TRANSFER TAXATION IN THE

PHILIPPINES

Gross Estate – Part 1

(Properties Included in Gross estate)
Learning Objectives (LO):
1. Define gross estate, classify properties, and identify
properties to be included in Decedent’s Estate

2. Understand the Concept of Taxable Transfers

3. Know the taxability of Proceeds from Life Insurance

4. Know the meaning of Absentee for purposes of opening

his Succession
LO 1: Define gross estate, classify properties, and identify properties to be included in Decedent’s
Estate

Gross Estate
- Generally, it consists of all properties (personal or real, tangible or
intangible) owned by a decedent at the time of his death, to the extent
of his equity or interest in those properties, whether as exclusive owner,
conjugal or community property owner or common owner.
- Provided, however, that in the case of a nonresident decedent who at the
time of his death was not a citizen of the Philippines, only that part of
the entire gross estate which is situated in the Philippines shall be
included in his taxable estate.
- Thus, in case of decedent citizens and resident aliens, all properties
wherever situated (within or without the Philippines) are included as part
of gross estate. In case of non-resident aliens, only properties located in
the Philippines upon death are subject to estate tax, unless the property
(intangible asset only) is subject to reciprocity.
LO 1: Define gross estate, classify properties, and identify properties to be included in Decedent’s
Estate

Summary
Classification of Resident (Filipino Non-resident Alien (no Non-resident Alien
property and/or Alien) or reciprocity) (with reciprocity)
Citizen
Real property:
Within Yes Yes Yes
Without Yes No No
Personal property:
Tangible within Yes Yes Yes
Tangible without Yes No No
Intangible within Yes Yes No
Intangible without Yes No No

Yes – Included in Gross Estate

No – Not included in Gross Estate
LO 1: Define gross estate, classify properties, and identify properties to be included in Decedent’s
Estate

Classification of Properties

a. Real properties

 Also known as “immovable” properties like land, building or any structure

or equipment permanently attached to the land.

b. Personal properties

 Also known as “movable” properties or all properties that are not “real
properties”.
LO 1: Define gross estate, classify properties, and identify properties to be included in Decedent’s
Estate

Two Types of Personal Properties

1. Tangible personal properties

 Properties with physical form that could be seen or touched.

 Example: vehicle, computer equipment and furniture.

2. Intangible personal properties

 Properties other than real and tangible personal properties. It has no

physical form and its value lies in the rights conveyed in it.
 Example: cash, bank deposits, receivables, insurance, goodwill, franchise,
patents, trademarks, bonds, stock certificates and other investment
securities.
LO 1: Define gross estate, classify properties, and identify properties to be included in Decedent’s
Estate

Intangible Personal Properties considered as properties

situated in the Philippines
 Franchise exercised in the Philippines;
 Shares, obligations or bonds issued by any corporation organized or
constituted under the Philippine law;
 Shares, obligations or bonds issued by any Foreign corporations, eighty-five
percent (85%) of the business of which is located in the Philippines;
 Shares, obligations or bonds issued by any Foreign corporation that
acquired business situs in the Philippines; and
 Shares or rights in any partnership, business or industry established in the
Philippines.
LO 1: Define gross estate, classify properties, and identify properties to be included in Decedent’s
Estate

Rule on Reciprocity

- It applies only to non-resident aliens when properties are intangible

personal and are located in the Philippines.

- No estate tax shall be imposed on the following instances:

 If the decedent was a citizen and resident of a foreign country which
at the time of his death did not impose a transfer tax on intangible
personal property of Filipino citizens not residing in that foreign
country.
 If the laws of the foreign country of which the decedent at the time of
his death allows a similar exemption from transfer taxes of intangible
personal property owned by Filipino citizens not residing in that foreign
country.
LO 1: Define gross estate, classify properties, and identify properties to be included in Decedent’s
Estate

Additions to Decedents’ Estate (Taxable Transfer)

1. Properties owned by him during his lifetime, but were no longer owned by
him upon his death as these properties have been transferred during his
lifetime by way of taxable transfer as follows:
a. Transfer in contemplation of death
b. Revocable transfers
c. Property passing under general power of appointment
d. Transfer for insufficient consideration

2. Decedent’s interest accrued at the time of his death such as:

a. Share in dividends declared by a corporation even if paid after death of
the stockholder
b. Share in partnership profits even if paid after death of partner
c. Proceeds of life insurance policy payable to a revocable beneficiary
d. Right of usufruct if transferred to the heirs
LO 1: Define gross estate, classify properties, and identify properties to be included in Decedent’s
Estate

Additions to Decedents’ Estate (Taxable Transfer)

3. Others
a. Claims against (receivable from) insolvent person
b. Amount received by heirs under RA 4917 or benefits received by the
heirs from decedents employer as consequence of separation from
service due to death of the decedent

Note: Claims against insolvent person and amount received by heirs under RA
4917 are also deductible from gross estate to arrive at net estate.
LO 2: Understand the Concept of Taxable Transfer

