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FEU INSTITUTE OF LAW TAXATION II CLASS OF

DR. VICKY FERNANDEZ

BASIC PRINCIPTES, CONCEPT, AND DEHNTflON


Estate tax is a tax on the riFht to transfer property at th e
Estate Taxation death ofthe decedenlto the,atter's heirs and beneficiaris.

It is le.Jred on th e nst valu e of th e estate ofthe decedent


MAIN REFERENCES _ ESTATE TAX before it js distri buted to th e h eire/ben eficiaries.

I.iIRC OF 1997 _ SECTIONS 84-97 ALL INCLUSIVE


NATURE, PURPOSE, ANDO&IECT
lRA1N Law* SECTIONS 22-27 ALL iNCLUSIVE {Amended It is in the natu re of an excise tax i mposed on th e privilege of
sections 84, 86, 90, 91 & 97 of th e N IRC of 1997) transmitting prooerty upon th e death of the decedent.

BIR Revenue ReBUiations No. 12-2018 It is not a tax on property nor on the transferor or transJeree.
The estate tax is assessed on th e value of the net estate
RMo No. L5-03 (oNETT) transferred, and notcn the propertyitself.

Its object is to tax the sh ifting of economic benefits.

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DETERMINATION OFTHEVALUE OFTHE ESTATE * SECTION 88,


NIRC
TIME ANDTRANSFER O F PROPERTIES
Estate tai accru ed at the mom ent of death of th e decedent. - VALUATION OF REAL PROPERIIES- propertiesshall be
appraised at its FllV at the time ofdeath. The appraised
CLASSIFICATION OF DECEDENT valu e sh al I be the FMV/zon al value as determ in ed by the Cl R.
- Fi lipino citizen, resi dent an d non-resi dent, an d Resident or th e FMV fixed by th e provi ncial and city assessor,
alien wh!cheveris higher,
- Non-residentalien
- VAL(ATION OFTHE USUFRUCT-ihe probable life of the
G ROSS ESTATEAND NET ESTATE ben eficiary using th e Lrasic standard mortality tabl e approyed
G ross estate is the valu e of al I the praperti es left by th e by th e Secretary of the DOI upon the recommen dation of
decedent, while net esiate is the value of all the properties of th e Insu rance Comm issioner. is taken in to accou nt.
th e decedent after the allowable Ceductions an d exclusions.
- VALI.IATION OF PERSONAL PROPERTY - FN,'IV

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ITEMSTO BE INCLUDED INTIIEGROSS ESTATE-SECTION85,


NIRC
- VALUATION OF MEMBERSHIP/ PARTIOPATION IN
RECREATIOMLAND AMUSEMENT CLUBS (GOLE POLq AND *
Decedent died before Januarv L, 2018 governing larv is
5 IMILAR CLUBS) - the bi d price nearest the date of death
NIRC of 1997
published i n any newspaper or any publication ofgen eral
circul ation.
Decedent died on or after Janu ery l-, 2018 - governing I aw is
RA10963 or iheTRAthl Law
- VALUAIION OF SHARES OF STOCKS - if listed i n the siock
m arket. m ean average between the h igh est an d lowest quote
The same provisions in so far as what is included in the g.oss
at the dateofdeath, or date nearestthe dateof Ceath-
estate of th e decedent, except: under th e TRAIN Law the
lf unlisted:
amounts with drawn from th e deposit accou nt ofthe
for common sh ares - book val u e
decedent th at h ad been su bjected to the 6% final
firr preferred sh ares - par value
withhoidingtax is excludedfrom ihe gross estate. REASON:
Avoi d dou bl e taxation

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FEU INSTITUTE OF LAW TAXATION II CLASS OF
DR. VICKY FERNANDEZ

- Decedenfs lntsest at th e tim e of his death.

