ESTATE TAXATION decedent’s indebtedness and obligations—

including estate tax.

Succession- mode of acquisition by virtue of which the - No heir shall inherit the debt of the decedent.
property, rights, and obligations to the extent of the -
value of the inheritance of a person are transmitted
through his death to another or others either by his will ELEMENTS OF SUCCESSION
or by operation of law. 1. Decedent- is a general term applied to a person
Inheritance- includes all property, rights, and whose property is transmitted through
obligations of a person which are not extinguished by succession, whether or not he left a will. If he
his death. left a will, he may be called a testator.
2. Estate- the property, rights, and obligations of
Decedent- the deceased or dead person. the decedent not extinguished by his death.
Also known as inheritance of the decedent.
3. Heirs- a person called to the succession either
TYPES OF SUCCESSION by the provision of a will or by operation of law.

1. Testate or Testamentary Succession- results WHO ARE THE HEIRS?

from the designation of an heir, made in a will In INTESTATE SUCCESSION:
executed in the form prescribed by law. 1. Compulsory Heirs
a. A person can specify the recipient of his a. Primary Heirs- legitimate children and
properties upon death. It should be their direct descendants.
made through a written document b. Secondary Heirs- legitimate/illegitimate
called last will and testament. parents and ascendants.
i. Testate- the person who died c. Concurring heirs- the surviving spouse
with a will. and illegitimate descendants.
ii. Testator- the person who died 2. Relatives up to fifth degree of consanguinity-
with a written will. . a. Great grand nieces and nephews
2. Legal or Intestate Succession- When a decedent b. First Cousin 1x removed (child of first
dies without a will or with an invalid one, estate cousin)
distribution shall be in accordance with the 3. The Philippine Government
default provision of the Civil Code on
succession. BASIC INTESTATE PARTITION PROCEDURES
3. Mixed Succession – where transmission of the 1. The decedent and the surviving spouse shall
decedent’s properties shall be partly by virtue first share in their common properties.
of a written will and by operation of law. - The common properties (net of expenses and
Will- an act whereby a person is permitted, with the obligations chargeable to the common
formalities prescribed by law, to control to a certain properties of the spouses) is divided between
degree the disposition of his estate, to take effect after the decedent and the surviving spouse.
his death. 2. Determination of the decedent’s net interest
-an expression of the decedent’s desire as to - The decedent’s net interest comprising of the
how his properties will be distributed after their death. following:
-it is a personal act that cannot be left in whole o Exclusive property of the decedent
or in part to a third party, or accomplished through an o Share of the decedent in the net
agent or attorney. common parties
3. Partition of the decedent’s net interest to the
TYPES OF WILL heirs.
1. Holographic Will-a will which was entirely a. Surviving spouse- one share
written, dated, and signed by the hand of the b. Legitimate children- one share
testator himself. c. Illegitimate children- half a share
2. Notarial Will-notarized will signed by the
decedent and witnesses. HEIRS UNDER TESTAMENTARY DISPOSITION
3. Codicil-a supplement or addition to a will, made 1. Compulsory heirs
after the execution of a will and annexed to be 2. Other persons specified by the decedent in his
taken as a part thereof, by which disposition will .
made in the original will is explained, added to,
or altered. Legitime- the part of the testator’s property which he
cannot dispose of because the law has reserved it for
NATURE OF SUCCESSION certain heirs who are called compulsory heirs. The
- Only involves the net properties of the excess is called “free portion.”
decedent.
- Heirs will only inherit what remains of the Other Persons in Succession
