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TAX TABLE Inter vivos transfers which are subject to estate tax

The estate tax shall be computed on the basis of the value of 1. Revocable transfers – the decedent reserves for himself
the net estate in accordance with the following graduated the power to alter, amend, revoke or even terminate such
rates. (effective Jan.1, 1998) transfer.

If the net estate is: 2. Transfers with retention or reservation of certain rights –
the decedent retains for himself the economic benefits of
Over But Not Tax Shall Plus Of Excess the property or the power to designate the persons who
Over Be Over may exercise such rights
- 200,000 - - -
3. Transfers in contemplation of death – the decedent was
200,000 500,000 5% - 200,000 motivated by the thought of death to transfer the
500,000 2,000,000 15,000 8% 500,000 property
2,000,000 5,000,000 135,000 11% 2,000,000
4. Transfers under general power of appointment – the
5,000,000 10,000,000 465,000 15% 5,000,000 decedent was given the authority to hold the property
10,000,000 - 1,215,000 20% 10,000,000 during his lifetime and to name the beneficiaries thereof
when he dies.

Basic Concepts Absolute Community of Property Regime

1. Succession - a mode of transferring and acquiring In the absence of a marriage settlement, or when the regime
ownership, rights, interest and obligations from a dead agreed upon is void, the system of absolute community of
individual. property shall govern, unless the marriage was celebrated
prior to August 3, 1988 because those celebrated before the
2. Estate - refers to all property, rights and obligations of a effectivity of the Family Code, which had no prior agreement
person which are not extinguished by his death and also on the system of property relationship were governed by the
those which accrued thereto since the opening of conjugal partnership of gains.
succession; subject matter of succession.
Unless otherwise provided, the community property shall
3. Decedent - a person whose property is transmitted thru consist of:
succession whether or not he left a will
1. All the property owned by the spouses at the time of the
4. Testator - a person whose property is transmitted thru celebration of the marriage; or
succession with a will
2. Those acquired during marriage
5. Heir - a person called to the succession either by will or
by provision of law The following shall be excluded from the community
property:
6. Legatee - a person who inherits personal or movable
property by a will 1. Property acquired during marriage by gratuitous title by
either spouse, and the fruits as well as the income
7. Will - a document wherein in his handwriting an thereof, if any, unless it is expressly provided by the
individual makes known his wishes concerning the donor, testator or grantor that they shall form part of the
disposition of his estate after his death community property;

8. Successor - the person to whom the property or property 2. Property for personal or exclusive use of either spouse.
rights is transferred. However, jewelry shall form part of the community
property.
9. Executor -a person appointed by a testator to carry out
the provisions of the will. 3. Property acquired before the marriage by either spouse
who has legitimate descendants by a former marriage,
10. Administrator - a person appointed by the court in the and the fruits as well as income, if any, of such property.
absence of the executor
Conjugal Partnership of Gains
11. Testamentary succession - one carried out according to
the wishes of the testator to express in a will executed in All property acquired during marriage, whether the
a form prescribed by the law (voluntary) acquisition appears to have been made, contracted or
registered in the name of one or both spouses, is presumed
12. Intestate/Legal succession - succession affected partly by to be conjugal unless the contrary is proved.
will and partly by operation of law
The following are not conjugal because they shall be the
13. Transfer tax - tax imposed upon gratuitous transfer of exclusive property of each spouse:
properties
1. That which brought to marriage as his or her own;
14. Legitime – is that part of the testator’s property which he 2. That which each acquires during marriage by gratuitous
cannot dispose of because the law has reserved it for title;
certain heirs who are therefore, called compulsory heirs. 3. That which is acquired by right of redemption, by barter
or by exchange with property belonging to only one of
the spouses; and

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4. That which is purchased with exclusive money of the wife
or of the husband

Formula for computation of TNE:


EXEMPTIONS AND EXCLUSIONS FROM THE GROSS ESTATE
1. Decedent is single
A. Under Sections 85 & 86, NIRC
Gross estate XX
1. Capital or exclusive property of the surviving spouse
Less: Allowable deductions XX
2. Properties outside the Philippines of a Non-resident
Taxable net estate XX alien decedent
Estate Tax due (0% - 20%) XX 3. Intangible personal property in the Philippines of a
non-resident alien under Reciprocity Law.

