So this is the father son and grandson.

So 2 generations, the power of

appointment is in order for a person to control devolution of property between
generations, so for example in this particular case, the father can say, okay son I
will transfer to you property, let us say house and lot. But, upon death you
should ensure that the property should be transferred to my only grandson, so
this is actually a special power of appointment because the power of S to
designate who shall enjoy the property after his enjoyment is only limited to the
grandson. So in relation to Sec. 87 B and C, that is considered as an exclusion
from the gross income. So as an estate planning tool, in the normal course of
things the transfer of the house and lot will be subject to one estate tax, upon
death of the father transfer property to the son subject to estate tax. Upon death
of the son, another estate tax on the transfer of the house and lot to the
grandson. So in this particular scenario, the grandson actually inherits not from
the son or his father but directly from the grandfather. And that is the reason
why there is only one estate tax that is due on this particular transaction. But for
example, a property that is passed pursuant to a general power of appointment,
let us say, if F transfers property to S, but S has the right to choose anyone he
wants who shall next enjoy the property, so that is actually a general power of
appointment. So if S exercise the general power and let us say transfer it to X,
that particular property wil lstill form part of the gross estate of S. So again, for
example this is the trust, this is the trustor, this is the trustee, let us say it is an
irrevocable trust subject to Donor's tax, so this will illustrate the fact that, again,
it is the trustee who is the decedent. The middle transferee that is the decedent
in a property passing under a general power of appointment or special power of
appointment. If you want to look at the particular question in the bar exams,
there was a particular question in the 2009 bar exams. We jump to Sec. 87, so
you take note under letter C, the transmission from the first heir, so the first heir
in that particular case is the son. It could also be a donation. But essentially, the
second transfer should be via succession. So the transmission from the first heir,
the father in that particular case instructing his son that upon death you should
ensure that the property be transferred to my only grandson. So transmission
from the first heir meaning from the son to another beneficiary who is the
grandson in accordance with the desire of the predecessor which is the
father/grandfather. So again, it contemplates a special power of appointment.
But if its a general power of appointment, Sec. 85 B will be applicable and the
property in the hands of the trustee at the time of death will form part of the
gross estate. It's actually an estate planning tool, because in the normal course
of things there would be either one donor's tax, and estate tax or one or two
estate taxes on the transfers of the property. But putting a special power of
appointment in relation to the same property will save you on one estate tax.
Because the second transfer while the first transfer may either be subject to
estate or donor's tax, the second transfer in relation to Sec. 87 C will be excluded
from the gross estate. It's logical, the son, it's not my property because I cannot
dispose of it, I cannot sell it, I cannot give it to my Kirida. I have to preserve the
property for my one and only son as instructed by my papa. Parang it's not mine.
So that's the reason why it's excluded. Not only because of express provision of
87 C, but also because of the attributes of ownership over the property that
could be exercised by the trustee decedent. Example: If X died in his will it was
provided let my BMW X5 be given to Y. Thereafter Y may choose to whom it will
be given. So makes an intervivos transfer but only take effect upon death. So
with special power of appointment Y may choose to whom among his children it
will be given and Y transfers to Z, Y's youngest child by a will. Ok so Sec. 85 G
actually provides for the valuation rules with respect to Sec. 85 B, C and D. So
the usual or common exception, even if it is a transfer in contemplation of death,
even if it's irrevocable transfer, even if it's property passing under a general
power of appointment, it will not form part of the gross estate if the transfer is
for a bonafide sale, for full and adequate consideration in money or money's
worth. For example, if A transfers property to B in contemplation of death for
100K, and the fair market value at the time of death is also 100K. So that
particular property although transfer made in contemplation of death will not be
included because it was a bonafide sale for full and adequate consideration in
