INTRODUCTION TO TRANSFER TAXES

CLASSIFYING DONATION AS INTER VIVOS OR MORTIS CAUSA

The timing of the gratuitous transfer of ownership or legal title over the property to
another determines the classification of the transfer.

If gratuitous transfer of ownership occurs Type of transfer

During the lifetime of the transferor Inter vivos
Upon the death of the transferor Mortis causa

Exceptional Rules Inter Vivos Mortis Causa

1. Transfer in contemplation of death X
2. Transfer to take effect at death X
3. Incomplete transfer X X

Transfer in Contemplation of Death - a donation that is inspired or motivated by the thought

of death of the decedent.
Ex. Don Pedro is 80 years old and is having a cancer. He donated his house and lot to his son,
Juan, saying that he may not live long enough.

Motives associated with life:

The following motives precludes a transfer from being classified as one in contemplation of
death:
1. to reward services rendered
2. to relieve the donor of the burden of management of the property
3. to save on income tax
4. to see children financially independent
5. to see children enjoy the property while the decedent still lives
6. to settle family disputes

Donation whose motives is associated with life is a donation inter-vivos subject to donor's tax.

Transfer intended to take effect upon death

A donation that is made on the decedent's last will and testament is a donation mortis causa.

Incomplete Transfers - involves the transmission or delivery of properties from one person
to another, but ownership is not transferred at the point of delivery. The actual transfer of
ownership will take effect in the future upon the happening of certain future events or
satisfaction of the condition. They are subject to transfer tax in the future when the actual
transfer of ownership occurs.

TYPES OF INCOMPLETE TRANSFERS:

1. Conditional transfer
- completed inter vivos upon the happening of the following during the lifetime of the
donor:
A. Fulfillment of the condition by the transferee or
B. Waiver of the condition by the transferor

2. Revocable transfer are completed inter-vivos upon:

A. Waiver by the transferor to exercise his right of revocation or
B. The lapse of his reserved right to revoke

3. Transfers with reservation of title to property until death are completed by the death of
the decedent

Conditional transfers and revocable transfers become donation mortis causa when the transfer
is pre-terminated by the death of the decedent. They will be included in the gross estate of
the decedent subject to estate tax.
VALUATION OF COMPLEX INCOMPLETE TRANSFERS

MORTIS CAUSA INTER VIVOS

FAIR MARKET VALUE AT DEATH LESS CONSIDERATION FAIR VALUE AT COMPLETION OR PERFECTION OF
UPON TRANSFER DONATION LESS CONSIDERATION UPON TRANSFER

EXAMPLE
Inter Vivos Mortis Causa
At the date of Transfer:
Selling Price 4,000.00
Fair market value 10,000.00

Fair Market Value at the date of Death

Donation is computed as(10,000-4,000) 6,000.00

At the date of Transfer:

Selling Price 4,000.00
Fair market value 10,000.00

Fair Market Value at the date of Death 15,000.00

Donation is computed as(15,000-4,000) 11,000.00

NON-TAXABLE TRANSFERS
1. Void transfers
2. Quasi-transfers

Void transfers are those that are prohibited by law or those that do not conform to legal
requirements of their validity. Void transfers do not transfer ownership over property and
are therefore not subject to transfer tax.
Ex.
1. Donation of properties not owned by the donor.
2. Donation between spouses
3. Donation which do not manifest all essential requisites to validity such as donations refused
by the donee
4. Donations that do not conform to formal requirements such as oral donation of real
properties.

Quasi-transfer
There are transmission of property which will never involve transfer of ownership.
Ex.
1. transmission of the property by the usufructuary to the owner of the naked title
2. transmission of the property by the trustee to the real owner
3. transmission of the property from the first heir to the second heir in accordance with the
desire of the predecessor.
INTRODUCTION TO SUCCESSION AND ESTATE TAX

Succession - is a mode of acquisition by virtue 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.

TYPES OF SUCCESSION
1. Testate or testamentary succession
Testamentary succession is that which results from the designation of an heir,
made in a will executed in the form prescribed by law.

2. Legal or Intestate Succession

When the decedent did not execute a will or the will executed is invalid. The
provision of the civil code on succession shall be observed.

3. Mixed succession
One which is partly testate and partly intestate.

Will - is 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.

