Estate Taxation
Estate Taxation
Estate Taxation
following circumstances:
ESTATE TAX is a tax levied on the
a. Revocable transfers – transfers where
privilege to transfer property or estate of
the decedent reserves for himself the
the decedent to his lawful heirs or
power to alter, amend, revoke or even
beneficiaries.
terminate such transfer.
Kinds of donation: b. Transfers with retention or reservation
1. Donation inter vivos –made between of certain rights – the decedent retains
living persons and which is perfected for himself the economic benefits of the
from the moment the donor knows of property or the power to designate the
the acceptance of the donation by the persons who may exercise such rights.
donee; subject to donor’s tax. c. Transfers in contemplation of death –
2. Donation mortis causa – takes effect the decedent was motivated by the
upon the death of the donor. It thought of death.
partakes of the nature of a
testamentary succession and is Exceptions: Not in contemplation of
equivalent to a transfer in death
contemplation of death; subject to 1. To relieve the donor from the burden
estate tax and not gift tax. of management.
2. To save on income or property taxes.
Estate tax (ET) vs. Donor’s tax (DT) 3. To settle family disputes.
4. To provide independent income for
1. ET - donation mortis causa
dependents
DT - donation inter vivos
5. To see the children enjoy the
2. ET - ownership over the property is property while the donor is still alive.
transmitted upon death of the 6. To protect the family from the
decedent. hazards of business operations.
DT- transmitted during the lifetime
of the donor, subject to some d. Transfers under the general power of
exceptions. appointment
3. ET - payable in 1 year; installment Power of appointment – the decedent
within 2 years was given the authority to hold property
DT payable within 30 days during his lifetime and to name the
- beneficiaries thereof when he dies.
4. ET- there is extension for
1. General power of appointment– can be
payment
exercised in favor of anybody.
DT- no extension for payment is
allowed
2. Special power of appointment – can be
5. ET- payment of tax antecedent to exercised only in favor of certain
transfer of shares, bonds or powers designated by the prior
rights is allowed decedent. The decedent is only a
DT- not allowed trustee to the property and so it should
not be part of his estate.
6. ET- no exemption from net estate
in computing the tax FORMULA IN COMPUTING ESTATE
DT- exempt up to P250,000 per TAX
year
Gross Estate Pxx
INTER VIVOS TRANSFERS SUBJECT - Residence & citizenship
- Property relations (if married)
TO ESTATE TAX
- Exclusions
Property may not be physically part of the Less: Deductions
estate because they were transferred by Ordinary deductions:
the decedent during his lifetime (inter CUCUL Pxx
vivos). However, the property shall still be Transfer for public purpose xx
included in the gross estate if such Vanishing deduction xx ( x x)
Special deductions:
Standard deduction ( 5M) d. Shares, obligations or bonds issued by
RA 4917 ( x x) foreign corporation if they have
Family home ( x x)
acquired business situs in the
Net estate x x
Less Share of surviving spouse (if married) Philippines.
Gross conjugal/community x x e. Shares or rights in a domestic
Conjugal/communal expenses ( x x) partnership.
Net conjugal/community xx
Divide by 2 x x II. GROSS ESTATE of decedent
Net taxable estate x x
x Rate of tax 6% 1. Married - Property relations
Estate tax x x a. Absolute Community of Property
Regime
Gross Estate includes real and personal b. Conjugal Partnership of Gains
property, whether tangible or intangible, (Relative)
or mixed, wherever situated. c. Complete Separation of Property
I. GROSS ESTATE: RESIDENCE AND
CITIZENSHIP 2. Regime of Union without Marriage
1. Properties included in the gross a. Qualified to marry each other
estate of resident or citizen b. Disqualified to marry each other
a. Real properties within and without c. Any other regime
b. Tangible personal properties
within and without A. ABSOLUTE COMMUNITY OF
c. Intangible personal properties PROPERTY
within and without Unless otherwise provided, the
community property shall consist of:
2. Properties included in the gross
estate of a nonresident alien a. All the property owned by the spouses
a. Real properties within at the time of the celebration of the
b. Tangible personal properties marriage; or
within b. Those acquired during the marriage
c. Intangible personal properties The following shall be excluded from the
within, unless there is a reciprocity community property:
1. Property acquired during the marriage
by gratuitous title by either spouse, and
Reciprocity clause – Intangible personal
the fruits as well as the income thereof,
properties in the Philippines belonging to
if any, unless it is expressly provided by
a nonresident, not citizen of the
the donor, testator or grantor that they
Philippines are not includible in the gross
shall form part of the community
estate if the foreign country of which the
property.
decedent was a citizen and resident at the
time of his death:
2. Property for personal or exclusive use
a. Does not impose transfer tax, or of either spouse. However, jewelry
b. Allows similar exemptions from transfer shall form part of the community
tax in respect of intangible personal property.
property owned by the citizens of the
Philippines not residing in that foreign 3. Property acquired before the marriage
country. by either spouse who has legitimate
descendants by a former marriage, and
INTANGIBLE PERSONAL PROPERTIES the fruits as well as the income, if any,
WITHIN of such spouse.
a. Franchise exercised in the Philippines.
