PRINCIPLES OF SUCCESSION

Succession is 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 either by will or by operation of law.

KINDS OF SUCCESSION
a. Testamentary succession - Testamentary succession is a succession which results
from a designation of an heir, made in a last will and testament executed in the form
prescribed by law.
b. Legal or intestate succession - Legal or intestate succession is that which takes place
by operation of law because there was no last will and testament executed by the
decedent, or the last will and testament executed by him is void for any reasons
given in the law.
c. Mixed succession - Mixed succession is that which of takes place partly by will and
partly by operation of law.

Are you an heir?

There are two persons who are heirs in a succession, whether there is or there
is no last will and testament. These are the involuntary, or compulsory, or forced
heirs. If a person succeeds not because he is an involuntary heir, but because of
a last will and testament, he is called a voluntary heir.

Last will and testament

A last will and testament may be one which is entirely written, dated and
signed by the testator himself, and not subject to legal formalities on form,
witnesses, acknowledgment before a notary public, etc. This is called a
holographic will. The reason for not being subject to legal formalities is that
the document can easily be established as made by the decedent himself,
since so many people are familiar with his handwriting. And the testimony of
a handwriting expert may even be availed of.

A last will and testament may be other than a holographic will. There is no
technical name for it. It is a last will and testament prepared for the
decedent by some other person, usually his lawyer, and the decedent (called
the testator) together with the 7required number of qualified witnesses,
merely signed it, and acknowledged the execution of the document before a
notary public.

While trhe decedent may dispose of his properties in a last will and
testament, he must, however, reserve some portions of the estate for certain
persons who are called by law as compulsory or forced heirs. An heir who is
not a compulsory or forced heir is called a voluntary heir.

The following are compulsory or forced heir:

a. Legitimate children and descendants, with respect to their legitimate

parents or ascendants;
b. In default of the foregoing, legitimate parents or ascendants, with
respect to their legitimate children and descendants;
c. Widow or widower; and
d. Illegitimate children

Under Article 165 of the Family Code of the Philippines, all children
conceived and born outside a valid marriage are illegitimate.

As can be seen from the enumeration of compulsory heirs, legitimate

parents or ascendants are compulsory heirs of the legitimate children and
descendants only if such legitimate children and descendants have no
legitimate children and descendants of their own.

The portion of the decedent's estate which the law reserves to compulsory
heirs is called legitimate. The portion of the decedent's estate in excess of
the legitimes is called free portion. The free portion may be given to
anybody. It may be given to a compulsory heir, so that the compulsory heir
will be receiving more than his legitime. It may be given to a voluntary heir.

The rules on legitimes are not substitutes for testamentary dispositions.

Violations of the rules on legitimes do not make the last will and testament
void. The rules on legitimes are tests only on the testamentary dispositions.
If the testamentary dispositions do not impair the legitimes, such
dispositions must be followed. On the other hand, if the testamentary
dispositions impair the legitimes, the dispositions must be modified in such a
manner that any compulsory heir not mentioned in the will, or receiving by
provisions of the will lesser than his or her legitime, must be paid his or her
legitime in full.

Legitime of the compulsory heirs and shares of heirs in intestacy.

 Survivors Legitimes Intestacy
ALLFORCED HEIRS:

Legitimate - First, their legitimes will

parents/ascendants be satisfied, then
½ participate in the free
Legitimate portion in the same free
children/descendants Equal to legitime of a portion as their legitimes.
legitimate
Spouse child

½ of legitime of legitimate
child
Illegitimate child
ALL FORCED HEIRS,
EXCEPT LEGITIMATE
CHILDREN AND/OR
DESCENDANTS:

Legitimate parents or
ascendants 1/2 1/2

Spouse 1/8 1/4

Illegitimate children 1/4 1/4

LEGITIMATE ASCENDANTS
AND SPOUSE:

Legitimate ascendants
1/2 1/2
Spouse
1/4 1/2
LEGITIMATE ASCENDANTS
AND ILLEGITIMATE
CHILDREN:

Legitimate ascendants 1/2 1/2

Illegitimate children 1/4 1/2

SPOUSE AND
ILLEGITIMATE CHILDREN:

Spouse
1/3 1/2
Illegitimate children
1/3 1/2
SPOUSE ONLY
SPOUSE, BROTHERS

AND SISTERS:

Spouse 1/2 1/2

Brothers and sisters - 1/2

BROTHERS AND SISTERS - All
COLLATERAL RELATIVES
WITHIN THE FIFTH CIVIL
DEGREE - All
STATE - All

Notes:

1. Legitimate children share equally in their legitime of ½ of the hereditary estate.

2. When the spouse survives with one legitimate child only, the legitime of the spouse is ¼ of the hereditary estate. If
there are several legitimate children, the legitime of the spouse is equal to the legitime of a legitimate child.
3. When the surviving spouse was marries in articulo mortis and the testator died within three months from the time of
marriage, his or her legitime, if sole compulsory heir, is 1/3 of the hereditary estate, unless they have been living
together as husband and wife for more than five years, in which case his or her legitime is ½ of the hereditary estate.
4. The legitimes of the legitimate children and descendants and that of surviving spouse take precedence over those of
illegitimate children. If the estate is not sufficient to pay in full the legitimes, the legitimate children and spouse shall
first be paid their legitimes in full. The balance of the estate shall then be available for legitimes of the illegitimate
children.
5. Illegitimate parents are entitled to legitime only if they survive;

Alone Legitime is ½

With the spouse of the decedent Legitime is ¼

6. In succession, the nearer relative excludes the further relative. Thus, a father excludes the grandfather. In intestacy, a
nephew or niece is excluded by a brother or sister. A collateral relative in the fifth degree is excluded by a collateral
relative in the fourth degree.
7. In determining the number of degrees that separate a collateral relative from another collateral relative whose
relationship is being traced, go up to the nearest common ascendant of the two. Upon reaching the nearest common
ascendant, go down to the other collateral relative involved. In going up, each generation is considered one degree. In
going down, each generation is considered one degree.

Between the date that a testator executed his last will and testament
and the date that he died, the composition of the estate may change,
or the composition not changing, the value of the properties in the
estate may change. The basis of the legitimes will be the hereditary
estate (properties and values) at the tome of death.
 While the values of the properties at the time of executing the last
will and testament are immaterial in determining the distributable
estate and the legitimes of compulsory heirs, it is still advisable to
have the rules on legitimes in mind at that time, so that the last will
and testament will be able to provide for, at least as nearly as possible,
the legitimes of the compulsory heirs.

