REVIEWER IN ESTATE TAX

OWNERSHIP MAY BE ACQUIRED THOUGH:  Fulfillment of resolutory condition

 Expiration of the term or period of the
OILDTCPS institution
 Non-compliance or impossibility of
1. Occupation
compliance with the will
2. Intellectual property
 Repudiation of the instituted heir
3. Law
4. Donation ELEMENTS OF SUCCESSION
5. Tradition
6. Contract 1. Decedent (if he leaves a will, testator)
7. Prescription 2. Inheritance (estate)
8. Succession 3. Successor

CLASSIFICSTION OF HEIRS
TRANSFER TAXES a. Compulsory- succeed by force of law and
cannot be deprived of the testator
 Gratuitous disposition of private property or
Kinds:
rights
a. Primary- legitimate children and
descendants
b. Secondary- Legitimate parents and
NATURE OF TRANSFER TAXES
ascendants
 Privilege of transferor to gratuitously transfer c. Concurring- illegitimate and surviving
property or rights spouse
 Based on net estate or net gift b. Voluntary- instituted by the testator for the free
 Not a property tax inheritance after deducting that of the compulsory.
Enacted by will and testament
c. Legal or intestate- succeeded by operation of
SUCCESSION law (when there is no will)
 Acquisition by which, property, rights, and
obligations to the extent of the value of COMPOSITION OF GROSS ESTATE
inheritance, of a person are transmitted through 1. Legitimate- for the compulsory heir
his death to another 2. Free portion- compulsory or voluntary
 Can be through will or operations of the law
 Rights of succession is transmitted from the ORDER OF PRIORITY IN DISTRIBUTION OF
moment of death of the decedent INESTATE
1. Legitimate children or descendants
KINDS OF SUCCESSION 2. Legitimate parents or ascendants
3. Illegitimate children or descendants
1. Testamentary or testate succession
4. Surviving spouse
2. Legal or intestate succession 5. Brothers and sisters, nephews and nieces
6. Other collateral relatives within the 5th degree
3. Mixed succession 7. State
CAUSES OF LEGAL SUCCESSION OT
INESTACY NOTE FOR DISTRIBUTION
1. Legitimate- ½
1. Person dies without a will, or with a void will, or 2. Surviving Spouse- ¼ (if there are two or more
one which has subsequently lost its validity LC, equals to 1 LC)
3. Illegitimate- ½ of legitimate
2. Will does not institute an heir
4. Free portion- remaining
3. Partial institution of heir. Consequently, intestacy
takes place as to the undisposed portion (mixed KIND OF WILLS
succession) 1. Notarial or ordinary or attested will
 Executed in accordance with the formalities
4. When the heir instituted is incapable of prescribe in art 804 to 808 of NC
succeeding Requisites for Valid Notarial Will
5. Other causes such as:  In writing and language or dialect known to
testator
 Non-fulfillment of the suspensive condition  Subscribe at the end thereof by the testator
attached to the institution of heir himself or testator’s name written by some
 Preterition- omission of compulsory heir in other person in his presence and direction
the direct line
  Attested and subscribed by three or more  Listed share: FMV (arithmetic mean)
credible witnesses  Units of participation in any association,
2. Holographic Will recreation or amusement club: bid price
 Entirely written, dated, and signed by the hand nearest the death
of the testator himself  Rights to usufruct, use or habitation and
 May be made in or out of Philippines annuity: According to the latest Basic Standard
 No witness needed Mortality Table

