Description

Estate Tax is a tax on the right of the deceased person to transmit his/her estate to his/her lawful
heirs and beneficiaries at the time of death and on certain transfers, which are made by law as
equivalent to testamentary disposition. It is not a tax on property. It is a tax imposed on the
privilege of transmitting property upon the death of the owner. The Estate Tax is based on the
laws in force at the time of death notwithstanding the postponement of the actual possession or
enjoyment of the estate by the beneficiary.

Frequently Asked Questions

1. Who are required to file the Estate Tax return?

a) The executor or administrator or any of the legal heirs of the decedent or non-resident of the
Philippines under any of the following situation:

- In all cases of transfer subject to Estate Tax;

- Where though exempt from Estate Tax, the gross value of the estate exceeds two hundred
thousand P 200,000.00; and

- Where regardless of the gross value, the estate consists of registered or registrable property
such as real property, motor vehicle, share of stocks or other similar property for which a
clearance from the Bureau of Internal Revenue (BIR) is required as a prerequisite for the transfer
of ownership thereof in the name of the transferee. (part II par.(1.#3) of RMC No. 34-2013)

b) Where there is no executor or administrator appointed, qualified and acting within the
Philippines, then any person in actual or constructive possession of any property of the decedent
must file the return.

c) The Estate Tax imposed under the Tax Code shall be paid by the executor or administrator
before the delivery of the distributive share in the inheritance to any heir or beneficiary. Where
there are two or more executors or administrators, all of them are severally liable for the payment
of the tax. The estate tax clearance issued by the Commissioner or the Revenue District Officer
(RDO) having jurisdiction over the estate, will serve as the authority to distribute the
remaining/distributable properties/share in the inheritance to the heir or beneficiary.

d) The executor or administrator of an estate has the primary obligation to pay the estate tax but
the heir or beneficiary has subsidiary liability for the payment of that portion of the estate which
his distributive share bears to the value of the total net estate. The extent of his liability, however,
shall in no case exceed the value of his share in the inheritance.

2. What are included in gross estate?

For resident alien decedents/citizens:

a) Real or immovable property, wherever located

b) Tangible personal property, wherever located

c) Intangible personal property, wherever located

For non-resident decedent/non-citizens:

a) Real or immovable property located in the Philippines

b) Tangible personal property located in the Philippines

c) Intangible personal property - with a situs in the Philippines such as:

- Franchise which must be exercised in the Philippines

- Shares, obligations or bonds issued by corporations organized or constituted in the Philippines
- Shares, obligations or bonds issued by a foreign corporation 85% of the business of which is
located in the Philippines
- Shares, obligations or bonds issued by a foreign corporation if such shares, obligations or bonds
have acquired a business situs in the Philippines ( i. e. they are used in the furtherance of its
business in the Philippines)
- Shares, rights in any partnership, business or industry established in the Philippines

3. What are excluded from gross estate?

GSIS proceeds/ benefits

Accruals from SSS
Proceeds of life insurance where the beneficiary is irrevocably appointed
Proceeds of life insurance under a group insurance taken by employer (not taken out upon
his life)
War damage payments
Transfer by way of bona fide sales
Transfer of property to the National Government or to any of its political subdivisions
Separate property of the surviving spouse
Merger of usufruct in the owner of the naked title
Properties held in trust by the decedent
Acquisition and/or transfer expressly declared as not taxable

4. What will be used as basis in the valuation of property?

The properties subject to Estate Tax shall be appraised based on its fair market value at
the time of the decedent's death.
 The appraised value of the real estate shall be whichever is higher of the fair market
value, as determined by the Commissioner (zonal value) or the fair market value, as
shown in the schedule of values fixed by the Provincial or City Assessor.
If there is no zonal value, the taxable base is the fair market value that appears in the
latest tax declaration.
If there is an improvement, the value of improvement is the construction cost per building
permit or the fair market value per latest tax declaration.

