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LECTURE 4: ESTATE TAXATION

A transfer may be gratuitous or onerous.

CONCEPT OF TRANSFER TAXATION


Gratuitous Onerous
1. Donacion inter vivos (death) 1. Value-added Tax
2. Donacion mortis causa (during lifetime) 2. Other Percentage Taxes
3. Excise Taxes

with applicable Documentary Stamp Tax

I. Gratuitous Transfer: ESTATE TAX

 An estate tax is a tax on the right to transfer certain property at death and on certain transfers which are
made by law equivalent to testamentary disposition (in contemplation of death).
 It is an excise tax (a tax impose upon the right or privilege), the object of which is the shifting of economic
benefits and the enjoyment of the property from the deceased to the living.
 It accrues as of the time of death of the deceased.
 The taxpayer in estate taxation is the estate of the decedent represented by the administrator, executor
or legal heirs.

1. Concept of Succession – a mode of acquisition by virtue of which the property, rights and
obligations to the extent of the value of the inheritance, of a person are transmitted through his
death to another or others by will or by operation of law.

 Will – is an act whereby a person is permitted with the formalities prescribed by law, to control to
a certain degree the disposition of his estate, to take effect after his death. From the moment of
death of the decedent, the rights to the succession are transmitted, and the possession of the
hereditary property is deemed transmitted to the heir.
 Kinds of Will:
a. Notarial or Ordinary Will – one which is executed in accordance with the formalities
prescribed by Art. 804 to 808 of the New Civil Code. It is the will that is created for the testator
by a third party, usually his lawyer, follows proper form, signed and dated in front of the
required bumber of witnesses and acknowledged by the presence of a notary public.
b. Holographic Will – is a written will which must be entirely written , dated and signed by the
hand of the testator himself, without the necessity of any witnesses.
c. Codicil – A supplement or addition to a will, made after the execution of a will and annexed
to be taken as part thereof, by which any disposition made in the original will is explained,
added or altered.

2. Elements of Succession
 Decedent – the person whose property is transmitted through succession, whether testamentary,
intestate, or mixed.
 Heir – the person called to the succession either by the provision of a will or by operation of law.
 Estate – refers to all property, rights and obligations of a person which are not extinguished upon
his death.

3. Kinds of Succession
a. Testamentary – results from the designation of an heir, made in a will executed in the form
prescribed by the law.
 The descedent may dispose his properties in his last will and testament in the manner he wants,
however, he must reserve some for certain persons who are called by the law as compulsory
heirs.

 Compulsory heirs are:


i. Legitimate children and descendants, which include legally adopted children
ii. In the absence of legitimate descendants, the legitimate parents or ascendants*
iii. Surviving spouse
iv. Illegitimate child, both natural and spurious
*Note: Legitimate parents or ascendants can only inherit in the absence of legitimate
children or descendants. Brothers and sisters of the decedent are not considered as
compulsory heirs, thus they cannot inherit from the legitime of the decedent

 In the absence of compulsory heirs, the successors would be:


i. Relatives up to 5th degree of consanguinity
ii. If there were no relatives, the government shall inherit the whole estate.
LECTURE 4: ESTATE TAXATION

iii. If there is a will, the decedent may name other persons to inherit the free portion of the net
distributable estate

 Kinds of Successors
i. Legatee – an heir of personal property given by virtue of a will
ii. Devisee – an heir of real property given by virtue of a will

 Under testamentary succession, properties left by the decedent are classified into:
i. Legitime – portion of the testator’s property which could not be disposed freely because
the law has reserved it for the compulsory heirs.
ii. Free portion – part of the whole estate which the testator could dispose of freely through
a written will irrespective of his relationship to the recepient.

 Executor (executrix) is the person nominated by the testator to carry out the directions and
requests in the decedent’s will and to dispose his property according to the decedent’s
testamentary provisions after his death.

b. Legal Intestate Succession – transmission of properties where there is no will, or if there is a will,
such is void or lost its validity, or nobody succeeds the will.
 In the intestate succession, the entire estate of the decedent is distributed to the heirs. The
compulsory heirs in testamentary succession are also the heirs in intestate succession.
However, intestate heirs include brothers and sisters, collateral relatives within the fifth degree
of consanguinity and the state.
 Administrator (administratrix) is the person appointed by the court, in accordance with the
governing statute, to administer and settle intestate estate and such testate estate as no
competent executor designated by the testator.