GROSS ESTATE EXEMPTIONS AND EXCLUSTIONS FROM

Estate tax GROSS ESTATE
 Privilege that a person is given in controlling to A. Exclusions under Sec 85 and 86 of the Tax
a certain extent, the disposition of his property Code
to take effect upon death  Exclusive property of the surviving spouse
 Accrues as of the time of death o Capital- exclusive property of husband
 Accrual is distinct from the obligation to pay o Paraphernal- exclusive property of the wife
 Properties outside the Philippines of a NRA
Justification for the imposition of estate tax  Intangible personal property in the Philippines
1. Benefit-Received theory of an NRA under Reciprocity Law
 State collects tax as there is a service rendered B. Exclusion under Sec 87 of the Tax Code
by gov’t in distribution of the estate of the  Merger of usufruct in the owner of the naked
decedent title
2. Privilege or State Partnership Theory  Transmission or delivery of inheritance or
 Inheritance is not a right but a privilege granted legacy by fiduciary heir or legatee to the
by state and legatees fideicommisary
3. Ability to pay theory  Transmission of the first heir, legatee, done in
 Inheritance is an unearned wealth or windfall favor of another beneficiary, in accordance with
that creates an ability to pay the tax desire of the predecessor
4. Redistribution of Wealth Theory  All bequest devises, legacies or transfers to
 Inheritance is a contributing factor to the social welfare cultural and charitable
inequalities in wealth and income institutions, no part of net income inures to
 Estate tax reduces the value of property that benefit any individual
promotes equitable distribution of wealth o Not more than 30% shall be used for
administration purposes
CLASSIFICATION OF TAXPAYERS AND C. Exclusions under Special Law
COMPOSITION OF GROSS ESTATE  Proceeds of life insurance and benefits
Same with donor’s tax received by GSIS members
 Accruals and benefits received by SSS
SITUS members by reason of death
Intangible personal property  Life insurance proceeds on life insurance policy
 GEN: Situs of intangible personal property is taken out by the decedent himself, where the
the domicile beneficiary is a third person and is
 XPN: If the intangible property is located irrevocable
elsewhere or the situs of the business is in  Group insurance taken out by his employer on
another jurisdiction. Place where it will be employee’s life, whoever is the beneficiary
exercised and whether revocable or irrevocable
 Shares, franchise, copyright, etc: Where it  Amounts received from Philippines and US
will be exercised regardless of where it is gov’t for war damages
stored  Payments from Philippines of US gov’t to the
 Receivables: Residence of the debtor legal heirs of deceased of WWII Veterans and
 Bank Deposits: Location of depository bank deceased civilian for supplies/services
 Tangible personal property furnished to US and Phil Army
 Real Property: Location of property  Amounts received from US Veterans
 Tangible personal: Location of property Administrator
 Transfer by way of bona fide sales
VALUATION OF GROSS ESTATE  Properties held in trust by decedent
 GEN: FMV at the time of death  Acquisition and/or transfer expressly declared
 Real Property: higher between the FMV by the as not taxable
commissioner; and FMV shown in the schedule  PERA assets of decedent-contributor
of values fixed by provincial and city assessors
 Personal Property: FMV at the time of death INCLUSIONS IN THE GROSS ESTATE
 Shares of stock A. Property owned by the decedent ACTUALLY
 Unlisted common share: BV AND PHYSICALLY PRESENT IN HIS ESTATE at
 Unlisted preference share: par value the time of death
B. Decedent’s interest (dividends, partnership DEDUCTIONS FROM GROSS ESTATE
profit, usufruct and rights)
ALLOWABLE DEDUCTIONS
Citizen and Resident Nonresident Alien
C. Property not physically in the estate Decedents
1. Transfer in contemplation of death I. Ordinary Deduction I. Ordinary Deduction
 Disposition of property prompted by thought of 1. Expenses, Losses, 1. Proportional
death Indebtedness Taxes, deduction for LITe
 Donation mortis causa etc. (LITe)
A. Losses Gross Est Ph x LITe
2. Transfer with retention or reservation of B. Indebtedness/ W
certain rights Claims against the Gross Est W
 Transferred during his lifetime, but retained for estate
C. Taxes
himself beneficial enjoyment
D. Claims against
insolvent person
3. Revocable Transfers 2. Transfer for public
 Terms of enjoyment may be altered, amended, use 2. Transfer for public
revoked or terminated by decedent 3. Vanishing deduction use
3. Vanishing deduction
4. Transfers under a general power of II. Special Deductions
appointment 1. Standard II. Special Deductions
 Power of appointment- right to designate the Deduction (5M) 1. Standard Deduction
person who will succeed to the property of prior 2. Family Home (500,000)
decedent (10M max)
 Two types: 3. RA 4917
o General- power to appoint any person he
III. Share of the
pleases surviving spouse (for III. Share of the
o Special- appoint only from a restricted or married decendants) surviving spouse (for
designated class other than himself married decendants)
 Mode of exercising power of appointment
o By will
o By deed to take effect at or after death ORDINARY DEDUCTIONS
o By deed under which he has retained for his A. LITe
life or any period not ascertainable without 1. Losses
reference to his death  Casualty losses
o Possession or enjoyment of, or right to the  GEN: deductible value of property lost
income from property  Requisites:
o Right, either alone, or in conjunction with any 1. Arising exclusively from:
person to designate the person who shall a. Acts of God
possess or enjoy property b. Acts of Man
5. Transfer for insufficient consideration 2. Not compensated by insurance
 Excess of price over FMV is included in the 3. Not claimed as deduction in ITr
gross etstate 4. Incurred during the settlement of the
6. Claims against insolvent person estate. (1 yr from date of death or extension
 Full amount of claim is added in the gross of 30days after the lapse of 1 yr)
estate
 Portion that is not collectible could be an 2. Indebtedness/ Claims against the estate
allowed deduction (including mortgage payable)