B. CONJUGAL PARTNERSHIP OF
b. Shares obligations or bonds issued by
GAINS
domestic corporations.
Unless the contrary is proved, all
c. Shares obligations or bonds issued by
property acquired during the marriage,
foreign corporation if 85% of its
whether the acquisition appears to
business is located in the Philippines.
have been made, contracted or
registered in the name of one or both 2. INCAPACITATED to marry each other –
spouses, is presumed to be conjugal. only the property acquired by both of
them through their actual joint
The following are exclusive property of contribution of money, property or
each spouse: industry shall be owned in common and
in proportion to their respective
a. That which is brought into the
contributions.
marriage as his or her own;
b. That which is acquired during the In the absence of proof to the contrary,
marriage by gratuitous title; their contributions and corresponding
c. That which is acquired by right of shares are prima facie presumed to be
redemption, by barter or by equal.
exchange with property belonging to
The share of any party who is married
only one of the spouses; and
to another shall accrue to the absolute
d. That which is purchased with
community or conjugal partnership, as
exclusive money of the wife or of the
the case maybe, if existing under the
husband.
valid marriage.
C. COMPLETE SEPARATION OF
GROSS ESTATE - Exclusions
PROPERTY
1. Proceeds of irrevocable life insurance
Maybe on: policy payable to beneficiary that is
1. All properties not the estate of the deceased, his
To each spouse shall belong all executor or administrator.
earnings from his or her profession, 2. Proceeds of life insurance under a
business or industry and all fruits, group insurance taken by employer
natural, industrial or civil, due or (not taken out upon his own life).
received during the marriage from 3. Insurance proceeds or other benefits
his or her separate property. from the SSS or GSIS by reason of
death.
Both spouses shall bear the family
4. The following benefits:
expenses in proportion to their
a. Payments to legal heirs of deceased
income, or, in case of insufficiency or
war veterans.
default thereof, to the current
b. Amounts received from damages
market value or their separate
suffered during World War II.
properties.
c. Benefits received from U.S.
The liability of the spouses to Veterans Administration.
creditors for family expenses shall,
5. The following exempt transactions:
however, be solidary.
a. The merger of the usufruct in the
owner of the naked title.
2. All present properties only.
b. The transmission or delivery of the
Properties acquired during the
inheritance or legacy of the fiduciary
marriage shall belong to the
heir or legatee to the
community property.
fideicommissary.
c. The transmission from the first heir,
D. REGIME OF UNIONS WITHOUT
legatee or donee in favor of another
MARRIAGE
beneficiary in accordance with the
1. CAPACITATED to marry each other –
desire of the predecessor.
their wages and salaries shall be owned
by them in equal shares; the property 6. All bequests, devisees, legacies or
acquired by both of them through their transfers to social welfare, cultural
work or industry shall be governed by and charitable institutions, no part of
the rules on co-ownership. the net income of which inures to the
benefit of any individual. Provided,
In the absence of proof to the contrary,
however, that not more than 30%
properties acquired shall be owned by
shall be used for administration
them in equal shares.
purposes.
7. The exclusive property of the decedent, the executor or
surviving spouse. administrator shall submit a
statement showing the disposition of
RULES ON TRANSFER FOR LESS THAN the proceeds of the loan.
ADEQUATE CONSIDERATION
1. The rule applies on the following: 2. Unpaid mortgage – the property left
a. Transfer in contemplation of death by the decedent which was
b. Revocable transfer encumbered by a mortgage
c. Property passing under general indebtedness still unpaid at the time of
power of appointment death.
2. The sale or exchange is exercised for Provided, that the gross value of the
an inadequate consideration in money property mortgaged, undiminished by
or money’s worth. the mortgage indebtedness, must have
been included in the gross estate.
3. The difference between the fair market
value at the time of death and the value Rules:
of consideration shall be included in the a. The classification of the property
gross estate. mortgaged (conjugal, community or
separate) is NOT the basis in the
DEDUCTIONS FROM GROSS ESTATE
determination of the deduction
I. ORDINARY DEDUCTIONS - whether chargeable against the
A. CUCUL common property or the exclusive
If the decedent was a - property of the decedent.
b. It is chargeable against common
1. Resident or citizen-deduct all property if the mortgage was
expenses (CUCUL) contracted during the marriage.
2. Nonresident alien – prorate c. It is chargeable against exclusive
expenses as property if contracted prior to the
follows: marriage or by the donor/prior
decedent.