c. Mixed Succession – a transmission of properties, which is effected partly by will and partly by
operation of law

II. Formula in Computing Estate Tax

1. For married decedents (residents and citizens)


Exclusive Conjugal/Community Total
Properties Properties
Gross Estate xx xx xx
Less: Allowable Deductions
1. Ordinary (ELITE) (xx) (xx) (xx)
Net Estate before Special Deductions xx xx xx
2. Special Deductions
 Family Home (xx)
 Medical Expenses (xx)
 Standard deduction (xx)
 Benefits received under RA 4917 (xx)
 Share of the Surviving Spouse (1/2 of the
net conjugal/community estate before
special deductions) (xx)
Net Taxable Estate xx
Estate Tax Due xx
Less: Estate Tax Credit (xx)
Estate Tax Payable xx

 As a general rule, obligations contracted during the marriage are presumed to have benefited the
marriage, and are charges againts the community/conjugal property (e.g. funeral expenses, judicial
expenses, claims against the estate).

 Vanishing deduction may be a dedcution against exclusive or community/conjugal property, depending


on the classification of the property to which it is related, if exclusive or community/conjugal.

 A deduction, whether against exclusive or community/conjugal estate follows the classification of


the property in the gross estate. If the property to which the deductioon is related is exclusive property
in the gross estate, the deduction is against the exclusive gross estate. If the property to which the
deductioon is related is community/conjugal property in the gross estate, the deduction is against the
community/conjugal gross estate.
LECTURE 4: ESTATE TAXATION

2. For single decedents

Gross estate xx
Less: Ordinary Deductions (xx)
Special Deductions (xx)
Net Taxable Estate xx

Estate Tax Due xx


Less: Estate Tax Credit (xx)
Estate Tax Payable xx

III. Gross Estate

Residents and Citizens Non-Resident Aliens

What are included? How to value? What are included? How to value?

1. ALL real properties The higher between the 1. Real properties The higher between
wherever situated. Fair Value or the Zonal located ONLY in the the Fair Value or the
Value. Philippines Zonal Value.

2. ALL personal Fair Value at the time of 2. Personal properties Fair Value at the
properties wherever death located ONLY in the time of death
situated: Philippines:
In case of shares of In case of shares of
a. Tangible stocks: a. Tangible stocks, same as
b. Intangible b. Intangible residents and
a. If traded in the local properties situated citizens.
stock exchange, the only in the
MEAN between Philippines unless
the highest and exempted on the
lowest quotations. basis of
b. If not traded in the reciprocity.
local stock
exchange:
i. Ordinary
shares – book
value
ii. Preferred
shares – par
value

3. Whether real or a. If the transfer is a The same as residents Same valuation as in


personal property: bona fide sale, no and citizens, however, the case of residents
amount shall be only for properties and citizens.
a. In contemplation included in the situated within the
of death gross estate. Philippines.
b. Transfer with
retention or b. If the transfer is a
reservation of sale but for no or
certain right insufficient
c. Transfer under consideration,
general power of the difference
appointment between the FAIR
d. Revocable VALUE at the
transfer time of death and
the consideration
received.

c. If the transfer is a
sale for no or
insufficient
consideration
and the fair value
LECTURE 4: ESTATE TAXATION

at the time of
death is LESS
than the
consideration
received, no
amount shall be
included in the
gross estate.

4. Proceeds of life Amount of proceeds. Same treatment as in


insurance, the case of residents
included only if: and citizens, only if
a. Whether applicable.
REVOCABLE or
IRREVOCABLE,
when the
beneficiary is
i. The estate of
the
deceased
ii. His executor
or
iii. His
administrator
b. The beneficiary is
a third person,
and the transfer
is REVOCABLE

 What intangible properties are considered as situated within the Philippines?


1. Franchise which must be exercisable in the Philippines;
2. Shares, obligations or bonds issued by domestic corporations;
3. Shares, obligations or bonds issued by any foreign corporation, 85% of business of which is in
the Philippines;
4. Shares, obligations or bonds issued by any foreign corporation, if such shares, obligations or bonds
have acquired business in the Philippines;
5. Shares or rights in any partnership, business or industry established in the Philippines.