7. Proceeds of life insurance  Claims- debts or demands which could have
 Taken out by the decedent on his own life is been enforced against the deceased in his
included lifetime
 Requisites:  Sources of Indebtedness
o Must be an insurance on the life of the o Contract
decedent o Tort
o Beneficiary must either be the following: o Operation of law
 Estate, executor administrator  Requisites of Deductibility
(revocable or not) a. Personal obligation of the deceased
 Third party that must be revocable existing at the time of death
b. Contracted in good faith and for adequate
and full consideration in money or
equivalent
 c. Claim/debt is valid in law and enforceable
in court
d. Must not have been condoned or action to
collect must not have been prescribed 4. Other deductions such as claims against
 SUBSTATNTIAL REQUIREMENTS: all unpaid insolvent person
obli and liab are allowed deductions if A. Claims against estate- receivables due of
o In case of simple loans (advances) owing from persons who are not financially capable
a. GEN: debt instrument must be duly notarized  Requisites: Juridical declaration of insolvency
XPN: loans granted by financial institutions is not required but
where notarization in not a policy/practice a) Incapacity should be proven
b. Duly notarized Certification from the b) Full amount owed by insolvent must be
creditor as to unpaid balance (inc. int) included first then the uncollectible will be
c. Proof of financial capacity of the creditor deducted
to lend amount at the time of loan c) If could only pay partial amount, full is
d. Statement by administrator o executor included in gross estate and the amount
reflecting the disposition of the proceeds of the uncollectible shall be an allowed deduction
loan if it was contracted within 3 yrs prior to
death B. Transfer for Public Use
o In case of unpaid obligation arose from  Disposition in last will and testament to take
purchase of goods or services effect after death
a. Pertinent documents evidencing the  In favor of the government for public use
purchase of goods or services as duly  Include first in Gross estate
acknowledge, executed and signed by  Then, deduct
decedent-debtor and creditor, and statement of C. Vanishing Deductions (property previously
account taxed)
b. Duly signed certification from the creditor as  Deductions for property previously taxed
to unpaid balance and int  Reduce the Gross estate if the property
c. CTC of latest audited balance sheet of the received by him is by:
creditor with a detailed schedule of receivables. o Gift
CTC of the updated latest subsidiary o Bequest, device, or inheritance
ledgers/records  Deduction is allowed to minimize the effect of
d. For court settlement, pertinent documents double taxation
filed with the Court  Requisite
a) Death- died 5 yrs from the date of death of
UNPAIN MORTGAGEs OR INDEBTEDNESS ON prior decedent or date of gift
PROPERTY b) Identity of property- identified as the one
 Deductions allowed when a decedent leaves a received
property encumbrance by a mortgage or c) Location- within ph
indebtedness contracted in good faith and d) Inclusion of the property- form part of the
full consideration Gross estate prior decedent
 FMV of the property must be included in the GE e) Previous taxation of the property- estate
 Deduct the outstanding debt tax or donor’s must be paid by the prior
 Unpaid mortgage payable- verification must decedent
be made as to who was the beneficiary of the VANISHING DEDUCTION RATES
loan proceeds Period from receipt to decedent’s death Rate
 Accommodation loan- loan proceeds went to Within one year 100%
another person, the value of unpaid loan must Beyond one year to 2 years 80%
be included as receivable Beyond 2 yrs to 3 yrs 60%
 Funeral, law, judicial, and medical expenses Beyond 3 yrs to 4 yrs 40%
are no longer deductible as gross estate Beyond 4 yrs to 5 yrs 20%
 Claims arising after death are not deductions
from gross estate PROFORMA
 Receivables from gambling (wagering gains) Value to take (lower bet value in the
are included in gross estate but are not Gross estate of prior decedent
deductions or in the present) xxx
Mortgage paid (paid by present) (xxx)
3. Taxes INITIAL BASIS xxx
 Unpaid taxes that accrued prior to the death Less: Proportional deduction
 Not allowed deductions: Initial basis x LIT* + Transfer for public use
o Income tax on income received after Gross estate (xxx)
death FINAL BASIS xxx
o Property taxes accrued after death X Vanishing deduction % %___
o Estate tax VANISHING DEDUCTION xxx
 SPECIAL DEDUCTIONS DEDUCTIONS FROM GROSS ESTATE
A. Standard deduction
 Allowed without qualification, condition, nor Pre-nuptial agreement
requisite or whatsoever  future man and wife are not required to be
 Only special deduction allowed to NRA registered in a gov’t office to be binding
 Citizen/Resident- 5,000,000  must be recorded in the Local Civil Registry
 NRA- 500,000 and Register of Deeds of the province where
the property is located
B. Family Home
 Whichever is lower: PROPERTY RELATIONS
o 10,000,000  Applicable only to married persons
o FMV at the time of death of the land and  Used to distinguish conjugal or community
family home property
 Characterized by permanency  Property relations is governed in the following
 Deduction is only for one home per person order:
 Requisites: 1. By marriage settlements executed
a) Decedent is the head of the family before marriage
b) Beneficiaries must be dwelling in the family 2. By the provision of the law
home 3. By the local custom
c) Home and land is owned by the decedent  Modification of Marriage Settlements are valid if
d) Must be an actual residential home made before the celebration of marriage
e) Total value must be included in the gross (must be in writing)
estate of decedent
f) Allowable deduction=Current FMV TYPES OF PROPERTY RELATIONS
SHOULD NOT EXCEED 10M deduction 1. ACoP
2. CPG
C. Amounts received by the heir under RA4917 3. Complete separation of property
 Amount from the decedent’s employer provided 4. Any other regime
that it is included in gross estate
No type is agreed upon
SURVIVING SPOUSE SHARE- 50% after
deducting the obligations chargeable  CPG: Before Aug 3, 1988 (Prov of Civil Code)
 ACoP: On or after Aug 3, 1988

