CA 51015 - BUSINESS TAX ● is a mode of acquisition by virtue of

which he property, rights and

ESTATE TAX PART 1 obligations to the extent of the value of
the inheritance, of a person are
INTRODUCTION TO TRANSFER TAXES transmitted through his death to another
or others either by will or by operation
of law (Art. 774, Civil Code of the
Philippines).

Will - an act whereby a person is permitted with

the formalities prescribed by law, to control to a
certain degree the disposition of his estate, to
take effect after his death (Art. 783, CCP) from
the moment of the death of the decedent, the
TRANSFER TAXES rights to the succession are transmitted, and the
● Transfer taxes are taxes imposed upon possession of the hereditary property is deemed
the gratuitous disposition of private transmitted to the heir (Art. 777, CCP).
properties or rights. Gratuitous transfer
is one that neither imposes burden nor Kinds of Wills:
requires consideration from transferee 1. Notarial or Ordinary or Attested Will - is
or recipient. The transfer of ownership one which is executed in accordance
is free because of the absence of with the formalities prescribed by Art.
financial consideration. 804 to 808 of the New Civil Code. It is a
will that is created for the testator by a
TYPES OF TRANSFER TAXES third party, usually his lawyer, follows
ESTATE TAX proper form, signed and dated in front
● Tax imposed on gratuitous transfer or of the required number of witnesses (3
donation that takes effect at the time of or more witnesses) and acknowledged
death of the donor (also known as by the presence of a notary public.
“donation mortis causa”).
2. Holographic Will - is a written will which
DONOR’s TAX must be entirely written, dated and
● Tax imposed on gratuitous transfer or signed by the hand of the testator
donation that takes effect during the himself, without the necessity of any
lifetime of both the donor and the done witness. This kind of will does not need
(also known as “donation inter vivos”). formalities because many people can
recognize his handwriting and it can be
DISCUSSION QUESTIONS verified by a penmanship expert.
1. Which of the following statements is false?
Transfer tax is: ● Codicil – a supplement or addition to a
a. Imposed upon gratuitous transfer of will, made after the execution of a will
property and annexed to be taken as a part
b. Of two kinds: estate tax and donors’ tax thereof, by which any disposition made
c. Classified as national tax in the original will is explained, added to
d. None of the above or altered.

2. The object of estate tax is: ELEMENTS OF SUCCESSION

a. Right to transmit 1. Decedent - the person whose property
b. Decedent is transmitted through succession,
c. Properties of the decedent whether or not he left a will (Art. 775,
d. Beneficiaries CCP).
2. Heir - the person called to the
CONCEPT OF SUCCESSION succession either by the provision of a

1
 will or by operation of law (Art. 782, settle intestate estate and such testate
CCP). estate as no competent executor was
3. Estate - refers to all the property, rights designated by the testator.
and obligations of a person which are
not extinguished by his death (Art. 776, Compulsory or Forced Heirs
CCP). 1. Legitimate children and descendants
2. In default of the foregoing, legitimate
KINDS OF SUCCESSION parents or ascendants
1. Testamentary - succession which 3. Widow or widower; and
results from the designation of an heir, 4. Illegitimate children
made in a will executed in the form
prescribed by law (Art. 779, CCP) DISCUSSION QUESTIONS
3. It is a mode of acquisition by virtue of which,
● While the decedent may dispose of his the property, rights and obligations, to the extent
properties in a last will and testament, of the value of the inheritance, of a person are
he must, however, reserve compulsory transmitted through his death to another either
or forced heirs. by his will or by operation of law.
a. Succession
2. Legal or Intestate - transmission of b. Donation
properties where there is no will, or if c. Prescription
there is a will, the same is void or lost d. Exchanges
its validity, or nobody succeeds in the
will. 4. Which of the following could legally effect
transfer of properties through succession?
● In intestate succession, the entire I. By virtue of a will
estate of the decedent is distributed to II. By operations of law
the heirs. The compulsory heirs in III. By onerous transfer
testamentary succession are also heirs
in intestate succession. However, a. I only
intestate heirs include, brothers and b. I and II only
sisters, collateral relatives within the c. I and III only
fifth civil degree, and the state. d. I, II and III