Legal or intestate succession takes place:

1. If a person dies without a will, or with a void will, or one which has subsequently lost its validity;
2. When the will does not institute an heir to, or dispose of all the property belonging to the testator. In such case, legal
succession shall takes place only with respect to the property of which the testator has not disposed;
3. If the suspensive condition attached to the institution of heir does not happen or is not fulfilled, or if the heir dies before
the testator, or repudiates the inheritance, there being no substitution, and no right of accretion takes place;
4. When the heir instituted is incapable of succeeding, except in cases provided in the Civil Code.

In default of testamentary heirs, the law vests the inheritance, in accordance with the rules hereinafter set forth, in the legitimate
and illegitimate relatives of the deceased, in the surviving spouse, and in the State.

In every inheritance, the relative nearest in degree excludes the more distant ones, saving the right of representation when it
properly takes place. Proximity of relationship is determined by the number of generations. Each generation forms a degree.

Consanguinity is the relation of persons descending from the same stock or common ancestors. These persons are known as
blood relatives, and are said to be related by blood or consanguinity. It may be lineal or collateral. Lineal consanguinity, which
may be descending or ascending, is that which subsists between persons of whom one is descended in a direct line from the other.
Collateral consanguinity is that which subsists between persons who have the same ancestors, but who not descend (or ascend)
one from the other.

Illustration:
1. In the illustration, C and D are siblings. Their common parents are A and B.
2. G is the daughter of C and E; J is the son of D and F.
3. M is the son of g and k; N is the daughter of J and L.
4. A, C, G and m, in that order, are relatives in the descending direct line. From A to c is one degree; from C to G is
another degree and from G to M is another degree.
5. N, J, D and B, in that order, are relatives in the ascending direct line.
6. C, G and M, are relatives of D, J and N in the collateral line.
7. G is the niece of D, D is the uncle of G; J is the nephew of C, c is the aunt of J.
8. H and I are first cousins; they are four degrees apart, H to C, C to AB, AB to d and D to I.
9. M and N are second cousins; they are six degrees apart.
10. Because of G’s marriage to K, K becomes H’s brother-in-law, H being G’s brother. They become relatives by affinity.
Affinity is the connection existing in consequence of a marriage between each of the married spouse and the kindred of
the other.
Probate of Last will an testament
No property shall pass to an heir under the terms of a last will and testament is proven
in court as the last will and testament of the person who died. The special proceeding in
court is called the probate of the last will and testament. While as a general rule a last
will and testament is probated and allowed by the court after the death of the decedent,
the testator, during his lifetime, may ask for the allowance (probate) of his last will and
testament.

Revocation of Will
A last will and testament may be revoked by the testator before he dies. Where a
decedent executed more than one last will and testament, the last one executed will
prevail.

Disinheritance
A compulsory heir may, as a consequence of disinheritance, be deprived of his
legitime, for cause provided by law. Dis inheritance can be effected only by will, where
the legal cause thereof must be specified. If the disinherited heir denies the truth of the
cause of the disinheritance, the other heirs or testator must prove the truth of it.

Grounds for Disinheritance

A. The following shall be sufficient causes for the disinheritance of children and
descendants, legitimate as well as illegitimate (Section 919, Family Code of the
Philippines):
1. When a child or descendant has been found guilty of an attempt against
the life of the testator, his or hert spouse, descendants, or ascendants;
2. When a child or descendant as accused the testator of a crime for which
the law prescribes imprisonment for six years or more, if the accusation
has been found groundless;
3. When a child or descendant has been convinced of adultery or
concubinage with the spouse of the testator;
4. When a child or descendant by fraud, violence, intimidation, or undue
influence causes the testator to make a will or to change one already
made;
5. A refusal without justifiable causes to support the parent or ascendant who
disinherits such child or descendant;
6. Maltreatment of the testator by word or deed, by the child or descendant;
7. When a child or descendant leads a dishonorable or disgraceful life;
8. Conviction of a crime which carries wit it the penalty of civil interdiction.
B. The following shall be sufficient causes for an disinheritance of parents,
ascendants, whether legitimate or illegitimate (Article 920, Family Code of the
Philippines):
1. When the parents have abandoned their children or induced their
daughters to live a corrupt or immoral life, or attempted against their
virtue;
2. When the parent or ascendant has been convicted of an attempt against
the life of the testator, his or her spouse, descendants, or ascendants;
 3. When the parent or ascendant has accused the testator of a crime for
which the law prescribes imprisonment for six years or more, if the
accusation has been found to be false;
4. When the parent or ascendant has been convicted of adultery or
concubinage with the spouse of the testator;
5. When the parent or ascendant by fraud, violence, intimidation, or undue
influence causes the testator to make a will or to change one already
made;
6. The loss of parental authority for causes specified by this Code;
7. The refusal to support the children or descendants without justifiable
cause;
8. An attempt by one of the parents against the life of the other, unless there
has been a reconciliation between them.
C. The following shall be sufficient causes for an disinheritance of a spouse (Article
920, Family Code of the Philippines):
1. When the spouse has been convicted of an attempt against the life of the
testator, his or her descendants, or ascendants;
2. When the spouse has accused the testator of a crime for which the law
prescribes imprisonment for six years or more, and the accusation has
been found to be groundless;
3. When the spouse by fraud, violence, intimidation, or undue influence
causes the testator to make a will or to change one already made;
4. When the spouse has given cause for legal separation;
5. When the spouse has given grounds for the loss of parental authority;
6. Unjustified refusal to support the children or the other spouse.

Executor and administrator

There should be someone to carry out the provisions of a last will and
testament. If the testator appointed in his will a person to carry out its
provisions, such person is called an executor. If the person appointed refused
to accept the appointment, or failed to qualify under the law, or the last will
and testament did not appoint anybody, and the court appointed somebody,
the person appointed is called administrator.

Intestate succession
In intestate succession, the entire estate of the decedent is distributed to
the heirs. The compulsory heirs in testamentary succession are also heirs in
intestate succession. However, intestate heirs include brothers and sisters,
collateral relatives within the fifth civil degree, and the state.

Mixed Succession
A mixed succession takes place when a person made a last will and
testament and: a) He omitted certain properties so that not all his properties
were disposed of in the last will and testament; or b) He acquired properties
after executing his last will and testament, so that at the time of his death
the after-acquired properties were not disposed of by will.

Whether the succession is testamentary, intestate, or mixed, the legititmes

of the compulsory heirs should be respected. Extrajudicial settlement of the
estate
The heirs to an estate may, among themselves, ands as long as the rights
of the creditors are not prejudiced, enter into an extrajudicial settlement of
the estate. Extrajudicial settlement of the estate, also called extrajudicial
partition of the estate, is resorted to in order to avoid expensive court
proceedings to settle te estate, where the heirs are not at odds with one
another, whether there is or there is no last will and testament.

