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and

ESTATE TAX

 Is a tax imposed on the privilege that a

person is given in controlling to a certain
extent, the disposition of his property to
take effect upon death.

 Is an excise tax imposed on the act of

passing the ownership of property at the
time of death and NOT on the value of the
property or right.

CONCEPT OF SUCCESSION

 Testamentary or Testate succession

 Legal or Intestate succession
 Mixed succession

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ELEMENTS OF SUCCESSION

Deceased or Decedent
Person who died leaving properties
behind. He is called testator if he wrote a
last will and testament.

Inheritance (Estate)
The bulk of properties left behind by the
decedent

Successors/Heir
The persons to whom the estate is given
to

THINGS TRANSMISSIBLE
IN SUCCESSION

 Property – things that the decedent

owned before the time of his
death: real property,
tangible property, intangible
property

 Rights – legal claims, franchises

 Obligations – unpaid debt

JUSTIFICATION FOR
IMPOSITION OF ESTATE TAX

 Benefit Received Theory

The law considers the services rendered by
government in the distribution of the estate
of the decedent, either by law or the
decedent’s wishes

 Privilege or State Partnership Theory

The State being a passive silent partner in
the accumulation of property has the right to
collect its share properly due.

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JUSTIFICATION FOR
IMPOSITION OF ESTATE TAX

 Ability to Pay Theory

Receipt of inheritance and assets into the
hands of the heirs creates an ability to pay
tax and contributes to government income.

 Redistribution of Wealth Theory

The imposition of estate tax reduces the
property received by the successor, thus
helping to promote equitable distribution of
wealth in society.

COMPOSITION OF GROSS ESTATE

Decedent Gross Estate

Real or Personal property wherever
Resident situated.
Citizen (RC)
Intangible personal property wherever
Resident situated
Alien (RA)

• Real property situated in Phils

NonResident • Tangible personal property in Phils
Alien (NRA)
• Intangible personal property with situs
in Phils, unless excluded on the basis
of reciprocity

The gross estate of decedent with their fair

C market values are as follows:
A House & Lot, family home in QC - 1,500,000
S Bank deposit in foreign branch
E of a domestic bank - 500,000
Bank deposit Makati branch
A
of a foreign bank - 300,000
N
Shares of stock issued by DC
A
L certificate kept in Canada - 1,000,000
Y Franchise exercised in Manila - 800,000
S Receivable, debtor in Mindanao - 200,000
I
1. Decedent is nonresident alien, there is reciprocity,
S
what is the amount to be excluded from gross
estate ?
1
2. Decedent is nonresident alien, there is no
reciprocity, the gross estate is valued at

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INTANGIBLE PERSONAL PROPERTY

(With Situs in the Philippines)

1. Franchise exercised in the Philippines

2. Shares, Obligations or Bonds issued by any
corporation organized in the Philippines
3. Shares, Obligations or Bonds issued by any
foreign corporation, 85% of business
activity is located in the Philippines
4. Shares, Obligations or Bonds issued by any
foreign corporation, if such have acquired
a business situs in the Philippines
5. Shares or Rights in any partnership,
business or industry established in the
Philippines.

SITUS OF TANGIBLE &

INTANGIBLE PROPERTY

PROPERTY SITUS
Real and Tangible Location of property
personal property

Shares, Franchise, Where the intangible is

Copyright, and the exercised regardless where
like the certificate is stored.

Receivables Residence of debtor

Bank deposits Location of depository bank

DINA NATUTO, Filipina, died in the United

C
States with the following properties:
A
Condo unit in New York City 3,000,000
S
E Shares of stock – foreign corp 700,000
Interest in partnership, domestic 500,000
A Bank deposit, New York bank 200,000
N Car in Cebu, donated inter vivos
A 5 years ago to her son 500,000
L
Y 1. Which property should be included in the gross
S estate of the decedent?
I 2. If decedent is a nonresident alien with
S reciprocity, how much is the gross estate ?
3. If decedent is a nonresident alien with no
2 reciprocity, how much is the gross estate ?

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VALUATION OF GROSS ESTATE

(Republic Act 10963/ RR 12-2018)

PROPERTY VALUATION

In general FMV at time of death

Real property The higher value between:

 FMV determined by the
Commissioner
 FMV fixed by Provincial &
City Assessors
Personal property FMV at time of death

VALUATION OF GROSS ESTATE

(Republic Act 10963/ RR 12-2018)

PROPERTY VALUATION
• Unlisted common share –
book value per share of
issuing corporation
• Unlisted preference share –
Shares par value per share
of stock
• Listed shares – FMV of
arithmetic mean between
highest and lowest quotation
at a date nearest date of
death, if none is available on
date of death

VALUATION OF GROSS ESTATE

(Republic Act 10963/ RR 12-2018)

PROPERTY VALUATION
Units of
• The bid price nearest the date
participation in
of death published in any
any association,
newspaper or publication for
recreation or
general circulation
amusement club
• In accordance with Basic
Right to usufruct, Standard Mortality Table
use or habitation, taking into account the
and annuity probable life of the
beneficiary approved by the
Sec of Finance as recomm by
Insurance Commissioner

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EXCLUSIONS FROM GROSS ESTATE

(Sec 85 & 86 of Tax Code)

 Exclusive property of the Surviving

Spouse
 Property outside the Phils of a non-
resident alien decedent
 Intangible personal property in the Phils
of a non-resident alien under the
Reciprocity Law.