3. Mixed - transmission of properties, 5. An act whereby a person is permitted, with the

which is effected partly by will and formalities prescribed by law, to control to a
partly by operation of law certain degree the disposition of his estate, to
take effect after his death.
KINDS OF SUCCESSORS a. Contract
1. Legatee - an heir to a particular b. Trust
personal property given by virtue of a c. Will
will. d. Legacy
2. Devisee - an heir to a particular real
property given by virtue of a will. 6. The following are the elements of succession,
except:
Executor vs. Administrator a. Decedent
● Executor is the person nominated by a b. Estate
testator to carry out the directions and c. Heir
request in his will and to dispose of his d. Executor
property according to his testamentary
provisions after his death. 7. Succession which results from the
● Administrator is a person appointed by designation of an heir, made in a will executed
the court, in accordance with the in the form prescribed by law is known as:
governing statute, to administer and a. Legal or intestate succession

2
 b. Testamentary succession d. Successor
c. Mixed succession
d. Ordinary succession. 11. A person who inherits specific real property
thru a will:
8. The portion of the decedent’s estate which the a. Devisee
law reserves to his compulsory heir is called: b. Legatee
a. Legitime c. Heir
b. Free portion d. Successor
c. Legacy
d. Bequest ESTATE TAX PART 2

ESTATE TAX
ESTATE HEIRS
● It is a tax on the right to transfer
LEGITIME (i.e. 75%) Compulsory/Forced property at death (succession) and on
Portion of the GE Heirs certain transfers which are made by law
reserved to the equivalent of testamentary
compulsory heirs Primary Compulsory
(with or without “will”) 1. Legitimate disposition and is measured by the
children value of the property.
2. Illegitimate
children
3. Surviving NATURE OF ESTATE TAX
spouse ● It is an excise tax, the object of which
is the shifting of economic benefits and
Secondary Compulsory
enjoyment of property from the dead to
- Parents in the absence
of children the living.
● It accrues as of the death of the
decedent, notwithstanding the
Free Portion (i.e. Intestate heirs: postponement of the actual possession
25%) 1. Legitimate
Portion of the estate children or enjoyment of the estate by the
that may be given to: 2. Parents beneficiary.
● Anyone as 3. Illegitimate ● The taxpayer in the estate taxation is
provided in children
the will 4. Surviving the estate of the decedent represented
● In the spouse by the administrator, executor or legal
absence of 5. Brothers/sisters heirs.
a will, to 6. Relatives up to
intestate 5th degree
heirs 7. State Effectivity of Transfer of Properties
Lorenzo vs. Posadas, 64 Phil 353

DISCUSSION QUESTIONS
“The heirs succeed immediately to all the
9. Which of the following is a valid will?
property of the deceased ancestor at the
a. That which reduces the legitime of
moment of death as completely as if the
compulsory heirs.
ancestor had executed and delivered to them a
b. That which increase the share of one
deed of the same before his death”
heir without impairing the legitime of
the other heirs.
DISCUSSION QUESTIONS
c. That which transfer the legitime of one
12. Estate tax is
heir to the other heir.
a. A property tax because it is imposed on
d. That which impair the legitime of
the property transmitted by the
compulsory heirs.
decedent to his heirs.
b. An indirect tax because the burden of
10. A person who inherits specific personal
paying the tax is shifted on the executor
property thru a will:
or any of the heirs of the decedent
a. Devisee
c. An excise tax because the object of
b. Legatee
which is the shifting of economic
c. Heir
3
 benefits and enjoyment of property but in substance was only transferred at
from the dead to the living the time of death.
d. A poll tax because it is also imposed on
residents of the Philippines whether CLASSIFICATION OF DECEDENT
Filipino citizens or not 1) Citizen or Resident (RC/NRC/PA)
2) Non-Resident Alien (NRA)
13. Estate tax accrues from: a) With reciprocity
a. The moment of death of the b) Without reciprocity
decedent
b. The moment the notice of death is filed
c. The moment the estate tax return is
filed
d. The moment the properties are
delivered to the heirs