- Transfs Made in Contefi plation of Death (transfer


Classification of Dec€dent- lnclude in Gross Estate
mot!vated by th e thought of i m pending death, even if death
nr ay not tle immin ent), or transfeB intenCed to take effect ai
Fi,ipi*ocitizen or a :he value of ail his prope',-ties (real,
or after death, wh iie retai ningth e possession, enjoyment, or
Resident aiien lereonal, tan€ible and intangible) th e right to the i ncom e from th e property. EXCEPTION:
rherever located. bonafidesale for an adequateconsideratian.
Ncn-resident alien onlrl lhat palt cf the entire Bross estate
RevocbleTrarefur- tfansfer where the enJOyment may be
whi.h is situated in the Philippines. altered, ailen ded, revoked, or ternrinated by the de.edent,
EXCLUDE: the intangible peEonal even if such power.#as not exercised by th e decedent.
property exempted cn the basis of EXCEPTION: bonafi desale for an adequateconsideration.
re.iproc ity
- Property Passing under a General ltrweJ ofApr]ointmefft
(right of ih e decedent to designate the percon who wi ll
su cc eed to th e property of a prior d ecedent) * exerci sed by
th e decedent by will or by deed, intended to take effect Lrpon
death. EXCEPtlONrbonafldesalefor an adequate
consi deration.
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ITEMSTO BE EXCTUDEDIN THEGROSS ESIATE*SECNON86C,


- Proceeds of Life lnsurance. EXCEPTION: wh en lhe
NIRC
designation of the benefici ary (oth er th an th e estate) is
irre,/ocable. EXCLUDE:proceeds rece!\,ed from the GSlS and
S5S.
- The exeiusive property - capital or paraphrnal property cf
the suruiving spouse
- Prior lnterGts- transfers made in contemplation of deaih,
- The net share {U2} of the surviving spouse in the conjugal
revocabletransfer and proceeds of life insurance, existing
partnership property (aft er deducting the allowableordinary
before or after the effectivity of ihe NIRC cf 1997.
deductions only) is removed from the net estate ofthe
- Transfers cf lnsufficist Consideratron - for non-bonaftde
decedent.
sale for adequatecons,deration lnciude in the gross estate
NOTE: that for marriage performed before the effectivity of
ihe excess of the FL4V at the tim e of death of the property,
the Family Code on August 3, 1988, the governing property
sver the value of the consideration received bv th e
relationship by default is conjugal partnerehip ofgains, in the
decedeni- I'IOTE : th e tranlfer should be m ade in
absenceof a pr*nuptial agreement.Thereafter, thesystem
contempl ation of deaih, otherwise, it wil I be consi dered as a
of absolutecommunity by defu ult.
donation.

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INIAI'IGtBtI FERtOI{AL PROPEFnES COIIISIDERED WITH StrUS DEDUCnONS AND EXCLWIONS FROMthe gross ESTATE
INTHE PHILIPPINEST (TRAIN Law- eftcdve L/ff20u1)

- Franchisewhich is exercisedin the Philippines For citizens and resident aliffi ;


- Standard deduction 5M (from 1M)
- Shares or bonds issued by Philippinecorporations - Claims against estate (SAM E)
- Claims against insolvent persons {5AME)
- Shars or bonds issued by foreign.orporations 85% ofits - Unpaid mortgages (SAME)
business are locatedin the Philippines - Unpaid taxes {sAME}
- Property preyioustytaxed/vanishing deduction (SAME)
- Shares or bonds issued by foreign corporations ifthe shares -Transfers fer public use (SAME)
or bonds hare acquired businesssitus in the Philippines - Familyhome 10M (fmm 1M)- F.io morerequirementof a
barangay certifiration,
- Shares in any partneIshipor busines established in the - Amountreeived under RA4917 (SAME)
Philippines - DELETED: Funeral, Judicial & Medical Expense6

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Co pyrighted 20 18 GlAtty. VickyFern a ndez, D CL,


CPA,LCB. All rights reserved 2
FEU INSTITUTE OF LAW TAXATION II CLASS OF
DR. VICKY FERNANDEZ

