Jessa B.

Regalario
V-BSA

Ms. Tabernilla
F. Schedule and Computation of the Tax

Estate tax imposed on net estate.

The estate tax is based on the net estate, considered as a unit, and it is
determined by subtracting from the gross estate the allowable deductions, including the
P 200,000 exemption authorized by law, regardless of who the decedent is and who the
heirs are. The other specific exemptions are simply not taken into account in the
computation of the gross estate.
There is no basis for the tax if the value of the gross estate does not exceed the
total amount of the authorized deductions.
Schedule of rates for estate tax
Section 84 of the Tax Code provides that there shall be levied, assessed, and
collected and paid upon the transfer of the net estate of every decedent, whether a
resident or non-resident of the Philippines, a tax based on the value of such net estate
as computed in accordance with the following schedule:
If the net estate is:
Over
P 200,000
500,000
2,000,000
5,000,000
10,000,000

But Not Over

P 200,000
500,000
2,000,000
5,000,000
10,000,000
And Over

The tax Shall Be

Exempt
0
P 15,000
135,000
465,000
1,215,000

Plus
5%
8%
11%
15%
20%

Of Excess Over
P 200,000
500,000
2,000,000
5,000,000
10,000,000

The former rates before amendment by R.A No. 7499 which took effect on July
28, 1992 were graduated upwards from 3% to 60% and applied to each tax bracket into
which the value of the net estate was divided.
The rate were increased by R.A No. 7499 partly by reason of the integration of
the estate and inheritance taxes into a single tax, the estate tax. The exemption was
increased from P 5,000.00 to P 10,000.00 by reason also of the abolition of the
inheritance tax. The former rates were considered confiscatory.
R.A No. 8424 reduced the rates of 12%, 21%, and 35% to 11%, 15% and 20%
respectively.
Procedure for computing net estate and estate tax due.
The steps are:
(1) Get the gross estate;
(2) Subtract from the gross estate the allowable deductions to get the net estate;
(3) Deduct the net share of the surviving spouse from properties which are
conjugal (or community) and the family home allowance;
(4) Deduct the P 200,000 exemption as allowed by law to get the taxable net
estate subject to tax; and
(5) Apply the tax rates to the amount of the taxable net estate to get the estate
tax.
Thus, we have the following outline:
Gross Estate
Less: Allowable deductions

________________________________________
= Estate after deductions
Less: 1/2 net share of surviving spouse
On conjugal or community property
(If applicable)
Family home allowance (if applicable)
________________________________________
= Net estate of decedent
Less: P 200,000 exemption
________________________________________
= Taxable net estate
Multiplied by: Tax rates in Sec. 84
________________________________________
= Amount of estate tax due.
Note: If the net estate is less that P 500,000, the P 200,000 exemption must be
deducted to get the taxable net estate. In the schedule, it is already deducted
where the (taxable) net estate is P 500,000 or above. Thus, using the schedule, if
the net etate is P 400,000, the tax is P 10,000 (5% of P 200,000); if P 600,000,
the tax is P 23,000: P 15,000
Tax Credit for estatee taxes paid to a foreign country.
(1) In general The tax imposed by the Tax code shall be credited with the
amounts of any estate tax imposed by the authority of a foreign country.
(2) Limitations on credit. The amount of the credit taken under the Tax Code
shall be subject to each of the following limitations:
(a) For estate taxes paid to one foreign country. The amount of the credit in
respect to the tax paid to any country shall not exceed the same
proportion of the tax against which such credit is taken, which the
decedents net estate situated within such country taxable under the Tax
Code bears to his entire net estate;
The tax credit limit is determined as follows:
Decedents net estate
situated in foreign country
Entire net estate

x Phil estate tax

= Tax credit limit

(b) For estate taxes paid to two or more foreign countries. The total amount
of the credit shall not exceed the same proportion of the tax against which
such credit is taken, which the decedents net estate situated outside the
Philippines taxable under the Tax Code bears to his entire net estate.
The tax credit limit is determined as follows:
Decedents net estate
situated outside the Phil.
Entire net estate

x Phil estate tax

= Tax credit limit

Under limitation (a), the allowable tax credit is the lower amount between
the tax credit limit and the estate tax paid to the foreign country. Limitation (b) is
in addition to limitation (a). Where estate taxes have been paid to more than one
country, the allowable tax credit is the lower amount between the tax credit limit
computed under (a) and that computed under (b).