Taxable Transfer

1. Transfer in Contemplation of Death

2. Revocable Transfer

3. Property Passing Under General Power of Appointment

4. Transfer for Insufficient Consideration

LO 2: Understand the Concept of Taxable Transfer

Taxable Transfer

Transfer in Contemplation of Death

-Properties not physically available in the estate at the time of death as the
decedent transferred the same during his lifetime in anticipation of his death.
-Death must be contemplated, and the thought of death must be the impelling
cause of transfer.
-Circumstances to be considered:
 Age and heath of the decedent at the time of the gift and he was
aware of serios illness
 Length of time between the gift and the date of death
 Concurrent making of a will or making a will within a short-period of
time after the transfer

Note: Transfer made in good faith and for an adequate and full consideration does
not fall within the classification of this provision.
LO 2: Understand the Concept of Taxable Transfer

Taxable Transfer

Transfer in Contemplation of Death

- Illustration:

Rene was informed by his doctor that he is suffering from terminal cancer. As a
result, he decided to donate his house and lot worth P3,000,000 to his best friend,
Restituto.

Question 1: Is this a transfer in contemplation of death?

Answer:
Yes, because the thought of death induced Rene to donate his property to Restituto.
Thus, the property must form part of his estate.
LO 2: Understand the Concept of Taxable Transfer

Taxable Transfer

Transfer in Contemplation of Death

- Illustration:

Rene was informed by his doctor that he is suffering from terminal cancer. As a
result, he decided to donate his house and lot worth P3,000,000 to his best friend,
Restituto.

Question 2: How about if the house and lot were sold at its actual value of P3,000,000?

Answer:
Since the transfer was made in full and adequate consideration, there is no transfer
in contemplation of death. However, the money received by Rene is included as part of
his estate.
LO 2: Understand the Concept of Taxable Transfer

Taxable Transfer

Revocable Transfer

- Transfer of property with retention or reservation of rights over the

property by the donor (decedent) while he still lives.
- Instances that describe revocable transfer:
 Transfer by gift where the donor has reserved the power to alter,
amend and revoked donation.
 The donor retains the option to relinquish such power in contemplation
of death
LO 2: Understand the Concept of Taxable Transfer

Taxable Transfer

Revocable Transfer

- Illustration:

Rene donated his house and lot worth P3,000,000 to his best friend, Restituto.
However, he retained the power to amend or terminate the transfer at will.

Question 1: Upon death of Rene, will the property donated be included in his estate?

Answer:
Yes, because Rene retained the power to amend or terminate the transfer and
thus, he still the owner of said property.
LO 2: Understand the Concept of Taxable Transfer

Taxable Transfer

Revocable Transfer

- Illustration:

Rene donated his house and lot worth P3,000,000 to his best friend, Restituto.
However, he retained the power to amend or terminate the transfer at will.

Question 2: How about if Rene found-out that he had a terminal cancer and then
relinquished his right to revoke the transfer?

Answer:
The same is included in his estate as he relinquished his right to revoke the
transfer in contemplation of death.
LO 2: Understand the Concept of Taxable Transfer

Taxable Transfer

Revocable Transfer

- Illustration:

Rene donated his house and lot worth P3,000,000 to his best friend, Restituto.
However, he retained the power to amend or terminate the transfer at will.

Question 3: How about if Rene, upon knowing that he had a terminal cancer, relinquished
his right to revoke the transfer made by him to Restituto for P3,000,000. Is the property
be included in decedent’s estate?

Answer:
No, because the transfer was made in full and adequate consideration. However, the
money received by Rene will form part of his estate.
LO 2: Understand the Concept of Taxable Transfer

Taxable Transfer

Property Passing Under General Power of Appointment

- A power of appointment is a right to designate by will or deed the person or

persons who are to receive certain property from the estate of a prior
decedent. It can be general or special (limited).
- A special power of appointment is one which authorizes the donee or holder
of the power to appoint only among a restricted class or designated class of
persons other than himself.
- If the done can appoint any beneficiary including himself, his estate, his
creditor, the creditors of his estate, then the power is a general one.
- If the done can only appoint beneficiaries other than himself, his estate,
his creditor, the creditors of his estate, then the power is a special one.
- Thus, if the appointment is general, the decedent is practically the owner
of the property.
LO 2: Understand the Concept of Taxable Transfer

Taxable Transfer

Property Passing Under General Power of Appointment

- Illustration:

Rene died living a will whereby it was stipulated that his house and lot worth
P3,000,000 shall go to his best friend, Restituto, and that should the latter decides to
transfer the property, he can give it to anybody.

Question 1: Is the power of appointment given to Restituto a general one or special one?

Answer:
The power of appointment is general since it is not subject to any restriction.
LO 2: Understand the Concept of Taxable Transfer

Taxable Transfer

Property Passing Under General Power of Appointment

- Illustration:

Rene died living a will whereby it was stipulated that his house and lot worth
P3,000,000 shall go to his best friend, Restituto, and that should the latter decides to
transfer the property, he can give it to anybody.

