ESTATE TAX

PROF. JEANEFER B. REYES CPA, MPA

E s ta te T a x : S u m m a ry of C h a n g es
RA 8424(OLD) RA 10963(TRAIN)
Rate Graduated 5%-20% on the 6% based on the net value of the
net value of the estate estate
Deductions
Family Home 1M 10M
Standard - 1M 5M
citizen/resident none 500K
- nonresident alien
Funeral Expenses 5% of Gross Estate > 200K none
Judicial Expenses allowed none
Medical Expense 500K none
Time of Filing 6 months from date of 1 year from date of death
death
Payment by Installments No provision 2 years in case of insufficient cash
without civil penalty & interest
CPA Certification 2M 5M
Withdrawal on deposits none 6% Final Tax
of decedent
Notice of Death Within 2 months repealed
  EXCLUSIONS FROM GROSS ESTATE
1. Proceeds of irrevocable life insurance policy payable to beneficiary that is
not the estate of the deceased, his executor or administrator.
2. Proceeds of life insurance under a group insurance taken by employer (not
taken out upon his own life).
3. Insurance proceeds or other benefits from the SSS or GSIS by reason of
death.
4. Payments to legal heirs of deceased war veterans.
5. Amounts received from damages suffered during World War II.
6. Benefits received from U.S. Veterans Administration.
7. The following exempt transactions:
a. The merger of the usufruct in the owner of the naked title.
b. The transmission or delivery of the inheritance or legacy of the
fiduciary heir or legatee to the fideicommissary.
c. The transmission from the first heir, legatee or donee in favor of
another beneficiary in accordance with the desire of the predecessor.
d. All bequests, devisees, legacies or transfers to social welfare, cultural
and charitable institutions, no part of the net income of which inures to
the benefit of any individual. Provided, however, that not more than
30% shall be used for administration purposes.
8. The exclusive property of the surviving spouse.
 TRANSFER FOR INADEQUATE CONSIDERATION
1. This rule applies on the following transfers:
a. Transfer in contemplation of death
b. Revocable transfer
c. Property passing under general power of appointment

2. The sale or exchange is exercised for an inadequate

consideration in money or money’s worth.
a. The difference between the fair market value at the time of
death and the value of consideration shall be included in the
gross estate.
 DEDUCTIONS FROM GROSS ESTATE
I. ORDINARY DEDUCTIONS -
A. Expenses, losses, indebtedness, taxes, etc. (ELIT)
 If the decedent was a -
1. Resident or citizen – deduct all expenses
2. Nonresident alien – prorate expenses as follows:

Phil gross estate

Total gross estate XELIT
1. Claims against the estate – debts or demands of pecuniary nature which
could have been enforced against the deceased in his lifetime and could
have been reduced to simple money judgments. Claims against the estate or
indebtedness in respect of property may arise out of (1) contract, (2) tort, or
(3) operation of law.
 Requisites:
a. Personal obligation of the deceased existing at the time of his death.
b. Contracted in good faith and for an adequate and full consideration in
money or money’s worth;
c. The debt or claim is valid in law and enforceable in court.
d. The debt instrument was duly notarized.
e. e. Not condoned by the creditor or must not have prescribed.
f. f. If the loan was contracted within 3 years prior to the death of the
decedent, the executor or administrator shall submit a statement showing
the disposition of the proceeds of the loan.
2. Unpaid mortgage – the property left by the decedent which was
encumbered by a mortgage indebtedness still unpaid at the time of death.
Provided, that the gross value of the property mortgaged, undiminished by the
mortgage indebtedness, must have been included in the gross estate.
3. Claims against insolvent persons–receivable of the decedent which can no
longer be collected due to insolvency of the debtor.

Requisites:
a. The amount of claim has been included in the gross estate.
b. The debtor’s incapacity is proven and not merely alleged.
4. Unpaid taxes – those which have accrued and unpaid as of
decedent’s death. The following are NOT deductible:
a. Income tax upon income received after death;
b. Property taxes not accrued before his death;
c. Estate tax due from the transmission of his estate.
5. Losses–if the following requisites are complied
a. Must arise from fire, storm, shipwreck or other casualties or from theft,
robbery or embezzlement AFTER the death of the decedent.
b. Not compensated by insurance or otherwise.
c. Not claimed as deduction for income tax purposes.
d. Incurred during the settlement of the estate and not later than the last
day for the payment of the estate tax.
B. Transfers for public purposes– All bequests, legacies or transfers to or for the use of the
government or any political subdivision thereof for exclusively public purpose. The transfer must be
testamentary in character. Oral transfers are not deductible.