In an extrajudicial settlement of the estate, the heirs execute a Deed of

Partition, acknowledge it before a notary public, and publish a notice of
extrajudicial settlement in a newspaper of general circulation. If there is a
last will and testament, the terms of the extrajudicial partition, by mutual
consent of the instituted heirs, override the provisions of the last will and
testament.

Hereditary Estate
Hereditary estate, also called net distributable estate, is the physical
estate, after deducting the estate tax, that is available to the heirs, whether
testamentary or intestate.

Repudiation of Inheritance
An heir called to an inheritance may accept or refuse the inheritance.
Refusal of an inheritance is called repudiation of the inheritance. The
repudiation must be made in a public or authentic document, or by petition
to the court having jurisdiction over the testamentary or intestate
proceedings.

Right of Representation
Representation takes place when a compulsory heir of a decedent dies
ahead of the decedent.

Representation us a right by virtue of which the representative is raised to

the place and degree of the person represented, and acquires the rights
which the latter would have if he were living or if he could have inherited.

The right of representation takes place in the direct descending line, but
never in the ascending line. In the collateral line, it takes palce only in favor
of the children of brothers and sisters. Whenever there is succession by
representation, the division of the estate shall be made per stirpes in such
manner thatthe representative or representatives shall not inherit more than
what the person they represent would have inherited if he were living or
could inherit.

Classification of Decedent

Class A – Resident or citizen

Class B – Non-resident, not citizen

At the time of death, the decedent was:

a) Citizen of the Philippines, residing in the Philippines A
b) Citizen of the Philippines, residing in abroad A
c) Citizen of a foreign country, residing in the Philippines B
d) Citizen of a foreign country, residing abroad B

BIR FORM NO. 1801 – ESTATE TAX RETURN

Guidelines and Instructions

Who Shall File

This return shall be filed in triplicate by:

1. The executor or administrator, or any of the legal heirs of the descendent, whether resident or non-resident of the
Philippines, under any of the following situations:
a. In all cases of transfers subject to estate tax;
b. Where though exempt from estate tax, the gross value of the estate exceeds two hundred thousand (P200,000)
pesos; or
c. Regardless of the gross value of the estate, where the said estate consists of registered or registrable property
such as real property, motor vehicle, shares of stock or other similar property for which a clearance from the
BIR is required as a condition precedent for the transfer of ownership thereof in the name of the transferee; or
2. If 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.

When and Where to File

This return shall be filed within six (6) months from the decedent’s death. In meritorious cases, the Commissioner shall
have authority to grant a reasonable extension not exceeding thirty (30) days for filing the return.

A certified copy of the schedule of partition and the order of the court approving the same shall be furnished the
Commissioner within thirty (30) days after the promulgation of such order.

The return shall be filed with any Authorized Agent bank (AAB) of the Revenue District Office having jurisdiction
over the place of domicile of the decedent at the time of his death. In places where there are no AABs, the return shall be filed
with the Revenue Collection Officer or duly Authorized City/Municipal Treasurer of the Revenue district Office having
jurisdiction over the place of domicile of the decedent at the time of his death. If the decedent has no legal residence in the
Philippines, the return shall be filed with the Office of the Commissioner (Revenue District office No. 39, South Quezon City).

When and Where to Pay

Upon filing this return, the estate tax due shall be paid to the Authorized agent bank (AAB) where the return is filed. In
places where there are no AABs, payment shall be made directly to the Revenue Collection Officer or duly Authorized
city/Municipal Treasurer who shall issue Revenue Official Receipt (BIR Form No. 2524) thereof.

Where the return is filed with an AAB, the lower portion of the return must be properly machine-validated and stamped
by the Authorized agent Bank to serve as the receipt of payment. The machine validation shall reflect the date of payment, the
amount paid and transaction code, and the stamp mark shall show the name of the bank, branch code, teller’s name and the
teller’s name and teller’s initial. The AAB shall also issue an official receipt or bank debit advice or credit document, whichever
is applicable, as additional proof of payment.

When the Commissioner finds that the payment on the due date of the estate tax or of any part thereof would impose
undue hardship upon the estate or any of the heirs, he may extend the time for payment of such tax or any part thereof not to
exceed five (5) years, in case the estate is settled through the courts, or two (⁰) years in case the estate is settled extrajudicially in
such case the amount in respect of which the extension is granted shall be paid on or before the date of the expiration of the
period of the extension, and the running of the Statute of limitations for assessment as provided in Section 203 of the National
Internal revenue Code shall be suspended for the period of any such extension.

Where the taxes are assessed by reason of negligence, intentional disregard of rules and regulations, or fraud on the part
of the taxpayer, no extension will be granted by the Commissioner.

If an extension is granted, the Commissioner may require the executor or administrator, or beneficiary, as the case may
be to furnish a bond in such amount, not exceeding double the amount of the tax and with such sureties as the Commissioner
deems necessary, conditioned upon the payment of the said tax in accordance with the terms of the extension.

Tax Rates and Basis of Tax

There shall be imposed a scheduler rate based on the value of the NET ESTATE determined as of the time of death of
decedent composed of all property, real or personal, tangible or intangible less allowable deductions.

ESTATE TAX
If the net estate is
Over But not over The tax shall be Plus Of excess over
P 200,000 Exempt
P 200,000 500,000 0 5% P200,000
500,000 2,000,000 15,000 8% 500,000
2,000,000 5,000,000 135,000 11% 2,000,000
5,000,000 10,000,000 465,000 15% 5,000,000
10,000,000 And over 1,215,000 20% 10,000,000
Penalties

There shall be imposed and collected as part of the tax:

1. A surcharge of twenty five percent (25%) for each of the following violations:
a. Failure to file any return and pay the amount of tax or installment due or before the due date;
 b. Unless otherwise authorized by the Commissioner, filing a return with a person or office other than those
with whom it is requires to be filed;
c. Failure to pay the full or part of the amount of tax shown on the return, or the full amount of tax due for
which no return is required to b filed on or before the due date;
d. Failure to pay the deficiency tax within the time prescribed for its payment in the notice of assessment.
2. A surcharge of fifty percent (50%) of the tax or of the deficiency tax, in case any payment has been made on the basis
of such return before the discovery of the falsity or fraud, for each of the following violations:
a. Willful neglect to file the return within the period prescribed by the Code or by rules and regulations; or
b. In case a false or fraudulent return is willfully made.
3. Interest at the rate of twenty percent (20%) per annum, or such higher rate as may be prescribed by rules and
regulations, on any unpaid amount of tax, from the date prescribed for the payment until the amount is fully paid.
4. Compromise penalty.