5. What are the allowable deductions for Estate Tax Purposes?

Applicable for deaths occurring after the effectivity of RA 8424 which is January 1, 1998

For a citizen or resident alien

A. Expenses, losses, indebtedness and taxes

(1) Actual funeral expenses (whether paid or unpaid) up to the time of interment, or an amount
equal to five percent (5%) of the gross estate, whichever is lower, but in no case to exceed
P200,000.

(2) Judicial expenses of the testamentary or intestate proceedings.

(3) Claims against the estate.

(4) Claims of the deceased against insolvent persons where the value of the decedents interest
therein is included in the value of the gross estate; and,

(5) Unpaid mortgages, taxes and casualty losses

B. Property previously taxed (Vanishing Deduction) (Section 86(2) of the NIRC as amended by
Republic Act No. 8424)

An amount equal to the value specified below of any property forming a part of the gross estate
situated in the Philippines of any person who died within five (5) years prior to the death of the
decedent, or transferred to the decedent by gift within five (5) years prior to his death, where
such property can be identified as having been received by the decedent from the donor by gift,
or from such prior decedent by gift, bequest, devise or inheritance, or which can be identified as
having been acquired in exchange for property so received:

One hundred percent (100%) of the value, if the prior decedent died within one (1) year prior to
the death of the decedent, or if the property was transferred to him by gift within the same period
prior to his death;

Eighty percent (80%) of the value, if the prior decedent died more than one (1) year but not more
than two (2) years prior to the death of the decedent, or if the property was transferred to him by
gift within the same period prior to his death;
Sixty percent (60%) of the value, if the prior decedent died more than two (2) years but not more
than three (3) years prior to the death of the decedent, or if the property was transferred to him by
gift within the same period prior to his death;

Forty percent (40%) of the value, if the prior decedent died more than three (3) years but not
more than four (4) years prior to the death of the decedent, or if the property was transferred to
him by gift within the same period prior to his death; and

Twenty percent (20%) of the value, if the prior decedent died more than four (4) years but not
more than five (5) years prior to the death of the decedent, or if the property was transferred to
him by gift within the same period prior to his death;

These deductions shall be allowed only where a donors tax or estate tax imposed was finally
determined and paid by or on behalf of such donor, or the estate of such prior decedent, as the
case may be, and only in the amount finally determined as the value of such property in
determining the value of the gift, or the gross estate of such prior decedent, and only to the extent
that the value of such property is included in the decedents gross estate, and only if in
determining the value of the estate of the prior decedent, no Property Previously Taxed or
Vanishing Deduction was allowable in respect of the property or properties given in exchange
therefor. (Section 6 & 7 of RR 2-2003)

C. Transfers for public use

D. The family home - fair market value but not to exceed P1,000,000.00

The family home refers to the dwelling house, including the land on which it is situated, where
the husband and wife, or a head of the family, and members of their family reside, as certified to
by the Barangay Captain of the locality. The family home is deemed constituted on the house and
lot from the time it is actually occupied as a family residence and is considered as such for as
long as any of its beneficiaries actually resides therein. (Arts. 152 and 153, Family Code)

E. Standard deduction A deduction in the amount of One Million Pesos (P1,000,000.00) shall
be allowed as an additional deduction without need of substantiation.

F. Medical expenses All medical expenses (cost of medicines, hospital bills, doctors fees, etc.)
incurred (whether paid or unpaid) within one (1) year before the death of the decedent shall be
allowed as a deduction provided that the same are duly substantiated with official receipts. For
services rendered by the decedents attending physicians, invoices, statements of account duly
certified by the hospital, and such other documents in support thereof and provided, further, that
the total amount thereof, whether paid or unpaid, does not exceed Five Hundred Thousand Pesos
(P500,000).