Phil gross estate
Total gross x CUCUL 3. Claims against insolvent debtor –
estate receivable of the decedent which can no
longer be collected due to insolvency of
1. Claims against the estate – debts or the debtor.
demands of pecuniary nature which
Requisites:
could have been enforced against the
a. The amount of claim has been
deceased in his lifetime and could have
included in the gross estate.
been reduced to simple money
b. The debtor’s incapacity is proven
judgments. Claims against the estate or
and not merely alleged.
indebtedness in respect of property may
arise out of (1) contract, (2) tort, or (3) 4. Unpaid taxes – those which have
operation of law. accrued and unpaid as of decedent’s
death. The following are NOT
Requisites:
deductible:
a. Personal obligation of the deceased
existing at the time of his death. a. Income tax upon income received
b. Contracted in good faith and for an after death;
adequate and full consideration in b. Property taxes not accrued before
money or money’s worth; his death;
c. The debt or claim is valid in law and c. Estate tax due from the transmission
enforceable in court. of his estate.
d. The debt instrument was duly
5. Losses – Requisites:
notarized.
a. Must arise from fire, storm,
e. Not condoned by the creditor or
shipwreck or other casualties or from
must not have prescribed.
theft, robbery or embezzlement
f. If the loan was contracted within 3
AFTER the death of the decedent.
years prior to the death of the
b. Not compensated by insurance or II. SPECIAL DEDUCTIONS
otherwise. 1. FAMILY HOME – the dwelling house
c. Not claimed as deduction for income where the members of the family reside
tax purposes. and the land on which it is situated; the
d. Incurred during the settlement of the place to which, whenever absent for
estate and not later than the last day business or pleasure, one still intends
for the payment of the estate tax. to return.
a. Must be situated in the Philippines.
B. Transfers for public purposes. All
b. Beneficiaries of family home are the
bequests, legacies or transfers to or for
spouses, their ascendants and
the use of the government or any
descendants, including legally
political subdivision thereof for
adopted children, brothers and
exclusively public purpose. The transfer
sisters, whether the relationship be
must be testamentary in character.
legitimate or illegitimate,
Oral transfers are not deductible.
c. who are living in the family home and
d. who depend upon the head of the
C. Vanishing Deductions (Property
family for legal support.
previously taxed)
PURPOSE: To minimize the effects of a Provided, that it must have been the
double tax on the same property within decedent’s family home as certified by
a short period of time. the barangay captain of the locality.
Requisites for vanishing deductions: Maximum amount deductible: P10
million
1. The property is situated in the
Philippines.
2. STANDARD DEDUCTION. An amount
2. Present decedent have acquired the equivalent to P5 million.
property by inheritance or donation
3. AMOUNT RECEIVED BY HEIRS UNDER
within five (5) years prior to his
RA 4917. Any amount received by the
death.
heirs from the decedent’s employer as
3. The estate taxes on the prior transfer a consequence of death of the decedent
or the gift taxes on the gift must employee. Provided, that such amount
have been finally determined and is included in the gross estate of the
paid. decedent.
4. The property subject to vanishing d. NET SHARE OF THE SURVIVING
deduction must be identified as the SPOUSE in the conjugal / community
one received from the prior property.
decedent, or from the donor or
having been acquired in exchange DEDUCTIONS from GROSS ESTATE OF
for property so received. NRA
5. The estate of the prior decedent has
not yet previously availed of the The deductible items are:
vanishing deduction 1. To be pro-rated
Formula: PGE/TGE x CUCUL
Percentages of Vanishing Deduction
a. Claims against the estate
b. Unpaid taxes
Property Acquired for c. Claims against insolvent persons
More than Not More than Percentage d. Unpaid mortgages
x x 1 year 100% e. Losses
1 year 2 years 80%
2 years 3 years 60% 2. Standard deduction of P500,000.
3 years 4 years 40% 2. Vanishing deduction
4 years 5 years 20%
3. Transfer for public use
5 years x x 0%
4. Share in the conjugal/community
property
1. Preferred shares – par value
Problem 2. Common shares – book value
4. FMV of units of participation in any
Are the following items deductible from
association, recreation or amusement
gross estate?
club (e.g. golf, polo or similar clubs) –
the bid price nearest the date of death
NRA
Items of Deduction published in any newspaper or
Residen
publication of general circulation.
t/
citizen Tax credit for estate tax paid to
foreign country
1. Funeral expenses No No
1. Who cannot claim? Non-resident aliens
2. Judicial expenses No No
2. Limitations on tax credit:
3. Claims vs. estate Yes Yes 1st Limitation
4. Bad debts Yes Yes Net estate (per foreign country)
Total net estate x Phil estate tax
5. Unpaid taxes Yes Yes
2nd limitation
6. Losses Yes Yes
7. Unpaid mortgages Yes Yes Net estate (all foreign countries)
Total net estate x Phil estate tax
8. Transfer for public Yes Yes
use ADMINISTRATIVE PROVISIONS
9. Vanishing deduction Yes Yes 1. WHEN CPA CERTIFICATE IS NEEDED –
where the gross value of the estate
10. RA 4917 Yes No exceeds P5,000,000
11. Share of Yes Yes
surviving spouse 2. Contents of the statement certified to
by a CPA
12. Medical No No a. Itemized assets of the decedent with
expenses their corresponding gross value at
13. Standard deduction Yes Yes the time of death.
b. Itemized deductions from gross
14. Family home Yes No estate.
a. Amount of tax due whether paid or
VALUATION OF GROSS ESTATE still due and outstanding.
1. Valuation date – the property shall be
appraised at its fair market value at 3. FILING AND PAYMENT – within one (1)
the time of death. year from the decedent’s death.