money or money's worth. Kasi di ba it's logical. YOU SEE, for example this eraser
is worth 10M so in order to avoid estate tax, X will transfer it upon investigation
of the BIR, the BIR will not find this among the inventory of assets in X's
possession. So it will not be subject to Estate tax. But assume that the BIR finds
out that the transfer is made in contemplation of death, then it will revert back
and form part of the gross estate of X. So the BIR has 10M gross estate to work
with in terms of Estate Taxes. But if for example, X transfers this particular eraser
for also 10M in cash, in contemplation of death, meaning the transfer is to take
effect upon death, so walang nawala sa government, kasi instead of the property
having the gross estate of 10M, meaning the eraser forming part of the gross
estate, now it's 10M also forming part of the gross estate of X, but in the form of
cash. So walang nawala sa government. That's the reason for the valuation rule.
So, the valuation rule is, you have to check like in 2013 there was a question, X
made a transfer in contemplation of death but the problem clearly states "for
adequate consideration" so the answer there is, the property should not form
part of the gross estate despite the fact that it was made in contemplation of
death because it was made for adequate and full consideration in money and
money's worth. So the valuation again is FMV of the property subject of the
transfers under Sec. 85 B, C and D, less the consideration received. Pag walang
consideration na nareceive, the full FMV of the property at the time of death will
form part of the gross estate. So merong konting sample problems here. Here:
The FMV at the time of death is 1M. But the consideration is 2M. So that will not
form part of the estate because the consideration is more than the FMV at the
time of death. So mas gusto ng BIR yung 2M kaysa sa 1M. Number 2 problem:
The FMV at the time of death is 1M but the consideration is only 500K. So in this
particular case, 1M less 500K, that will be the value of the transfer in
contemplation of death. 500K plus cash 500K. So again, bottomline is, the BIR
gets 1M gross estate to work with in terms of Estate Tax assuming its subject to
Estate Tax. Proceeds of Life insurance - favorite question in the Bar Exams. So in
principle, proceeds of life insurance is considered to form part of the Gross Estate
because a person procures life insurance in order to provide for his natural
bounties, mga heirs. But with respect to Estate Taxation, in determining whether
its in/excluded, its the designation of the beneficiary that is crucial and the
beneficiary itself. So those particular rules are to be considered. But before you
consider that, the first rule is that the life insurance must be procured by the
decedent. So if its procured by the employer, because as you know insurance
law, employer may have insurable interest over his employee, if it's procured by
the employer, that will not form part of the Gross Estate. Again, the first
requirement is that the insurance policy must be taken out or procured by the
decedent. So if its procured by the employer in relation to Sec. 36, the premiums
if the employer is directly or indirectly the beneficiary will not be deductible for
income tax purposes. So usually ganun ang question sa bar hand in hand. So if
for example the employer will be the one to procure, are the premiums paid
deductible? So you relate that with Sec. 36. So if for example it will be the wife of
the employee who is the beneficiary, the premiums will be deductible for income
tax purposes because it will not fall under the prohibition under Sec. 36 of the
Tax Code. So there are only 2 rules to remember. So if the beneficiary is any
person and the designation is revocable. So as a general rule, irrevocable life
insurance is excluded, except if the beneficiary is the Estate. The reason for that
is since in revocable life insurance, the decedent has retain the power to revoke
the beneficiary, it is as if the proceeds are his. So it's the control again over the
property. But if it's irrevocable, its not included, except if the beneficiary is the
estate, administrator, or executor. Subject to the second rule that if the
beneficiary is the estate of the decedent, executor or administrator, the
designation is irrelevant. Yung medyo nakakalito dyan is, irrevocable but the
beneficiary is the estate. In that particular case, number 2 rule applies. It's
excluded in the Gross Estate. If the beneficiary is a person other than the estate,
and the designation is irrevocable. So again beneficiary is the estate and it's
irrevocable it's included in the gross estate because the beneficiary is the estate,
and the designation of the beneficiary is immaterial if the beneficiary is the
estate.