ILLUSTRATIVE PROBLEM:
X, a resident citizen, died leaving properties. Assume the following data:
Location of net estate
Philippines
Y Country
Total

Value
P 6,000,000
4,000,000
P 10,000,000

Foreign estate tax paid

----P 500,000
P 500,000

REQUIRED:
Compute the amount of tax credit to which X is entitled and the Philippines
estate tax due.
SOLUTION:
Phil. Estate tax
On P 100,000............................................................P 1,545,000
Less: Tax credit:
P 4,000,000
x P 1,545,000 = P 618,000
P 10,000,000
Tax credit allowable (lower
Amount)...........................................................................500,000
Tax due................................................................................P 1,045,000
Note: If the amount paid by X to Y country as estate taz is P 700,000, the credit
will be P 618,000 and the tax due is (P 1,545,000 P 618,000) P 927,000.
II
X, a resident alien, died leaving properties. Assume the following data:
Location of net estate
Philippines
Y Country
Z Country
Total

Value
P 1,000,000
6,000,000
3,000,000
P 10,000,000

Foreign estate tax paid

--P 1,000,000
460,000
P 1,460,000

REQUIRED:
Compute the amount of credit to which X is entitled and the Philippine
estate tax due.
SOLUTION:
Phil. Estate tax
On P 10,000,000..........................................P 1,545,000
Tax credit allowable:
Limitation (a)
Y Country
P 6,000,000_
P10,000,000

x P 1,545,000 = P 927,000

Tax credit alowable (lower amount)....

Z Country
P 3,000,000_
P 10,000,000

x P 1,545,000 = P 463,500

P 927,000

Tax credit allowable (lower amount) ...

460,000___
Total .......................................................P 1,387,000
Limitation (b)
P 9,000,000
x P 1,545,000 = P 1,390,500
P10,000,000
Tax credit allowable (lower amount) ..
P 1,387,000
G. BASIC CONCEPTS OF SUCCESSION
Definition and nature of succession
The Civil Code defines succession as a mode of acquisition by virttue 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 his will or by
operation of law.
It is a derivative mode of transmission and acquisition of property because it
presupposes previous ownership on the part of the decedent.
Elements of succession
There are three elements, viz.:
(1) Decedent. The person whose property is transmitted through succession,
whether or not he left a will. If he left a will, he is also called testator.
(2) Successor. The person to whom the property or property rights will pass;
and
(3) Inheritance or estate. The subject matter of the succession.
Kinds of successors
They are of three kinds, viz:
(1) Heir. The person called to the succession either by the provision of a will or
by operation of law. He succeeds to the rights and obligations of the decedent
from the moment and by the mere fact of the latters death;
(2) Devisee. A person to whom a gift of real property (devise) is given by virtue
of a will. (Ibid); and
(3) Legatee. A person to whom a gift of personal property (legacy) is given by
virtue of a will. (Ibid.)
A devisee or legatee succeeds to the specific thing devised or bequeathed by the
testator. On the other hand, the heir succeeds to the residue of the hereditary estate
after all the debts, devises, and legacies have been paid.
Capacity to succeed
The general rule is that a person has capacity to succeed unless disqualified by
law. (Art. 1024, Ibid.)
In order to be capacitated to inherit, a person must be living at the time of death
of the decedent, except in case of representation when it is proper. (infra) But a child
already conceived at such time is capable of succeeding provided it be born later under
the conditions prescribed by law. (Art. 1025, Arts. 41, 1027, 1032, Ibid.)
Acceptance and repudiation of inheritance
(1) The acceptance or repudiation of an inheritance is a purely voluntary and free
act. (Art. 1041, Ibid.) Its effects retract to the moment of the death of the
decedent. (Art. 1042) Under the law, no one can be compelled to accept an
inheritance against his will.