Cl airm against the Estate


Those debts of pecuniarynature which is enforceable against
the deceased during his Iifetime which arise out of a
contract, tort or by operation of law. Clairns against lnsolvent PeGons
Requisit6:
Requisits: - the amount is included in thegross estate
- the personal obligation exists at the time of death ofthe - there must be proofofthe incapacityofthe debtors to pay
decedent their obligations
- contracted in good faith and ficr adequateconsideration
- the debtor claim is valid in iaw and enfurceable in court UnpaidMorEag6
- indebtednaswas not condonedby the creditoror the Requir€ments:
action to collect has not prescribed - verification must be made as to who was the beneficiaryof
the ioan proceeds
Documentary requirements: - ifaccommodation loan where the loan proceedswent to
- at the time the indebtedness was incurred the debt another persan, the value of th€ unpaid loan is included as
instrumentwas duly notarized receivableof the state.
- if the loan was contracted within 3 yeare beforethe death - the mortgage property must brm part of the gross *tate
of the decedent, submission of a statement showing the
disposition ofthe proceeds of the loan.
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UnpaidTaxes
Requisite: Prsperly PrwiouslyTaxed^lanishin6 Dedustion
- the tax was accrued at the time of death of the dtredent Sotermed becausethe deduction alloweddiminishesover a
and had remained unpaid periodof 5 years-
NOT DEDUCTIBLE:
- lncometaxon incomereceivedafter death Property forming a part of th e gross estateofany percon
- Prcperty tax€s not accrued before death who died within 5 yeaB priorto the death ofthe decedent,
- Estatetax or transferred to the decedent by gift within 5 yeaE prior to
his death. PURPOSE: Avoid doubletaxation
TheFamilyHome
Thiscorresponds to the current FMV of the decedentt family
home. Limit: 1OM- Certificatefrom thebarangay captain,
although no required undertheTRAlN Law, is a dccumentary
requirement under RR12-2018.
Requisites:
- The fumily home must be the actual residential home of
the decedent at the time of death
- The value of the family home is included in the gross estate
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Froperty PreebuslyTaxe{S&n-shing Deduction TrarEftEtor Public Useto the l,16 or LGUforexclusivelypublic


purposG
Requisites: Requisites:
- the decedentdied within 5years from transfer ofthe -The disposition ls in the last wiil and tastament
property from a prior deced€ntor donor -To take effuct after death
- property located in the Philippines - It is in fuvor of the Philippinegovernment,or its LGUs
- property formed part ofthe estateofthe prior decedent, - lt shall be use for exclusivelypublic purpme
or ofthe taxablegiftofthe donor
- the stateor donort tax had been paid
- property mustbe identifiedas theone receivedfrom the Amount Rceivedby Heirs Under RepublkAct No-4917
prior decedent, or something acquired in exchangetherefor -Retirement benefits of employees ofprivatefirm.
- no vanishingdeduction on the propert!. was allowedto the Requisite:
estateof the prior decedent -The amountofthe benefitis includedin the gross estate-

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CPA,LCB. All rights reserved 3
FEU INJSTITUTE OF LAW TAXATION II CLASS OF
DR, VICKY FERNANDEZ

For NON{6ider* aliils:


- standard deduction 500T (before NONE)
- Ciaims against estate, claims against insolvent pereons & TAxCREDIT FOR ESrATETra0GS PAIDT0 A FOREIGN COUNTRY-
unpaid mortgages {CCM) -PRO-RATED SECTIONS6€

Formula: Allowed onlyto citizens and residentalien decedent-


Gross Estate-?h!lipp!!!9X ccm = Allowable Deduction It is not allowed to non-resident alien.
Gross Estate,Worid
Limitations:
- Property previously taxed/vanishing deduction (SAME) 1s: the taxcreditpaid to a foreign co!ntryshall not exceed
-Transfers for public use{SAME} the same proportion ofthe estatetax due in the Philippines,
- Net share ofthe survivingspouse in the conjugal property whi.h the decedent's net estatesituatedwithin such country
{SAME) taxable under this title bears to his entire net estate-
- Famil\i home- NONE
- Amountreceived under RA4917 - NONE FORMUTA: {1sr Limitation}
NetEstate,Foreigncountry X Phil.EstateTaxDue
NO MORE REQUIREMENTto declarethe value of estate not Net Estate,Worldfiotal
situatedin the Philippinesin orderto avail ofthe deductions
and exclusions-
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EXEMPTION OF CE{TAIN ACQUISITIONS ANDTRAFISMISSIONS


-sEqnoN87
and - The rnerger of usufruct in the owner ofthe naked title.