ESTATE - PART 3

..we discuss matters that are excluded from the gross estate. Aside from the
share of the surviving spouse, Section 87 provides for the matters that are
excluded from the gross estate: a. Merger of the usufruct in the owner of the
naked title. For example, if a person transfers the right to usufruct to one person
and the naked ownership upon the other, and in case of death of the
usufructuary and the right to usufruct is transferred to the naked owner - the
merger is no longer is no longer subject to estate tax because previously the
transfer has already been subject to taxation. b. Transmission or delivery of the
inheritance or legacy by the fiduciary heir or legatee to the fideicomissary similar
to letter c the difference only is that the requisites or rules on the fideicomissary
substitution must be complied with. For example, the transfer should only be
between one degree. c. No such particular limit with respect to the transfers d.
What you take note is that the exempt transfers are limited to charitable cultural
and social welfare institutions. Educational and religious institutions are not
covered by the exemption.
 Okay so this is just an example of 87 (a), the testator devises real property
to the friend X a usufruct as long as he lives, thereafter to N, who is the naked
owner is the nephew to whom the naked owner is transferred. So if X dies and
the right to use of transferred to N that is considered excluded from the gross
estate of N the naked owner. Merger is excluded under Section 87 (a).

VALUATION RULE

Okay, so let's go now to the Valuation Rule. In the previous bar

examination question there was can the value of the properties left by the
decedent for purposes of computing the gross estate be valued at the time of
payment? Okay, so that's not correct. It should be the value of the gross estate
at the time of death. In principle, it should be the time of value at the time of
death. So, what fair market value is all about will depend on what kind of
property. If its land, definitely it is the zonal value as determined by the
Commissioner of Internal Revenue. If it is improvements, it is the market value
appearing in the tax declaration that is to be considered. So it is the zonal value
or market value appearing in the tax declaration, whichever is higher. For
improvements since improvements do not have zonal value, it is the market
value and not the assessed value as appearing in the declaration.

If it is shares of stock, distinguish whether it is listed or unlisted shares of

stocks. If it's unlisted shares of stocks distinguish between common or preferred
shares. If its unlisted common it is the book value so the trick there is that value
will be given either to the acquisition cost or the par value in relation to common
shares. Look for the book value, book value is stockholder's equity divided by the
number of shares.

For unlisted preferred shares, it is the par value.

If it's listed shares whether common or listed it is the arithmetic mean,

high and low. So if the read the newspaper there is there in the PSE the value of
the shares the high low divided by 2 at or nearest the time of death of the
decedent.

Okay so right of usufruct and standard mortality table but currently under
the amendments of the 1997 tax code, no regulations on the valuation of
usufruct has been issued. Incidentally, RA 8424 thats the 1997 Tax Code took
effect January 1, 1998 not a single amendment on estate taxation even in the
donor's tax. But there have been a lot of proposals, there was a proposal to
totally abolish the estate taxation because according to Cong. Magtanggol
Cunigundo, it punishes trugality (?? dko maintindihan). Alam mo naman mga
Pilipino mga kuripot.

So there was also an amendment proposed by Sen. Jinggoy Estrada to

increase the medical expense deduction from 500k to 1.5M. Im not sure if he
was able to see that he would be having some sort of a sickness. There is also a
10M family home deduction proposed by Sen. Enrile. Again is it in preparation of
his... okay. Knock on wood. Currently there is a pending proposal by Sen. Chiz
Escudero to increase the 200k net taxable estate exemption from now 200k to
400k and the graduated rates to be adjusted accordingly. So that is the only bill
pending.

DEDUCTION

Okay, so let's go to deductions. You take note of what deductions are

allowable depending on the kind of the decedent.

Last year as mentioned there was a question on composition of estate and

compositions allowable to the gross estate and there was a specific question on
property subject of mortgage deductible amount for the subject of the mortgage.
We will discuss that later.

Again, last year's bar was very promising because I think Justice Peralta
crafted the questions in a way that the examinee would justify the answer or pick
from 2 possible answers then justify. Galing ng style last year e. But the promise
became an empty promise when the results came out. Because only 24%
passed. So class, ang dasal sa checking. Because you see of you look at the
criminal law, because Justice Peralta is an expert on criminal law, the result is
very sensational, the questions were really classroom style questions, no definite
answer. So it really depends on how you argue in relation to your answer.

Okay, so with respect to deductions you take note of the non-resident

alien so it is very limited in relation to the special deductions you actually have
vanishing deduction and transfers for public use. With respect to the ELIT
deductions that's expenses-losses-indebtedness-taxes deductions, the NRA
although entitled is subject to pro rata formula. We will discuss that later in
relation to section 86 (d) of the tax code.

