Taxation 2: Business and Transfer Taxation

Unit 2. Estate Taxation

Chapter 2: Concept of Taxation Basic Elements:
I. Succession and its Types 1. Decedent - The person who died
Succession is a mode of acquisition by and whose property is transmitted
virtue of which the property, rights and through succession
obligations to the extent of the value of the 2. Estate - The properties or property
inheritance of a person are transmitted rights of the decedent which is the
through his death to another or others subject matter of succession
either by will or operation of law. (Article 3. Successor - The heir or the person
774, Civil Code of the Philippines) to whom the property or property
rights is to be transferred.
Types of Succession
A. Testamentary Succession- is that III. Intestate Succession
which results from the designation of Under intestate succession, the law fixes
an heir, made in a Will and executed the terms of legal succession since its
in the form prescribed by law. A will application presumes the basic will of the
can either be a Notarial Will or a decedent.
Holographic Will. Intestate Heirs- persons who are called to
Notarial Will - A will written in the succession by operation of law
public instruments, notarized by a Compulsory Heir - persons who succeed
lawyer, signed by the testator and by force of law to some portion of the
witnesses inheritance in an amount predetermined by
Holographic Will - One entirely law
written, dated and signed in the very
handwriting of the testator himself NB:
and is not subject to any form and Intestate heirs are not necessarily
may be made without a witness. compulsory heirs. For example, brothers
B. Intestate Succession- may be done and sisters are not compulsory heirs but
when a person dies without a written they are among intestate heirs.
Will o with a void Will Not all compulsory heirs can inherit as
- It is a legal succession because it intestate heirs, They could be excluded
takes effect through the operation of primary compulsory heirs.
law.
NB: If some inheritance is not covered by Series of Lines -A series of degrees of
Will, the property not disposed off in the will string of lines of blood relationship.
shall be distributed by legal succession. a. Direct Lines - It is a straight line,
This results to mixed succession whereby either going down (direct
the disposition of inheritance is partly descending) or going up (direct
testate and partly intestate. ascending), depending upon the
position of the relatives under
II. Nature and Elements of Succession consideration.
The rights to the succession are Eg. “A” has a child “B” and “B” has a
transmitted from the moment of the death child “C”
of the decedent. The relationship of “A” to”C” is a
direct descending line while the
Taxation 2: Business and Transfer Taxation
Unit 2. Estate Taxation
relationship between “C” to “A” is a Right of Representation - It is a right
direct ascending line. created by fiction of law, by virtue of which
b. Collateral lines- This line is traced the representative is raised to the place and
from the series of degrees among the degree of the person represented, and
relatives who are not ascendants acquires the rights which the latter would
and descendants, but the descent have if he were living or if he could have
and offspring of a common ancestor. inherited.
Eg.”Y” has 3 children: “A”, “B”, and -The right of representation takes place in
“C” the direct descending line, but never in the
“A” “B””C” are siblings. They come ascending line.
from a common ancestor “X”. -A renouncer may represent , but may not
RULES be represented.
Preferences of Lines - Those in the direct -An adopted child cannot represent, neither
descending line exclude those in the direct may an adopted child be represented.
ascending and collateral line, and those in -In the collateral line the right of
the direct ascending line exclude those in representation takes place only in favor of
the collateral line the children of brothers or sisters, whether
they are within full or half-blood.
Illustration
Division per Stirpes- made when one sole
descendants or group of descendants
represents a person in intestate succession.
The sole representative or group of
representatives are counted as one head.

Iron-Curtain Rule - An illegitimate child has

no right to inherit abintestato from the
legitimate children and relatives of his father
or mother; nor shall such children or
relatives inherit in the same manner from
the illegitimate child.

PROPORTION OF INTESTATE SHARE

Rule of proximity - The nearer excludes
the farther. Surviving Heir Intestate Share