G. Amount received by heirs under Republic Act No. 4917-Any amount received by the heirs
from the decedents employer as a consequence of the death of the decedent-employee in
accordance with Republic Act No. 4917 is allowed as a deduction provided that the amount of
the separation benefit is included as part of the gross estate of the decedent.
H. Net share of the surviving spouse in the conjugal partnership or community property

For a non-resident alien

A. Expenses, losses, indebtedness and taxes

B. Property previously taxed

C. Transfers for public use

D. Net share of the surviving spouse in the conjugal partnership or community property

No deduction shall be allowed in the case of a non-resident decedent not a citizen of the
Philippines, unless the executor, administrator, or anyone of the heirs, as the case may be,
includes in the return required to be filed in the Section 90 of the Code the value at the time of
the decedents death of that part of his gross estate not situated in the Philippines.

Please note that the allowable deductions will vary depending on the law applicable at the time
of the decedents death.

6. What does the term "Funeral Expenses" include? (Sec 6 (A)(1) of RR 2-2003)

The term "FUNERAL EXPENSES" is not confined to its ordinary or usual meaning. They
include:

(a) The mourning apparel of the surviving spouse and unmarried minor children of the deceased
bought and used on the occasion of the burial;

(b) Expenses for the deceaseds wake, including food and drinks;

(c) Publication charges for death notices;

(d) Telecommunication expenses incurred in informing relatives of the deceased;

(e) Cost of burial plot, tombstones, monument or mausoleum but not their upkeep. In case the
deceased owns a family estate or several burial lots, only the value corresponding to the plot
where he is buried is deductible;

(f) Interment and/or cremation fees and charges; and

(g) All other expenses incurred for the performance of the rites and ceremonies incident to
interment.

Expenses incurred after the interment, such as for prayers, masses, entertainment, or the like are
not deductible. Any portion of the funeral and burial expenses borne or defrayed by relatives and
friends of the deceased are not deductible. Actual funeral expenses shall mean those which are
actually incurred in connection with the interment or burial of the deceased. The expenses must
be duly supported by official receipts or invoices or other evidence to show that they were
actually incurred.

7. What does the term "Judicial Expenses" include? (Sec 6 (A)(2) of RR 2-2003)

Expenses allowed as deduction under this category are those incurred in the inventory-taking of a
assets comprising the gross estate, their administration, the payment of debts of the estate, as
well as the distribution of the estate among the heirs. In short, these deductible items are
expenses incurred during the settlement of the estate but not beyond the last day prescribed by
law, or the extension thereof, for the filing of the estate tax return. Judicial expenses may
include:

(a) Fees of executor or administrator;

(b) Attorneys fees;

(c) Court fees;

(d) Accountants fees;

(e) Appraisers fees;

(f) Clerk hire;

(g) Costs of preserving and distributing the estate;

(h) Costs of storing or maintaining property of the estate; and

(i) Brokerage fees for selling property of the estate.

Any unpaid amount for the aforementioned cost and expenses claimed under Judicial Expenses
should be supported by a sworn statement of account issued and signed by the creditor.

8. What are the requisites for deductibility of claims against the Estate? (Sec 6(A)(3) of RR 2-
2003)

(a) The liability represents a personal obligation of the deceased existing at the time of his death
except unpaid obligations incurred incident to his death such as unpaid funeral expenses (i.e.,
expenses incurred up to the time of interment) and unpaid medical expenses which are classified
under a different category of deductions pursuant to these Regulations;

(b) The liability was contracted in good faith and for adequate and full consideration in money or
moneys worth;

(c) The claim must be a debt or claim which is valid in law and enforceable in court;
 (d) The indebtedness must not have been condoned by the creditor or the action to collect from
the decedent must not have prescribed.

9. How do we determine the fair market value of the unlisted stocks? (RR NO. 6-2013) (Annex
U)

In determining the value of the shares, the Adjusted Net Asset Method shall be used whereby all
assets and liabilities are adjusted to fair market values. The net of adjusted asset minus the
adjusted liability value is the indicated value of the equity.

For purposes of this item, the appraised value of real property at the time of sale shall be the
highest among the following:

(a) The fair market value as determined by the Commissioner, or

(b) The fair market value as shown in the schedule of values fixed by the Provincial and City
Assessors, or

(c) The fair market value as determined by Independent Appraiser.