So you would know that there is a distinction between ordinary and

special. So if you would look at the tax code so there is no such thing as an
ordinary deduction or a special deduction. But in revenue regulations 2-2003
that's the implementing rule of the estate and donor's taxes, the BIR has made a
classification of deductions into ordinary and special. Essentially, when you say
ordinary it is a conjugal deduction and in reality the BIR only allows 1/2
deduction. For example, if the funeral expense is 200k based on the formula or
the criteria provided for under the tax code, effectively, the effect of the
deduction is only to the effect of 100k because the law say conjugal deduction or
ordinary deduction. I think the legal basis of the BIR although they did not put it
in revenue regulations 2-2003 section 86 (c) because 86 (c) provides that the
share of surviving spouse should be diminished by the obligations chargeable to
the property. So I think that is the reason why the BIR treats for example funeral
expense as a conjugal or ordinary because the surviving spouse should at least
be contributing . Okay, but in principle these expenses should be coming from
the mass of the properties or from the estate. Okay? So lets discuss this 1 by 1.
 As mentioned, with respect to non-resident alien decedent, to section 86
(d) so there is a formula of Philippine gross estate divided by worldwide gross
estate multiplied by the ELIT deduction.

So in non-resident alien is not entitled to a full but a pro rata deduction. If

you look at 86 (d) requires that in non-resident alien, again, a non-resident alien
is only subject to estate tax on Philippine gross estate. But 86 (d) also requires
the, for example, the administrator to declare properties that are outside of the
Philippines even if these properties are not forming part of the gross estate for
Philippine estate tax purposes. The reason for that is for the BIR can compute for
the pro rata formula of the allowable ELIT deductions. Okay? So you take note of
that. Again, that is not expressly provided for by the tax code but lifting or taking
it from 86 (d) BIR only allows a pro rata based on this particular formula.

Okay, so in funeral expenses you just compare three items, you compare
the actual funeral expense 5% of the gross estate or 200k whichever is lower,
so lagi namang ganon e kapag deduction is whichever is lower its expenses from
the time of death up to interment. For example, in 2001 so there was a question
wherein let us assume that the estate tax has not been paid, 1 year anniversary
of the death of the decedent there was a party, so of course that is not an
allowable deduction funeral expense deduction because only from death up to
interment. Once the decedent is 6ft under the ground, funeral expense deduction
tumitigil na rin. Okay? So those actually incurred in connection with interment or
burial of the deceased.

Very important that any portion of the funeral or burial expenses born by
relatives or relatives of the deceased are not deductible. So yung kabaong na
binigay ni Mayor is not deductible. So mourning apparel, communication
expenses, costs of burial lot and tombstone. Actually the challenge there is
substantiation with the official receipts and invoices.

Okay, so judicial expenses. You take note of judicial expenses because

there is a case on this one and it has not yet been asked in the bar. So if you look
at judicial expenses you go back to the formula. The tax code provides that
judicial expenses of testamentary or intestate proceedings. With respect to
judicial expenses, there is no limitation as to the amount it can substantially
lower the net taxable estate but with respect to time its only expenses incurred
up to the last day of the filing of the estate tax return and its extension. So you
take note that while we follow the pay as you file system in the Philippines, with
respect to extension there is a distinction for estate tax purposes on the
extension to file the estate tax return, and the extension to pay the estate tax
return tax liability.

In this particular scenario, since it only contemplates extension of filing it

is only 6 months plus 30 days because extension of filing is only extendible up to
30 days whereas payment it can extend up to 5 years if the estate is judicially
settled so 2 years extra judicially settled. So those incurred in the inventory
settlement of asset etc.
 Lets take a look at this case of CIR vs. Pedro Pajonar penned by Justice
Gonzaga Reyes but this has never been asked in the bar exams. The issue here
is whether notarial fees for the extrajudicial so again, you take note that its
extra judicial settlement but the expense being claimed is judicial expense. So
naturally the BIR disallowed this particular expense. Also what is being claimed
are the attorneys fees in the guardianship proceedings. Again, if you look at the
provision under the code it should be judicial expenses for testamentary and
intestate proceeding. So you know that in guardianship proceeding the decedent
is still alive. Actually the decedent here joined the death march became insane
and then died, so that is why there were attorneys fees paid pursuant to the
guardianship proceedings over the properties of the decedent prior to his death.
Okay?