2. Decedent is married B. Under Section 87, NIRC

Gross estate: 1. The merger of usufruct in the owner of the naked


title.
Exclusive of the decedent XX
2. The transmission or delivery of the inheritance or
Common property of the couple XX XX legacy by the fiduciary heir or legatee to the
Allowable deductions: fideiconussary
From exclusive property XX 3. The transmission from the first heir or legatee in
From common property XX XX favour of another beneficiary in accordance with the
desire of the predecessor-similar to transfers passing
Net estate before share of surviving spouse XX SPA
Less: share of surviving spouse XX 4. All bequests, devises, legacies, or transfers to social
Net estate before special deductions XX welfare, cultural, charitable institutions, no part or
Less: Deduction for family home/medical the net income of which inures to the benefit of any
exp./special deductions XX individual provided that not more than 30% of the
said bequests, devises, legacies, or transfers shall be
Taxable net estate XX used by each institution for administrative purposes.
Estate Tax due (0%-20%) XX
C. Under Special Laws
*Computation of surviving spouse 1. Benefits from GSIS by reason of death
Gross common property of the H & W XX 2. Benefits from SSS by reason of death
Less: deductions from common property XX 3. Benefits from Philippines and US government for war
Net XX damages
4. Benefits from US Veteran Administration
Divided by 2 5. Retirement benefits of officials/employees of private
Share of surviving spouse XX firms
6. Life insurance proceeds on insurance policy upon his
own life, where the beneficiary is a 3 rd person, and
3. the designation is irrevocable
7. Life insurance proceeds on insurance policy (group
Estate Tax Due XX insurance) taken out by the employer on the
employee’s life regardless of who is the beneficiary
*Deduct estate tax credit for the tax paid abroad XX
and the designation.
Estate tax still due XX
DEDUCTIONS FROM GROSS ESTATE
*Formula for estate tax credit: A. ORDINARY DEDUCTIONS
Under Limitation (used if only 1 foreign country is
involved: By country limitation) 1. Expenses, losses, indebtedness and taxes (ELIT)
Actual ET paid to FC XX
a. Funeral expenses – the amount deductible shall be
Or TNE, FC/TNE X ET due in Phil XX whichever is the lowest among the following: the
Allowable tax credit (whichever is lower) actual funeral expenses incurred, 5% of gross
For Foreign Country XX estate, and the P200,000
b. Judicial expenses – it includes those actually and
necessarily incurred during the settlement of the
Limitation B: (by total, used if 2 or more foreign
estate but not beyond six (6) months, or the
countries are involved together with Limitation A)
extension thereof for the filing of the estate tax
Total actual ET paid to all FC’s XX return. Expenses not essential to the proper
Or TNE, all FC’s/TNE, W X ET due in Phil XX settlement of the estate but incurred for the
Allowable Tax Credit (whichever is lower) XX individual benefit of the heirs, legatees or devises
are not allowed as deduction
Note: If there are 2 or more FC’s both limitations (A &B) c. Claims against the estate – this represents
should be used, then get whichever is lower between the personal obligation of the deceased existing at the
two as the final allowable tax credit. time of his death except unpaid funeral expenses

