NATURE OF ESTATE TAX

ESTATE TAX is a tax on the transfer of the net estate of the decedent.
The obligation to pay the estate tax accrues at the moment of death.
The object of estate tax is to tax the transfer of economic benefits and enjoyment of
property from a decedent person to the heir.
The state protects the rights of the individual on his property and supervises its
transfer from one generation to the next.
Consequently, the State, in the exercise of its sovereignty has always regarded
property transfer as appropriate object of taxation.
JUSTIFICATION OF ESTATE TAX
Estate tax is imposed on the properties left by a decedent person not only to
augment the revenue of the government but also to apply the fundamental
principles or theories regarding taxation such as:
1. Redistribution of wealth theory. This theory views that the inheritance
received by the heir contributes to the unequal distribution of wealth and
earnings because the heir has not actually worked for it.
The imposition of death taxes helps to distribute some of the economic
benefits which should have been solely enjoyed by the heir.
2. Benefit-received theory. According to this theory, the government
provides services for the transfer of the estate of the decedent, either by law
or will. Because of these services that the results to benefits received by the
estate and the heir, it is therefore fair that the government collects its
equivalent compensation in protecting individual persons and properties or
rights.
3. Privilege or state partnership theory. This theory asserts that the State
is a passive and silent partner in the accumulation of wealth as it protects
every individual within its territory. Hence, it has the right to collect the share
which is properly due to it.
4. Ability-to-pay theory. According to this theory, every inheritance received
by an heir is in the nature of unearned wealth. The effect of inheritance
increase the wealth of the heir thereby creating an ability to pay the tax and
thus contributing the government income.
EFFECTIVITY OF THE TRANSFER OF PROPERTIES
The law provides that the right to succession is effected from the moment of the
decedents death. The properties and the rights of the decedent are transferred to
his successor at the time of his death without any interruption.
In other words, the generating source of power to transfer the properties and rights
is death. The transfer accrues at the time of death of the decedent.
Consequently, the determination of the tax on property transferred is trace back to
the moment of death.

DISTINCTION BETWEEN DONORS TAX AND ESTATE TAX

DONORS TAX
1. Effectivity of
transfer of property
2. Taxpayer
3. Basis of tax
4. Exempt amount
5. Filing and payment

During the lifetime of

donor and donee
The donor
The net gift
Net gift of P100,000 and
below
Within thirty(30) days
after the date gift is made

ESTATE TAX
Upon the death of the
decedent
Estate of the deceased
person
The net estate
Net estate of P200,000
and below
Within six months from
the decedents death.

BASIC CONCEPT OF SUCCESSION

Succession is defined as 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 (testate) or by
operation of law (intestate)
BASIC ELEMENTS
1. DECEDENT The person who died and whose property is transmitted through
succession. Decedent is the general term applied to the person whose
property is transmitted through succession, whether or not he left a will.
TESTATOR is the decedent who made the last Will and Testament.
2. ESTTATE The properties or property rights of the decedent, which is the
subject matter of succession.
INHERITANCE includes all properties, rights, and obligations of a person
which are not extinguished by his death. It also includes those which have
accrued thereto since the opening of the succession.
3. SUCCESSOR The heir or the person to whom the property or property rights
is to be transferred.
OTHER BASIC ELEMENTS
1. WILL It is a document that determines the disposition of an inheritance, an
act whereby a person is permitted, with the formalities prescribed by law, to
control to a certain degree the disposition of his estate.
2. CODICIL A supplement or an addition to a will, made after the execution of
a will and annexed to be taken as a part thereof, by any disposition made in
the original will is explained, added to, or altered.
3. HOLOGRAPHIC WILL One entirely written, dated and signed in the very
handwriting of the testator himself and is subject to no required form, and
may be made in or out of the Philippines, and may be made without a
witness.

