M2 - The Concept of Succession and Estate Tax - Students'

The Concept of Succession
and Estate Tax

Module 2
Chapter 13
Prepared by: Nelia I. Tomas, CCA, LPT
Business and Transfer Taxation, Laws, Principles and Application. 2019 Edition. Banggawan, Rex B.
Learning Objectives
After completing the lesson, the students will be able to
 Comprehend the concept of succession
 Identify and explain the types and elements of succession
 Understand the nature of estate tax
 Determine the types of decedents and their taxation rules
 Describe the model of estate taxation
SUCCESSION
 Succession is 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 his will or
by operation of law (Art 774, Civil Code).
 The inheritance includes all the property, rights and obligations of a person
which are not extinguished by his death (Art. 776, Ibid.).
 The rights to the succession are transmitted from the moment of the death
of the decedent (Art 777, Ibid).
TYPES OF SUCCESSION
1. Testate or Testamentary Succession
 It is that which results from the designation of an heir, made in a will
executed in the form prescribed by law. (Art. 779, Civil Code).
 A person can specify the recipient of his properties upon death. This
designation must be made through a written document called last will
and testament.
 A person who died with a will is said to be “testate”. A person who
died with a written will is called a “testator”.
2. Legal or Intestate Succession

 When a decedent dies without a will or with an invalid one, the
distribution of the estate shall be in accordance with the default
provision of the Civil Code on succession.
3. Mixed Succession
 Transmission of the decedent properties shall be partly by virtue of a
written will and partly by operation of law.
WILL
 It is an act whereby a person is permitted, with the formalities prescribed
by law, to control to a certain degree the disposition of this estate, to take
effect after his death (Art 783 Ibid).
Types of Will
1. Holographic will - a will which is entirely written, dated, and signed by the
hand of the testator himself.
2. Notarial will - a notarized will signed by the decedent and witnesses
3. Codicil - a supplement or addition to a will, made after the execution of a
will and annexed to be taken as a part thereof, by which disposition made
in the original will is explained, added to, or altered (Art 825. Ibid.)
NATURE OF SUCCESSION
 It is a gratuitous transmission of property from a deceased person in favor
of his successors.
 It involves only the net properties of the decedent.
ELEMENTS OF SUCCESSION
 Decedent - the general term applied to the person whose property is
transmitted through succession, whether or not he left a will.
 Estate - the property, rights and obligations of the decedent not
extinguished by his death. This is also referred to as the “inheritance” of
the decedent.
 Heirs - a person called to the succession either by the provision of a will or
by operation of law (Art. 782, Ibid.).
WHO ARE THE HEIRS?
In intestate succession, the heirs shall be the following in descending orDER
of priority:
1. Compulsory heirs
2. Relatives up to fifth degree of consanguinity
3. Republic of the Philippines
Types of compulsory heirs

1. Primary heirs: Legitimate children and their direct descendants
2. Secondary heirs: Legitimate/illegitimate parents and ascendants
3. Concurring heirs: The surviving spouse and illegitimate descendants
In the absence of compulsory heirs, the following shall inherit in the following
order of priority:
1. Collateral relatives up to the fifth degree of consanguinity
2. The Philippine government
Summary of Rules:
BASIC INTESTATE PARTITION PROCEDURES
1. The decedent and the surviving spouse shall first share in their common
properties.
 The common properties net of expenses and obligations chargeable
common properties of the spouses is divided between the decedent
surviving spouse.
2. Determination of the decedent's net interest.
 The decedent's net interest comprising of the following is computed:
a. Exclusive property of the decedent
b. Share of the decedent in the net common properties
3. Partition of the decedent's net interest to the heirs:
a. Surviving spouse
b. Legitimate children
c. Illegitimate children
The surviving spouse and each of the children have one share each. Each
illegitimate child is entitled to a half share.
Illustration 1
Don Uyong died leaving behind his widow, Mrs. Uyong, his legitimate children, Max and
Rey, and illegitimate children, Joan, Sylvia and Eunice, as heirs. Mr. and Mrs. Uyong had
the following properties:
Exclusive properties of Don Uyong P 18,000,000
Exclusive properties of Mrs. Uyong 16,000,000
Net common properties 36,000,000
Requirements:
1. How much is the total net estate of decedent?
2. Compute for the inheritance of each heir.
HEIRS under TESTAMENTARY DISPOSITION
In testamentary succession, the heirs shall be the following:
1. Compulsory heirs
2. Other persons specified by the decedent in his will
Legitime
 It is that part of the testator's property which he cannot dispose of because
the law has reserved it for certain heirs who are, therefore, called
compulsory heirs (Art. 886, Ibid). The excess properties of the decedent is
called “free portion”.
 By means of a last will and testament, a testator can designate the free
portion of his estate for additional heirs irrespective of their relationship to
him but he cannot exclude or disinherit compulsory heirs without a valid
basis under the law.
Disinheritance and Repudiation
 A decedent can actually disinherit an heir on certain grounds. Similarly,
heirs may repudiate their share in the inheritance of the decedent.
 The rules on legitime, free portion, disinheritance of an heir or repudiation
of inheritance are matters of law which are irrelevant to estate taxation.
Other persons in succession