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and unpaid medical expenses. The claims may c. Such property can be identified as the one received
arise out of contract, tort or operation of law. The from prior decedent or donor or which can be
requisites for deductibility are the following: identified as having acquired in exchange for
property so received.
1. Must have been contracted in good faith and d. Prior gift tax or estate tax has been paid
for an adequate and full consideration in
money and money’s worth. e. The property is included in the gross estate or gross
2. The debt instrument must be duly notarized gift of prior decedent/donor.
except loans granted by financial institutions
where notarization is not part of the business Vanishing rates:
practice/policy of the financial institution-
holder More than Not More Than Percentages
3. It must not have been condoned by the 1 year 100%
creditor 1 year 2 years 80%
4. The action to collect from the decedent must
2 years 3 years 60%
not have prescribed.
d. Unpaid mortgages upon the property left by the 3 years 4 years 40%
decedent. The requisites for deductibility are the 4 years 5 years 20%
following: 5 years X X 0%
1. The mortgage indebtedness was contracted in
good faith and for an adequate and full
B. SPECIAL DEDUCTIONS
consideration in money or money’s worth;
and 1. Amounts received by heirs from employer RA4917 –
2. The FMV of the property mortgaged without amounts received by the heirs from the decedent’s
deducting the mortgage indebtedness has employer as a consequence of the death of the
been included in the gross estate. decedent-employee. Provided, that such amount is
e. Claims against insolvent persons (bad debts) – included in the gross estate of the decedent
receivable of the decedent which is uncollectible
due to insolvency of the debtor. Its requisites for 2. Medical expenses – this includes cost of medicines,
deductibility are as follows: hospital bills, doctor’s fees, etc. incurred whether
1. The value of the decedent’s interest therein paid or unpaid at the time of death of the decedent.
must be included in the gross estate
2. The debtor’s insolvency/incapacity is proven Requisites:
and not merely alleged.
f. Unpaid income and property taxes which have a. Incurred by the decedent within one year prior
accrued as of the death of the decedent which to his death
were unpaid as of the time of death. b. Maximum amount deductible is P500,000
g. Losses –requisites:
1. The loss must arise during the settlement of c. Duly substantiated with receipts
the estate but not beyond the deadline for the
3. Share of surviving spouse in the net conjugal or
payment of the estate tax
community property
2. It must arise from fires, storms, shipwreck, or
other casualties, or from robbery, theft or 4. Family home – the dwelling house, including the land
embezzlement on which it is situated, where the husband and wife,
3. Such losses have not claimed as deduction for or head of the family, and members of their family
income tax purposes reside, as certified by barangay captain of the
4. Must not be compensated by insurance or locality. The deductible amount is the higher
otherwise. between the assessed value, FMV or zonal value, but
not exceeding P1,000,000. The total value however,
Note: If the decedent is a non-resident alien, pro-rate the must be included as part of the gross estate of the
above expenses as follows: decedent.
Philippine Gross Estate 5. Standard deduction of P1,000,000.
X ELIT
Total Gross Estate
REVIEW ON ADMINISTRATIVE PROVISIONS – ESTATE TAX

2. Transfers for public purpose. The amount of all bequests, 1. What is a notice of death?
legacies, devisees or transfers to or for the use of the
It is a written notice from the executor, administrator, or
Government of the Philippines, or any political
any of the legal heirs, as the case may be, informing the
subdivision thereof, for exclusively public purposes.
Commissioner of the Internal Revenue about the
3. Vanishing deductions decedent’s death.

Requisites for deductibility: 2. When should the notice of death be filed?

a. The property is situated in the Philippines; Within 2 months after the decedent’s death or within 2
b. The property must have been acquired thru months after the executor or administrator shall have
inheritance or donation within 5 years before the qualified
death of present decedent;
3. Is it required in all cases of death?

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No, only where the gross value of the estate exceeds It shall be paid by the executor or administrator before
P20,000. delivery to any beneficiary of his distributive share of the
estate. Such beneficiary shall be subsidiary liable for the
4. Is an estate tax return required to be filed in all cases? payment of such portion estate tax as his distributive
share bears to the value of the total net estate.
No, only where the gross value of the estate exceeds
P200,000. 12. What if there is no executor or administrator appointed
or qualified?
5. How should the return be filed? What information should
be contained? Any person in actual or constructive possession of any
property of the decedent.
It shall be filed under oath and in duplicate. It should
show the following: 13. Is the tax a personal liability of the administrator or
executor?
a. The value of the gross estate at the time of the
decedent’s death, or in case of non-resident alien Yes, under Section 85 of NIRC.
decedent, that part of his gross estate in the
Philippines; 14. May he be discharged from such personal liability?
b. The allowable deductions under Section 86;
c. Such other information as may be necessary to Yes, by making a written application to the BIR
establish the correct tax due. Commissioner for the determination of the estate tax and
his discharge from personal liability. He shall thereafter
6. What is the additional requirement if the gross estate be notified by the BIR Commissioner and upon payment
exceeds P2,000,000? of the amount of which he is notified, he shall be
discharged from such personal liability and shall be
The estate tax return shall be accompanied by a entitled to a receipt or writing showing such discharge.
statement showing:
15. May a judge allow the executor or administrator to
a. Itemized assets of the decedent with their deliver a distributive share to an heir at anytime?
corresponding gross value at the time of his death,
or in case of non-resident alien decedent, that part No, unless the executor or administrator can show a
of his gross estate in the Philippines; certification from the BIR that the estate tax has been
b. Itemized deductions from the gross estate allowed paid.
under Section 86;
c. The amount of tax due whether paid or still due and 16. What is the duty of a bank upon knowing of the death of
outstanding duly certified by a CPA. a person who maintained a joint account with another?