4. NOTARIAL WILL A Will written in public instruments, notarized by a lawyer,

signed by a testator and witnesses.
5. TESTATE ESTATE An estate of a deceased person which is settled or to be
settled with a valid will and testament.
6. INTESTATE ESTATE An estate of a deceased person without a will.
7. PROBATE A special proceeding to establish the validity of a Will. Probate is
mandatory, which means that no Will passes either real or personal property
unless it is proved and allowed in a property court.
8. REPROBATE A special proceeding to establish the validity of a will
previously proved in a foreign country.
9. LEGATEE One who is given personal property through a Will.
10.DEVISEE One who is given real property in a will.
11.EXECUTOR The person named in the will who is entrusted to implement its
provisions.
12.EXECUTRIX a female executor.
13.ADMINISTRATOR The person entrusted and assigned by court by the care,
custody, and management of the estate of a decedent until the estate is
partitioned and distributed to the heirs, legatees, and devisees, if any.
14.ADMINISTRATRIX a female administrator.
15.SPECIAL PROCEEDINGS A remedy by which a party seeks to establish a
status, a right, or a particular fact. Among the subject matters of special
proceedings are escheat and settlement of estate of deceased persons.
16.ESCHEAT A proceeding whereby the State, by virtue of its sovereignty,
steps in a claims the real or personal property of a person who dies intestate
without heir. In the absence of a lawful owner, a property is claimed by the
state of forestall an open invitation to self-service by the first comers.
BASIS OF SUCCESSION
The principles that provide for the bases of transferring the decedents property to
the heirs are the following:
1. Public Order. Immediately, upon the persons death, his property becomes
without ownership. To avoid chaotic conflicts, the heirs are protected by law
to succeed the rights of the decedent.
2. Family Relations. The principle of the natural law necessitates a person to
provide for those who leaves behind. As a result, the decedents wealth
which he acquired during his lifetime is intended for the benefits of his heirs.
3. Implicit ownership. As a consequence of death, heirs assume ownership of
property left by the decedent because they have the primary rights over the
inheritance.
4. Socio-economic. The wealth left by the decedent should be actively used to
provide economic benefit to the community. The successor should continue
to utilize the resources left by the decedent in order that the wealth shall be
preserved.
PPERSONS AUTHORIZED TO TAKE CHARGE OF THE ESTATE
The actual transfer of the estate to the successors could not immediately be made
because some formal proceedings should be complied first.

During the transition period, somebody must take charge to gather and distribute
the properties left by the decedent, and has such, the estate has to be taken over
by either an executor or an administrator.
An Executor is a person or trust company named in the Will of the testator to carry
out its provisions.
An Administrator is a person or trust company appointed by the court to administer
and distribute the decedents estate if there is no Will, or if there is no executor
named in the Will, or if the person named in the Will does not act or execute its
provisions.
The estate, which is the subject of succession, has to be transferred by operation of
law or by virtue of a will to the successor(s). This includes the properties, rights and
obligations of the decedent which are not extinguished by his death.
The heirs are not liable for the value of the decedents obligations existing at the
time of death. The amount of inheritance distributed to the heirs is the net estate
after the payment of the decedents obligations and estate tax.
SUCCESSORS
Successors are the parties who have the legal right to receive the estate. The
successor to the inheritance are classified as the primary compulsory heirs and
secondary compulsory heirs.
They are called compulsory heirs because the testator cannot disregard them to
obtain the inheritance. The law has reserved to them a portion of the testators
property. However, compulsory heirs shall not be compelled to accept the legitime.
Primary Compulsory Heirs are the successors to whom the legal portion of the
estate is first reserved by the law.
The following are the primary compulsory heirs:
1. Legitimate children and their descendants, with respect to their legitimate
parents and ascendants.
Note: Legitimated and adopted children are deemed included in the term
legitimate children
2. Surviving legitimate spouse (widow or widower);
3. Illegitimate children and their descendants.
Under the New Family Code, there are no more spurious children. Both the natural
and the spurious children are simply called illegitimate children having exactly the
same rights.
Illegitimate children are given inheritance because they are considered innocent.
However, since they are born outside marriage, their share on the decedents
property hall be less than the inheritance received by the legitimate children, which
is usually one-half of the shares of the legitimate child.

Being an illegitimate child does not automatically make one a compulsory heir. The
existing blood relationship is not enough, there must be a recognition of the
illegitimate relationship whether voluntary or compulsory recognition.
Secondary Compulsory Heirs are the successors to receive the estate in the
absence of the primary compulsory heirs. The following are the secondary
compulsory heirs:
1. Legitimate parents and legitimate ascendants they inherit only in default of
legitimate children and their descendants.
2. Illegitimate parents (no other descendants) they inherit only in default of
surviving legitimate spouse and illegitimate children and their descendants.
The parents mentioned in Art. 887 of the Civil Code do not include parents-inlaw. A widow is not a compulsory heir of a parent-in-law.
ABSENCE OF COMPULSORY HEIRS
In the absence of any compulsory heirs, the successors would be:
1. The decedents relatives up to 5th degree of consanguinity.
2. If there were no relatives to receive the estate, the government shall inherit
the whole estate.
3. If there is a Will, the decedent may name other person to inherit the free
portion of the net distributable estate.
Brothers, sisters. Nephews and nieces are not compulsory heirs, hence, they are
not entitled to the legitime. They can become heirs only in the intestate
succession. Strangers are not compulsory heirs
However, as long as the legitime of the compulsory heirs is not impaired, it is not
contrary to law in giving them share of the inheritance, if the testator desires it.
In the case, they may be called voluntary heirs.
ILLUSTRATION:
Mrs. Mina Las died leaving the following properties:
One thousand square meters residential lot
Second hand car
Jewelry

P1,000,000
200,000
300,000

In her last will and testament, Mrs. Las assigned her brother, Ric Lamo, to
administer the distribution of her properties upon her death, which should be
disposed of as follows:
1. Residential lot to her only son, Mado.
2. The car and jewelry to Ric.
In the case above, the following are the parties (elements) in succession:
Decedent Mina Las

Successors - Mado and Ric

Testator Mina Las

Compulsory heir Mado Las

Estate Land, car and jewelry

Devisee Mado Las

Executor Ric Lamo

Legatee Ric Lamo

TABLE OF COMPULSORY HEIRS

PRIMARY COMPULSORY HEIR

SECONDARY COMPULSORY HEIR

1. Legitimate children and their

descendants
Concurring primary heirs

In the absence of the decedents child

the secondary compulsory are
1. Legitimate parents and
legitimate ascendants. They
inherit only on default of No. 1.