decedent’s estate after satisfying the 1. Legatee-a person whom gifts of personal
property is given by virtue of a will.
 2. Devisee- a person whom gifts of real property is -Intangible ✓ ✓ ✓ ✗ ✗ ✗
given by virtue of a will.
3. Executors- a person named by the decedent
who shall carry out the provisions of his will.
4. Administrators- a person appointed by the
court to manage the distribution of the estate
of the decedent.
GROSS ESTATE FORMULA
Inventory of properties at the point of death xxx
ESTATE TAXATION- taxation of the gratuitous transfer Less: Exempt Transfers
of properties of the decedent to the heirs upon the Properties not Owned xxx
decedent’s death. Properties owned but excluded by law xxx
-It is governed by the law in force at the time of Inventory of Taxable Present properties xxx
the decedent’s death. It accrues as of the decedent’s Add: Taxable Transfers xxx
death and the accrual is distinct from the obligation to GROSS ESTATE XXX
pay the same. Upon the decedent’s death, succession
takes place and the right to tax vests instantly upon TRANSFER OF PROPERTIES NOT OWNED BY THE
death. DECEDENT
1. Merger of the usufruct in the owner of the
JANUARY 1, 1998-DECEMBER 31, 2017- NIRC governs. naked title
On or after JANUARY 1, 2018- TRAIN Law governs. 2. The transmission or delivery of the inheritance
or legacy by the fiduciary heir or legatee to the
NATURE OF ESTATE TAX fideicommissary.
1. Excise Tax- on the privilege to transfer property 3. The transmission from the first heir, legatee, or
through death. donee in favor of another beneficiary, in
2. Transfer Tax accordance with the desire of the predecessor.
3. Ad Valorem Tax- dependent upon the value of 4. Proceeds of irrevocable life insurance policy
the estate. payable to beneficiary other than the estate,
4. National Tax- it is imposed by the National executor, or administrator.
Gov’t. 5. Properties held in trust by the decedent
5. Direct Tax- tax should be paid by the person 6. Separate Properties of the surviving spouse of
liable. the decedent.
6. Personal Tax- 7. Transfer by way of bona fide sales.
7. Graduated Tax/ Fixed Rate
LEGAL EXCLUSIONS FROM GROSS ESTATE
CLASSIFICATION OF DECEDENTS 1. Proceeds of group insurance taken out by a
1. Resident or Citizen Decedents- taxable on company for its employees.
properties located within or outside the 2. Proceeds of GSIS policy or benefits from GSIS
Philippines. 3. Accruals from SSS
2. Non-Resident Alien Decedents- taxable only on 4. Unites States Veterans Administration benefits
properties located in the Philippines, except (RA 360)
intangible personal property when the 5. War damages payment
reciprocity rule applies. 6. All bequests, devises, legacies, or transfers to
social welfare, cultural and charitable
THE ESTATE TAX MODEL: institutions, no part of net income of which
Gross Estate xxx inures to the benefit of any individual; provide
Less: Deductions from Gross Estate (xxx) that no more than 30% shall be used by such
Net Taxable Estate xxx institutions for administration purposes.
7. Acquisitions and/or transfers expressly declared
as non-taxable by law
GROSS ESTATE 8. Bank deposits withdrawn from the decedent
account during the settlement of the estate.
Gross Estate- pertains to the totality of the properties, a. NIRC- withdrawal from the bank
tangible or intangible, real or personal, that is owned by account is prohibited except withdrawal
the decedent at the point of his death. of up to 20,000 PESOS for the funeral
expenses of the decedent.
RC/RA/NRC NCA w/o NCA w/ b. TRAIN- unlimited withdrawal from the
Reciprocity Reciprocity
Within Abroad Within Abroad Within Abroad
decedent’s bank account but required
bank with knowledge of the decedents
Real ✓ ✓ ✓ ✗ ✓ ✗ death to withhold 6% final withholding
Property
Personal tax upon withdrawal (made within one
Property year from the decedent’s death) that is
-Tangible ✓ ✓ ✓ ✗ ✓ ✗ as final tax and is non-creditable. The
 6% final tax must be excluded in gross 4. BUSINESS INTERESTS
estate.