IV. Exemptions and Exclusions from Gross Estate


 Under Section 85 and 86 of NIRC
1. Capital or exclusive property of the surviving spouse
2. Properties outside the Philippines of a non-resident alien decedent
3. Intangible personal property of a non-resident alien in the Philippines when the rule of reciprocity
applies.

 Under Section 87 of NIRC


1. Merger of usufruct in the owner of the naked title
2. Transmission or delivery of the inheritance or legacy of the fiduciary heir or legatee to the
fideicommissary
3. Transmission from the first heir, legatee or donee in favor of another beneficiary, in accordance
with the will of the predecessor
4. All bequests, devices, legacies or transfers to social welfare , cultural and charitable institutions,
provided:
i. No part of the net income of said institution inure to the benefit of any individual;
ii. Not more than 30% of such transfers shall be used for administration purposes.

 Under Special Laws


1. Proceeds of life insurance and benefits received by members of the GSIS (RA 728)
2. Benefits received by members from SSS by reason of death (RA 1792)
3. Amounts received from Philippine and United States governments for war damages
4. Amounts received from United States Veterans Administration
5. Retirement benefits of officials/employees of a private firm (RA 4917), provided they are included
in the gross estate.
LECTURE 4: ESTATE TAXATION

6. Payments from the Philippines and US governments to the legal heirs of deceased of World War II
Veterans and deceased civilian for supplies/services furnished to the US and Philippine Army (RA
136)

V. Property Relationship Between Spouses

Conjugal Partnership Absolute Community

I. Property acquired BEFORE Marriage

a. Gratuitous Exclusive Communal


b. Onerous Exclusive Communal
c. Where the spouse has a legitimate Exclusive Exclusive
descendant from a previous marriage
II. Property acquired DURING marriage
a. Gratuitous title Exclusive Exclusive
b. Onerous Title Conjugal Communal
c. In exchange of EXCLUSIVE property Exclusive Exclusive
d. In exchange of conjugal/ community Conjugal Communal
property
e. Fruits or income from EXCLUSIVE Conjugal Exclusive
property
f. Fruits or income from conjugal/ Conjugal Communal
community property
 The highlighted rows are the differences between the two systems.
 Jewelries shall form part of the communal property (in case of absolute community).
 Rules in determining the property of relationship
1. Agreement on marriage settlement
2. If there was no prenuptial agreement and:
i. The date of marriage took place before August 3, 1988, conjugal partnership of gains.
ii. The date of marriage took place on or after August 3, 1988, absolute community of property.

VI. Deductions
Deductions from gross estate
 Residents and Citizens: ELITE + PP + VD + FH + STD + R + M + Share of the Surviving Spouse
 Nonresident Aliens: ELITE + PP + VD + Share of the Surviving Spouse

1. Expenses, losses, indebtedness and taxes (please see discussions below).


a. If decedent was a citizen or resident alien, deduct all ELIT.
b. If decedent was a non-resident alien, prorate ELITE as follows:

Phil. Gross Estate x Total ELITE


World Estate

2. Transfers for PUBLIC PURPOSE. These are bequests, legacies, devises or transfers for the use of
the government of the Phil. or any political subdivision thereof, exclusively for public purpose.
3. Deduction for property previously taxed (VANISHING DEDUCTION).
4. The family home not exceeding P1,000,000.
5. Standard deduction for citizen or resident alien decedent only of P1,000,000.
6. Retirement benefits received by employees of private firms from private pension plan approved by the
BIR under R.A. 4917.
7. Medical expenses paid or incurred within 1 year prior to decedent’s death duly substantiated with
receipts but not to exceed P500,000 for citizen or resident decedent.
8. Net share of the surviving spouse in the conjugal partnership property or community property as
diminished by the expenses properly chargeable to such property shall be deducted from the estate.

Expenses, losses, indebtedness, and taxes deductible from gross estate (ELIT)
1. Funeral expenses. Limit is 5% of the gross estate but not exceeding P200,000 (statutory maximum).
2. Judicial expenses for the testamentary or intestate proceedings.
3. Losses due to fire, storm, shipwreck, or other casualty.
4. Losses due to theft, robbery or embezzlement.
LECTURE 4: ESTATE TAXATION

5. Claims of the decedent against insolvent persons, where the value of the decedent’s interest therein is
included in the gross estate.
6. Claims against the estate, provided that the debt instrument was notarized at the time the indebtedness
was incurred; and, if the loan was contracted within three years before the death of the decedent, a
statement showing the disposition of the proceeds of the loan (or how the proceeds of the loan was
used) must accompany the estate tax return.
7. Unpaid mortgage, where the value of the decedent’s interest, undiminished by the mortgage, is included
in the gross estate.
8. Income tax on income prior to death of the decedent.
9. Property taxes which have accrued prior to death of decedent.