Attachments

1. Certified true copy of the DEATH CERTIFICATE;

2. NOTICE OF DEATH duly received by the BIR; if gross taxable estate exceeds P20,000 for deaths occurring on or after
January 1, 1998; or if the gross taxable estate exceeds P3,000 for deaths occurring prior to January 1, 1998;
3. Any of the following: a) Affidavit of Self adjucation; b0 Deed of Extrajudicial Settlement of the estate, if the estate had
been settled extrajudicially; c) Court order if settled judicially; d) Sworn Declaration of all properties of the Estate;
4. A certified copy of the schedule of partition of the estate and the order of the court approving the same, if applicable;
5. Certified true copy/ies of the Transfer/Original/Condominium Certificate of Title/s of real property/ies (front and back
pages), if applicable;
6. Certified true copy of the latest Tax Declaration of real properties at the time of death if applicable;
7. “Certificate of no Improvement” issued by the Assessor’s Office where declared properties have no declared
improvement;
8. Certificate of Deposit/Investment/Indebtedness owned by the decedent and the surviving spouse, if applicable;
9. Photo copy of Certificate of registration of vehicles and other proofs showing the correct value of the same, if
applicable;
10. Proof of valuation of shares of stocks at the time of death, if applicable;

For listed stocks – newspapers clippings/certification from the STOCK EXCHANGE

For unlisted stocks – latest audited Financial Statements of issuing corporation with computation of book
value per share

11. Xerox copy of certificate of stocks, if applicable;

12. Proof of valuation of other types of personal property, if applicable;
13. Proof of Claimed Tax Credit, if applicable;
14. CPA Statement on the itemized assets of the decedent, itemized deductions from the gross estate and the amount due if
the gross value of the estate exceeds two million pesos (P2,000,000);
15. Certification of the Barangay Captain for the claimed Family Home;
16. Duly notarized Promissory Note for “Claims Against the Estate” arising from Contract of loan;
17. Accounting of the proceeds of loan contracted within three (3) years prior to death of the decedent;
18. Proof of claimed “Property Previously Taxed:;
19. Proof of the claimed “Transfer for Public Use”;
20. Copy of Tax Debit Memo used as payment, if applicable

These requirements must be submitted upon field or office audit of the tax case before the Tax Clearance certificate/
Certificate Authorizing Registration can be released to the taxpayer.

Additional requirements may be requested for presentation during the audit of the tax case depending upon existing
audit procedures.
 GROSS ESTATE
PROPERTIES IN THE ESTATE

RESIDENT CITIZEN NON-RESIDENT CITIZEN

The gross estate of a citizen or resident of the Philippines, The gross estate of a non-resident citizen at the time of his
regardless of location, consists of: death, consists of properties located only in the Philippines:

1) Real property and 1) Real estate

2) Personal property. It may be: 2) Tangible personal property
a) tangible personal property 3) Intangible personal property,
subject to exception
b) intangible personal property

Real Property

Real estate or real property means land, building, or anything attached to the soil with
permanence.

Tangible personal property

Tangible personal property is personal property that can be seen and touched. The following,
among others, are intangible personal property located in the Philippines (statutory enumeration):

• Franchise which must be exercised in the Philippines;

• Shares, obligations or bonds issued by any corporation or sociedad anonima
organized or constituted in the Philippines in accordance with its laws;
• Shares, obligations or bonds issued by any foreign corporation eighty-five (85%) of the
business of which is located in the Philippines;
• Shares, obligations or bonds issued by any foreign corporation, if such shares,
obligations or bonds have acquired a business situs in the Philippines; and
• Shares or rights in any partnership, business, or industry in the Philippines.

Intangible personal property

 Intangible personal property is personal property that cannot be seen and touched. While, as a
general rule, intangible personal property located in the Philippines is included in the gross estate,
under the exception known as "reciprocity clause" in the estate tax law, which applies only to the
estate of a non-resident, not citizen of the Philippines, intangible personal property of the non-
resident decedent, not citizen of the Philippines, located in the Philippines, will not be included in
the gross estate:

a. If the decedent at the time of his death was a citizen and resident of a foreign country
which at the time of death did not impose a transfer or death tax of any character in
respect of intangible personal property of citizens of the Philippines not residing in that
foreign country, or

b. If the laws of which the decedent was a citizen and resident at the time of death allow a
similar exemption from transfer taxes or deaths taxes of every character in respect of
intangible personal property owned by citizens of the Philippines not residing in that
foreign country.

PROPERTIES NOT IN THE ESTATE

RESIDENT CITIZEN NON-RESIDENT CITIZEN

The location of the property is immaterial, because all
The property must be located in the Philippine at the time
properties, regardless of location, must be included in the
of death.
gross estate.
There may be properties which at the time of the decedent's death are not in the estate because
they were transferred by him during his lifetime. A value from the properties will be "borrowed"
and included in the computation of the gross estate if transferred under circumstances qualifying
as:

a. Transfer in contemplation of death;

b. Revocable transfer
c. Transfer under general power of appointment

Transfer in Contemplation of Death

A transfer in contemplation of death is a transfer motivated by the thought of death, although
death may not be imminent. A donation mortis causa (made during the lifetime of the transferor
but intended to take effect at death) is a transfer in contemplation of death.

Revocable Transfer
A revocable transfer is a transfer where the terms of enjoyment of the property may be altered,
amended, revoked or terminated by the decedent. It is sufficient that the decedent had the power
to revoke, though he did not exercise the power to revoke.

Transfer Under General Power of Appointment

A power of appointment is the right to designate the person or persons who will succeed to the
property of a prior decedent. A power of appointment may be:

• General power of appointment - one which may be exercised in favor of anybody

• Limited power of appointment - one which may be exercised only in favor of a certain
person or persons designated by the prior decedent.

In order that property passing under a power of appointment may be included in the gross estate
of the transferor, the power of appointment must be a general power of appointment.

In a transfer in contemplation of death, revocable transfer, or transfer under a general power of

appointment, the value to include in the gross estate will be as determined under the following
rules:

a. If the transfer was in the nature of a bona fide sale for an adequate and full consideration
in money or money's worth, no value will be included in the gross estate;
b. If the consideration received on the transfer was less than adequate and full, the value to
include in the gross estate will be the excess of the fair market value at the time of the
decedent's death over the consideration received;
c. If there was no consideration received on the transfer (as in donation mortis causa), the
value to include in the gross estate will be the fair market value at the time of the
decedent's death.