Again, the expenses under number 1 and 2 are being claimed as judicial
expenses and these were disallowed, eventually the case went up to the SC so
what did the SC say, the supreme court said that judicial expenses are expenses
for administrations but essentially it covers three matters:

1. The collection of asserts any expense that is related to the collection

of the assets of the decedent
2. Payment of debts any expense or matter in relation to the payment of
debts
3. Distribution of the estate

So any matter in relation to those three is properly deductible judicial expense

for estate purposes, okay? So according to the SC, those two expenses the
notarial fee for extrajudicial settlement and attorneys fees are both deductible.
You know that the usual vehicle in the settlement of the estate provided that
there are no debts is the execution among the heirs of extrajudicial settlement.
So according to the SC, again papasok sya doon sa tatlo, since the notarial fee
effected a distribution of the decedents estate then it is a properly deductible
judicial expense, to the attorneys fees paid to PNB because since PNB provided
advise and also detailed accounting which both contributed to the collection of
the taxes and subsequent settlement of the decedents estate, that particular
attorneys fees is a judicial expense for estate tax.

Supreme Court also mentioned items that are not deductible but if you
read all of these it all will not form part of those three matters that are
mentioned. For example, any expenditure for the individual benefit of the heirs, if
nag away away mga heir and they all procured the services of a lawyer the
attorneys fees that were paid for those lawyers will not be deductible for estate
tax purposes. Okay?

Claims against the estate, limitations as to the amount none, limitation as

to time none. So in this particular case the estate is the debtor. If you compare it
to your rule 86 statute of non-claims only contractual money obligations may be
filed in relation to statute of non-claims, here it is contract, tort or operation of
law. that is also the reason why claims for estate taxes need not be presented
before the probate court in relation to the statute of non-claims because taxes is
an obligation created by law so there is no need to present any deficiency claim
for estate tax before the probate court in relation to statute of non-claims
because of the rule that contractual money obligations only. For example, if the
funeral expenses 500k and its unpaid, it is not allowed that you claim 200k
funeral expense and 300k claim against the estate because it does not include
unpaid obligations incurred incident to his death which are classified under a
different category of deductions. Take note of the requirements. What is only
provided by law is notarization and the issuance of a statement of the proceeds
but again these are all unreasonable requirements because obviously the
creditor would want that he be paid during the lifetime of the creditor so for
purposes for the estate of the debtor claiming for particular deduction very to
comply with the BIRs requirements especially number 3 if creditor is a relative a
copy of the debt instrument must be filed with the BIR within 15 days from
execution.

In the case of Dizon vs. CTA, so parang awa mo na Lord sana lumabas na
sya this year. So it is relatively new and penned by Justice Nachura. The gist here
of the issue is how much is the allowable claims against the estate of after the
death a portion or entire portion of the debt was condoned by the creditor. I just
summarized the case in a problem form:

D obtained a loan to C in the amount of 100. Upon death, the balance of

the loan amounted to 20k but in order to settle the loan after death only 5k was
only paid by the lawyer of the estate pf the debtor. Issue is how much is
deductible, is it 20k the balance at the time of death or 5k the actual amount
paid? The SC said that its the value of the debt at the time of death pursuant to
what is called by death of valuation rule or principle. Basically what the
supreme court said that post death developments, even if there was condonation
or compromise wherein a lower amount is paid, are not material in determining
the amount of the deduction the value of the property transferred should be
ascertained as early as possible as of the time of the death.

To justify further, Justice Nachura states that no law which disregards this
particular death of valuation principle. Okay? Although again I told you that in
special proceedings it is under a different rule of statute of non-claims Justice
Nachura also said special proceedings as justification because claims are those
claims that can be enforced against the decedent. So in this particular scenario
the 20k is the amount that could be enforced against the estate in relation to the
claims against the estate. Okay? So again date of death valuation principle those
developments are not material in determining the allowable claims against the
estate deduction.

Claims against insolvent person, ito naman is actually a receivable of the

estate but the debtor is an insolvent person the creditor here is the estate. So it
forms part of the gross estate as a receivable but its an allowable deduction for
gross so magne-net out lang.

In 2010 there was a question on this one, and the suggested answer is
that the debtor must be declared insolvent in order for this particular person to
be allowed because in that particular problem let is say the debtor has assets of
but liability is 20k claims against the insolvent person was 100k so definitely the
net assets would not be able to cover the entire 100k but again an emphasis on
the answer is that it is allowed as deductible claims against insolvent person.