REQUISITES for deduction of losses in Nos. 3 and 4 above


a. The loss is not compensated by insurance or otherwise.
b. The loss is not claimed as a deduction in the estate income tax return.
c. The loss must occur not later than the last day for payment of the estate tax. (The last day for
payment of the estate tax is 6 months from the decedent’s death).

PROPERTY PREVIOUSLY TAXED (VANISHING DEDUCTION)

1. Purpose - to minimize the effects of a double tax on the same property within a short period of time.
2. Conditions for allowance:
a. There is a property forming a part of the gross estate of the present decedent situated in the Philippines;
b. The present decedent acquired the property by inheritance or donation within 5 years prior to his
death;
c. The property subject to vanishing deduction can be identified as the one received from the prior decedent,
or from the donor, or can be identified as having been acquired in exchange for the property so received;
d. The property acquired formed part of the gross estate of the prior decedent, or of the taxable gift of the
donor;
e. The estate tax on the prior transfer or the gift tax on the gift must have been paid; and
f. The estate of the prior decedent has not previously availed of the vanishing deduction.

3. Percentage of vanishing deduction - the rate depends on the interval between the death of present decedent
and death of prior decedent (if the property was acquired by inheritance) or death of present decedent and
date of gift (if the property was acquired by donation), as follows:
More than Not more than Percentage

xxx 1 years 100%

1 years 2 years 80%

2 years 3 years 60%

3 years 4 years 40%

4 years 5 years 20%

5 years Xxx Xxx

4. Procedures in computing vanishing deduction

a. Determine the initial value by comparing the FMV of the property used in computing the first transfer tax
paid with the FMV of the property in the present decedent. The lower of the two is the initial value.
b. From the initial value taken, deduct any mortgage or lien on the property previously taxed which was paid
by the present decedent prior to his death, where such mortgage or lien was a deduction from the gross
estate of the prior decedent or gross gift of the donor. This is the initial basis.

c. The initial value taken, as reduced by Step (b), shall be further reduced by prorated deductions for
expenses, losses, indebtedness, taxes (ELIT) and transfers for public purpose (PP) only, allocable to the
property previously taxed as follows:
Initial basis
x Deductions = Portion deductible
Gross estate

This is the final basis.

d. Determine the time interval between the death of present decedent and death of prior decedent (if the
property was acquired by inheritance) or death of present decedent and date of gift (if the property was
acquired by donation) to find the applicable percentage of vanishing deduction.
e. Multiply the final basis by the percentage of vanishing deduction to arrive at the VANISHING
DEDUCTION.
LECTURE 4: ESTATE TAXATION

The FAMILY HOME

1. Defined - The family home is the dwelling house where a person and his family reside, and the land on which
it is situated.
2. Value included in the gross estate. The current fair market value or zonal value of the family home, whichever
is higher, shall be included in the gross estate of decedent.
3. Valuation date. The family home shall be valued as of the date of death.
4. Conditions for allowance of deduction:
a. Decedent must have died on or after July 28, 1992.
b. The total value of the family home must be included in the gross estate of the decedent.
c. The family home must be the actual residence of decedent and his family at the time of death, as certified
by the Barangay Captain of the locality where the family home is situated.
d. Deduction cannot exceed the fair market value or zonal value of the family home as included in the gross
estate but not exceeding P1,000,000.
e. It is a deduction from common properties or separate properties of the decedent, as the case maybe.

Tax credit for estate tax paid to a foreign country

1. Who can claim? Only citizen or resident alien decedent.


2. Amount Deductible, whichever is lower:
a. Actual estate tax paid abroad
b. Limit
2. Limitations on tax credit:
a. Only one country is involved