Any class alone Entire Share

Principle of Concurrence - The Illegitimate
children and the surviving spouse who are LC Entire Share
not only intestate heirs but also compulsory LP Excluded
heirs, even when they concur with
1LC ½
legitimate children or with legitimate
SS ½
parents, are not only entitled to their
legitime, but are also given a share in the 2 or more LC Consider SS as
disposable free portion. SS 1LC, and then
Taxation 2: Business and Transfer Taxation
Unit 2. Estate Taxation
1. Primary Compulsory Heirs are the
divide estate by the
total number successors to whom the legal
portion of the estate is first reserved
LPA ½ by law.
SS ½ a. Legitimate children and their
descendants, with respect to
LPA ½
SS ¼ their legitimate parents and
IC ¼ ascendants;
b. Surviving spouse
IP ½ c. Illegitimate children and their
SS ½ descendants.
SS ½ 2. Secondary Compulsory Heirs are
BS/NN ½ the successors to receive the estate
in the absence of the primary
LC 10: compulsory heirs.
IC 5 a. Legitimate parents and legitimate
SS 1 share of
ascendants - they inherit only in
legitimate child
default of legitimate children and
IC ½ their descendants
IP ½ b. Illegitimate parents - they inherit
only in default of surviving
IC ½
spouse and illegitimate children
SS ½
and their descendants.
LPA Entire Share A. 2. Voluntary Heirs who succeed by
BS/NN Excluded virtue of the will of the testator, to the whole
or aliquot part of the disposable free
In case of death of Adopting parents portion of the hereditary estate
adopted child, with
no descendants B. Devises- persons to whom gifts of real
property are given by virtue of a will.
Surviving relative is State C. Legatees - persons to whom gifts of
beyond 5th degree personal property are given by virtue of a
will.

IV. Testamentary Succession (Heirs, Legitime - is the portion of the testator’s

Legitime, Disinheritance and property which could not be disposed off
Repudiation freely because the law has reserved it for
the compulsory heirs.
A. Heirs- persons who are called to the
succession either by the provision of a Free portion - that part of the whole estate
will or by operation of law which the testator could dispose of freely
A.1. Compulsory Heir -.persons who through a written will irrespective of his
succeed by force of law to some portion of relationship to the recipient. (in excess of
the inheritance in an amount the legitime)
predetermined by law
Taxation 2: Business and Transfer Taxation
Unit 2. Estate Taxation
TESTAMENTARY DISTRIBUTION OF NET
SS must first be
ESTATE fully satisfied
Successor Legitime NOTES
LPA 1/2
LC ½ Divide by the
number of LC, LPA ½ The ¼ to which IC
whether they IC ¼ is entitled is taken
survive alone or from the free
with concurring CH portion