Proceeds of Life Insurance

Proceeds of life insurance are paid by the insurance company directly to the beneficiary.
Proceeds of insurance under policies taken out by the decedent upon his life shall constitute part
of the gross estate if the beneficiary is:

a. The estate of the decedent, his executor or administrator, or

b. A third person (i.e., a person other than the estate, executor or administrator), and the
designation of the beneficiary is revocable.
Under the Insurance Code of the Philippines, a designation of beneficiary is revocable,
unless stated expressly by the insured, and indicated in the policy, that the designation is
irrevocable.
In a life insurance taken out by the decedent on his own life, in a policy where the
designation of beneficiary is revocable, the insurance company will pay the proceeds
directly to the beneficiary. In the distribution of the hereditary estate, the same value will
be given to the beneficiary of the policy.
 Claims Against Insolvent Person
A decedent's claim against insolvent person (i.e., a person whose assets are not
sufficient to pay his liabilities) must be included in the gross estate at the full amount of
the claim. The fact that it is uncollectible in whole or in part will be recognized as a
deduction from the gross estate for the uncollectible portion.
EXCEPTIONS

The following acquisitions and transmissions will not be taxed (Section 87, National Internal
Revenue Code):

a. The merger of usufruct in the owner of the naked title;

b. The transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to
the fideicomissary;
c. The transmission from the first heir, legatee, or donee in favor of another beneficiary, in
accordance with the will of the predecessor;
d. All bequests, devises, legacies or transfers to social welfare, cultural and charitable
institutions no part of the net income of which inures to the benefit of any individual:
Provided, that not more than thirty percent (30%) of the said bequests, legacies or
transfers shall be used by such institutions for administrative purposes.

The value of property in exemption (a), (b) and (c) need not be included in the gross estate
anymore. With regard to the property in (d), the value of the property must be included in the
gross estate, and the same value shall be deducted from the gross estate, so that the net taxable
estate from it will be zero (P0).It is because for the reason that in order to be exempt, two
conditions must be satisfied:

a. No part of the net income of the institution shall inure to the benefit of any individual; and
b. Not more than thirty percent (30%) of the bequests, legacies and transfers shall be used
for administrative purposes. The satisfaction of the conditions is subject to verification by
the Bureau of Internal Revenue. If the conditions are not satisfied, the transmission is
taxable and the value of the property must be in the net taxable estate, and must pay the
estate tax.

The following shall not be taxed:

• Amounts received for war damages;

• Amounts received from the United States Veterans A0dministration;
• Benefits received from the Government Service Insurance System;
• Benefits received from the Social Security System.
VALUATION OF THE GROSS ESTATE

The gross estate shall be valued at its fair market value at the time of the decedent's death.

In case of real property, the value shall be the current and the fair market value, as shown in
the schedule of values fixed by the Provincial and City Assessors, or the fair market value as
determined by the Commissioner of Internal Revenue (zonal value), whichever is higher.

In case of personal property recently acquired by the decedent, the purchase price may indicate
the fair market value. In case of personal property not recently acquired, there should be some
evidence of fair market value.

In case of shares of stock, the fair market value shall depend on whether or not the shares of
stock are listed and traded in a stock exchange. If the shares if stock are listed and traded in a
stock exchange, the fair market value shall be the arithmetic mean between the highest and the
lowest quotation of the shares of stock on the valuation date, or on the date nearest the valuation
date. If the shares of stock are unlisted in a stock exchange, the fair market value shall be the
book value, if common, and the par value, if preferred. In determining book value, appraisal
surplus shall not be considered, as well as value assigned to preferred shares, if any.

INVENTORY OF THE GROSS ESTATE

When a special proceeding is filled with the court for the settlement of the estate, the court will
require an inventory of the estate to be filed with it by the executor or administrator.

When an estate tax return is filed with the Bureau of Internal Revenue, the estate tax return
shall report the properties in the estate. An estate tax return showing a gross estate exceeding
two million pesos (P2, 000,000) must be accompanied by a statement, duly certified by Certified
Public Accountants of, among others, the assets of the decedent.

The listing of assets should not fail to include:

a. Registered or registerable property;

b. Motor vehicles;
c. Shares of stock

The report of properties with the court and with the Bureau of Internal Revenue must be the
same. The court will promulgate an order closing the proceeding for the settlement of the estate
only after a certificate of estate tax payment from the Bureau of Internal Revenue shall have
been filled with it. This certification of estate tax payment enumerates the properties in the
inventory for which the estate tax was paid.

The certification of estate tax payment from the Bureau of Internal Revenue will also be
DEDUCTIONS
ORDINARY DEDUCTIONS

NON-RESIDENT NON-
RESIDENT CITIZEN
CITIZEN
Ordinary Deductions
Is subject to tax only on his estate within the Philippines.
a. Expenses, losses, indebtedness, taxes, etc. Due to this, the estate in the Philippines is allowed
1. Funeral expenses deductions for:
2. Judicial expenses
3. Claims against the estate a. Expenses, losses, indebtedness, taxes etc.:
4. Claims against insolvent persons Gross estate, Phil./Gross estate, world X World
5. Unpaid mortgage or indebtedness on Ordinary deductions
property b. Transfers for public use of the property in the
6. Taxes Philippines
7. Losses
b. Transfer for public use c. Vanishing deduction on property in the
Philippines
c. Vanishing deduction
Funeral Expenses
The deduction for funeral expenses is the amount of actual funeral expenses, or an amount
equal to five percent (5%) of the gross estate , whichever is lower, but not to exceed two hundred
thousand pesos (P200,000).

Funeral expenses, whether paid or unpaid, are deductions from the gross estate.

The term "funeral expenses" includes:

• mourning apparel of the surviving spouse and unmarried minor children of the deceased
bought and used on the occasion of the burial,
• expenses of the decedent's wake including food and drinks,
• publication charges of death notices,
• telecommunication expenses incurred in informing relatives of the deceased
• cost of the burial plot,
• tombstone,
• monument or mausoleum,
• interment and/or cremation fees and charges,
• And all other expenses incurred in the performance of the rites and ceremonies incident to
interment.
 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.

In order to be considered as an actual funeral expense, the funeral expense should be paid out of
the estate. Thus, funeral expenses paid by somebody, or out of contributions from friends and
relatives, will not be considered actual funeral expenses.

The cut-off point is interment. Expenses related to the death which accrues after interment is
not considered funeral expenses.

When some of the items which are actual funeral expenses are covered by a memorial plan, the
value of the memorial plan must be included in the gross estate, and the value of the memorial
plan plus other actual funeral expenses, will give an aggregate which will be compared with the
five percent (5%) limitation and with two hundred thousand pesos (P200, 000).

Judicial Expenses
The provision of law on this deduction is "for judicial expenses of the testamentary or intestate
proceedings".