Asked in the bar last year and answer is only in reference to letter A (sa
slides nya na pinapakita) which is the value of the property subject of the
mortgage must be included in the gross estate so that the mortgage could be
allowed as a deduction. If it is an accommodation mortgage the loan proceeds
must be included as a receivable of the estate meaning the proceeds of the loan
was not given or the decedent was not benefited by the loan proceeds, okay? So
accommodation mortgage.

Taxes here are those taxes which have accrued as of death but remained
unpaid as to the time of death. Example, there non-deductible taxes like income
tax on income after the date of death, property taxes not accrued before the
death, and estate taxes are not deductible for estate tax purposes. Okay? So the
premise is accrued at the time of death but unpaid because again payment must
come from the basic principle that it must come from the estate itself.

Casualty losses, limitation as to the time here as of the time of payment,

so different with respect to the time of filing, it could extend to 5 years if the
estate is being judicially settled. For example if at the time of death there is a
house and lot left by the decedent then 3 days after it totally gutted by fire. In
the gross estate, the house is included and casualty losses belong so it just nets
out. So again 6 months plus extension so it can be extended to 5 years judicially
settled estate.

So, letter c take note not claimed as a deduction for income tax purposes
because in relation to section 60 you have estate income tax. For example, the
estate is not yet settled and the estate comprises of properties which generate
income then the estate is also considered taxpayer for income tax purposes. So
these casualty losses could either be claimed as an expense for estate tax
purposes or estate income tax purposes.

So you take note of the tax benefit involved because estates are tax on
individuals the tax benefit of the deduction may either be 5% to 32% while for
estate tax purposes it is the maximum of 20%. Peso for peso all things equal it
might be better to claim it as a deduction for income tax purposes because the
benefit can extend up to 32% while the estate taxation is only up to 20%.

Okay, vanishing deduction. So property previously taxed, it is favorite

question in the bar exams but basically you just take note of the requisites. The
favorite questions in the bar exams would be letter a which is the 5-year period
between the transfers so the first transfer would be either donation or succession
while the second transfer will always be succession that is why vanishing
deduction is being claimed. That is one.
 The second favorite question would be letter d, as to whether taxes
whether donors or estate taxes have been previously paid on the first transfer.
Finally, letter e that there can only be one vanishing deduction with respect to
the same property or property in exchange of the said property. Okay? In relation
to letter c.

In 2008 when Atty. Mamalateo is the examiner, there was a question and it
was in relation to latter d since the estate tax has not yet been paid then
vanishing deductions should not be allowed. Also in 2009 similar.

(Illustration) Again, the first transfer first donor, there must only be
maximum of a 5-year between the two transfers, that is why it is called vanishing
deductions because if the transfer is 1 day to 1 year it is 100%. If it is 1 year and
1 day-2 years, its 80%. As the time gap increases it reduces and reduces until
ultimately it vanishes, that is why it is called vanishing deduction. The rationale
there is to temper the harshness of double taxation of the same property within
a relatively short period of time. Parang di masyado na enjoy ang property,
namatay na ulit.

Transfers for public use, property is included in the gross estate and
allowed as a deduction sa baba. The rationale there is the social need for such
transfers the consequent benefit to the public as they would provide.. instead of
the government providing for such particular property since it has already been
given by the decedent then with respect to the taxes on the transactions
specifically on the estate tax the government already foregoes because the
project or the property has already been provided by the decedent.

Family home, actual residential as discussed earlier, it is still animus

revertendi and occupancy is not abandoned or interrupted by temporary absence
due to work, travel and profession. The family home, although not specifically
provided for because it should be certified by the barangay captain, must be
located in the Philippines. Also take note that an unmarried head of a family, the
decedent must qualify as an unmarried head of the family for income tax
purposes. Even if single, pwede basta unmarried head of the family provided
complies with the requirements for income tax purposes of dependents. So dapat
may dependents that are living in the family home, kung brothers and sisters
there is the 21 years old threshold and must be living with and chiefly dependent
upon support of the head of the family, okay? Those requirements must be
complied with in order to claim family home deduction if you are single.

Its zonal value as included in the gross estate or 1M whichever is lower.

And up to the decedents interest, so if it is conjugal or community property it
should be divided by 2, okay?