(2) Any one having the free disposal of his property may accept or repudiate an
inheritance. (Art. 1044, Ibid.) The repudiation must be made in a public or
authentic instrument or by petition presented to the court having jurisdiction
over the testamentary or intestate proceedings. (Art. 1051, Ibid.)
What inheritance includes.
The inheritance includes all the property, rights and obligations of a person which
are not extinguished by his death. (Art. 776, Ibid) However, the heirs are not liable for
the obligation of the decedent beyond the value of the asserts they have inherited since
they are chargeable to the estate. (Art. 1311, par. 2, Ibid.)
It is to be remembered that the Tax Code includes as part of the gross estate
inter vivos transfers which are treated as substitutes for testamentary dispositions.
Thus, the concept of the estate under succession law (Civil Code) may in some cases
be at variance with the estate under tax law.
Kinds of succession.
Succession may be:
(1) Testamentary. That which results from the designation of an heir, made in a
will executed in the form prescribed by law. (Art. 779)
(2) Intestate. That which takes place when a person dies without a will or with a
void will or one which has subsequently lost its validity, or if no one succeeds
under his will (see Art. 960, Ibid); and
(3) Mixed. That effected partly by will and partly by operation of law. (Art. 780)
Definition and nature of a will.
(1) Our Civil Code defines a will as 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. (Art. 783.)
(2) The making of a will (not the mechanical act of drafting it) is regarded as a
strictly personal act which cannot be left to the discretion of a third person nor
delegated to an agent or attorney-in-fact. (see Art. 784, Ibid.)
Time of succession.
The rights to the succession are deemed transmitted from the moment of the
death of the decedent. (Art. 777, Ibid.)
This means that the heirs become the owners of the property of the deceased
from such time notwithstanding that possession may have been deferred. Hence, they
are time of death but also those which have accrued since the opening of the
succession. (Art. 781.)
Who may make a will.
Any person not expressly prohibited by law may make a will (Art. 796, Ibid.)
provided he is not under 18 years of age (Art. 797, Ibid.) and is of sound mind. (Art. 798,
Ibid.)
To be of sound mind, it is sufficient that the testatorws able at the time of making
the will to know the nature of the estate to be disposed of, the proper objects of his
bounty, and the character of the testamentary act. (Art. 799, Ibid) Incidentally, the law
presumes that every person is of sound mind in the absence of proof to the contrary.
(Art. 800, Ibid.)
Executors and administrators.
All matter relating to the appointment, powers and duties of executors and
administrators and the administration of estates of deceased persons are governed by
the Rules of Court. (Art. 1058, Ibid.; Rules 74-91, Rules of Court.)

(1) An executor is a person or trust company named in the will by the testator to
carry out its provisions. (see Art. 1060, Civil Code.)
(2) An administrator is a person or trust company appointed by the court to
administer and distribute the estate of the decedent if there is no will or if no
executor is named in the will or if the named executor does not act. (Ibid.; Sec
6, Rule 78, Rules of Court.)
Restrictions on freedom to dispose of property by will.
At least two restrictions my be mentioned, and they are:
(1) The estate of the decedent is liable for all legal obligations incurred by him;
and
(2) He cannot dispose of the legal portion reserved to his heirs by force of law
except in cases expressly specified by law. (Art. 904, Civil Code.
The first takes precedence over the second. In case the estate is insolvent, the
obligations must be paid in the order provided by law. (Santos vs. Maramag, 27 Phil.
209.)
Definition of legitime.
Legitime is that part of the testators property which he cannot dispose of
because the law has reserved it for certain heirs who are, therefore, called compulsory
heirs. (see Art. 886, Civil Code.)
The part of the inheritance in excess of the legitime is referred to as the free
portion which the testator may dispose of freely.
Compulsory heirs entitled to legitime.
The compulsary heirs (also called forced heirs) for whom legitime is reserved by
law are:
(1) Legitimate children and descendants, with respect to their legitimate parents
and ascendants;
(2) In default of the foregoing, legitimate parents and ascendants, with respect to
their legitimate children and descendants;
(3) The widow or widower (surviving spouse);
(4) Acknowledged natural children and natural children by legal fiction; and
(5) Illegitimate children other than those mentioned in No. 4, e.g. adulterous
children.
Those mentioned in Nos. 3, 4, and 5 are not excluded even if there are legitimate
children and descendants, or legitimate parents and ascendants; neither do they
exclude each other. In other words, they participate in the inheritance as concurrent
heirs in all cases but their shares are taken from the free portion of the estate. But if
there are legitimate children and descendants, the legitimate parents and ascendants
are excluded. (see Art. 887, Ibid.)
Legitimes of compulsary heirs.
For obvious reason, this work can touch here only the broad outlines of the rules
governing the apportionment of the legitime.
(1) Legitime children alone 1/2 of the estate, the other half is free portion,
subject to the rights of the surviving spouse and the illegitimate children. (Art.
888, Ibid.)
(2) Legitimate parents or ascendants alone same as in No. 1. (see Arts. 891,
Ibid.)
(3) Surviving spouse:
(a) alone 1/2 of the estate, the other half is free portion (Art. 900, Ibid.)