The expenses should not include those that were incurred beyond the period provided by law
for filing the estate tax return and payment of the estate tax, or the extension period allowed.

Judicial expenses will include:

• fees of the executor or administrator

• attorney's fee
• court fees
• accountant's fees
• appraiser's fees
• clerk hire
• costs of preserving and distributing the estate,
• costs of storing or maintaining the property of the estate
• brokerage fees for selling property of the estate

There can be a deduction from the gross estate for expenses on extrajudicial settlement of the
estate (e.g., notarial fees of the lawyer who prepared and notarized the deed of extrajudicial
partition of the estate).

Attorney's fees on a judicial settlement of an estate normally are paid within and beyond the
period provided by the law on filing of the estate tax return. But as long as there was an
agreement for such attorney's fees entered into within the allowed period, payments on them will
be deductible as judicial expenses even if such actual payments were made beyond the period.

Attorney's fees paid by the heirs to their respective lawyers arising from conflicting claims are
not deductible as judicial expenses. These expenses should be separately borne by them.

Claims Against the Estate

A person, at some time during his lifetime, must have contracted obligations. If enforceable
against him when alive, the obligations will be claims against his estate when he shall be dead.
Thus, an obligation that had prescribed already during the lifetime of the decedent, or that was
unenforceable against him when still alive, will not be claim against his estate when he shall be
dead.

If a claim against the estate arose out of a debt instrument, the debt instrument must be
notarized (except for loans granted by financial institutions where notarization is not part of the
business practice or policy of the financial institution). If the loan was contracted within three
years before the death of the decedent, the administrator or executor must submit a statement
showing the disposition of the proceeds of the loan.

If a monetary claim against the decedent did not arise out of a debt instrument, the requirement
on a notarized debt instrument does not apply.

Claims Against Insolvent Persons

A person is insolvent when his properties are not sufficient to pay his obligations. The claims of
the creditors will be satisfied out of his available properties. There are two kinds of creditors,
namely:

• Preferred Creditors - the first to be paid in full from the properties

• Ordinary Creditors - pro rata they will receive the balance of the properties

Claims against insolvent persons are deductions from the gross estate, subject to the condition
that the full amounts of the receivables are first included in the gross estate. The deductions from
the gross estate will be uncollectible portion. It will be wrong to include in the computation for
the taxable estate only the realizable portion of the claims.

Unpaid Mortgage or Indebtedness on Property

When a person leaves property encumbered by a mortgage or indebtedness, his gross estate
must include the fair market value of the property, undiminished by the mortgage or
indebtedness. The mortgage or indebtedness will be claimed as a deduction from the gross estate.
It will be wrong to include in the computation for the gross estate only the equity of the decedent
on the property.

If the loan is merely an accommodation loan, where the proceeds of the loan went to another
person, the value of the unpaid loan must be included in the receivable of the estate.
Taxes
Taxes are deductions from the gross estate if such taxes accrued prior to the decedent's death.
Taxes that accrued after the decedent's death are not deductions from gross estate.

The National Internal Revenue Code has a negative statement on taxes as deductions from the
gross estate, as it only enumerates taxes that cannot be deducted, as follows:

a. Income taxes on income received after death;

b. Property taxes not accrued before death; and
c. Estate Tax

Losses
Losses are deductible from the gross estate if:

a. Arising from fire, storm, shipwreck, or other casualty, robbery, theft or embezzlement;
b. Not compensated by insurance or otherwise;
c. Not claimed as a deduction in an income tax return of the estate subject to income tax;
d. Occurring during the settlement of the estate;
e. Occurring before the last day for the payment of the estate tax (Last day to pay: six
months after the decedent's death, or the allowed extension)

Transfer for Public Use

By "transfer for public use" as deduction from the gross estate is meant dispositions in a last
will and testament, or transfer to take effect after death, in favor of the Government of the
Philippines, or any political subdivision thereof, for exclusively public purposes.

The political subdivision of the national Government are:

a. Provinces
b. Cities
c. Municipalities
d. Barangays

Vanishing Deductions
Property may change hands within a very short period of time by reason of the early death of
the owner who received it by inheritance or gift. This subjects the properly to a very heavy
burden in taxes, because the transfer tax is important on each transfer. To provide a relief,
vanishing deduction is allowed to reduce the gross estate.

Vanishing deduction is allowed with the existence of the following conditions:

a. The present decedent died within five years from receipt of the property from a prior
decedent or donor;
b. The property on which vanishing deduction is being claimed must be located in the
 Philippines;
c. The property must have formed part of the taxable estate of the prior decedent, or of the
taxable gift of the donor;
d. The estate tax on the prior succession or the donor's tax on the gift must be identified as
the one received from the prior decedent, or from the donor, or something acquired in
exchange thereof;
e. No vanishing deduction on the property was allowable to the estate of the prior decedent.

The vanishing deduction is computed as follows:

1. Determine the basis of the vanishing deduction, as follows:

a. The initial value to take as the basis of the vanishing deduction is the value of the
property in the prior estate (or value used for donor's tax purposes), or the value of
such property in the present state, whichever is lower. Where the property referred
to consists of two or more items, the aggregate of the item by item lower or two
values shall be the initial basis.
b. The value in (a) shall be reduced by any payment made by the present decedent on
any mortgage or lien on the property, where such mortgage or lien was a deduction
from the gross estate of the prior decedent, or gift of the donor;
c. The value in (b) shall be further reduced by any amount equal to:

Value as reduced in (b) / Gross Estate X Ordinary expenses

2. On the computed basis in (1), apply:
3.

% If received by inheritance or gift

100% Within one year prior to the death of the decedent;
More than one year but not more than two years prior to the death of the
80% decedent;
More than two year but not more than three years prior to the death of the
60% decedent;
More than three years but not more than four years prior to the death of the
40% decedent;
More than four year but not more than five years prior to the death of the
20% decedent;

DEDUCTIONS
SPECIAL DEDUCTIONS
 NON-RESIDENT NON-
RESIDENT CITIZEN
CITIZEN
Special Deductions
No special deduction allowed for the non-resident non-
• Family Home citizen individual.
• Standard Deduction
• Medical expenses

• Amount received/receivable under Republic Act

No. 4917
Family Home
A family home of a married person or unmarried head of family is the dwelling house where
the person and his family reside and the land on which it is situated. Within the meaning of
"family" are the spouse, rents, ascendants, descendants, brothers and sisters, who are living in
the family home and who depend upon the head of family support.

The deduction is an amount equivalent to the current fair market value of the descendant's
family home. The maximum is one million pesos (P1, 000,000).