14. The taxpayer in estate tax is:

a. The decedent
b. The estate as a juridical entity
c. The heirs or successors RECIPROCITY CLAUSE
d. The administrator or executor - No tax shall be imposed with respect to
intangible personal properties of a
15. Who has the personal liability to pay estate NRA situated in the Philippines:
tax?
a. The decedent 1) When the foreign country, where such
b. The estate as a juridical entity NRA is a resident and citizen, does not
c. The heirs or successors impose transfer tax with respect to
d. The administrator or executor intangible personal properties of Filipino
citizens not residing in that country; or
FORMAT OF COMPUTATION
2) When the foreign country imposes
transfer taxes, but grants similar
exemption with respect to intangible
personal properties of Filipino citizens
not residing in that country.

INTANGIBLE PROPERTIES CONSIDERED

LOCATED IN THE PHILIPPINES
1) Franchise which must be exercised in
the Philippines;
2) Shares, obligations or bonds issued by
any corporation or sociedad anonima
organized or constituted in the
Philippines;
3) Shares obligations or bonds issued by
any foreign corporation, at least 85% of
the business of which is located in the
Philippines;
GROSS ESTATE 4) Shares, obligations, or bonds issued by
- consists of all properties and interests any foreign corporation if such shares,
in properties of the decedent at the time obligations, or bonds have acquired a
of his death as well as properties business situs (used in the furtherance
transferred during lifetime (only in form), of its business in the Philippines);

4
 5) Shares or rights in partnership, 17. The personal properties of a non-resident,
business or industry established in the not citizen of the Philippines, would not be
Philippines. included in the gross estate if:
a. The intangible personal property is in
VALUATION OF GROSS ESTATE the Philippines
- the items comprising the gross estate b. The intangible personal property is
shall be valued at the time of death or in the Philippines and the reciprocity
date nearest such date. clause of the estate tax law applies
1) Usufruct – based on latest Basic c. The tangible personal property is in the
Mortality Table to be approved by the Philippines
Secretary of Finance, upon d. The personal property is shares of
recommendation of the Insurance stock of a domestic corporation 80% of
Commissioner. whose business is in the Philippines.
2) Real Property – the higher amount
between: 18. All of the following are considered intangible
a) Fair Market Value in the Philippines, except:
b) Zonal Value a. Franchise which must be exercised in
3) Personal Properties – Fair market the Philippines
value b. Shares, obligations or bonds issued by
4) Shares of stock any corporation or sociedad anonima
a) Traded in the Local Stock organized or constituted in the
Exchange (LSE) – mean Philippines in accordance with its laws
between the highest and c. Shares, obligations or bonds by any
lowest quotations, at a date foreign corporation 75% of the
nearest the date of death, if business of which is located in the
none is available at the date of Philippines
death itself (RR 2-2003/RR d. Shares, obligations of bonds issued by
12-2018). any foreign corporation if such shares,
b) Not traded in the local stock obligations or bonds have acquired a
exchange: business situs in the Philippines;
i) Common (ordinary)
shares – Book value 19. Lina Lamay, Filipina, died in Syria leaving the
ii) Preferred following properties:
(preference) shares –
Par Value
c) Units of participation in any
association, recreation or
amusement club (such as golf,
polo, or similar clubs) – bid
price nearest the date of death
published in any newspaper or
publication of general
circulation.
20. Based on the preceding number, but
DISCUSSION QUESTIONS assuming the decedent is a non-resident alien,
16. One of the following is subject to estate tax the gross estate is:
on properties situated within the Philippines only a. P3,800,000
a. Resident citizen b. P2,600,000
b. Resident alien c. P2,500,000
c. Nonresident citizen d. P2,000,000
d. Nonresident alien
21. Continuing number 20 and assuming the
rule on reciprocity applies, the gross estate is:

5
 a. P3,800,000 exchange. Cost - P70 per share; book
b. P2,600,000 value - P60 per share; par value – P50
c. P2,500,000 per share
d. P2,000,000 ● Car (cost - P600,000; book value -
P350,000; market value - P400,000)
● Real properties (zonal value -
P120,000; assessed value - P72,000)
The gross estate of Binat is –
a. P817,500 c. P824,000
b. P816,500 d. P846,500