TAXABLE TRANSFERS VALUATION OF THE GROSS ESTATE

- Are mortis causa transfers of properties in the
guise and form of inter-vivos transfers. These Valuation Rules:
are referred to as inclusions in gross estate. 1. The FV of the property as of the time of death
1. Transfer in contemplation of death- made by shall be the value to include in gross estate.
the decedent during his lifetime which are 2. FV rules set by law or revenue regulations must
motivated by the thought of his death. May be followed.
include: 3. In default of such fair value rules, reference may
a. Transfers of property to take effect in be made to fair value rules under GAAP.
possession or enjoyment after death. 4. Encumbrances on the property or decrease in
b. Transfer of property with retention of value thereof after death shall be ignored.
the right of possession or enjoyment or
right over income of the property until ASSET VALUATION
death. Real Whichever is higher of:
c. Transfer of property with retention of property -zonal value (or FMV in latest tax
the right to designate, alone or in declaration) or
conjunction with any person, the -value fixed by the provincial or city
person who shall enjoy the property of assessor
the income therefrom. Shares of -Preferred shares are @ par value
2. Revocable Transfers- involve transfer of Stock -Unlisted ordinary shares @ book
possession over property during the lifetime of value
the decedent, but not transfer of ownership -Listed ordinary shares, arithmetic
over said property, as at the point of death the mean of highest and lowest quotation
decedent owns said properties. Ownership at a date nearest the date of death.
transfers only when decedent waives his right Usufruct and -Present Value of an annuity
to revoke the transfer, otherwise it is part of his annuities
gross estate. Other -fair value at the time of death
a. Conditional Donations- transfers that properties
would only be completed once a certain Taxable -Fair value at the date of death less
condition is met or done. transfers consideration paid at the date of
3. Transfer with retention of certain rights- if transfer.
properties were transferred by decedent prior
his death but retained possession of the Other guidelines for determining FV:
property, it is included in his gross estate to the - For newly purchased property, FV may be
extent of his interest therein. purchase price. If not newly acquired, value may
4. Transfer under general power of appointment- be its second hand value.
properties subject to general power of - For pawned properties, the FV may be
appointment is included in the gross estate of reestablished by grossing up the pawn value by
the decedent. the loan to value ratio.
- For property fixed in monetary terms (loans or
COMPOSITION OF GROSS ESTATE receivables), FV is the amount fixed in the
1. Properties, movable or immovable, tangible or contract including any accrued income.
intangible. - For foreign currency, FV is the peso value
2. Decedent’s interest on properties translated at the prevailing exchange rate at the
3. Proceeds of life insurance; date of death.
a. Designated as revocable to any heir
b. Designated to estate, administrator or
executor as beneficiary.
4. Taxable transfers.