The deduction from the gross estate for family home will be allowed when the family home is
certified to as such by the barangay captain of the locality where it is located.

For a person who was married at the time of death, and who was under the system of conjugal
partnership of gains or absolute community of property in his property relationship with the
spouse, the deduction for family home is one-half (1/2) of the fair market value of the family
home, but shall not exceed one million pesos (P1, 000,000), if such family home was conjugal
property or community property.

There can be one family home only.

Standard Deduction
The law: "An amount equivalent to one million pesos P (1,000,000)."

Medical Expenses
deduction from the gross estate is allowed for medical expenses, whether paid or unpaid at the
time of death, incurred by the decedent within one year prior to his death, if substantiated with
receipts.

The deduction for medical expenses shall not exceed five hundred thousand pesos (P500, 000).

Per revenue regulation, medical expenses incurred more than one year prior to death, and still
unpaid at the time of death, cannot be deducted as claim against the estate.

Amount under Republic Act No.4917

Any amount received by the heirs from the decedent's employer as a consequence of the death
of the decedent-employee in accordance with Republic Act No. 4917 shall be deductible from
the gross estate of the decedent.
ABSOLUTE COMMUNITY
Under Philippine laws, the property relationship between the spouses shall be governed by
contract executed before the marriage, which may be:

a. Absolute community;
b. Relative community or conjugal partnership of gains;
c. Complete separation of property;
d. Any other property relationship.

In the absence of such contract, or if the contract is void:

a. On marriages contracted before August 3, 1988, the system of conjugal partnership of

gains shall govern;
b. On marriages contracted on or after August 3, 1988 (effectivity of the Family Code of the
Philippines), the system of absolute community of property shall govern.

GROSS ESTATE

The gross estate of a decedent who was married and who was under the system of absolute
community of property during the marriage consists of:

a. The exclusive properties of the decedent; and

b. The community properties.

Exclusive Property

Exclusive properties are:

a. Property acquired during the marriage by gratuitous title by either spouse, and the fruits
as well as the income thereof, if any, unless it is expressly provided by the donor, testator
or grantor that they will be part of the community property;
b. Property for personal and exclusive use of either spouse, however, jewelry will form part
of the community property;
c. Property acquired before the marriage by either spouse who has legitimate descendants
by a former marriage, and the fruits as well as the income, if any, of such property.

In general, anything acquired during the marriage by purchase with exclusive money, or by
exchange with exclusive property, will be considered exclusive property.
Community Property

In general, the community property will consist of all properties owned by the spouses at the
time of the celebration of the marriage or acquired thereafter.

Property acquired during the marriage will be presumed to belong to the community, unless it
can be proven to be exclusive property.

The family home constituted by the husband and wife is community property. Exclusive
property does not become community property just because it is used as family home.

Proceeds of Life Insurance

The proceeds of life insurance taken out by the decedent on his own life, when includible in the
gross estate, will be exclusive property, if the premiums were paid out of exclusive funds, and
will be community property, if the premiums were paid out of community funds.

ABSOLUTE COMMUNITY

DEDUCTIONS

The following are the deductions from the gross estate of a married person whose property relationship
with the spouse was the system of absolute community of property:

1. Ordinary Deductions:

A. Expenses, losses, indebtedness, taxes, etc. -

a. Funeral expenses;

b. Judicial expenses of testamentary or intestate proceedings;

c. Claims against the estate;

d. Claims against insolvent persons;

e. Unpaid mortgages or indebtedness on property;

f. Taxes;

g. Losses;

B. Transfer for public use;

 C. Vanishing deduction;

2. Special deductions:

A. Family home;

B. Standard deduction;

C. Medical expenses;

D. Amounts received/receivable under Republic Act No. 4917;

3. Net share of the surviving spouse in the absolute community property.

The discussion on deductions from the gross estate will apply to deductions from the gross estate of a
married person under the system of absolute community of property, subject to modifications that follow:

a) Funeral expenses and judicial expenses are charges against the community properties. The
maximum funeral expenses will be the actual funeral expenses, or five percent (5%) of the gross
estate (exclusive plus community properties), whichever is lower, but not to exceed two hundred
thousand pesos (P200,000);

b) The special deductions of family home, standard deduction, medical expenses and amounts
received/receivable under RA 4917 are deductions from the total estate consisting of exclusive
properties and community l properties;

c) Other deductions must be distinguished between those that are against exclusive properties and
those that are against community properties;

d) As a general rule, obligations contracted during the marriage will be presumed to have benefited
the family and shall be charges against the community properties.
Charges against the community properties include:

1. The support of the spouses, their common children, and the legitimate children of either
spouse;

2. All debts and obligations contracted during the marriage by the designated administrator-
spouse for the benefit of the community, or both spouses, or by one spouse with the
consent of the other;

3. Debts and obligations contracted by either spouse without the consent of the other, to the
extent that the family may have benefited;

4. All taxes, liens, charges and expenses, including major and minor repairs, upon the
community property;

5. All taxes and expenses for mere preservation made during the marriage upon the separate
 property of either spouse used by the family;

6. Expenses to enable either spouse to commence or complete a professional or vocational

course or other activity for self-improvement;

7. Debts before the marriage of either spouse, insofar as they have redounded to the benefit
of the family;

8. The value of what was donated or promised by both spouses in favor of their common
legitimate children, for the exclusive purpose of commencing or completing a profession
or vocational course or other activity for self-improvement;

9. Expenses of litigation between the spouses, unless the suit is found to be groundless.

Whatever may be lost during the marriage in any game of chance, betting, sweepstakes, or any kind of
gambling, whether permitted or prohibited by law, shall be borne by the loser and will not be charged to
the conjugal partnership, but any winnings therefrom will form part of the community property.

Debts before the marriage by either spouse that did not redound to the benefit of the family, the support
of illegitimate children of either spouse, and liabilities incurred by either spouse by reason of a crime are
charges against exclusive properties.

e) Vanishing deductions
Vanishing deduction is computed thus:

1. Determine the initial basis of vanishing deduction. It is the value of the property at which
previously taxed, or the value of the property in the present estate, whichever is lower;

2. Deduct from the initial basis any mortgage or lien on the property paid by the decedent
prior to his death;

3. Deduct from the value in (2) an amount equal to:

Value as reduced in Step 2 Expenses, losses, indebtedness, taxes

------------------------------------- X
Gross Estate and transfers for public use
4. On the value after (3), apply the percentage of 100%, 80%, 60%, 40% or 20%, as
determined by the time interval between receipt of property and death of the present
decedent.

f) Net share of the surviving spouse in the community property.