22. Part of the estate left by A are preference

shares of MERALCO. The shares are listed
and traded in the Philippine Stock Exchange.
Which of the following rules of valuation is
correct?
a. The preference shares will be valued
using the arithmetic mean between
the highest and lowest quotation at ESTATE TAX PART 3
the date nearest the date of death, if
none is available on the date of Inclusions and Exclusions from the GROSS
death itself. ESTATE
b. The preference shares will be valued
based on their book value. COMPONENTS OF THE GROSS ESTATE
c. The preference shares will be valued 1) Properties of the decedent that are
based on their par value. physically present in his estate
d. The preference shares will be valued 2) Decedent’s Interest
based on their fair market value as 3) Properties not physically present in his
determined estate

1) Properties existing at the time of death

such as:
a. Real Property
b. Tangible Personal Property
c. Intangible Personal Property

2) Decedent’s Interest - refers to the extent of

equity or ownership participation of the decedent
on any property physically existing and present
23. Binat died on April 13, 2018, leaving the in the gross estate, whether or not in his
following properties: possession, control or dominion. It also refers to
● Common stocks of Sunchamp the value of ANY INTEREST IN PROPERTY
Corporation (2,000 shares) - listed in OWNED OR POSSESSED by the decedent at
the Philippine Stock Exchange (highest the time of his death (interest having value or
- P40; lowest - P39). capable of being valued, transferred)
● Common stocks of AgriNurture Example:
Corporation (1,500 shares) - not listed ● Dividends declared before his death but
in the stock exchange. Cost - P50 per received after death.
share; book value - P45 per share. ● Partnership profit which have accrued
● Preferred stocks of Greenergy Inc. before his death
(3,000 shares) – not listed in the stock ● Usufructuary rights, etc.

6
 Property transferred under a special power of
3) Properties transferred gratuitously during appointment should be excluded from the gross
lifetime, but in substance, transferred upon estate of the done of the power because the
death: done-decedent only holds the property in trust
a. Transfer in contemplation of death – the
thought of death must be the impelling
cause of the transfer.

b. Transfer with retention or reservation of

certain right – allows the transferor to
continue enjoying, possessing or
controlling the property (beneficial
ownership) because only the naked title
has been transferred.

c. Revocable transfer – decedent

transfers the enjoyment of his property DISCUSSION QUESTIONS
to another, subject to his right to revoke 24. One of the following donations is not
the transfer at will, with or without included as part of gross estate
notifying the transferee, any time before a. Revocable transfers
he dies. b. Transfers with reservation of certain
rights
d. Property passing under general power c. Transfers under special power of
of appointment appointment
d. Transfers in contemplation of death
● Power of appointment refers to the right
to designate the person or persons who 25. Statement 1: Aguinaldo devised in his will a
will succeed to the property of the prior piece of land; naked title to Bonifacio and
decedent. The power of appointment usufruct to Rizal for as long as Rizal lives,
may be “general” or “special” . thereafter to Bonifacio. The transmission from
Aguinaldo to Bonifacio and Rizal is subject to
● The power of appointment is “general” estate tax but the merger of the usufruct and the
when the power of appointment naked title to Bonifacio upon the death of Rizal
authorizes the donee of the power to is exempt.
appoint any person he pleases. The
power may be exercised in favor of Statement 2: Erap devised in his will real
anybody including the donee-decedent. property to his brother Alfredo who is entrusted
with the obligation to preserve and transmit the
property to Isko, son of Alfredo, when Isko
becomes of age. The transmission from Alfredo
to his son Isko is subject to tax.

a. Only statement 1 is correct

b. Only statement 2 is correct
c. Both statements are correct
d. Both statements are incorrect

e. Transfers for insufficient consideration –

sale of property below fair market value (FMV)
Special power of appointment exists when the
donee can appoint only from a restricted or
designated class of persons other than himself.