Net estate (per Foreign Country) x Philippine estate tax


Total net estate

b. Two or more foreign countries are involved


Limit 1: per country

Net estate (per Foreign Country) x Philippine estate tax


Total net estate

Limit 2: Total Foreign Country

Net estate (all Foreign Countries) x Philippine estate tax


Total net estate

VII. Compliance Requirements

a. Notice of death shall be given when the value of the gross estate exceeds P 20,000
b. The executor, administrator or any of the legal heirs shall file the notice of death within 2 months after
the decedent’s death or within 2 months after the executor or administrator has qualified.
c. The estate tax return shall be filed within 6 months after the decedent’s death, but may be extended
to not exceeding 30 days if authorized by the BIR Commissioner.
d. When the estate tax return shows a gross value exceeding P 2,000,000, it shall be supported with a
statement duly certified by a CPA.
e. The payment of estate tax shall be made at the time the return is filed. However, the CIR may allow
an extension of until 5 years if settled judicially or 2 years if settled extra-judicially.
LECTURE 4: ESTATE TAXATION

TRUE OR FALSE

1. Unpaid loans contracted prior to death may be deducted even if not notarized if notarization of contracts is
not even a business policy of the creditor. T
2. If the family home is allowed a vanishing deduction and a subject of an unpaid mortgage, the deductible
amount should be net of vanishing deduction and unpaid mortgage. F
3. Medical expenses are deductible from the gross estate if they have been incurred in the Philippines by a
Hongkong national who visited the Philippines as a tourist. F – NRA are not allowed with special deductions
4. Hospital expenses are deductible only from gross estate if unpaid at the time of death of the decedent even
if has already been paid at the time of filing the estate tax return. F –whether paid or unpaid
5. In determining the net estate of the decedent, real estate abroad is included in the gross estate of a
decedent who is a non-resident alien. F
6. In estate taxation, the standard deduction from the gross estate is always P 1,000,000, whether the
decedent was married or not. T
7. There will be a penalty to pay even if an estate tax return was filed and the estate tax was paid, if notice of
death was not given to the Bureau of Internal Revenue. T
8. A notice of death could be given at any time within two months after the decedent’s death, if the estate is
being settled extrajudicially. F
9. Estate tax credit for foreign estate tax paid is available to all kinds of decedents, whether residents and/or
citizens. F – NRA is not allowed
10. Notice of death to BIR is not required if the P 100,000 gross estate is tax-exempt. F – 20,000
11. If the decedent is a non-resident alien, no deduction is allowed if the estate tax return does not include
properties outside the Philippines. T – even if non-taxable, properties outside should be declared
12. Receipts or invoices or other evidences to show that the expense was really incurred must duly support the
funeral expense. T
13. The gross estate shall include properties, whether real or personal, physically in the estate depending on
the situs. T
14. Legacy to a charitable institution whose net income, in whole or in part, does inure to the benefit of any
individual and not more than 30% of the legacy is used for the administration of such institution is an exempt
transmission but still requires inclusion of the property in the gross estate of the decedent. T – but deducted
still as transfer for public use
15. Amount payable to any beneficiary designated in the insurance policy by the insured is excluded from the
taxable gross estate. F – only irrevocable designation to third persons are excluded.
16. A real property with a cost of P 300,000 and a fair market value at the time of death of P 1,000,000, but
subject to a mortgage of P 200,000 is included in the gross estate at an amount of P 800,000. F
17. The gross estate of a non-resident citizen of the Philippines would include only properties in the Philippines.
F – taxable globally
18. Where the deceased transferor had made the transfer through a bona fide sale and for adequate
consideration but he has made a reservation of the power to alter, amend, revoke or terminate the transfer
prior to his death, the excess of the fair market value of the property at the transferor’s death over the
consideration received shall be included in the gross estate. F – it’s a bona fide sale
19. When an estate under administration has income-producing properties, the annual income of the estate
becomes part of the estate subject to the estate tax. F – only those income accrued at the time of death
20. In estate taxation, a non-resident alien’s intangible properties are generally taxable within the Philippines.
T – unless there is a reciprocity
21. A claim against an insolvent person should be reported in the gross estate at its full amount whether or not
recoverable. T
22. A limited or special power of appointment is one which may be exercised in favor of certain person or
persons designated by the prior decedent. T
23. A deed of sale of real property needs to have documentary stamp tax to be allowed for registration in the
registry of deeds. T
24. Gratuitous transfers made by a non-resident citizen are not subject to tax in the Philippines. F – taxable
globally
25. A parent or ascendant, whether legitimate or illegitimate, may disinherit if he refused to support the children
or descendants without justifiable cause. T
26. Under testamentary succession, if there is one legitimate child and a surviving spouse, there shall remain
¼ of the total distributable estate as free portion. T
27. Under intestate distribution, if there are legitimate children, legitimate parents and a surviving spouse, the
estate distribution would be one-half, one-fourth and a share of one child, respectively. F – no share for the
parents
28. A concurrent line is traced from the series of degrees among relatives who are not ascendants and
descendants, but the descent and offspring of a common ancestor. T
LECTURE 4: ESTATE TAXATION

