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Estate Tax: "Gross Estate and Gifts"
Estate Tax: "Gross Estate and Gifts"
Estate Tax: "Gross Estate and Gifts"
ESTATE TAX
If RC, NRC, RA the value of the gross estate shall include
Estate tax is the tax on the right to transmit property at death o All property real/personal
and on certain transfers by the decedent during his lifetime o Tangible/intangible
which are made by the law equivalent of testamentary
o Wherever situate
dispositions
o VALUE AT THE TIME OF DEATH of the decedent is
Accrues upon the death of the decedent
what is taken in to account in this case
A transmission by inheritance is taxable at the time of the
predecessor’s death, notwithstanding the postponement of the
If NRC - only that part of the gross estate which is situated in
actual possession or enjoyment of the estate by the beneficiary.
the Philippines shall be included in the taxable estate
Tax is measured by the value of the property transmitted at the
“Gross estate and gifts”
time of death, regardless of depreciation/appreciation
o Include real and personal property
o Value taken into consideration when tax is being
o Tangible/intangible, or mixed wherever situated
paid
Accrual of tax is different from the obligation to pay the tax
RULES
RATE OF ESTATE TAX
NRA (decedent/donor) at the time of death/donation
o Only property situated in the Philipines are included
Estate tax now has a flat rate of 6% based on net estate
in the GROSS estate
Guidelines in accordance with Section 85 and 86 of the tax
o Property situated outside the Philippines are NOT
code
part of the GROSS estate/gross gift
DETERMINATION OF THE VALUE OF THE ESTATE Residents and Citizens: gross properties shall include all
properties real or personal, tangible/intangible wherever
Properties comprising the estate shall be determined based on situated
the FAIR MARKET VALUE at the time of death
o REAL PROPERTY WHAT ARE INTANGIBLE PERSONAL PROPERTIES
FMV as determined by the Commissioner CONSIDERED “SITUATED IN THE PHILIPPINES”
or the FMV as determined in the schedule o Franchise which must be exercised in the
of values fixed by city assessors whichever Philippines
is HIGHER o Shares, obligations, bonds issued by any corporation
o PERSONAL PROPERTY or sociedad anonima organized or constituted in the
Recently acquired: based on the purchase Philippines in accordance with its laws
price o Shares, obligations or bonds by any foreign
Not recently acquired: evidence to show corporation 85% of the business is located in the
FMV must be shown Philippines
o SHARES OF STOCK o Obligations or bonds which have acquired business
Listed (registered in stock exchange) situs in the Philippines
Mean between the highest and o Shares or rights of any partnership, business or
lowest quotation on the date of industry established in the Philippines
the death
If none, the nearest to death NO TAX SHALL BE COLLECTED UNDER THIS TITLE IN
Unlisted (not registered in any stock RESPECT OF INTANGIBLE PERSONAL PROPERTY:
exchange) o Decedent/donor at the time of his death/donation
COMMON SHARES - based on was a citizen of a foreign country & resident which
book value country did not impose a transfer tax of any
PREFERRED SHARES – based character in respect of intangible personal property
on their par value of citizens of the Philippines not residing in that
o Book value – net foreign country
equity/total number o If the laws of the foreign country of which the
of shares which may decedent or donor was a citizen and resident at the
be more or less than time of the death or donation allows a similar
par value exemption from the transfer or death taxes of every
o Par Value – character or description in respect of intangible
price/unit share of personal property owned by citizens of the
stock Philippines not residing in that foreign country
o USUFRUCT – taken into account the probable life of if any of the two conditions based on the
the beneficiary in accordance with the latest basic rule of reciprocity are met the non-
standard mortality table, to be approved by the resident alien here are exempt from
secretary of finance estate tax
o Reciprocity must be total
Gross estate includes any interest or right in the nature of COMMON CHARACTERISTICS (1-4)
property, but less than title, having value or capable of having
value like They are ostensible transfer, usually with the purpose to evade
o Dividends declared, but paid after the death tax
o Partnership profits They are extension of interests; and
o Right to usufruct If the transfers are in fact for a bona fide consideration then
they will not form part of the gross estate
Properties not in the estate but included in the GROSS
ESTATE
1. Transfers in contemplation of death
5. Proceeds of Life Insurance
Transfer motivated by the thought of
Proceeds of life insurance taken out by the decedent upon his
death, although it may not be imminent
life shall form part of the gross estate if the beneficiary is
Transfers, by trust or otherwise, in
1. The estate of the decedent, his
contemplation or intended to take effect
executor/administrator as such or
(in possession or enjoyment) at or after
Regardless if revocable/irrevocable, still
death
part of the gross estate
Transfers, by trust or otherwise, under
2. A third person (not those in #1) and the designation
which the decedent has retained for his
of the beneficiary is revocable
life (or for any period which does not in
If the beneficiary is a third person, other than those mentioned
fact end before his death)
in number one and the designation is irrevocable, it will not
If the transfer was for valuable and
form part of the estate of the deceased.