Standard deduction, 1M without need of substantiation, available only to

resident citizen. So actually estate tax is the tax of the rich because for
residents, in order to be subject to estate tax it must at least be more than 1.2M
because 1.2M you deduct standard deduction of 1M and 200k is exempt. Its
kinda substantial.
 Medical expenses, you take note of the limitation as note. Asked in the bar
exam in 2001, there was a party held for the doctors a year after the death,
thats not an allowable medical expense. 500k or actual whichever is lower
substantiated by official receipts invoices or statement of account.

Retirement pay also deductible included as part of cash or receivable then

deductible sa baba.

This is the formula of the BIR, if you try to compute this one, and you try
to only allow half of the ordinary deductions, you will arrive at the same figure.
Lets test:

(Illustration nya) Again if conjugal only the share or half, if exclusive its
100%. With respect to the gross estate, for exclusive property that would be 2M
for conjugal, that would be 7M divided by 2 so that would be 3.5M. the gross
estate is 5.5M. then deductions, as I have mentioned, ordinary deductions are
considered conjugal deduction so you only allow . Total conjugal deduction is
1.5M so you only deduct 750k okay? Then special deduction, its 2.5B. the net
estate would be the same 2.250M so that is how the BIR computes it.

These are just some of the admin requirements for the preparation of the
estate tax. Asked in the bar once in 2007, with respect to the period and grounds
for extension of filing and extension of payment, while it is 6 months from the
date of death, with respect to filing there is a 30-day extension and the ground is
meritorious cases, if it is payment there is 2-year extension if the estate is being
settled extra judicially and 5 year if the estate is being settled judicially and the
ground is payment will impose due hardship upon the heirs.

With respect to payment, if extension of payment is granted, in relation to

sec 223 of the tax code the prescriptive period to assess the estate tax is
suspended, add that to sec 223 that is section 91 (b) if extension of payment is
granted. In addition to that, the commissioner will require a bond in the amount
of not more than double of the estate tax due. While it is not upon payment, the
25% surcharge is not due in relation to section 248 of the tax code, the 20%
interest under section 249 may be collected with the BIR. So no surcharge but
interest continues to run until actual date of payment.

There is this 20k 200k and 2M rule with respect of the notice of death,
filing of tax return and the CPA certification. Those are the thresholds involved
although with respect to filing of the estate tax return if the estate consists of
registrable properties even if its below 200k, the estate tax return should be
filed because the reason for that is the certificate, the car (certificate authorizing
registration) for example is in relation to real property or shares of stock should
be issued and presented either to the register of deeds or the corporate
secretary, or in case of bank deposits, the bank manager in order for this
particular properties be transferred in the name of the heirs take note that again
with respect to the 200k rule of filing of the estate tax return, even if its below
the threshold if it involved registrable properties shares of stocks, bank deposits
or land, the filing of the estate tax return cannot be dispensed with because the
certification that will be issued by the BIR should be presented as a condition
precedent before these properties are transferred in the name of the heirs.

The venue is residence at the time of death. For non-residents, its RDO 39
Quezon City which is the revenue district office having the jurisdiction over the
office of the commissioner.

The estate tax is based on graduated rates so if the net estate is 200k or
below its exempt from tax, if more than 10M its 20%. For example, in this
particular problem, the estate is exempt because while there is 2,200,000 gross
estate, there is a deduction of 1M for family home, 1M for standard deduction
and that leaves you with a net estate of 200k which is exempt. This is similar to
that question in 2008 bar exam.

Who pays the estate tax? Its the executor or administrator or any of the
heirs, but the beneficiary is only subsidiarily liable and only to the extent of his
distributive share in the properties that were received. Lets take a look at this
particular case of Pineda, but before that if the estate is under administration,
any notices from the BIR like an assessment should be sent to the
administrators. If such is sent to the heirs who are not the administrator, it does
not have binding effect.

In this particular case, SC said that sending of the assessment to an heir

who is not the administrator did not satisfy the 3-year prescriptive period under
section 203 of the tax code. The prescriptive period continues to run. Since there
is improper sending of notices to the taxpayer, due process can also be raised in
order to invalidate the particular assessment.