EXCLUSIONS FROM GROSS ESTATE

(Sec 87 of Tax Code)

 The merger of usufruct in the owner of the

naked title
 The transmission or delivery of the inheritance
or legacy by the fiduciary heir (1st heir) or
legatee to the 2nd heir (fideicommisary)
 The transmission from the 1st heir, legatee or
done in favor of another beneficiary.

 All bequest, 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.

EXCLUSIONS FROM GROSS ESTATE

(under Special Laws)

 Proceeds of life insurance from GSIS and SSS

 Amounts received from Phils & US for war
damages
 Amounts received from US Veterans Admin
 Benefits received from Phils & US government
for damages during WWII
 Retirement benefits from private firms
 Proceeds of life insurance taken out by the
decedent himself where the beneficiary is a 3rd
person
 Proceeds of life insurance taken out by his
employer on the employee’s life

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INCLUSIONS IN THE GROSS

ESTATE (TAXABLE TRANSFERS)

A. Property owned by the decedent “actually

and physically present in his estate” at the
time of his death – land, buildings, shares
of stocks, vehicles, bank deposits, and the
like.

B. Decedent’s interest
• The extent of equity or ownership
participation of the decedent on any
property physically existing and present in
the gross estate, whether or not in his
possession, control or dominion.

INCLUSIONS IN THE GROSS

ESTATE (TAXABLE TRANSFERS)

B. Decedent’s interest

• The value of any interest in property

owned or possessed by the decedent at
the time of his death such as:
 Dividends declared before his death
but received after death.
 Partnership profits which have
accrued before his death.
 Usufructuary & rights.

INCLUSIONS IN THE GROSS

ESTATE (TAXABLE TRANSFERS)

C. Property “NOT physically in the estate”

(already been transferred during the lifetime
of the decedent but are still subject to
payment of estate tax) such as :
1) Transfer in contemplation of death
The disposition of the property is induced by
the thought of death thus avoiding payment
of appropriate tax.

However, there is no transfer in

contemplation of death when the transfer of
property is a bona fide sale with consideration

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INCLUSIONS IN THE GROSS

ESTATE (TAXABLE TRANSFERS)

2. Transfer with retention or reservation of

certain rights

The transfer do not actually convey full

ownership over the transferred property,
hence still part of the gross estate of the
transferor.

INCLUSIONS IN THE GROSS

ESTATE (TAXABLE TRANSFERS)

3) Revocable transfer

The transfer do not actually convey full

ownership over the transferred property,
hence still part of the gross estate of the
transferor.

INCLUSIONS IN THE GROSS

ESTATE (TAXABLE TRANSFERS)

4) Transfer under a general power of

appointment

Refers to the right to designate the

person or persons who will succeed to the
property of the prior decedent.

When the appointment authorizes the

donee of the power to appoint any person
he pleases thus, the appointed property
forms part of the gross estate of the
donee (beneficiary).

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INCLUSIONS IN THE GROSS

ESTATE (TAXABLE TRANSFERS)

4) Transfer under a special power of

appointment

When the donee can appoint only from a

restricted or designated class of persons
other than himself.

Under this appointment, the property

transferred should be excluded from the
gross estate of the donee since he holds
the property in trust only.

INCLUSIONS IN THE GROSS

ESTATE (TAXABLE TRANSFERS)
5) Transfer for insufficient consideration
When a sale or transfer (not a bonafide or
valid sale) was made for a price less than
its FMV at the time of sale or transfer, the
excess should be included in the gross
estate.

Fair market value at time of death 1,000,000

Consideration received 500,000
Difference (gross estate) 500,000

RULES ON INSUFFICIENT
CONSIDERATION

CONSIDERATION INCLUSION IN GE

Consideration is > at the Valid sale – excluded

time of transfer from gross estate

Consideration is < at the Insufficient

time of transfer consideration.
Include in the gross
estate the excess of
FMV at time of death
over consideration
received.

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RULES ON INSUFFICIENT
CONSIDERATION

CONSIDERATION INCLUSION IN GE

Sale was made in the Valid sale – excluded

ordinary course of trade from gross estate

No consideration Either donation

received mortis causa
(subject to estate
tax) or donation
inter vivos ( subject
to donor’s tax).