sufficient consideration, it shall not form
It must be life insurance. Hence, if it is an accident insurance, it
part of the estate
is not included in the gross estate. Company policies, GSIS or
SSS are also not included in the gross estate because the
2. Revocable Transfers
insurance must be taken out by the DECEDENT, meaning he
A revocable transfer is a transfer where
was the one who applied for it.
the terms of enjoyment of the property
may be altered, amended, revoked or
6. Capital of the surviving spouse
terminated by the decedent - does not form part of the GROSS estate
It is sufficient that the decedent had the - Some donations will be considered as advances if the donees become
power to revoke, thought he did not legatees in the will or the donees are compulsory heirs
exercise the power to revoke
3. Transfers under general power of appointment;
and D. COMPUTATION OF NET ESTATE
A power of appointment refers to the
DEDUCTIONS FROM THE GROSS ESTATE ARE
right to designate the person or persons
who will succeed the property of a prior 1. Standard Deduction
decedent 2. Claims against the estate
It must be a general power of 3. Claims against insolvent persons
appointment 4. Unpaid mortgages or indebtness of property
Carles donated property to 5. Accrued taxes and losses
6. Vanishing Deductions
Andres, with a provision that
7. Transfers for public use
Andres can transfer the 8. Family Home and
property to anyone. Andres 9. Amounts received by heirs under R.A. 4917
transferred the property to
Iker. The property is included CLASSIFICATION OF DEDUCTIONS
in the gross estate of Andres. 1. Ordinary Deductions
a. Expenses, losses, indebtness, taxes etc.
4. Transfers for insufficient consideration
i. Claims against the estate
If the transfer is for contemplation of ii. Claims against insolvent persons
death, revocable transfer, or transfer iii. Unpaid mortgage or indebtness on property
under GPA, the value to include in the iv. Taxes
gross estate will be determined under the v. Losses
following rules b. Transfers for public Use
If the transfer was a bona fide c. Vanishing deductions
sale under sufficient
2. Special Deductions
consideration, no value will be i. Family Home
included in the gross estate ii. Standard Deduction of 5,000,000.00
If the consideration received iii. Amounts received by heirs under R.A. 4917
on the transfer was less than
adequate and full, the value to NOTE: These deductions are allowed for a citizen or resident of the
Philippines.
include in the gross estate will
be the excess of the fair market E. DEDUCTIONS FOR CITIZENS/RESIDENTS OF THE PHILIPPINES
value of the property at the
time of the decedent’s death 1. ORDINARY DEDUCTIONS
i. Claims against the estate Arising from fire, storm, shipwreck or other casualty, robbery,
Claims means debts or demands of pecuniary nature which theft or embezzlement
could have been enforced against the estate of the deceased in Not compensated by insurance or otherwise
his his lifetime and could have been enforced by the deceased Not claimed as a deduction in an income tax return of the
in his lifetime and could have been reduced to simple money estate subject to income tax
judgments Occurring during the settlement of the estate
o Must be enforceable against him when he was alive Losses must have occurred before the last day for the payment
o Liability was contracted in good faith and for of the estate tax which is now one year after the decedent’s
adequate and full consideration death
o Claim must be valid and enforceable in court
o Must not have been condoned by the creditor b. Transfers for public use
o Must not have prescribed - the amount of all the bequests, legacies or devises or transfers to or for
Claims against the estate or indebtness in respect of property the use of the government of the Republic of the Philippines or any
may also arise out of contract, tort, or operation of law political subdivision thereof, for exclusively public purposes
Requirements for loans
o Debt instruments must be notarized at the time the c Vanishing deductions
indebtness was incurred - In instances when an owner of the property died (within 5
XPN: loans granted by financial years) from receiving the property from inheritance/donation
institutions where notarization is not part [which was previously taxed]
of the business practice - Requisites
o Duly notified certification from the creditor as to the o The present decedent died within five years from
unpaid balance of the debt, including interest as of receipt of the property from a prior decedent or
the time of death donor
o Proof of financial capacity of the creditor to lend o The property on which the vanishing deduction is
o Statement under oath by the administrator or being claimed must be located in the Philippines
executor of the state reflecting the disposition of the o The property must have formed part of the taxable
proceeds of the loan if said loan was contracted estate of the prior decedent, or of the taxable gift of
within three years prior to the death of the decedent the donor
o The estate tax on the prior succession or the donor’s
Requirement for unpaid obligations from purchase of goods or tax on the gift must have been finally determined
services and paid
o Documents evidencing purchase of goods or service o The property must be identified as the one received