All donations are subject to donor’s tax. F – donations mortis causa is subject to estate tax
29.
30.
In intestate succession, the distribution of properties is fixed by the court. T
Brothers and sisters can become heirs in the legal succession. T – intestate succession
31.
32.
When the only surviving relative is within the fifth degree in the collateral line, the state will be the legitimate
heir of the decedent’s estate. F – the heir will be such relative within 5th degree of consanguinity
PROBLEMS

Problem 1: A citizen and resident of the Philippines, died on October 10, 2010, leaving the following properties,
rights, obligations and charges:
Conjugal properties (including a family home of P3,000,000 and
amount receivable under Republic Act 4917 of P200,000) P 6,000,000
Exclusive properties (including cash of P500,000 inherited
4 ½ years ago) 4,000,000
Medical expenses unpaid, January 2010 600,000
Funeral expenses 350,000
Judicial expenses 500,000
Other obligations 100,000
a. The deductible medical expenses is _____________________500,000
b. The deductible funeral expenses is _____________________200,000
c. The deduction for family home is _____________________1,000,000
d. The vanishing deduction is _____________________92,000
e. The taxable net estate is _____________________3,908,000

Problem 2: A citizen and resident of the Philippines, married, died, leaving the following properties.
Real and personal properties acquired during the marriage P 3,000,000
Land and building inherited from the father 1½ years ago (with a
fair market value at that time of P1,500,000), and used at
the time of his death as home for his family 2,000,000
Car, purchased with cash received as gift from the mother during the year 500,000
Cash (including P500,000 received by inheritance from the father) 1,500,000
Claims against conjugal properties 600,000
Unpaid mortgage on the land and building inherited (from an original
of P600,000 when inherited) 100,000
The vanishing deduction is _______________________

Problem 3: Mr. B died on June 30, 2010, leaving among other, the following charges and obligations: real property
tax for the calendar year 2010 P20,000; on an interest-bearing promissory note (notarized) face amount of the note
P20,000; accrued interest on the note at the time of death P600; and the interest to accrue on the note until maturity,
P400. The total deduction form the gross estate is ______________________ 30,600

Problem 4: Compute the allowable deduction from the gross estate of a deceased nonresident alien having
properties situated in the Philippines which valued for P2 million and properties situated abroad valued at P10
million, and the deductions claimed for expenses, losses, indebtedness and taxes amounted to P1800,000.
____________________ 300,000

Problem 5: Exclusive property (fair market value of P145,000 when inherited 3 ½ years ago and was subjected to
a mortgage of P45,600 at that time) P130,000
 Conjugal properties of the decedent husband and surviving wife, P170,000
 Unpaid mortgage on inherited property, P15,600
 Judicial expenses incurred after the death in connection with the estate settlement, P12,000
 Other obligations, P17,500
The amount of vanishing deduction is __________________

Problem 6: Alicia died with a receivable from Bertol. Bertol has properties worth P220,000 and obligations of
P320,000. Included in the obligations are P20,000 owed to the Government of the Republic of the Philippines for
unpaid taxes and P60,000 owed to Alicia. The estate of Alicia has a deduction for claim against insolvent person of
___________________

Problem 7: A citizen and resident of the Philippines died leaving the following properties and rights:
Cash on hand and in banks P 1,000,000
LECTURE 4: ESTATE TAXATION

Real property in the Philippines:


Assessed value per assessment rolls of the City 100,000
Zonal value per Bureau of Internal Revenue 500,000
Selling price of adjacent piece of land the day preceding the date of death 600,000
Real property abroad, fair market value 450,000
Car in the Philippines, with a mortgage of P200,000 400,000
Receivables:
From a friend from whom there is no possibility of recovery 20,000
From a sister whose ratio of assets to liabilities is 1:3 15,000
Amount under insurance contracts:
Receivable under life insurance, with the father
as revocable beneficiary 250,000
Receivable under life insurance, with the mother
as irrevocable beneficiary 200,000
Receivable under accident insurance, for accident
that happened one year ago 50,000
Receivable under property insurance, for damage
caused to his car 12,000
Revocable transfers:
To sister (fair market value at the time of
transfer was P40,000 and consideration received was P10,000) 50,000
To father (fair market value at the time of transfer was
P 30,000 and consideration received was P30,000) 60,000
To mother (fair market value was P40,000 and
consideration received was P50,
000) 70,000

