3/17/2020

Estate Tax (Part 3)

BUS-TAX / 2nd Semester AY 2019-2020

Contents ESTATE TAX

a. Estate Tax Rate
b. Estate Tax Computation
c. Gross Estate
d. Ordinary Deductions
e. Special Deductions

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Estate Tax Rate

Before effectivity of TRAIN LAW

Estate tax is computed based on the tax table below:
If the Net Taxable Estate is
OVER BUT NOT OVER THE TAX SHALL BE PLUS
0.00 200,000.00 exempt 0.00
200,000.00 500,000.00 0.00 5% of excess over 200,000.00
500,000.00 2,000,000.00 15,000.00 8% of excess over 500,000.00
2,000,000.00 5,000,000.00 135,000.00 11% of excess over 2,000,000.00
5,000,000.00 10,000,000.00 465,000.00 15% of excess over 5,000,000.00
10,000,000.00 0.00 1,215,000.00 20% of excess over 10,000,000.00

Estate Tax Rate

After effectivity of TRAIN LAW

6% of net taxable estate

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Estate Tax Computation

SINGLE MARRIED
CONJUGAL/
COMMON EXCLUSIVE TOTAL
Gross Estate x x x x
Less: Ordinary Deductions (x) (x) (x) (x)
Net before Special Deductions x x x x
Less: Special Deductions (x) (x) (x) (x)
Net estate before share of the Surviving Spouse x x x
Less: Share of the Surviving Spouse* (x)
Net Taxable Estate x x
Estate Tax Due x x
Less: Tax Credit (x) (x)
Estate Tax Payable x x

*1/2 of the net conjugal/common property before special deductions

Gross Estate Examples

1. Real Property
2. Tangible Personal Property
3. Intangible Property
a. Rights accruing before death
b. Claims against insolvent persons
c. RA 4917
d. Receivable as proceeds from life insurance taken out by the decedent
4. Certain Transfers
a. Transfers made before death but will take effect upon death
b. Transfers under general power of appointment
c. Transfers made to qualified charitable organizations
d. Transfers for public purpose

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Gross Estate Inclusion

1. Real or Personal Property – wherever situated if citizen or resident decedent;
situated only in the Philippines if nonresident alien decedent.
2. Intangible Property – wherever situated if citizen or resident decedent; with situs
in the Philippines (unless excluded on the basis of reciprocity) if nonresident alien
decedent.
3. Receivable as proceeds from life insurance taken out by the decedent – whether
revocable or irrevocable when the beneficiary is the estate of the deceased, his
executor or administrator; only if revocable when the beneficiary of the estate is a
third person
4. Transfers made to qualified charitable organizations – provided, no part of the
net income of said institutions inure to the benefit of any individual and not more
than 30% of such transfers shall be used for administration purposes.

Gross Estate Valuation

1. As a rule, fair market value (FMV) upon death (e.g. personal property)
2. If real property – FMV or Zonal Value, whichever is higher
3. If shares of stock
a. Traded in stock market – mean between the highest and lowest price
quotation nearest the date of death
b. Not traded – book value if ordinary shares and par value if preference
shares
4. Usufruct – based on latest Basic Mortality Table

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Property Relationship (if married)

By operation of the law, apply:

1. Conjugal Partnership of Gains (CPoG) – if the date of marriage is before August

3, 1988
2. Absolute Community of Property (ACoP) – if the date of marriage is on or after
August 3, 1988

Property Relationship – order of priority

1. Based on Agreement – agreement entered before marriage

2. By Operation of Law – whether CPoG or ACoP
3. By Customs or Traditions

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Property Allocation
Property CPoG ACoP
1. Properties acquired before marriage Exclusive Common
2. Properties acquired during marriage
From exclusive property Exclusive Exclusive
From common property Common Common
Those obtained from labor, industry, work or profession of either
or both spouses Common Common
From gratuitous transfer
CPoG Exclusive -
ACoP
Generally - Exclusive
Donator/testator expressly provided that it shall form part of
community property - Common
3. Fruits on properties
CPoG - all fruits are common
ACoP - the fruit shall follow the source
4. Property for personal and exclusive use of either spouse
Generally Exclusive Exclusive
Except Jewelry under ACoP - Common

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Ordinary Deductions

Before Under
TRAIN TRAIN
Example of Ordinary Deductions Law Law Remarks
Funeral Expenses ok repealed Conjugal Deduction if married
Judicial Expenses ok repealed Conjugal Deduction if married
Losses ok ok
Indebtedness or Claims against the estate ok ok
Unpaid Taxes ok ok
Claims against insolvent persons ok ok
Vanishing Deduction - Conjugal Partnership of Gains ok ok Exclusive Deduction if married
Vanishing Deduction - Absolute Community of Property ok ok
Transfer for Public Purpose ok ok Exclusive Deduction if married

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Special Deductions

Example of Special Deductions Before TRAIN Law Under TRAIN Law

Standard Deduction - Citizen or Resident Decedents P1 Million P5 Million
Standard Deduction - Nonresident Alien Decedents None P500 Thousand
Medical Expenses Maximum of P500 Thousand Repealed
Family Home Maximum of P1 Million Maximum of P10 Million
Amount received under RA 4917 ok ok

Note: Nonresident alien decedents are allowed of standard deduction under TRAIN Law and are not allowed of
any special deductions before TRAIN Law

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