7
 27. Based on the preceding number, if the fair
market value of the property at the time of death
is only P600,000, how much will form part of
gross estate?
a. P500,000
b. P1,200,000
c. P800,000
d. P0

Fair Value upon death P 600,000

Consideration @ the time of 700,000
transfer
Amount to be included in the GE P0

28. Vlad died on October 20, 2018. During his

lifetime, upon knowing that he had Stage 4
cancer, sold his Lamborghini car to his son for
P4,000,000. The fair market value of the car at
the time of sale is P3,000,000 while it is already
valued at P5,000,000 at the time of death. The
amount that will be added to gross estate is:
a. P1,000,000
b. P5,000,000
c. P2,000,000
d. nil

29. Based on the preceding number, if the

consideration is fictitious, how much will form
part of gross estate?
a. P1,000,000
b. P5,000,000
DISCUSSION QUESTIONS c. P2,000,000
26. Pedro, decedent, owns a property valued at d. nil
P1,500,000 at the time of his death. The said
property was sold by Pedro during his lifetime to Fair Value upon death P 5,000,000
Juan for P700,000 when its value was
Consideration @ the time of -
P1,200,000. It was agreed by Pedro and Juan transfer
that the former will enjoy the income of the
Amount to be included in the GE P 5,000,000
property as long as he lives. For Philippine
estate tax purposes, how much will be included
in determining gross estate? COMPONENTS OF THE GROSS ESTATE
a. P500,000 4) Proceeds from life insurance – the following
b. P1,200,000 are included in the gross estate:
c. P800,000
d. P0

Fair Value upon death P 1,500,000

Consideration @ the time of (700,000)
transfer 30. Which of the following life insurance
Amount to be included in the GE P 800,000 proceeds shall not be included in the
computation of gross estate?

8
 a. Beneficiary is the estate, executor or ● No part of the net income of
administrator and the designation of the said institutions inure to the
beneficiary is revocable. benefit of any individual;
b. Beneficiary is the estate, executor or ● Not more than 30% of such
administrator and the designation of the transfers shall be used for
beneficiary is irrevocable. administration purposes.
c. Beneficiary is other than the estate,
executor or administrator and the Merger of usufruct in the owner of the naked
designation of the beneficiary is title
revocable.
d. Beneficiary is other than the estate,
executor or administrator and the
designation of the beneficiary is
irrevocable.

EXCLUSIONS FROM THE GROSS ESTATE

EXEMPTIONS & EXCLUSIONS FROM GROSS

ESTATE
1) Under Section 85, NIRC
a. Properties outside the Philippines of a Special Power of Appointment
non-resident alien decedent
b. Intangible personal property in the
Philippines of a non-resident alien when
the rule of Reciprocity applies.
c. Capital or exclusive property of the
surviving spouse

FORMAT OF COMPUTATION

MARRIED DECEDENT Transmission of inheritance from fiduciary

heir to fideicommissary

2) Under Section 87, NIRC

a. The merger of the usufruct (right to use) 3) Under Special Laws
in the owner of the naked title. a. Proceeds of life insurance and benefits
b. The transmission or delivery of the received by members of the GSIS
inheritance or legacy of the fiduciary (RA728).
heir or legatee to the fideicommissary. b. Benefits received by members from the
c. The transmission from the first heir, SSS by reason of death (RA1792).
legatee or donee in favor of another c. Amounts received from Philippine and
beneficiary, in accordance with the will United States governments for war
of the predecessor. damages.
d. All bequests, devices, legacies or d. Amounts received from United States
transfers to social welfare, cultural and Veterans Administration
charitable institutions, provided:

9
 e. Benefits received from the Philippines
and US government for damages
suffered during World War II (RA227).
f. Retirement benefits of
officials/employees of a private firm
(RA4917).
g. Payments from the Philippines of US
government to the legal heirs of
deceased of World War II Veterans and
deceased civilian for supplies/services
furnished to the US and Philippine Army
(RA136).
h. Personal Equity and Retirement
Account (PERA) asset of the
decedent-contributor (Section 14, RA
9505)

DISCUSSION QUESTIONS
31. The list provided below is not included in the
gross estate of a decedent, except:
a. Share in common properties of the
surviving spouse;
b. Exclusive property of the surviving
spouse;
c. Properties outside the Philippines of a
non-resident alien decedent;
d. Intangible personal property in the
Philippines of a non-resident alien when
the rule of Reciprocity applies.

10