1LC ½ The legitime of the LPA ½ The legitime of the

SS ¼ SS shall be taken SS ¼ SS shall be taken
only from the free from the free
portion portion
In case of legal
separation. The LPA ½ The legitime of the
surviving spouse SS ⅛ SS and IC shall be
may inherit if it was IC ¼ taken from the free
the deceased who portion
had given cause
IC ½
for the same
SS ⅓
2 or more ½ Divide by the
IC ⅓
LC number of LC
SS Same The legitime of the SS ½
as that SS shall be taken
of each from the free ⅓ If marriage is in
LC portion articulo mortis and
spouse dies within
LC ½ The legitime of the 3 months after the
IC ½ of 1 IC shall be taken marriage.
LC from the free
portion IP ½
LC ½ If there are 2 or IP ¼ Only the parents of
SS ¼ more LC, the SS IC. Grandparents
IC ½ of legitime of the SS ¼ and other
LC is the same as that ascendants are
of each LC and it excluded.
shall be taken from
the free portion
The legitime of the Disinheritance - an act by which the owner
IC shall be taken of an estate deprives a person who would
from the free otherwise be his heir, or have the right to
portion provided inherit it.
the total legitime of
-can be made only through a Will wherein
such IC shall not
exceed the free the legal cause thereof shall be specified.
portion and that
the legitime of the Grounds for Disinheritance of Children
and descendants
Taxation 2: Business and Transfer Taxation
Unit 2. Estate Taxation
4. When the parent or ascendant has been
convicted of adultery or concubinage
1. When a child or descendant has been with the spouse of the testator;
found guilty of an attempt against the life 5. When the parent or ascendant by fraud,
of the testator, his or her spouse, violence, intimidation, or undue
descendants, or ascendants; influence causes the testator to make a
2. When a child or descendant has will or to change one already made;
accused the testator of a crime for which 6. The loss of parental authority for causes
the law prescribes imprisonment for six specified in this Code;
years or more, if the accusation has 7. The refusal to support the children or
been found groundless; descendants without justifiable cause;
3. When a child or descendant has been 8. An attempt by one of the parents against
convicted of adultery or concubinage the life of the other, unless there has
with the spouse of the testator; been a reconciliation between them.
4. When a child or descendant by fraud,
violence, intimidation, or undue Grounds for disinheriting a spouse:
influence causes the testator to make a 1. When the spouse has been convicted
will or to change one already made; of an attempt against the life of the
5. A refusal without justifiable cause to testator, his or her descendants, or
support the parent or ascendant who ascendants;
disinherits such child or descendant; 2. When the spouse has accused the
6. Maltreatment of the testator by word or testator of a crime for which the law
deed, by the child or descendant; prescribes imprisonment of six years or
7. When a child or descendant leads a more, and the accusation has been
dishonorable or disgraceful life; found to be false;
8. Conviction of a crime which carries with 3. When the spouse by fraud, violence,
it the penalty of civil interdiction. intimidation, or undue influence cause
the testator to make a will or to change
Grounds for the disinheritance of one already made;
parents or ascendants 4. When the spouse has given cause for
1. When the parents have abandoned their legal separation;
children or induced their daughters to 5. When the spouse has given grounds
live a corrupt or immoral life, or for the loss of parental authority;
attempted against their virtue; 6. Unjustifiable refusal to support the
2. When the parent or ascendant has been children or the other spouse.
convicted of an attempt against the life
of the testator, his or her spouse, Effects of Disinheritance
descendants, or ascendants; 1. Deprivation of the compulsory heir who
3. When the parent or ascendant has is disinherited of any participation in the
accused the testator of a crime for which inheritance including the legitime and
the law prescribes imprisonment for six free portion.
years or more, if the accusation has 2. The children/descendants of the person
been found to be false; disinherited shall take his/her place and
Taxation 2: Business and Transfer Taxation
Unit 2. Estate Taxation
shall preserve the rights of compulsory 1. Classification of the decedent
heirs with respect to the legitime 2. Types of properties
3. The disinherited parent shall not have 3. Status of the decedent
the usufruct or administration of the
property which constitutes the legitime. VI. Classification of Estate Taxpayers
a. Resident Citizen
Repudiation of the inheritance - is an act b. Non-Resident Citizen
which is purely voluntary and free. It is c. Resident Alien
proper only when a person is certain of the d. Non-Resident Alien
death of a person from whom he is to inherit VII. Estate Tax Model
The repudiation shall be made in a public or Gross Estate XX
authentic instrument, or by petition Less: Allowable Deduction (XX)
presented to the court. Estate after deduction XX
Effect of repudiation Less: Share of the SS
If an heir is both a testate and legal heir, the in conjugal/community property (XX)
repudiation of the inheritance as a testate Net Taxable Estate XX
heir, he is understood to have repudiated in Multiply by the fixed tax rate 6%
both capacities. However, should he Amount of Estate Tax Due XX
repudiate as a legal heir, without knowledge
of being a testate heir, he may still accept
the inheritance as a testate heir.

V. Estate Taxation and Nature of Estate

Tax
Estate Tax - is a tax on the transfer of the
net estate of the decedent.
The obligation to pay the estate tax accrues
at the moment of death.

Nature of Estate Tax

1. Excise Tax - tax imposed on the
privilege to transfer property
2. National Tax - Imposed by the National
Government
3. General Tax - For the general fund of
the government
4. Direct Tax - You cannot pass on the
burden to another person
5. Ad Valorem Tax - Based on the total
peso value
6. Proportionate Tax - The tax rate,
whatever the value, is fixed at 6%

In computing the Gross Estate based it on

Taxation 2: Business and Transfer Taxation
Unit 2. Estate Taxation

Format of Computation (BIR FORM 1801)

Exclusive Common Total

Real Properties excluding family home xx xx xx

Family Home xx xx xx

Personal Properties xx xx xx

Taxable transfers xx xx xx

Business Interest xx xx xx

Gross estate xx xx xx

Less: Deductions (xx) (xx) (xx)

Estate Tax After Deductions xx xx xx

Less: Special Deductions

Family Home (xx)

Standard Deduction (xx)

Others (xx)

Net Estate xx

Less: Share of Surviving Spouse (Net

Common Estate divided by 2) (xx)

Taxable Net Estate xx

Estate Tax Rate 6%

Tax Due xx

Less: Tax Credits/payments

Foreign estate tax paid (tax credit) (xx)

Tax paid in return previous filed (if it is an

amended return (xx)

Tax payable XX