C. Vanishing Deductions (Property previously taxed)

PURPOSE: To minimize the effects of a double tax on the same property within a short period of
time.
Requisites for vanishing deductions:
1. The property is situated in the Philippines.
2. Present decedent have acquired the property by inheritance or donation within five (5) years
prior to his death.
3. The estate taxes on the prior transfer or the gift taxes on the gift must have been finally
determined and paid.
4. The property subject to vanishing deduction must be identified as the one received from the
prior decedent, or from the donor or having been acquired in exchange for property so received.
5. The estate of the prior decedent has not yet previously availed of the vanishing deduction
Percentages of Vanishing Deduction
Property Acquired for

More than Not More than Percentage

XX 1 year 100%
1 year 2 years 80%
2 years 3 years 60%
3 years 4 years 40%
4 years 5 years 20%
XX
5 years 0%
II- SPECIAL DEDUCTIONS
Family Home – the dwelling house where the members of the family reside and
the land on which it is situated; the place to which, whenever absent for business
or pleasure, one still intends to return.
a. Must be situated in the Philippines.
b. Beneficiaries of family home are the spouses, their ascendants and descendants,
including legally adopted children, brothers and sisters, whether the relationship
be legitimate or illegitimate,
c. who are living in the family home and
d. who depend upon the head of the family for legal support.
Provided, that it must have been the decedent’s family home as certified by the
barangay captain of the locality.
Maximum amount deductible: P10 MILLION
2. Amount Received By Heirs Under Ra 4917. Any amount
received by the heirs from the decedent’s employer as a
consequence of death of the decedent employee.
Provided, that such amount is included in the gross estate of the decedent.
3. Standard deduction. – An amount equivalent to P5 MILLION.
 PROPERTY RELATIONSHIP BETWEEN SPOUSES
A.COMPONENTS OF GROSS ESTATE OF A MARRIED DECEDENT
Exclusive Properties of the Decedent PXXX
Add: Common Properties (100%) XXX
Gross Estate PXXX
NOTE: Exclusive properties of the surviving spouse are excluded in
computing gross estate.

B.PROPERTY RELATIONSHIP BETWEEN SPOUSES

1)Conjugal Partnership of Gains (CPOG)
Exclusive Properties:
a.That which is brought to the marriage as his or her own;
b.That which each acquires during marriage by gratuitous title;
c.That which is acquired by right of redemption, by barter or by
exchange with property belonging to any one of the spouses; and
d.That which is purchased with exclusive money of the wife or of the
husband.
Conjugal Properties:
 Those acquired by onerous title during marriage at the
expense of the common fund, whether the acquisition
be for the partnership, or for only one of the spouses;
 Those obtained from labor, industry, work or profession of
either or both spouses;
 The fruits, natural or industrial, or civil, due or received
during marriage from common property, as well as the
net fruits from the exclusive property of each spouse;
Conjugal Properties:
The share of either spouse in the hidden treasure
which the law awards to the finder or owner of
the property where the treasure is found;
Those acquired through occupation such as
fishing or hunting;
Livestock existing upon dissolution of the
partnership in excess of the number of each kind
brought to the marriage by either spouse; and
Those are acquired by chance, such as winnings
from gambling or betting. However, losses there
from shall be borne exclusively by the loser-
spouse.
2. Absolute Community of Property
(ACOP)
 Community Properties:
 All properties owned by the spouses at the time of
celebration of the marriage; or
 Acquired thereafter
 Exclusive Properties:
 Property acquired during marriage by gratuitous title by
spouse, and the fruits as well as the income thereof.
  EXCEPTION: unless it is expressly provided by the donor,
testator or grantor that they shall form part of the
community property.
. Absolute Community of Property
(ACOP)
 Property for personal and exclusive use of either spouse.

 EXCEPTION: jewelry shall form part of the community

property.

 Property acquired before the marriage by either spouse

who has legitimate descendants by the former marriage,
and the fruits as well as the income, if any of such
property.
•Similarities between CPOG and ACOP
Property CPOG ACOP

1. Property inherited or received as donation during Exclusive Exclusive

marriage

2. Property acquired during marriage (other than Conjugal Community

inheritance or donation)

3. Property acquired from labor, industry, work or Conjugal Community

profession of spouses

4. Fruits or income due or derived during the Conjugal Community

marriage coming from common property
•Difference between CPOG and ACOP

Property CPOG ACOP

1. Property before marriage or brought to the Exclusive Community

marriage

2. Fruits or income due or derived during the Conjugal Exclusive

marriage coming from exclusive property
RULES IN DETERMINING THE PROPERTY
RELATIONSHIP

If NO agreement on marriage settlement

Date of Marriage
Regime
Before August 3, 1988
CPOG
On or After August 3, 1988
ACOP
III-NET SHARE OF THE SURVIVING SPOUSE in the conjugal / community property.
PROBLEM
Exclusive properties of the decedent:
Car P1,400,000
Lot in Quezon City 2,000,000
Community properties -
Cash in bank 3,000,000
Receivable as prize in a raffle contest sponsored by PICPA 50,000
Receivable from an insurance company where his son, Gino was designated
in the policy as the revocable beneficiary 150,000