The gross community property shall be diminished by charges against or obligations of the
community property. One-half of the net community property belongs to the surviving spouse, and
shall be deducted from the net community estate.
CONJUGAL PARTNERSHIP OF GAINS
For marriages contracted before August 3, 1998, in the absence of any contract on the property
relationship of the spouses, or when the contract is void, the system of conjugal partnership of
gains (also called relative community of property) shall apply.

GROSS ESTATE
The gross estate of a decedent who was married and who was under the system of conjugal
partnership of gains during the marriage shall consists of:

a. The exclusive properties of the decedent; and

b. The conjugal properties.

Exclusive Properties

The following will be considered exclusive properties of each spouse:

a. That which is brought to the marriage as his or her own;

b. That which each acquires during the marriage by gratuitous title (i.e., inheritance or
donation);
c. That which each acquires by right of redemption or by exchange of property belonging to
only one of the spouses;
d. That which is purchased with the exclusive money of the wife, or of the husband.

All properties existing at the time of death that cannot be established to be exclusive
properties of either spouse will be presumed to be conjugal properties.

The family home constituted by the husband and the wife is conjugal property. Exclusive
property does not become conjugal property just because it is used as family home.

Conjugal Properties

Conjugal properties include the following:

a. That which is acquired by onerous title during the marriage at the expense of the common
fund, whether the acquisition be for the partnership, or for only one of the spouses;
 b. That which is obtained by labor, industry, or work, or profession of either or both of the
spouses;
c. The fruits received or due during the marriage, coming from the common property or
from the exclusive property of each spouse;
d. The share in the hidden treasure discovered during the marriage, which the law awards to
the spouses, or to either of them, as finder or proprietor;
e. Property acquired by occupation, such as hunting or fishing, by the spouses, or by either
of them;
f. Improvements on the separate property of the spouses at the expense of the partnership, or
through the industry of the spouses, or either of them.

All properties acquired during the marriage, whether the acquisition appears to have been made,
contracted or registered in the name of one or both spouses, is presumed to be conjugal unless the
contrary is proved.

Property Bought on Installments

Property bought on installments, paid partly from exclusive funds of either or both spouses and
partly from conjugal funds belongs to the buyer or buyers if full ownership was vested before the
marriage, and to the conjugal partnership if such ownership is vested during the marriage. In
either case, any amount advanced by the partnership or by either or both spouses shall be
reimbursed by the owner or owners upon liquidation of the partnership.

Proceeds of Life Insurance

The proceeds of life insurance taken out by the decedent on his own life, when includible in the
gross estate, will be exclusive property, if the premiums were paid out of exclusive funds, and
will be conjugal property, if the premiums were paid out of conjugal funds.

Claims Against Insolvent Person

A claim against insolvent person will be included in the gross estate as exclusive property or
conjugal property depending on whether the claim is for exclusive property or for conjugal
property.

CONJUGAL

DEDUCTIONS
 The following are the deductions from the gross estate of a married person whose property relationship
with the spouse was the system of conjugal partnership of property:

1. Ordinary Deductions:

A. Expenses, losses, indebtedness, taxes, etc. -

a. Funeral expenses;

b. Judicial expenses of testamentary or intestate proceedings;

c. Claims against the estate;

d. Claims against insolvent persons;

e. Unpaid mortgages or indebtedness on property;

f. Taxes;

g. Losses;

B. Transfer for public use;

C. Vanishing deduction;

2. Special deductions:

a) Family home;

b) Standard deduction;

c) Medical expenses;

d) Amounts received/receivable under Republic Act No. 4917;

3. Net share of the surviving spouse in the conjugal partnership property.

The discussion on deductions from the gross estate will apply to deductions from the gross estate of a
married person under the system of the conjugal partnership of gains, subject to modifications that follow:

a) Funeral expenses and judicial expenses are charges against the community properties. The
maximum funeral expenses will be the actual funeral expenses, or five percent (5%) of the gross
estate (exclusive plus community properties), whichever is lower, but not to exceed two hundred
thousand pesos (P200,000);

b) The special deductions of family home, standard deduction, medical expenses and amounts
received/receivable under RA 4917 are deductions from the total estate consisting of exclusive
 properties and conjugal partnership properties;

c) Other deductions must be distinguished between those that are against exclusive properties and
those that are against conjugal partnership properties;

d) As a general rule, obligations contracted during the marriage will be presumed to have benefited
the family and shall be charges against the conjugal partnership properties.
Charges against the conjugal partnership properties include:

1. The support of the spouses, their common children, and the legitimate children of either
spouse;

2. All debts and obligations contracted during the marriage by the designated administrator-
spouse for the benefit of the community, or both spouses, or by one spouse with the
consent of the other;

3. Debts and obligations contracted by either spouse without the consent of the other, to the
extent that the family may have benefited;

4. All taxes, liens, charges and expenses, including major and minor repairs, upon the
community property;

5. All taxes and expenses for mere preservation made during the marriage upon the separate
property of either spouse used by the family;

6. Expenses to enable either spouse to commence or complete a professional or vocational

course or other activity for self-improvement;

7. Debts before the marriage of either spouse, insofar as they have redounded to the benefit
of the family;

8. The value of what was donated or promised by both spouses in favor of their common
legitimate children, for the exclusive purpose of commencing or completing a profession
or vocational course or other activity for self-improvement;

9. Expenses of litigation between the spouses, unless the suit is found to be groundless.

e) Whatever may be lost during the marriage in any game of chance, betting, sweepstakes, or any
kind of gambling, whether permitted or prohibited by law, shall be borne by the loser and will not
be charged to the community, but any winnings therefrom will form part of the conjugal
partnership property.

Debts before the marriage by either spouse that did not redound to the benefit of the family, the
support of illegitimate children of either spouse, and liabilities incurred by either spouse by reason
of a crime are charges against exclusive properties.
f) Vanishing deductions
Vanishing deduction is computed thus:

1. Determine the initial basis of vanishing deduction. It is the value of the property at which
previously taxed, or the value of the property in the present estate, whichever is lower;

2. Deduct from the initial basis any mortgage or lien on the property paid by the decedent
prior to his death;

3. Deduct from the value in (2) an amount equal to:

Value as reduced in Step 2 Expenses, losses, indebtedness, taxes

------------------------------------- X
Gross Estate and transfers for public use
4. On the value after (3), apply the percentage of 100%, 80%, 60%, 40% or 20%, as
determined by the time interval between receipt of property and death of the present
decedent.

g) Net share of the surviving spouse in the community property.

The gross community property shall be diminished by charges against or obligations of the
conjugal partnership property. One-half of the net conjugal partnership property belongs to the
surviving spouse, and shall be deducted from the net conjugal partnership estate.