2nd: the total credit shall not exceed the same proportion of - The transmission ofthe inheritanceor legacy by the
the Bstat€tax due in the Philippines, which the decedentt flduciaryheir or legatee to the fideicornmissary
net estate situatedoutsidethe Philippines bears to his entire (fi deicommissarysubstitution).
n et estate-
- The transmission from the fi6t heir, legatee or one in favor
FORMULA: {2d Limitation} ofanother beneficiary in accordancewiththe will ofthe
- NetEstate,AliForeiHnCountries X Phil.EstateTax predecessor.
Due
Ne: Estate, World/fotal - Allbequestt devises, legacies or transfere to social welfure,
cultural and charitableinstitutions, no part qfthe net income
ALLOWABI-ETAXCREDIT: thewhich-everis the loweramount ofwhich inures to the beneflt of any individual, and not more
than 30% of the said bequests, devises, legacies or transfers
shall be used by such institutions for administration
purposes.
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FILIT{G OF ESTATETAX RETURN _ SECIION90


ln all cases of transfen, regardless ofthe gross value ofthe
estate

FILII{G OF NOTICEOF DEATH. SECNO$89 - Underthe NlRCaf 11197: wherethegross valueof the
repealed by RA10963 state exceeds200L OR - where the said estateconsistsof
registered or registrable property (real properiy, motor
Under the NIRC OF 1997: A written noticeofdeath shall be vehicle, shares of stock or other sirnilar properh/ for which a
given within 2 months from the decedent's death- clea[ancefrorn the BIR is required as a condition precedent
for the transfer of ournership, there is a need to file an estate
tax return under oath in 2 copies
ESTA-IETAX RETURN- Bir fom no- 1801
The BIR has not posted a new EstateTax Return form in its - CPACertifimtion:
lvebpage. For gross estate exceeding 5M (under the NlRCaf 1"992 if
gros estateexceeds 3M), statementby a CPA containing
a
the itemized assets of the decedent with their corresponding
gross value at the time of his death, itemized deductions; and
the amountof estatetax due.
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FEU IIISTITL'TE OF LAW TAXATION II CI-ASS OF
DR. VICKY FERNANDEZ

PAYMENT oF ESrA'tE TA,Y - sECIIOl,l 9 1


Timefor Filing. - Within L year (under the NIRCof 1997,
The estateta( shall be paid at the time the return is filed. lt
within 6 months) frorn th* decedent's death, extendiblefor
may be extendedby the CtR ifthe paymenton the due date
3}days, in msitoriouscases, by the ClR.
would impose undue hardship, but the extension shall not
exceed five (5) years in case ofjudicial settlement, or two (2)
Place of Filing- - ln the city or municipalityin which the
years in case of extra-judicial.
decedent was domiciled at the time of his death. lf ther€ be
no legal residence in the Philippines, with the RDO no- 39
PAYMENT BY INSIALLMENT_ in case the estate has
South Quezon Cry or tha Philippine Embassyor &nsulatein
insufficientcash to pay the estate tax due, installmentis
the countryof deedent's rsidence at thetime of death-
allowedwithin 2 years from the dateof its due payment
{Same) WTHOUT surchargs and intersts. (NEW)
EstateTe Rate- Section 84
PENALIIE5 FOR IATE PAYMENTOF ESTATETAX
Under train law: A flat rate of 6% on net estate, whether
- Surchageof 25%. lf fraud is involved, 5o%
decedentis a residentor non-resident- Und€r th€ NlRCof
- lnterestof20% per annum
L997: A $aduated rate from 5% - 20%, with the fiI5t 2007
- Compromisepenalty- in lieuof lmprisonment{From lTto
exemptfrorn estatetax,
sor)

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PAYMENT OFTAXANTECEDENTTO THETftAT'ISFER OF SHARES,


BONDSOR RIGHTS_SEC97
There shall no transfer, unl6s a Certification Authoriu ing
Registration (CAR) from the CIR is presented. {SAME)

Banfs qbiigatbn- lf a bank has knowledgeof the death of a


penon, who maintained a bank depositaccountalone, or
iointlywith another, it shall allow any withdrawalsubjectto Bar Questions in Estate Tax
the final withholdingtax of 6%.