PRESENTATION OF GROSS ESTATE IN THE ESTATE TAX

BENEFITS
1. REAL PROPERTIES- all immovable properties of
the decedent, excluding family home.
2. FAMILY HOME
3. PERSONAL PROPERTIES- all movable properties
of the decedent except rights or interest in any
business.
 property
Fruit of Exclusive Conjugal
communal
property
Exclusive use of
either spouse
- Jewelry Exclusive Conjugal
- Non- Exclusive Exclusive
GROSS ESTATE OF MARRIED DECEDENTS
jewelry
1. The decedent’s exclusive properties.
DEDUCTIONS FROM GROSS ESTATE
2. The common properties of the spouses
- Charges which naturally diminish the amount of
the inheritance of the heirs.
TYPES OF PROPERTY REGIMES
1. Absolute Separation of Property (ASP)- all
CLASSIFICATION OF DEDUCTIONS
properties of the spouses are separate
1. Ordinary Deductions- include items which
properties, except those acquired jointly.
diminish the amount of the inheritance.
2. Conjugal Partnership of Gains (CPG)- all
2. Special Deductions- items which do not
accrued properties as fruit of their individual or
reduce the inheritance but are nonetheless
joint labor or fruits of their properties during
allowed by the law as incentive deductions
the marriage will be common properties of the
against gross estate in the determination of
spouses. PROSPECTIVE.
net taxable estate.
3. Absolute Community of Property- all present
3. Share of the Surviving Spouse- pertains to
properties owned by the spouses at the date of
the interest of the surviving spouse in the
celebration of the marriage shall become
net conjugal or communal properties of the
properties common to the spouses, including
spouses. It is not owned by the decedent
future fruits of these separate or joint industry
and will not be transmitted to heirs, so it
or fruits of their common properties.
must be removed in the taxable estate.
RETROSPECTIVE
Conjugal Partnership of Gains Absolute Community of Property GENERAL PRINCIPLES OF ESTATE DEDUCTION
1. Substantiation rule- all deductions must have
Aug 8,1988 documentary evidence to prove their existence.
2. Matching principle- items of deduction must
*In any absence of an agreement or when the regime pertain to properties that are part of the gross
agreed by the spouses are void, marriages before estate.
August 8, 1988 shall be governed by CPG. Marriages 3. No “double-classification” rule- deductions
starting on August 8, 1988 shall be governed by ACP. cannot be claimed simultaneously under several
deduction categories.
CPG ACP 4. Default presumption on ordinary deductions-
Marriage: Before During Before During ordinary deductions are presumed to be against
Properties before Exclusive Exclusiv Conjuga Conjugal
e l
the common properties unless proven to be an
marriage
Properties exclusive property.
Derived during
marriage: ORDINARY DEDUCTIONS
- Fruit of labor Exclusive Conjuga Conjuga Conjugal 1. Expenses, Losses, Indebtedness, and Taxes
or industry l l
a. Losses- losses of the estate during the
- Gratuitous Exclusive Conjuga Conjuga Exclusive,
acquisitions l l unless settlement of the estate. May arise
stated form casualties when not compensated
otherwise.
Exclusive Conjuga Conjuga Conjugal
by insurance. Deductible within one
- Fruit of
properties l l (community year of the date of death and deadline
) of return.
Exclusive
(separate) b. Claims against insolvent persons- are
- Jewelry Exclusive Conjuga Conjuga Conjugal losses but a separate line item in the
personal use l l return. The deductible amount is the
- Fruits of Exclusive Conjuga Exclusiv Exclusive
amount that is unrecoverable.
exclusive l e
personal
c. Indebtedness- debts or demands of
property pecuniary nature which could have
(non-jewelry) been enforced against the decedent in
- Inheritance or Exclusive Exclusiv Conjuga Conjugal his lifetime. Must be representing a
donations e l
personal obligation except unpaid
received by one
spouse
medical expenses, must have been
SPOUSE WITH DESCENDANT IN A PRIOR MARRIAGE contracted in good faith, must be valid
Gratuitous Exclusive Exclusive, in law and enforceable in court, and
Acquisitions unless must not have been condoned or
stipulated
Fruit of Industry Exclusive Exclusive prescribed.
Fruit of separate Exclusive Exclusive
 i. Family Benefit rule- if the SHARE OF THE SURVIVING SPOUSE- It is one-half of the
obligation was incurred for the net conjugal or community properties of the spouses
benefit of the family, the claim and is only applicable for married decedents.
can be deductible.
ii. Property Classification rule-
claims follow the classification DEDUCTIONS FOR NRA DECEDENTS
of the relevant property. 1. Prorated Losses, Indebtedness, and Taxes
Special rules: Philippine Gross Estate
 Unpaid Mortgage- must have × L . I .T
World Gross Estate
been incurred before death and
remain unpaid. All deductions should be located within the
 Unpaid Taxes- includes income, Philippines ONLY.
business, and property taxes
accrued at the time of death
and unpaid.
 Accommodation loan- SUMMARY OF DEDUCTION RULES
presented as receivable in the
gross estate and a deduction. RC/RA/NRC NRA
d. [FOR NIRC] Funeral and Judicial Losses YES Prorated
Expenses- as per the old tax code, Claims against the Estate YES amounts
funeral and judicial expenses are Indebtedness YES
ordinary deductions. As per TRAIN, it is Taxes YES
not allowed. Transfer for Public Use YES YES
2. Transfer for public use- includes the amount of Vanishing Deductions YES YES
all bequests, legacies, devises, or transfer to or Family Home YES NOI
for the use of the Government, or any political Standard Deductions YES YES
subdivision thereof, for the exclusive public Benefits under RA 4917 YES NO
purposes. Share of the surviving spouse YES YES
3. Vanishing Deductions- instances where
properties are transferred between persons in
short periods of time causing a series of transfer
taxation. To mitigate the impact of this,
vanishing deductions are deductions from gross
estate.

SPECIAL DEDUCTIONS
1. Family Home- includes the dwelling house and
the land on which it stands. To be considered as
such, it should be the place where whenever
absent for business or pleasure, one still intends
to return to the place. It is characterized by
permanency. Only ONE family home should be
deducted. The allowable deduction must not
exceed the lowest of FMV of the home as
declared or a maximum of P 10,000,000.
2. Standard Deductions- these are deductions that
are allowed without the need of substantiation.
a. NIRC- P 1,000,000 deduction for
standard deduction.
b. TRAIN- P 5,000,000 deduction for
funeral, judicial, and medical expenses
which were previously deductible as per
NIRC.
3. BENEFITS UNDER RA 4917- retirement benefit
or termination benefit is not taxable. Per NIRC,
any amount received by the heirs from their
employers as a consequence of the decedent’s
death is an allowed deduction, provided that
the amount of the separation benefit is
included as part of the gross estate of the
decedent.