Determine the amount to be included in the

C Gross Estate of the Decedent from the
A following independent cases:
S
E
FMV at time of transfer – 5,000,000
A FMV at time of transfer – 5,000,000
FMV at time of death - 6,000,000
N FMV at time of death - 6,000,000
Consideration received - 5,000,000
A Consideration received - 6,000,000
L Answer: Zero / Valid Sale
Y Answer: Zero / Valid Sale
S
I
S

Determine the amount to be included in the

C Gross Estate of the Decedent from the
A following independent cases:
S
E

A FMV at time of transfer – 5,000,000

N FMV
FMV at
at time
time of
of death
transfer -
– 6,000,000
5,000,000
A Consideration
FMV at time ofreceived
death
transfer --
– 7,000,000
6,000,000
5,000,000
L Consideration
FMV at time ofreceived
death
Answer: 2,000,000
Zero-/ 6,000,000
Valid Sale
Y
Consideration received
Answer: - nil
P4,000,000
S
I Answer: P6,000,000
S

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INCLUSIONS IN THE GROSS

ESTATE (TAXABLE TRANSFERS)

6) Claims against insolvent persons

Whether solvent or insolvent, the full
amount of the claim against the insolvent
person shall be included in the gross
estate of the decedent.
The portion of the claim which is uncollectible
shall be allowed as a deduction from the
gross estate.

INCLUSIONS IN THE GROSS

ESTATE (TAXABLE TRANSFERS)

7) Proceeds of life insurance

Taken out by the decedent on his own life,
shall be included in the gross estate subject
to the following:
 It must be an insurance on the life of the
decedent.
 The beneficiary must be either of the
following - his estate ; his executor; his
administrator; any 3rd person provided
the designation is not irrevocable
 If silent, the designation of beneficiary is
assumed “revocable”

PROCEEDS OF LIFE INSURANCE

(Taken out by the Decedent)

BENEFICIARY DESIGNATION GROSS ESTATE

Estate Revocable or
Included
Irrevocable

Executor Revocable or Included

Irrevocable

Revocable or Included
Administrator
Irrevocable

3rd party – Revocable Included

i.e. wife
3rd party - wife Irrevocable Excluded

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ESTATE TAX RATES :

Prior to TRAIN Law
BUT NOT TAX
OVER OVER SHALL BE PLUS

0 200,000 Exempt
200,000 500,000 P 0.00 5% of excess over
P200,000
500,000 2,000,000 P15,000 8% of excess over
P500,000
2,000,000 5,000,000 P135,000 11% of excess over
p2,000,000
5,000,000 10,000,000 P465,000 15% of excess over
p5,000,000
10,000,000 P1,215,000 15% of excess over
p5,000,000

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Decedent has the following data:

C
A Value of the property at the
S time of sale P1,200.000
E Value of the consideration when sold 1,000,000
Value of property at time of death 1,500,000
S
T
U
D
What is the amount includible in the gross estate ?
Y

When ALBINO was informed by his physician that he was

about to die of cancer, he sold his properties as follows:
C
A Market value Selling Market value
Date of Sale Price Upon death
S
Land 2,500,000 1,500,000 2,700,000
E Jewelries 500,000 300,000 300,000
Shares of stocks 200,000 220,000 250,000
S Transfer under limited
T power of appointment 1,000,000 600,000 800,000
U
D
Y How much must be included in the gross estate of
ALBINO upon his death?
2
Assuming no more deductions on gross estate,
how much is the estate tax due prior and under
TRAIN law?

Pedro died on April 15, 2018, leaving the

following:
C
a). 2,000 common shares of ABC Corp, listed
A in PSE (highest-P40; lowest-P39)
S b). 1,500 common shares of XYZ Corp, not
E listed in PSE. Cost – P50 per share;
book value – P45 per share
S c). 3,000 preferred shares of DIY Corp, not
T listed in PSE. Cost-P70/share; book value
U P60/share
D d). Car, cost P600,000; book value P350,000
Y market value P400,000
e). Real properties, zonal value-P120,000;
3
assessed value- P72,000.

The amount of gross estate of Pedro ?

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The following transfers were made in

C
contemplation of death as follows:
A Consideration FMV upon FMV upon
S Received Transfer Death___
E Land 150,000 150,000 200,000
Shares of stock 10,000 5,000 15,000
S Vintage car 5,000 8,000 10,000
T Painting 25,000 40,000 50,000
U
D
Y
The amount of gross estate of decedent ?
4

The items in the gross estate of Pedro,

C decedent include a claim against an insolvent
A person amounting to P500,000. Juan, the
S insolvent debtor can still pay P200,000 out of
E his P500,000 obligation with the decedent
Pedro.
S
T
U
D 1. How much will be included in the
Y decedent gross estate ?
2. How much will be deducted from his
5
gross estate ?

Chapter
Exercises
P2.1, P2.2,
P2.3, P2.4

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