deductible, whichever is lower:
a. Actual estate tax paid abroad
b. Limit
2. Limitations on tax credit:
a. Only one country is involved

Net estate (per Foreign Country) x Philippine estate tax

Total net estate

b. Two or more foreign countries are involved

Limit 1: per country

Net estate (per Foreign Country) x Philippine estate tax

Total net estate

Limit 2: Total Foreign Country

Net estate (all Foreign Countries) x Philippine estate tax

Total net estate
Compliance Requirements

a. Notice of death shall be given when the value of the gross estate
exceeds P 20,000
b. The executor, administrator or any of the legal heirs shall file the notice
of death within 2 months after the decedent’s death or within 2 months
after the executor or administrator has qualified.
c. The estate tax return shall be filed within 1 year after the decedent’s
death, but may be extended to not exceeding 30 days if authorized by
the BIR Commissioner.
d. When the estate tax return shows a gross value exceeding P
5,000,000, it shall be supported with a statement duly certified by a
CPA.
e. The payment of estate tax shall be made at the time the return is
filed. However, the CIR may allow an extension of until 5 years if
settled judicially or 2 years if settled extra-judicially.
QUIZZERS

1. The tax imposed on the right to transmit property at death is known as:

A. Donor’s Tax C. Business Tax

B. Estate Tax D. Income Tax

2. The tax imposed on the transfer of the property without consideration

between two or more persons who are living at time the transfer is made.

A. Donor’s Tax C. Business Tax

B. Estate Tax D. Income Tax

3. Estate tax is
A. A property tax because it is imposed on the property transmitted by
the decedent to his heirs.
B. An indirect tax because the burden of paying the tax is shifted to
the executor or any of the heirs of the decedent.
C. An excise tax because the object of which is the shifting of
economic benefits and enjoyment of the property from the dead to
the living.
D. A poll tax because it is also imposed on residents of the Philippines
whether Filipino citizens or not.

4. Which among the following statements is/are correct?

A. Estate taxation is governed by the statute in force at the time of
death of the decedent.
B. Estate tax accrues as of the death of the decent.
C. Succession takes place and the right of the State to tax the
privilege to transmit the estate vests instantly upon death.
D. All of the above

5. The taxpayer in estate tax is:

A. The decedent
B. The estate as a juridical entity
C. The heir of succession
D. The administrator or executor

6. Estate tax accrues from:

A. The moment of death of the decedent
B. The moment the notice of death is filed
C. The moment the estate tax return is filed
D. The moment the properties are delivered to the heirs
7. It 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 either by the will or by operation
of law.

A. Succession C. Prescription
B. Donation D. Exchanges

8. An act whereby a person is permitted with the formalities prescribed by

law, to control to a certain degree the disposition of his estate, to take
effect after his death.

A. Contract C. Will
B. Trust D. Legacy

9. The portion of the decedent ’s estate which the law reserves to his
compulsory heir is called:

A. Legitime C. Legacy
B. Free Portion D. Bequest

10. Which of the following is a valid will?

A. That which reduces the legitime of compulsory heirs.

B. That which increase the share of one heir without impairing the
legitime of the other heirs.
C. That which transfer the legitime of one heir to the heir.
D. That which impair the legitime of compulsory heirs.

11. Ana, Filipina, died in Syria leaving the following properties:

House and Lot in Syria 1,000,000
Vacant lot to Manila 2,000,000
Shares of stock in a domestic corp., 60% of the business
is located in the Philippines 100,000
Shares of stock in a foreign corp., 70% of the business
is located in the Philippines 200,000
Car in Manila 500,000

How much is the gross estate?

A. 2,000,000 C. 2,600,000
B. 2,500,000 D. 3,800,000

12. Based on the preceding number, but assuming Ana is a non-resident

alien, the gross estate is:
A. 2,000,000 C. 2,600,000
B. 2,500,000 D. 3,800,000
 13. Continuing the preceding number and the rule of reciprocity applies, the
gross estate is:

A. 2,000,000 C. 2,600,000
B. 2,500,000 D. 3,800,000

Citizen/Resident NRA w/o Rec. NRA w/ Rec.

House & lot in Syria P 1,000,000 - -
Vacant lot in Manila 2,000,000 P 2,000,000 P 2,000,000
Shares of stock (domestic) 100,000 100,000 -
Shares of stock (foreign) 200,000 - -
Car in Manila 500,000 500,000 500,000
Total P 3,800,000 P 2,600,000 P 2,500,000
 The situs of shares of stocks of a domestic corporation is always
considered in the Philippines, regardless of the % of its operations in the
Philippines.
 The situs of shares of stocks of a foreign corporation is Philippines only if:
o At least 85% of its operations is in the Philippines; or
o It expressly provided that the foreign corporation have already
acquired business situs in the Philippines (regardless of the % of
operations in the Philippines)
 Do not assume reciprocity.

14. A non-resident alien left the following properties at the time of his death:
a) Bank deposit, Canada
b) Bank deposit, BDO-Manila
c) Car in Quezon City
d) Investment in bonds, PLDT
e) Investment in stocks, IBM, USA
f) House and lot, USA
The country of the non-resident alien decedent does not impose a transfer
or death tax of any character with respect to intangible personal property
of citizens of the Philippines not residing in that foreign country. What
properties will be included in the Philippine gross estate of the non-
resident alien decedent?
A. All the properties above
B. Properties b, c and d
C. Property c only
D. Properties a and c
15. Statement 1: the power of the appointment is “general” when the power
of appointment authorizes the donee of the power to appoint only from a
restricted or designated class of persons other than himself.
Statement 2: Special power of appointment exists when the power of
appointment authorizes the donee of the power to appoint any person he
pleases.