UndertheNnCofl99T,the bank may not allow any


withdrawal from the said deposit account, unless the CIR has
certified that the estatetax have been paid- However, an heir
may, with ClRt authori?ation,withdrawan amountnot
exceeding P?OQ00.

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ESTATE TAX {2017 BAR QUESnON NO- )ff)


Casimira died on June 19, 2017 after three weeks of
confinement due to an unsuccessful liver transplant. For her
confinement, she had incurred substantial rnedical expenses
that she financed through personal loans secured by ESTATETAX{2015 BAR QUESION NO. XXil)
mortgages on her real properties. Her heirs ate still in the
process of making an inventoryof h€r assets that can be statethe conditionsfor allowingthefolloyvirEas deductions
used to pay the estate taxes, if any, which are due on fmm the grcss estateofa citizen or resident alien for the
December 19,2017. purpose of imposing estatetax:

(A) Are the medi€al expenses, personal loans and mortgages a. Claims aglinst the state {2%}
incurred by Casimira deductiblefrorn her gmss estate?
Explain your answer-{5%) b. Medical expenses{2%}

(b) May the heirs of Casimira file the estatetax return and
pay the corrsponding estatetar beyond December 19, 2Q17
without incurring interest and surcharge? Expiain your
answer.{3%}
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FEU INSTITUTE OF LAW TAXATION II CLASS OF
DR. /ICKY FERNANDEZ

ESTATETAX(2914 BAft QUESfl ON NO. XtVl

ESTATETAX(2014 BAR QUESilON NO. XX)


Mr. K a Filipinoresidingin Alabama, U"S.A., Diedon January
2, 2013 after undergoing a major heart surgery. He left
During his lifetifie, Mr- sak;tift obtaineda loan amountingto
behindto his wife and two {?} kidsseveral properties, to wit:
P10 Millionlrom Bangko Unofor the purchaseof a parcel of
(4%)
land localed in Makati Oty, using such p.operty as collateral
{1} tumily homein Makati City; fi}r the loan. The loan was evidenced by a duly notarized
(2) condominium unit in Las Pifias City;
promissorynote. Subsequently, Mr. Sakitin died. Atthetime
i3) proceeds of health insurance from Take Care, a health of his death, the unpaid balafl ce of the loan amounted to P2
maintensnce$rganization in the Philippines; and
Million. Theheirsof Mr. Sakitindeductedtheamountof P2
(4) land !n Alabarna, U.S.A.
million frcm the gross estate, as part of the'tlaims agairst
The following expens€s were paid:
the estate-" Such deductionwas disallowedbythe Bureau of
(1) funeral expenses;
lnternal Revenue (BlR) examiner, claimingthat the
{2) medisal expenses; and mortgaged property was not included in the computation of
{3} judicial expenses in the tstatepEceedings. the gross estate.
(A) what are the items that must be considered as part of the
Doyou agreewiththe BIR? Explain. (4%)
gross estateincomeof Mr. X? (B) what are the items that may
be consideredas deductiom from the$oss estate?
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ESTATE TAX{2O13 BAR QUESIION NO" V}

Mr. Agusun, 75 y€ars old and sufferingfrom an incurable


disease, decidedto seli for valuable and sufficient
consideration a house and lot to his son. He died oneyear
latel

ln the settlement of Mr. Agustin's estate the BIR arguedthat


the house and lot were transferred in contemplation ofdeath
and should therefore forrn part ofthe gross estatefor estate
tax purposes.

ls the BIR corect? {7%}

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