2. Surviving spouse (legitimate)

3. Illegitimate children and their
2. Illegitimate parents( no other
descendants (legitimate or
ascendants)
illegitimate)
NOTE: The relatives mentioned are those of the testator.
KINDS OF SUCCESSION
The Civil Code classifies succession as (a) testamentary, (b) legal or intestate or
(c) mixed
TESTAMENTARY SUCCESSION
Testamentary succession is that which results from the designation of an heir,
made in a Will and executed in the form of prescribed by law.
In can arise only when the decedent left a written valid Will or through a Codicil
which may be notarial or holographic.
Any person who is 18 years old and above and of a sound mind may take a valid
last will and testament for the disposition of his properties, which should take
effect upon his death.
Every will must be written and made in a language or dialect known to the
testator.
A Will translated to the dialect of an illiterate testator will not cure the defect of
the Will. The Will remains void.
Oral will (or Noncupative Will) made by the testator in contemplation of death
and in the presence of credible witnesses is not allowed. Oral will should be
tape-recorded will.

Under the testamentary succession, the mass of properties left by the decedent
may be classified into legitime and free portion.
LEGITIME
The legitime is the portion of the testators property which could not be disposed
off freely because the law has reserved it for the secondary compulsory heirs.
Specifically, the legitime is ascertained to protect the children and the surviving
spouse from the unjustified distribution of properties.
The testator cannot deprive his compulsory heirs of their legitime, except in case
expressly specified by law.
Even if the testator does not want to make a compulsory heir to inherit, he
cannot do so because this limitation is imposed upon him directly by law.
Any compulsory heir to whom the testator has left by any title less than the
legitime belonging to him may demand that the same be fully satisfied.

FREE PORTION
A free portion of the estate is that part of the whole estate which the testator
could dispose of freely through a written will irrespective of his relationship to
the recipient. In other words, this is a free portion of the decedents estate in
excess of the legitime.
To determine the legitime, the value of the property left at the death of the
testator shall be considered, deducing all debts and charges, which shall not
include those imposed in the Will.
The net value of the hereditary estate shall be increased by the value of all
donations made by the testator that are subject to collation at the time of
donation.
A donation is collectible if its value is imputable into the hereditary estate of the
donor at the time of his death. Thus the formula would be:
Property left

Pxxxx

Less: debt and charges

xxxxx

Net value of the hereditary estate

Pxxxx

Add: Collationable donations

xxxx

Total hereditary estate

Pxxxx

ILLUSTRATION:
The gross available estate is P5,000,000. The debts and expenses related to
death including estate tax to be taken from the gross estate amounted to

P600,000. During his lifetime, the decedent had given P400,000 donations in the
contemplation of death to his legitimate son.
The net hereditary estate is computed as follows:
Gross available estate

P5,000,000

Less: Debts and charges

600,000

Net hereditary estate

P4,400,000

Add: Donation to heir

400,000

Total hereditary estate

P4,800,000

TESTAMENTARY DISTRIBUTION OF NET ESTATE

Art. 888 to 903 of the Civil Code of the Philippines
SUCCESSOR

LEGITIME

1. Legitimate children or
descendants
2. Illegitimate children alone
3. Legitimate children (LC), natural
children (NC) & illegitimate
children (IC)

(Art.888)

4. One legitimate child and

surviving spouse (SS)
5. Two or more legitimate children &
surviving spouse
6. Illegitimate children and
surviving spouse
7. Two or more legitimate children,
illegitimate children & surviving
spouse

LC=1/2; SS=1/4 (Art.892)

8. Parents or ascendants alone

9. Surviving spouse alone
10.Ascendants (As) & surviving
spouse
11.Ascendants, surviving spouse &
illegitimate children

(Art. 903)
LC-1/2
NC- of LC
Code)
IC- of LC

(Art. 176 of Family

SS= legitimate of 1LC (Art. 892)

1/3;1/3 (Art. 894)
LC=
IC= of the LC (not to exceed the free
portion)
SS= same as LC
(Art. 897)
(Art. 889)
or 1/3 (Art.900)
Ascendants, ; SS (Art. 893)
As=1/2
SS= 1/8
IC = (Art. 899)