(like official receipts etc) or contracts of service from the prior decedent or donor, or something in
o Duly notarized certification from the creditor as to acquired in exchange therefore
the unpaid balance of the debt, including interest as o No vanishing deductions was allowable to the estate
of the time of death; and of the prior decedent
o Certified true copy of the latest audited balance
sheet of the creditor with a detailed schedule of this 2. Special Deductions
receivable showing unpaid balance i. Family Home
For settlements made through court, the documents filed in - Amount of the family home must be included in the gross
court and the court order approving such claims, in addition to estate
the documents above - Deduction will be allowed when the family home is certified as
such by the barangay captain of the locality where it is located
ii. Claims against insolvent persons - Maximum amount to be deducted is 10,000,000
- Person may only constitute one family home
The full amounts of the receivables are first included in the
gross estate
REQUISITES
Deduction from the gross estate will be the uncollectible
Must be the actual home of the decedent and his family at the
portion
time of his death, as certified by the barangay captain if the
INSOLVENT PERSONS, under FRIA
locality
o Insolvent shall refer to the financial condition of a
Total value of the Family home must be included in the gross
debtor that is generally unable to pay its or his
estate
liabilities as they fall due in the ordinary course of
Deduction’s equivalent to current FMV, or the extent of the
business or has liabilities that are greater than its or
decedent’s interest (whether conjugal/community or exclusive
his assets.
property) whichever is lower but not exceeding 10,000,000)
iii. Unpaid mortgage or indebtness on property
ii. Standard Deduction of 5,000,000.00
The mortgage or indebtness will be claimed as a deduction
Deducted every time this is standard
from the gross estate
If the loan is merely an accommodation loan, where the
iii. Amounts received by heirs under R.A. 4917
proceeds of the loan went to another person, the values of the
- Covers retirement benefits received by employees of private
unpaid loan must be included in the receivable of the estate
firms in accordance with reasonable benefit plan maintained
In cases of claims against insolvent persons and unpaid
by the employer are EXEMPT from all taxes, provided that the
mortgage/indebtness on property, it is imperative that the
retiring employee has been in the services of the same
valued of each are first added to the gross estate
employer for at least 10years and is not less than 50 years old
at the time of retirement
iv. Taxes
- The amount must :
Taxes are deductions if accrued prior to the decedent’s death o Have been received by the heirs of the decedent-
If accrued after the decedent’s death, not deductions employee as a consequence of the latter’s death, and
These taxes cannot be deducted o Included in the gross estate of the descendent
o Income tax on income received after death
o Property taxes not accrued before death
o Estate Tax F. DEDUCTIONS FOR NON-RESIDENTS/ NON-CITIZENS OF THE
PHILIPPINES
v. Losses
Train has given non-resident estates a standard deduction of premiums were paid out of
500,000 (Previously, no standard deduction was allowed to exclusive funds
NRAs) They will be community
A non-resident decedent who was not a citizen of the property if the premiums were
Philippines at the time of death, with properties within and paid out of community funds
outside the Philippines, is subject to tax only on his estate o A claim against an insolvent person will be included
within the Philippines in the gross estate as exclusive or community
property depending on whether the claim is for
1. Standard deduction of 500,000 exclusive or community property
2. The proportion of the total losses and indebtedness which the
value of such part bears to the value of his entire gross estate COMPUTATIONS
wherever situated. This includes
o Claims against the estate (1) Decedent is unmarried, family home more than 10,000,000
o Claims against insolvent persons
o Unpaid mortgages, taxes and casualty losses; Real and personal properties 14,000,000
Family Home 30,000,000
Gross estate, Philippines/Gross estate, World x world expenses, losses,
indebtedness GROSS ESTATE = 44,000,000
Less: Deductions
NOTE: It does not matter where the expenses are paid or incurred. On the Ordinary Deductions
total of items, the formula provided for by law will be applied Unpaid Real Estate Tax (2,000,000)
Definition of deficiency
o The amount of tax imposed exceeds what’s stated in
the taxpayer’s tax return
o Amount in tax return is increased and then
o Decreased by the amount previously abated,
refunded or otherwise repaid in respect of such tax
o If not amount is shown as the tax by the
executor/administrator or any of the heirs upon his
return, or if no return is made by the executor,
administrator/heir then the amount by which the
tax exceeds the amounts previously assessed (or
collected without assessment) as deficiency; but
such amounts previously assessed or collected
without assessment shall first be decreased by the
amounts previously abated, refunded or otherwise
repaid in respect of such tax