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 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
ESTATE TAXATION
 It pertains to the taxation of the gratuitous transfer of properties of the
decedent to the heirs upon the decedent's death.
 It is governed by the law in force at the time of the decedent’s death.
 The estate tax accrues as of the decedent's death and the accrual of the
tax is distinct from the obligation to pay the same.
 Upon the death of the decedent, succession takes place and the right of
the State to tax the privilege to transmit the estate vests instantly upon
death.
Between January 1, 1998

Decedents who died On or after January 1, 2018
to December 31, 1997
Shall be governed by The NIRC The TRAIN Law
NATURE OF ESTATE TAX:
1. Excise tax - estate tax is not a tax on the property but on the privilege to
transfer property through death
2. Revenue or general tax - estate tax is intended as a revenue or fiscal
measure
3. Ad valorem tax - estate taxis dependent upon the value of the estate
4. National tax - estate tax is imposed by the national government
5. Proportional tax - estate tax is imposed as 6% on the net estate
6. One-time tax - estate tax applies to a person only once in a lifetime
Classification of Decedents for Taxation purposes

1. Resident or Citizen Decedents - taxable on properties located within or
outside the Philippines
2. Non-resident Alien Decedents - taxable only on properties located in the
Philippines, except intangible personal property when the reciprocity rule
applies
THE ESTATE TAX MODEL
Gross estate P xxx,xxx
Less: Deductions from gross estate xxx,xxx
Net taxable estate P xxx,xxx
“Gross Estate” pertains to the totality of the properties owned by the

decedent at the point of his death. Two concepts under gross estate:
 Exclusions in gross estate - those properties or transfers excluded by law
from estate taxation
 Inclusions in gross estate - those properties which are to be included as
part of the taxable gross estate
“Deductions” generally pertain to reductions in the inheritance of the heirs

such as obligations of the decedent, and losses of property during
administration, but also include exemptions from the estate tax under the law.
“Net taxable estate” is the net properties of the decedent after all pertinent
deductions allowable by law that is subject to tax.
Questions to Ponder:
1. What is succession?
2. What is inheritance?
3. Enumerate and discuss each of the types of succession.
4. What is a will? Discuss briefly.
5. Enumerate and explain each of the elements of succession.
6. Briefly discuss the types of compulsory heirs and their order of succession.
7. Briefly discuss the sharing of the inheritance under intestate succession.
8. What is a legitime?
9. What is estate taxation?
10. Enumerate and explain the nature of estate tax.
11. What are the two classifications of decedents? Discuss their estate taxation.
Required Readings
1. Chapters 13, pp.446 – 454:
Banggawan, Rex B. 2019. BUSINESS AND TRANSFER TAXATION LAWS,

PRINCIPLES, AND APPLICATIONS. Real Excellence Publishing., Pasay Default
Barangay, Pasay City, Philippines.
2. https://www.bir.gov.ph/index.php/tax-information/estate-tax.html
Learning Activities
1. Chapters 13, pp.455 – 459:
Banggawan, Rex B. 2019. BUSINESS AND TRANSFER TAXATION LAWS,

PRINCIPLES, AND APPLICATIONS. Real Excellence Publishing., Pasay Default
Barangay, Pasay City, Philippines.
Appendix: Course Materials Evaluation
Adopted: BEST PRACTICES AND SAMPLE QUESTIONS FOR COURSE EVALUATION SURVEYS. Retrieved from
https://assessment.provost.wisc.edu/best-practices-and-sample-questions-for-courseevaluation-surveys//.

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The Concept of Succession

and Estate Tax

2. Legal or Intestate Succession

Types of compulsory heirs

Other persons in succession

Between January 1, 1998

Classification of Decedents for Taxation purposes

“Gross Estate” pertains to the totality of the properties owned by the

“Deductions” generally pertain to reductions in the inheritance of the heirs

Banggawan, Rex B. 2019. BUSINESS AND TRANSFER TAXATION LAWS,

Banggawan, Rex B. 2019. BUSINESS AND TRANSFER TAXATION LAWS,

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