The gross estate is ___________________________________

Problem 8: A decedent died on November 1, 2014 leaving the following properties, rights and obligations:
Properties:
Piece of Land in Zamboanga acquired 5 year ago with a
Cost of P 1,200,000 having an assessed value per BIR of P 1,475,000
Car located in Ontario, Canada acquired as a gift from
His mother two years ago with a market value at his death of 2,500,000
Vacation house in Thailand bought last year at a cost of P3 M,
With a zonal value per assessment of the City Assessor 3,050,000
One-hectare rice field in Bacolod which is mortgaged to Land Bank
For an amount loaned of P 350,000, with acquisition cost of P 750,000 570,000
Jewelries acquired 4 years ago with a cost of P 361,000 and a pawn value of 120,000
Rights:
Shares of common stocks in San Miguel Corp. a publicly-held domestic corporation
With business outside the Philippines, (150,000 shares)
Par Value per Articles of Incorporation P 15.00
Book Value, inclusive of revaluation surplus of P 1.25 per share 20.25
Highest Quotation as of 11/1/2014 21.27
Lowest Quotation as of 11/1/2014 19.38
Shares of preferred stocks in a foreign corporation doing business
In the Philippines, traded in stock exchange, with shareholdings of
75,000 shares quoted at $1.13 high and $0.97 low
Par Value of preferred shares, $1 = P 42.50 $ 1.00
Earnings per share $ 0.65
Book value per share $ 1.21
Receivable from an Irish friend residing in Hong Kong:
Amount Owed, HK $1 = P 44.50 HK $ 50,000
Accrued Interest HK $ 5,600
Recoverable rate 80 per centum

a. The total Gross Estate if the decedent is a Filipino


_____________________
b. The total Gross Estate if the decedent is non-resident alien having no reciprocity
_____________________
c. The total Gross Estate if the decedent is non-resident alien having reciprocity
_____________________
LECTURE 4: ESTATE TAXATION

Problem 9: Charles Policarpio, a resident of Marikina, and married to Diana on February 14, 1989, died testate on
September 21, 2012, leaving the following properties to his heirs:
Lot with 5-door apartment in Quezon City P 2,300,000
Investment in a Business Partnership 1,100,000
House and Lot in Manila – Family Home 3,800,000
Cash in Bank, PCI – Manila 700,000
Condominium unit in Pasay, belonging to the first marriage
Undistributed and occupied by his son on first marriage 2,900,000
CRV Car received as gift from his Ninong and business supplier 1,200,000
Fishpond in Dagupan inherited by Charles from his mother 1,400,000
Fishpond in Bulacan inherited by Diana from her aunt 1,800,000

Compute the following:


a. Exclusive Properties of Charles _______________________________
b. Conjugal or Communal Properties of Charles _______________________________

Problem 10: Lyndone Danielle, a citizen of Davao, married to Gienneth Lois in 1985, died testate on July 31,
2001. Leaving the properties which consist of the following:
Family Home
House – purchased from common fund P 1,500,000
Lot – exclusive of Lyndone 700,000
Household furniture and appliances 320,000
Death benefits received from GSIS 80,000
Proceeds of life insurance on the life of Lyndone, with
Gienneth as the irrevocable beneficiary 300,000
Land in Dagupan City, donated by Lyndone to his son, Michael
when he learned he was dying 450,000
Building in Sta. Mesa, Manila inherited from his father in 1995
(mortgage upon inheritance, P 300,000 all of which were
paid by Lyndone) 1,320,000
Accounts receivable, the debtor went abroad on a one-year
Job contract 50,000
Coconut land received as donation from a friend on
February 28, 2000 (valued then at P 120,000 and mortgaged
For P 27,750 which was paid by Lyndone) 150,000
Citrus plantation in Pangasinan, exclusive property of Gienneth 950,000

Compute the following:


a. Exclusive Properties of Lyndone _______________________________
b. Conjugal or Communal Properties of Lyndone _______________________________

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