Death, Real Estate, and Estate Tax Before I start with my discussion, I urge you to read the following

first, for better understanding of the subject: 1. 2. 3. 4. Overview on Estate Tax Sections 84 to 97 of the 1997 Philippine Tax Code Revenue Regulations 2-03 (Estate Tax and Donors Tax Regulations) Estate Tax Return (BIR Form No. 1801, front and back pages)

We will use the terms decedent or deceased person to refer to the person who died. What is Estate Tax? Estate tax is imposed on the transfer of the net estate, which is the difference between the gross estate (as defined under Section 85 of the Tax Code) and allowable deductions (under Section 86) of the decedent. Estate tax rates are graduated and depend on the net estate amount. Net Estate = Gross Estate Deductions Real property may not be transferred from the decedent to his or her heirs without the filing of the estate tax return and payment of the estate tax. Non-payment of estate tax is common and this brings about many problems when the properties need to be transferred to the names of buyers. What to do when someone has died Estate tax-wise, these are the things that need to be done: 1. File a Notice of Death with the Bureau of Internal Revenue within two months after the date of death. This is applicable when the gross value of the estate exceeds P20,000.00. This should be filed by the executor or administrator of the estate, or any of the legal heirs. It shall be filed with the RDO where the decedent was domiciled at the time of his death. There is no specific format.

2.

Get a Tax Identification Number (TIN) for the Estate of the deceased person by using BIR Form No. 1901. Use this TIN when filing the Estate Tax Return (BIR Form No. 1801).

3. Prepare the list of assets and liabilities of the decedent. Get the fair market values of the properties at the time of death. 4. Prepare the supporting documents for the assets and liabilities, as well as the deductions you are going to take. You will need these for the estate tax computation and as attachments to the Estate Tax Return. a. b. Certified true copy of the Death Certificate Notice of Death duly received by the BIR, if gross estate exceeds P20,000 for deaths occurring on or after Jan. 1, 1998; or if the gross estate exceeds P3,000 for deaths occurring prior to January 1, 1998 c. Any of the following: Deed of Extra-Judicial Settlement of the Estate, if the estate is settled extra judicially (sample forms may be found here and here). Court Orders/Decision, if the estate is settled judicially; Affidavit of Self-Adjudication (sample here) and Sworn Declaration of all properties of the Estate A certified true copy of the schedule of partition of the estate and the order of the court approving the same, if applicable.

d.

Certified true copy(ies) of the Transfer/Original/Condominium Certificate of Title(s) of real property(ies) (front and back pages), if applicable

e. f.

Certified true copy of the latest Tax Declaration of real properties at the time of death, if applicable Certificate of No Improvement issued by the Assessors Office declared properties have no declared improvement or Sworn Declaration/Affidavit of No Improvement by at least one (1) of the transferees

g. h.

Certificate of Deposit/Investment/Indebtedness owned by the decedent and the surviving spouse, if applicable Photocopy of Certificate of Registration of vehicles and other proofs showing the correct value of the same, if applicable

i. j.

Photo copy of certificate of stocks, if applicable Proof of valuation of shares of stocks at the time of death, if applicable For listed stocks newspaper clippings or certification from the Stock Exchange For unlisted stocks latest audited Financial Statement of issuing corporation with computation of book value per share

k. l. m.

Proof of valuation of other types of personal property, if applicable Proof of claimed tax credit, if applicable CPA Statement on the itemized assets of the decedent, itemized deductions from gross estate and the amount due if the gross value of the estate exceeds two million pesos, if applicable

n. o. p. q. r. s.

Certification of Barangay Captain for claimed Family Home Duly notarized Promissory Note for Claims against the Estate arising from Contract of Loan Accounting of the proceeds of loan contracted within three (3) years prior to death of the decedent Proof of the claimed Property Previously Taxed Proof of claimed Transfer for Public Use Copy of Tax Debit Memo used as payment, if applicable

5. Compute the net estate and estate tax. 6. File the Estate Tax Return and pay the estate taxes. 7. Follow the procedure for transferring real properties to the name of the heirs (this will be discussed in a separate post).

8.

Follow the procedure for cancellation of the TIN of the decedent as discussed in Section 12 of Revenue Regulations No. 7-2012. Use BIR Form No. 1905 for the cancellation of TIN.

Gross Estate Gross estate is the value at the time of death of all property, real or personal, tangible or intangible, wherever situated. In the case of a nonresident decedent who at the time of his death was not a citizen of the Philippines, only that part of the entire gross estate which is situated in the Philippines shall be included in his taxable estate. The value of the properties shall be based on their fair market value (FMV) as of the time of death. If the property is a real property, the FMV shall be the higher between the BIR zonal valuation and FMV per tax declaration (I paraphrased this). There are also items excluded from the gross estate (for example, proceeds of life insurance). Please refer to the Tax Code for the complete list.

Deductions from gross estate 1. Expenses, Losses, Indebtedness, and Taxes (ELIT) a. Funeral expenses Lowest among: Actual funeral expenses; 5% of the gross estate; and P200,000.00.

b. Judicial expenses of the testamentary and intestate proceedings c. Claims against the estate At the time the indebtedness was incurred, the instrument was duly notarized; and If the loan was contracted within three (3) years before the death of the decedent, the administrator or executor shall submit a statement showing the disposition of the proceeds of the loan

d. Claims of the deceased against insolvent persons e. Unpaid mortgages, etc. 2. Property Previously Taxed (Vanishing deduction) 3. Transfers for Public Use The amount of all bequests, legacies, devises or transfers to or for the use of the Government of the Republic of the Philippines, or any political subdivision thereof, for exclusively public purposes.

4. Family Home Fair Market Value of the Family Home or P1 million, whichever is lower. As a condition for the exemption or deduction, said family home must have been the decedents family home as certified by the barangay captain of the locality. 5. Standard Deduction P1 million (no substantiation needed) 9. Medical Expenses 0 Medical expenses incurred by the decedent within one (1) year prior to his death which shall be duly substantiated with receipts 1 Maximum: P500,000.00 Amount received by heirs under RA 4917 (retirement benefits of employees of private firms) Share in the Conjugal Property The net share of the surviving spouse in the conjugal partnership property as diminished by the obligations properly chargeable to such property. What are the Estate Tax rates? The estate tax rates depend on the date of death. For those who died on January 1, 1998 and onwards, the following are the estate tax rates based on the net estate:

Over 0 200,000 500,000 2,000,000 5,000,000 10,000,000

But not over 200,000 500,000 2,000,000 5,000,000 10,000,000 And Over

The tax shall be Exempt 0 15,000 135,000 465,000 1,215,000

Plus 5% 8% 11% 15% 20%

Of the excess over 200,000 500,000 2,000,000 5,000,000 10,000,000