7. What is the time for filing the estate tax return? Is it It shall not allow any withdrawal by a surviving depositor
extendable? from the said joint account unless the BIR Commissioner
has certified that the estate tax has been paid. However,
It shall be filed within 6 months after the decedent’s the administrator of the estate or any one of the heirs of
death. In meritorious cases, the BIR Commissioner may the decedent may withdraw without such certificate an
give reasonable extension of the time, not exceeding 30 amount not exceeding P20,000 upon authorization by the
days. BIR Commissioner.

8. Where and to whom it should be filed? EXERCISES/PROBLEMS

The return shall be filed with the RDO, collection agent or A. State the amount of allowable deductions from the
duly authorized treasurer of the municipality (or city) in gross estate in each of the following:
which the decedent was domiciled at the time of his
death, or if there be no legal resident in the Philippines, 1. ____________________ Gross estate ofP8,000,000 and
with the Office of the BIR Commissioner. funeral expenses of P250,000.
2. ____________________ Unpaid taxes of the decedent
9. When should the estate tax be paid?
P3M, 25% of which accrued after death already
At the time the return is filed by the executor, 3. ____________________ Receivable of P75,000 from an
administrator or the heirs. (Pay as you file system) insolvent debtor whose ratio of assets to liabilities is 1:3.
4. ____________________ Hospitalization expenses until
10. May the time of payment be extended? death: P3M, 50% incurred 1 year prior to death but only
½ of which is supported by receipts.
Yes, in meritorious cases, if payment of such tax should
cause undue hardship upon the estate or any of his heirs, 5. ____________________ Expenses for the probate of a
the BIR Commissioner may extend the time as follows: will including P10,000 facilitation fee for a court
personnel, P100,000 amount paid to broker to convert
a. If the estate is settled through the courts (juridically) some property in the estate to cash as authorized by the
– 5 years court P50,000.
6. ____________________ P75,000 indebtedness with
b. If the estate is settled through extra-judicially – 2 interest at 20% pa contracted 3 months before death, not
years. notarized and a deed of mortgage P20,000, contracted 6
months before death 24% pa
11. Who is liable to pay estate tax?
7. ____________________ P100,000 note payable

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notarized earning 18% pa dated September 30, 2009. earned during marriage
Decedent died March 15,2010. 5. Other income of the
8. ____________________ a conjugal family house with couple earned during
FMV of P900,000 and exclusive family lot worth P500,000 marriage __________ __________
owned by decedent. 6. Property acquired
9. ____________________ Loss by fire of building worth during marriage thru
P1M 5months after decedent’s death, 75% compensated exchange:
by insurance. Estate was settled in the 6th month. a. Using exclusive
10. ____________________ Funeral expenses of a NRA property __________ __________
decedent in the Philippines. P85,000 gross estate worth b. Using common
P2M, 40% from the Philippines. property
__________ __________
11. ____________________ Transfer for public purposes
7. Jewelry acquired during
made inter vivos, P1M.
marriage
12. ____________________ A land worth P1M when a. Using exclusive
inherited 4 ½ years ago by the decedent from his father funds __________ __________
with mortgage of P200,000, 60% of which was paid by
b. Using common
the decedent before he died. FMV of land upon death
funds __________ __________
P1,500,000. Gross estate is P8M and deductions reached
P750,000, 40% of which represents ELIT and TPP. 8. Property for personal
Compute for VD only. and exclusive use of
either husband or wife __________ __________
13. ____________________ Loss of car by theft, occurring 8
months after the decedent death, value of car P300,000,
60% to be paid by insurance.
14. ____________________ Transfer for public purposes
donated by the decedent to Manila City Hall (shown in
the will) P200,000.
15. ____________________ Unpaid mortgage of P200,000
on a P1,100,000 house shown in the gross estate net of
the P200,000 mortgage
16. ____________________ The decedent’s administrator
claims the following funeral expenses:

Expenses of internment 40,000


Cost of burial lot (paid ½ by friends and 20,000
relatives)
Fees for performance of rites incident 10,000
to internment
Mourning clothing of widow and 5,000
unmarried minor children
Expenses during the wake before burial 20,000
(paid by uncle, 25%)
Obituary notice 3,000
Card of Thanks 2,000

The allowable funeral expenses assuming the decedent’s


gross estate is:
a. P2,000,000
b. P1,500,000

B. Determine whether the following properties are


conjugal/community or exclusive:

ACP CPG
1. Property acquired
before marriage __________ __________
2. Property acquired
during marriage
a. By onerous title __________ __________
b. By gratuitous title __________ __________
3. Income from 2-a
earned during marriage __________ __________
4. Income from 2-b __________ __________

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