A. Only statement 1 is correct

B. Only statement 2 is correct
C. Both statements are correct
D. Both statements are incorrect

16. One of the following is a conjugal property of the spouses

A. That which is brought to the marriage as his or her own
B. That which each acquires during the marriage by inheritance
C. The fruits of an exclusive property
D. That which is purchased with the exclusive property of the wife.

From questions 17-19

Mr. J. Chavez died leaving the following properties:
Rest house in Cebu, acquired before marriage 6,000,000
Income from rest house in Cebu 600,000
Condominium in Davao, brought to marriage by wife 3,600,000
Income from condominium in Davao 360,000
Two house in Quezon City, acquired during marriage 10,500,000
Income from town house in Quezon City 1,050,000
Car, inherited by wife during marriage (the decedent
provided in his will that it shall form part of the common
properties of the spouses) 1,300,000
Jewelry, acquired during marriage for exclusive use 200,000.

17. How much is the conjugal properties under Conjugal Partnership of

Gains?
A. 12,510,000 C. 22,310,000
B. 18, 510,000 D. 23,610,000

18. How much is the gross estate under Conjugal Partnership of Gains?
A. 12,510,000 C. 22,310,000
B. 18, 510,000 D. 23,610,000

19. How much is the community properties under Absolute Community of

Property?
A. 12,510,000 C. 22,310,000
B. 18,510,000 D. 23,610,000

20. One of the following is not a community property of the spouses

A. Property inherited by the husband before marriage
B. Winnings in gambling
C. Fruits of property inherited during the marriage
D. Fruits of property inherited before the marriage
ANSWER KEY

1. Answer: B

2. Answer: A

3. Answer: C
 Estate tax is imposed not on the decedent nor on the property
transmitted upon death but on the “privilege” to transfer properties
gratuitously upon death.
 Estate tax is not an indirect tax. Though the personal obligation to
file and pay the estate tax rests with the administrator/executor or
any of the heirs, respectively, the “burden“ of paying the tax is not
shifted to them. The money used to pay the estate will be taken
from the estate, not from the administrator/executor or any of the
heirs.

4. Answer: D

5. Answer: B

6. Answer: A
 Upon the death of the decedent, succession takes place and the
right of the state to tax the privilege to transmit the estate vests
instantly upon death (sec. 3, RR 2-2003)

7. Answer: A
 Title IV, Chapter 1, Art. 774 of RA 386, otherwise known as the
Civil Code of the Philippines

8. Answer: C
 The forms of a “will” shall be observed, otherwise, it is considered
void.

9. Answer: A
 The estate of a decedent is divided into two categories, legitime
and free portion
 Bequest means transfer of property by virtue of a last will and
testament
 Legacy is a type of bequests involving personal properties
 Device is a type of bequest involving real properties

10. Answer: B

11. Answer: D

12. Answer: C

13. Answer: B

14. Answer: C
  NRA decedents are taxable only on their estate located in the
Philippines. If reciprocity rule applies, intangibles in the Philippines
are likewise excluded.
 In the problem provided, the decedent is NRA and reciprocity rule is
applicable. Therefore, included in his estate are tangible properties
located in the Philippines only.

15. Answer: D
 Statement 1 pertains to SPA not GPA
 Statement 2 pertains to GPA not SPA

16. Answer: C
 The term conjugal property shall pertain to common property under
CPG.
 The term community property shall pertain to property under ACoP.

17. Answer: A
Rest house in Cebu, acquired before marriage -
Income from rest house in Cebu P 600,000
Condominium in Davao, brought to marriage by wife -
Income from condominium in Davao 360,000
Two house in Quezon City, acquired during marriage 10,500,000
Income from town house in Quezon City 1,050,000
Car, inherited by wife during marriage (the decedent
provided in his will that it shall form part of the common
properties of the spouses) -
Jewelry, acquired during marriage for exclusive use -
Total gross estate under CPG P 12,510,000

18. Answer: B
Rest house in Cebu, acquired before marriage P 6,000,000
Income from rest house in Cebu 600,000
Condominium in Davao, brought to marriage by wife -
Income from condominium in Davao 360,000
Two house in Quezon City, acquired during marriage 10,500,000
Income from town house in Quezon City 1,050,000
Car, inherited by wife during marriage (the decedent
provided in his will that it shall form part of the common
properties of the spouses) -
Jewelry, acquired during marriage for exclusive use -
Total gross estate under CPG P 18,510,000
19. Answer: D
Rest house in Cebu, acquired before marriage P 6,000,000
Income from rest house in Cebu 600,000
Condominium in Davao, brought to marriage by wife 3,600,000
Income from condominium in Davao 360,000
Two house in Quezon City, acquired during marriage 10,500,000
Income from town house in Quezon City 1,050,000
Car, inherited by wife during marriage (the decedent
provided in his will that it shall form part of the common
properties of the spouses) 1,300,000
Jewelry, acquired during marriage for exclusive use 200,000
Total gross estate under ACoP P 23,610,000
 Under ACoP, property acquired through gratuitous transfer
(inheritance or donation) during marriage is generally exclusive,
unless the testator or donor expressly provided that such shall form
part of the community property. This rule, however, is not
applicable to CPG.

20. Answer: A
 Property acquired during marriage, under ACoP, is generally
exclusive property.
RULES ON FRUITS:
 ACop; FFS- Fruit will Follow the Source (i.e., community if from
community property)
 CPG: AFC- All Fruits are Common (regardless of source)
 Since the fruit in this particular case came from inheritance during
marriage (an exclusive property), it shall be classified as exclusive
property.