House and lot in Laguna, used as family home 4,000,000

Other real properties 1,500,000
The following deductions were claimed:
Funeral expenses 195,000
Judicial expenses 15,000
Claims against the estate, not notarized 50,000
Claims against insolvent persons 30,000
Unpaid mortgage on lot in Quezon City (contracted before marriage) 200,000

Unpaid mortgage on house and lot in Laguna 350,000

Accrued income taxes 35,000
Income tax on income earned from Oct 11 to Dec 31(year of death) 7,500

Medical expenses 20,000

REQUIRED: Compute the
1. Estate tax due based on the information given.
2. Estate tax due if the bank deposit was withdrawn prior to the filing of the
tax return.
 SOLUTIONS:
1. Exclusive Community Total
Car P1,400,000
Lot 2,000,000
Cash P 3,000,000
Receivable - PICPA 50,000
Receivable - Insurance 150,000
Family home 4,000,000
Receivable from insolvent person 30,000
Others ________ 1,500,000
Gross estate 3,400,000 8,730,000 P 12,130,000
Less: Deductions
Ordinary
Bad debts 30,000
Unpaid mortgage, QC 200,000
Unpaid mortgage, Laguna 350,000
Unpaid taxes _______ 35,000
Totals 200,000 415,000 ( 615,000)
 ADDITIONAL INFO
Exclusive Community Total
Special -
Family home (4,000,000/2) (2,000,000)
Standard deduction (5,000,000)
Net estate 4,515,000
Less: Share of surviving spouse
Gross community 8,730,000
Less: Community deductions 415,000
Net 8,315,000
Share (8,315,000 x 1/2) 4,157,500
Net estate subject to tax 357,500
Rate of tax 6%
Estate tax due 21,450
 NO. 2 SOLUTIONS
Gross estate P 3,400,000 P 5,730,000 P 9,130,000
Less: Deductions
Ordinary ( 615,000)
Special -
Family home (4,000,000/2) (2,000,000)
Standard deduction (5,000,000)
Net estate 1,515,000
Less: Share of surviving spouse
Gross community 5,730,000
Less: Community 415,000
deductions
Net 5,315,000
Share (5,285,000 x 1/2) 2,657,500
Net estate subject to tax -
VALUATION OF GROSS ESTATE
1. Valuation date – the property shall be appraised at its fair market value at the
time of death.
2. Valuation of real property–whichever is higher between:
1. The FMV as determined by the Provincial or City Assessor, (assessor’s value) and
2. The FMV as determined by the CIR (zonal value).

3. Valuation of shares of stocks, bonds or other securities -

A. Traded in the stock exchange – it shall be based on the arithmetic mean between the
highest and lowest quoted selling prices of the securities on the valuation date.
B. Not traded in the stock exchange
1. Preferred shares – par value
2. Common shares – book value
In determining the book value of common shares, appraisal surplus shall not be
considered as well as the value assigned to preferred shares, if there are any.
ADMINISTRATIVE PROVISIONS
1. WHEN CPA CERTIFICATE IS NEEDED – where the gross value of the
estate exceeds P5,000,000
2. Contents of the statement certified to by a CPA
a. Itemized assets of the decedent with their corresponding gross value at the time
of death.
b. Itemized deductions from gross estate.
c. Amount of tax due whether paid or still due and outstanding.
3. FILING AND PAYMENT – within one (1) year from the date of death.
a. In case of resident decedent. - With any Authorized Agent Bank (AAB),
Revenue Collection Officer (RCO) or duly authorized Treasurer of the city or
municipality in which the decedent was domiciled at the time of the death.
b. In case of nonresident decedent - With the Office of the Commissioner or if
there is an executor or administrator, with the RDO having jurisdiction over the
executor or administrator’s legal residence.
4. WHEN IS FILING OF RETURN REQUIRED?
a. When the transfer is subject to tax.
b. Regardless of the gross value of the estate, where said estate consists of
registered or registrable property such as real property, motor vehicle, shares of
stock or other similar property for which a clearance from the BIR is required as
a condition precedent for the transfer of ownership in the name of the transferee.
5. EXTENSION FOR FILING – CIR in meritorious cases may grant extension
not exceeding 30 days.
The request for extension shall be filed with the Revenue District Officer (RDO)
where the estate is required to secure its TIN and file the estate tax return. The
application shall be approved by the Commissioner or his duly authorized
representative.
6. EXTENSION FOR PAYMENT when payment on due date would impose
undue hardship, he may extend the period not exceeding –
 5 years – in case of judicial settlement
 2 years – in case of extrajudicial settlement
 Where the taxes are assessed by reason of negligence, intentional disregard
of rules and regulations, or fraud on the part of the taxpayer, no extension
will be granted by the Commissioner.
 In case the available cash of the estate is insufficient to pay the total estate
tax due, payment by installment shall be allowed within two (2) years from
the statutory date for its payment without civil penalty and interest.
 END

 THANK YOU