Take a look in this old case of CIR vs. Pineda which is doctrinal with respect
to any deficiency, estate tax or deficiency income tax due on the estate can be
collected. X survived by 10 children, the estate was divided among the heirs. The
gross estate amounts to 20k divided by 10, each of the heirs will receive 2k
each. There was a deficiency estate tax amounting to 1kbut the BIR only went
after B, the eldest child, for the entire 1k. The main argument of Z is that since I
am only one of the heirs, and an heir can only be proportionately liable in
relation to the property he has received then I should be allowed only to 1k
divided by 10 or 100 pesos. In effect saying that the BIR should go after all the
heirs proportionately and not just go after me for the 1k.

What did the SC say? It said that that Z is liable to the assessment as an
heir and holder transferee of property belonging to the taxpayer. As an heir he is
individually liable to the share he proportionately received from the inheritance.
His liability on the other hand cannot exceed the amount of share. The SCs aid
that there are actually 2 ways of collecting unpaid income tax or estate tax. One
is you go after the property in the hands of an heir and that is pursuant to
section 219 of the tax code where in a tax lien is being created from the time the
assessment is made relative to all properties of the taxpayer. In effect, the 2k
which is in the hand of X the government has a lien to the extent of 1k.
 In relation to section 219, the particular lien does not have any effect
against a judgment creditor, mortgagor or purchaser until and unless the tax lien
is properly registered in the proper register of deeds. Meaning if the property id
transferred, as a general rule, let us say via sale from A to B and a has
substantial deficiency assessments from the BIR that particular property transfer
to B will not be subject of the tax lien because as a purchaser of a property the
tax lien does not follow the property in the hands of the new owner but it is only
limited to 3 persons and if you take a look at section 219, an heir is not one of
the exceptions, therefore the tax lien that relates to property received by an heir
follows that particular heir. It is not extinguished by the transfer unlike a
purchaser. In this particular scenario, the tax lien is still effective with respect to
the 2k in the hands of X. the BIR can go after that. Of course, the BIR gets 1k
from X, X is entitled to contribution among the heirs, okay?

The other remedy is to go after all other heirs proportionately. To recap, it

is either the BIR can go after the property in the hands of an heir pursuant to the
tax lien under \Section 219. Again it is not an exemption therefore the lien will
follow the property in the hands of the heir because the exemptions are limited
to mortgagee, purchaser and the judgment creditor. Of course, if the lien is being
effected by the BIR then that particular person has right of contribution among
his co-heirs.

As discussed earlier, the probate court has no authority to entertain a

claim of taxes or its not a requirement that a claim of taxes be presented before
the probate court e actually in section 94 its the reverse so the judge should not
order distribution of the estate until and unless the estate tax has been paid. The
reason as held in Vera vs. Fernandez is that the statute of non-claims is only
contractual money obligations, this is an obligation created by law.

Under section 97, the bank shall not allow withdrawal of any deposit
before payment of estate taxes. The exception is that the commissioner may
allow withdrawal to the extent of the only 20k. the reason is that in case of a
joint account, and pursuant to the provision of the joint account, any co-
depositors may withdraw that is the reason why there is a provision in the
withdrawal slip for the declaration under the pain of perjury because at the time
of withdrawal and lets say one of the co-depositors is already dead, estate taxes
should be paid., if you withdraw everything without payment of estate taxes, you
can be liable for perjury in addition because you have declared that your co-
depositors at the time of withdrawal are all alive. Yun ang rationale nun.

If your co-depositors are all dead you must disclose this to the bank
because of course depending on the provisions you can withdraw everything
without paying estate tax, but of course if the BIR founds out later on, aside from
evasion you can be held liable for perjury. The source of that is section 97 of the
tax code.

Lets take a look at this example, because theoretically if you look at

section 97 in relation to this particular problem no withdrawal shall be allowed
even if it is a joint account because if its a joint account, assuming there is no
survivorship agreement ha kasi magkaiba yung joint account with survivorship
agreement at joint account lang. if its joint it is presumed to be owned account,
in this case it is 25 25. Theoretically if you look at 97, it instructs that no
withdrawal should be allowed, meaning even with respect to the share of the
surviving co-depositor but in practice the commissioner allows withdrawal of the
share of the surviving co-depositor if there is no survivorship agreement and she
will instruct that the joint account be converted into a single account relative to
the surviving co-depositor.