TAXATION 2 Chapter 2 The Concept of Succession and Estate Tax

TRANSFER AND BUSINESS TAXATION 2019
Chapter 2
THE CONCEPT OF SUCCESSION AND ESTATE TAX
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, Civil Code)
The inheritance includes all the property, rights and obligations of a person which are not extinguish by his
death. (Art. 776, Ibid.)
The rights to the succession ate transmitted from the moment of the death of the decedent (Art. 777, Ibid.)
The decedent is a deceased or dead person.
TYPES OF SUCCESSION
1. Testamentary Succession
Testamentary succession is that which results from the designation of an heir, made in a will executed
in the form prescribed by law. (Art. 777, Civil Code)
A person can specify the recipient of his properties upon death. This designation must be through a
written document called „last will and testament‟. A person who died with a will is said to be “testate”.
2. Intestate Succession
When a decedent dies without a will or with an invalid one, the distribution of the estate shall be in
accordance with the default provision of the Civil Code on succession.
3. Mixed Succession
Transmission of the decedent properties shall be partly by virtue of a written will and partly by
operation of law.
WILL
A will is an act whereby a person is permitted, with the formalities prescribed by law, to control to a certain
degree the disposition of this estate, to take effect after his death. (Art. 783, Ibid)
A will is an expression of the decedent’s desire as to how his properties will be distributed after death.
Types of will
1. Holographic will – a will which is entirely written, dated, and signed by the hand of the testator himself
2. Notarial will – a notarized will signed by the decedent and witnesses
3. 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 disposition made in the original will is explained, added to, or altered (Art. 825,
Ibid.)
NATURE OF SUCCESSION
Succession is a gratuitous transmission of property from a deceased person in favor of his successors. It is a
donation caused by death (i.e. donation mortis causa).
ELEMENTS OF SUCCESSION
1. 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 also called the testator. (Art. 775, Ibid.)
2. Estate – the property, rights and obligations of the decedent not extinguished by his death. This is also
referred to as the “inheritance” of the decedent.
3. Heirs – a person called to the succession either by the provision of a will or by operation of law. (Art.
775, Ibid)
Chapter 2 – The Concept of Succession and Estate Tax Page 1

Who are the heirs?

The law identified certain persons which it designated as “compulsory heirs”.
Types of compulsory heirs
1. Primary heirs: Legitimate children and their direct descendants

2. Secondary heirs: Legitimate parents and ascendants
3. Concurring heirs: The surviving spouse and illegitimate descendants
Definition of terms
1. Legitimate children are those born out of a legal marriage.

2. Direct descendants refer to children or, in their absence, grandchildren.
3. Legitimate parents refer to biological parents.
4. Illegitimate parents are adopting parents to an adopted child.
5. The surviving spouse is the widow or widower or the decedent.
6. Illegitimate descendants are illegitimate children.
In the absence of compulsory heirs, the following shall inherit in the following order of priority:
1. Collateral relatives up to fifth degree of consanguinity
2. The Philippine government
Priority is given to collateral relatives in the closest degree.
Legitime
Legitime is that part of the testator’s property which he cannot dispose of because the law has reserved it
for certain heirs who are, therefore, called compulsory heirs. (Art. 886, Ibid)
Disinheritance and Repudiation

A decedent can actually disinherit an heir on certain grounds. Similarly, heirs may repudiate their share in
the inheritance of the decedent.
Other persons in succession
1. Legatee – a person whom gifts of personal property is given by virtue of a will

2. Devisee – a person whom gifts of real property is given by virtue if a will
3. Executors – a person named by the decedent who shall carry out the provisions of his will
4. Administrators – a person appointed by the court to manage the distribution of the estate of the
decedent
ESTATE TAXATION
Estate taxation pertains to the taxation of the gratuitous transfer of properties of the decedent to the heirs
upon his death.
NATURE OF ESTATE TAX:

1. Excise tax - estate tax is not a tax on the property but on the privilege to transfer property through death
2. Revenue or general tax - estate tax is intended as a revenue or fiscal measure
3. Ad valorem tax - estate tax is dependent upon the value of the estate
4. National tax – estate tax is imposed by the national government
5. Progressive tax – estate tax is determined based on a tax table of progressive rates
Classification of Decedents for Taxation Purposes
1. Resident or Citizen Decedents- taxable on properties located within or outside the Philippines
2. Non-resident Alien Decedents- taxable only on properties located in the Philippines, except intangible
personal property when the reciprocity rule applies

THE ESTATE TAX MODEL
Gross estate P xxx,xxx

Less: Deductions from gross estate ______xxx,xxx
Net taxable estate P xxx,xxx
Gross Estate pertains to the totality of the properties owned by the decedent at the point of his death.
There are two concepts to be discussed under gross estate:

a. Exclusions in gross estate – those properties or transfers excluded by law from estate taxation
b. Inclusions in gross estate – those properties which are to be included as part of the taxable gross estate
Deductions generally pertain to reduction in the inheritance of the heirs such as expenses of death,
obligations of the decedent, losses of property since the decedent’s death but they also includes exemptions
from the estate tax under the law.
Net taxable estate is the net properties of the decedent after all pertinent deductions allowed by law. This
is the amount subject to estate tax. Note that the net taxable estate is not equivalent to the hereditary estate
before estate tax because of exclusions or exemptions rules and deductions limits imposed by law.

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TRANSFER AND BUSINESS TAXATION 2019

THE CONCEPT OF SUCCESSION AND ESTATE TAX

Chapter 2 – The Concept of Succession and Estate Tax Page 1

Who are the heirs?

Types of compulsory heirs

1. Primary heirs: Legitimate children and their direct descendants

1. Legitimate children are those born out of a legal marriage.

Priority is given to collateral relatives in the closest degree.

Disinheritance and Repudiation

Other persons in succession

1. Legatee – a person whom gifts of personal property is given by virtue of a will

NATURE OF ESTATE TAX:

Classification of Decedents for Taxation Purposes

Chapter 2 – The Concept of Succession and Estate Tax Page 2

THE ESTATE TAX MODEL

Gross estate P xxx,xxx

There are two concepts to be discussed under gross estate:

Chapter 2 – The Concept of Succession and Estate Tax Page 3

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