(b) with one legitimate child or descendant of the deceased 1/2 to the child
or descendant, 1/4 to the spouse, and the remaining 1/4 is free portion.
(Art. 892, Ibid.)
(c) with two or more legitimate children of descendant of the deceased 1/2
to the children or descendant which shall be divided equally among them
and the spouse gets a share equal to the share of each child or
descendant, the rest being free portion. (Ibid.)
(d) with legitimate parents or ascendants of the deceased 1/2 to the parents
or ascendants, 1/4 to the spouse, the free portion being 1/4. (Art. 893,
Ibid.)
(e) with illigitimate children 1/3 to the children, 1/3 to the spouse, and the
other 1/3 is free portion. ( Art. 894, Ibid.)
(4) There are many other possible situations but in every case, the surviving
spouse is always entitled to his or her legitime which varies according to the
number and classes of the other surviving compulsary heirs. (see Arts. 897900, Ibid.) The same thing may be said with respect to the illegitimate
children. (Arts. 895-896, 901-903, Ibid.)
Testamentary dispositions that impair or diminish the legitimate of the compulsary
heirs shall be reduced on petition of the same insofar as they may be inofficious or
excessive. (Art. 907, Ibid.)
Order of intestate succession.
In default of testamentary heirs, the law determines who are to succeed to the
inheritance of the deceased; and they are the relatives of the deceased, both legitimate
and illegitimate, the surviving spouse and the State according to a specified order. (Art.
961, Ibid.) Intestate succession pertains, in the first place, to the descending direct line.
(Art. 978, Ibid.) The nearer relative of the deceased excludes the farther relative except
when there is a right representation. (Art. 962, infra)
Briefly, the order is as follows:
(1) Legitimate children and descendants;
(2) Legitimate parents and ascendants;
(3) Illegitimate children and descendants;
(4) The surviving spouse without prejudice to the rights of brothers and sisters,
nephews and nieces, should there be any;
(5) Collateral relatives within the fifth degree; and
(6) Lastly, the State. (see Arts. 978-1014, Ibid.)
Legitimate parents and ascendants are excluded by legitimate children and
descendants. The State, is excluded by any class of heirs above it. Illegitimate children
and descendants and the surviving spouse always inherit. Each class of heirs inherits
the entire estate in the absence of all other classes. Again, the surviving spouse and the
illegitimate are always entitled to their legitimate as surviving heirs. In the descending or
ascending line, inheritance may extend beyond the fifth degree.
Right of representation.
(1) Representation defined. It is a right created by fiction of law, by virtue of
which the representation is raised to the place and the degree of the person
represented and acquires the rights which the latter would have if he were
living or could have inherited. (Art. 970, Ibid.)

(2) Person succeeded. The representative is called to the succession by the

law and not by the person represented. He does not succeed the person
represented but the one whom latter would have succeeded. (Art. 971, Ibid.)
(3) When right arises. The right of representation arises in cases of the
predecease of the person represented (see Art. 981), his disinheritance in
testamentary succession (see Art. 923, Ibid.), or his incapacity. (see Art. 1035)
Heirs who repudiate their inheritance may not be represented.
(4) Direct descending line. The right of representation takes place in the direct
descending line, but never in the ascending. (Art. 972.) By way of illustration,
suppose X has two children, A and B. B has three children C, D and E. X dies
intestate. A and B inherit from X in their own right per capita (per head). If B
dies before X, the inheritance of X will be divided in two equal parts: 1/2 to A,
and the other haft to C, D and E in representation of B, to be divided equally
among them.
(5) Collateral line. In the collateral line, the right of representation takes place
only in favor of the children of brothers and sisters, whether they be of the full
or half blood. (Ibid.) When children (nephews or nieces) of one or more
brothers and sisters of the deceased survive with their uncles or aunts
(brothers or sisters of the deceased), the former inherit by representatio. But if
they alone survive, they inherit in equal portions. (Art. 975, Ibid.)
Shares in hereditary estate in case of intestate succession.
The following may be mentioned:
(1) Legitimate children alone entire estate to be divided in equal shares. (Art.
980, Ibid.)
(2) Legitimate parents alone entire estate to be divided in equal shares; should
only the father or mother survive, he or she succeeds to the entire estate.
(Art. 986, Ibid.)
(3) Illegitimate children alone entire estate to be divided equally. (see Art. 988,
Ibid.)
(4) Surviving spouse alone entire estate. (Art. 995, Ibid.)
(5) Collateral relatives (e.g. brothers and sisters only, or first cousins only)
entire estate to be divided equally; brothers and sisters of the full blood are
entitled to a share double that of the brothers and sisters of the half blood.
(see Arts. 1003, 1004, 1006, 1009, Ibid.)
(6) State The entire estate, if the only relatives are those beyond the fifth
degree of relationship. (Arts. 1010, 1011, Ibid.)
(7) Illegitimate children and legitimate parents 1/2 to the former and 1/2 to the
latter. (Art. 991, Ibid.)
(8) One legitimate child and surviving spouse 1/2 to the former and 1/2 to the
latter. (see Art. 996, Ibid.)
(9) Two or more legitimate children and surviving spouse entire estate shall be
divided equally. (see Ibid.)
(10) Legitimate parents, or illegitimate children, or nephews or nieces and
surviving spouse 1/2 to the former and 1/2 to the latter. (see Arts. 994, 997,
998, Ibid., as to other possible combinations, see Arts. 982-984, 987, 991,
993, 994, 998-1001, 1007, 1008, Ibid.)