1. ABSOLUTE COMMUNITY OF PROPERTY

 Most common in the Philippines
 Applies if spouses does not have a valid
marriage settlement
 Co-ownership applies
 Properties acquired BEFORE Marriage
(community property)
 GEN: becomes part of community
property. Includes inheritance and
donations before marriage
 XPN: acquired before marriage and has
legitimate descendants from former
marriage and the fruits and income shall be
an exclusive property
 Properties acquired DURING Marriage
(community or exclusive property)
Belongs to the community unless proven
exclusive
 Community Property under ACoP
1. Family home
Gen: Community
Note: Exclusive property won’t be
community even if used as family home
2. Proceeds from life insurance
Exclusive: paid using exclusive funds
Conjugal: paid from conjugal funds
 3. Claims against insolvent person (E/C) property
 Exclusive property under ACoP 5. Personal property for exclusive Ex Ex***
Excluded from community property use
1. Property acquired during marriage by 6. Before marriage or brought to Ex Com
gratuitous title the fruits and income UNLESS marriage
specifically stated that it is part of community 7. Fruits or income during marriage Con Ex
 GEN: fruits and income depends of the from exclusive property
principal **Unless donor, testator or grantor expressly
 XPN: fruits from “labor” are always conjugal provide to be under community
2. For personal and exclusive use ***Jewelry is a community property, always
3. Property before marriage if there is legal
descendants CONJUGAL DEDUCTIONS (whether ACoP/CGP)
1. Support of the spouses, their children, and
2. CONJUCAL PARTNERSHIP OF GAINS legitimate children of ether spouse
 Husband and wife place in a common fund the 2. All debts and obligations contracted during
proceeds, products, fruits and income from marriage
separate properties 3. Debts and obli contracted by either spouse
 Divided equally without consent of the other (if fam may have
 CPG APLLIES: benefited)
1. Future spouses agree to it in the marriage 4. Taxes, liens, charges and expenses + minot and
settlement major repair of conjugal prop
2. Already established before effectivity of the 5. All taxes and exp for mere preservation
New Family Code 6. Expenses to enable either spouse to commence
 EXCLUSIVE PROPERTY UNDER CPG or complete professional, vocational or other
1. Brought to the marriage settlement as his activity
own 7. Debts before marriage
2. Acquires during the marriage by gratuitous 8. Value of what is donated or promised by both
title spouses in favor of legitimate children
3. Acquired by right of redemption to by 9. Expenses of litigation bet spouses uless
exchange with property belonging to only groundless
one spouses
4. Purchased with exclusive money
 CONJUGAL PROPERTY CPG
1. Acquired by onerous title at the expense of
common fund
2. Obtained by labor, industry, or work or
profession of either or both of spouses
3. Fruits regardless of the source
4. Share in hidden treasure discovered during
marriage when awarded to either one of them
5. Acquired by occupation
6. Improvement on separate properties at the
expense of partnership
 Family home
C: constituted by h and w
E: used as family home but an exclusive
property
 Proceeds of life insurance policy
C: Otherwise
E: Premium is paid out of exclusive funds
 Claims against insolvent person
Depends on whether claim is for conjugal
or exclusive

PROPERTY CP ACoP
G
1. Inherited or received as Ex Ex**
donation during marriage
2. Property acquired during Con Com
marriage
3. Acquired from labor, industry, Con Com
work or profession of spouses
4. Fruits or income from common Con Com