Question 2: Upon death of Restituto, will the property be included in his estate?

Answer:
Yes, since the power given by former decedent, Rene, was a general one.
LO 2: Understand the Concept of Taxable Transfer

Taxable Transfer

Property Passing Under General Power of Appointment

- Illustration:

Rene died living a will whereby it was stipulated that his house and lot worth
P3,000,000 shall go to his best friend, Restituto, and that should the latter decides to
transfer the property, he can give it to anybody.

Question 3: How about if Restituto can only appoint his son, Victor, and he died, will the
property be included in his estate?

Answer:
No, since the power of appointment is now a special one, and thus, Restituto is
merely a trustee of said property.
LO 2: Understand the Concept of Taxable Transfer

Taxable Transfer

Transfer for Insufficient Consideration

- Property is said to be transferred for insufficient consideration if it is sold

or disposed of for less than its fair market value.

- If any of the above transfers (transfer in contemplation of death,

revocable transfer, and property passing under general power of
appointment) is made for an adequate consideration in money or money’s
worth, the excess of the fair market value, at the time of death, of the
property over the value of the consideration received by the decedent is
included in the gross estate.
LO 2: Understand the Concept of Taxable Transfer

Taxable Transfer

Transfer for Insufficient Consideration

- Illustration:

Rene sold his land situated in Naga City with fair market value of P1,000,000 to
Restituto for P600,000 in an arm’s length bona fide transaction.

Question 1: Is the difference of P400,000 between the fair market value and the selling
price form part of Rene’s estate upon his death?

Answer:
No, because the transfer does not fall under any of the following: transfer in
contemplation of death, revocable transfer, and property passing under general power
of appointment.

Thus, the difference is not included in the estate. However, it is subject to gift tax
or donor’s tax.
LO 2: Understand the Concept of Taxable Transfer

Taxable Transfer

Transfer for Insufficient Consideration

- Illustration:

Rene sold his land situated in Naga City with fair market value of P1,000,000 to
Restituto for P600,000 in an arm’s length bona fide transaction.

Question 2: How about if Rene sold the property to Restituto because he knew he was
dying. Will the difference be included in Rene’s estate?

Answer:
Yes, because the sale was made in contemplation of death. The gift tax paid, if
any, can be claimed as tax refund.
LO 3: Know the Taxability of Proceeds from Life Insurance

Proceeds of life insurance policy payable to a revocable beneficiary

- This takes place when a person takes out an insurance policy in his own life and appoints
somebody as beneficiary.
- Rules to observe with regards to the proceeds of life insurance policy
 Exclude from gross estate of the beneficiary is irrevocable.
 Include in gross estate if the beneficiary is:
a. Revocable
b. the decedent’s estate, his administrator, or his executor, even if the same is
irrevocable
c. silent as to whether revocable or irrevocable
- Other life insurance benefits that are excluded from gross estate:
 Proceeds from SSS or GSIS
 Proceeds from a group insurance taken by the employer of the decedent because
what the law requires to be included refers to the proceeds under policies “taken
out by the decedent upon his own life”
 Proceeds from accident insurance
− Proceeds of life insurance taken out by the decedent on his own life, when included in
the gross estate, shall be an exclusive property if the premiums were paid out of
exclusive funds and shall be a conjugal property if the premiums were paid out of
conjugal funds.
LO 4: Know the Meaning of Absentee for Purposes of Opening his Succession

Estate of an Absentee

Absentee
- is a person who disappears from his domicile, his whereabouts being unknown, and
without leaving an agent to administer his property, or when the power conferred to an
agent has expired.
- is presumed dead after an absence of 7 years for all purpose other than succession.
- is presumed dead for purposes of opening his succession after an absence of 10 years or
5 years if he disappeared after the age of seventy-five (75).
- The following persons are presumed dead for all purposes including their successions:
 A person on board a vessel lost during a sea voyage, or an aeroplane which is missing,
who has not been heard of for four (4) years since the lost of the vessel or
aeroplane.
 A person in the armed forces who has taken part in war, and has been missing for
four (4) years.
 A person who has been in danger of death under other circumstances and his
existence has not been known for four (4) years.
− If the absentee appears or his existence is confirmed, he can recover his property but
not the fruits therefrom.
References and/or Sources:

National Internal Revenue Code of the Philippines

Republic Act No. 10963, Tax Reform for Acceleration and Inclusion Law (TRAIN
LAW)

Civil Code of the Philippines

Ampongan, Omar Erasmo G. 2019. Transfer, Business and Local Taxation (With
Practice Set) (12/E). Conanan Educational Supply, Manila.

Valencia E. and R. Gregorio. 2014. Transfer and Business Taxation, 6th Edition.
Millenium Books, Inc., Mandaluyong City, Manila

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---Thank You!---