Types of Will
1. Holographic Will - will written, dated and signed by the testator himself in his own
handwriting. - does not require notarization
2. Notarial Will - a will which needs notarization
Must be signed by the testator and witnesses.
3. Codicil - instrument that amends the provisions of a will (may include addition, explanation
or alteration to the will previously made.

NATURE OF SUCCESSION - gratuitous transfer of property to take effect upon the death of
the decedent.

ELEMENTS OF SUCCESSION:
1. Decedent - a general term applied to 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. Estate - refers to property, rights and obligations of the decedent to be transmitted
through succession.
3. Heir - a person called to the succession either by the provision of the will or by operation
of law.
Devisee - is a person who shall succeed to the testamentary disposition of real property
Legatee - is a person who shall succeed to the testamentary disposition of personal property
Who are the heirs under intestate succession?
The heirs shall be the following in descending order of priority:
A. Compulsory heirs affinity
B. Relatives up 5th degree of consanguinity consanguinity
C. Republic of the Philippines
Types of consanguinity
Types of compusory heirs: 1. lineal consanguinity - rela
1. Primary heirs - legitimate children and their direct descendants
2. Secondary heirs- Legitimate/illegitimate parents and ascendants 2. collateral consanguinity -
3. Concurring heirs - suriviving spouse and illegitimate children

Definition of terms
1. Legitimate children - those born out of a legal marriage
2. Direct descendants - refer to children or, in their absence, grandchildren
3. Legitimate parents - refer to biological parents
4. Illegitimate parents - are adopting parents to an adopted child
5. The surviving spouse - a widow or widower of the decedent
6. Illegitimate descendants - illegitimate children

In the absence of compulsory heirs, the following shall inherit in the following order of
priority:
1. Collateral relative up to 5th degree of consanguinity
2. The Philippine government

Summary of Rules:
1. Concurring heirs and
A. Descendants, or in their default,
B. Ascendants
2. Relatives in the collateral line up 5th degree
3. Republic of the Philippines.

HEIRS UNDER TESTAMENTARY DISPOSITION

In testamentary succession, the heirs shall be the following:
1. Compulsory heirs
2. Other persons specified by the decedent in his will

Legitime - is that part of the testator's property which he cannot dispose of because the law
has reserved it for certain heirs who are, therefore, called compuslory heirs. The excess
properties of the decedent is called "free portion".

Other persons in succession:

1. Legatee - a person whom gifts of personal property is given by virtue of a will
2. Devisee - a person whom gifts or real property is given by virtue of a will
3. Executor - a person named by the decedent who shall carry out the provisions of his will.
4. Administrator - a person appointed by the court to manage the distribution of the estate
of the decedent.

NATURE OF ESTATE TAX:

1. Excise tax - tax on privilege; subject matter of taxation is the right to transmit the property upon death
2. Revenue or general tax - aimed at raising revenues for the government
3. Ad Valorem tax - dependent upon the value of the estate
4. National tax - imposed by the National Government
5. Proportional tax - tax rate is fixed at 6%
6. One time tax - once in lifetime

Classification of Decedents for Taxation Purposes

1. Resident or Citizen Decedents - taxable on properties located within or outside the
Philippines.
2. Non-resident Alien Decedents - taxable only on properties located in the Philippines,
except intangible personal property when the reciprocity rule applies.

Gross Estate - pertains to the totality of the properties owned by the decedent at the point
of his death.

Classification of decedents: Gross estate

1. Resident citizen
2. Non-resident citizen
3. Resident alien
4. Non-resident alien without reciprocity
5. Non-resident alien with reciprocity
Properties located within and outside of the Philippines (real property, tangible p
Properties located within and outside of the Philippines (real property, tangible p
Properties located within and outside of the Philippines (real property, tangible p
Properties located within the Philippines (real property, tangible personal proper
Real property and tangible personal property located within the Philippines
1. Condomium in the Philippines, P4,000,000
2. Building in USA, P10,000,000
3. Bank deposit in BPI bank deposit is kept in USA, P300,000
4. Bank deposit in Bank of New York bank deposit is kept
in the Philippines, $4,000 ($1:P50)
5. Car in USA, P1,000,000
6. Jewelry in the Phils., P200,000
7. Franchise to be exercised in the Philippines, P3,000,000
8. Copyright to be exercised in USA, P2,000,000
9. Accounts receivable, debtor resides in USA, P300,000
10. Notes receivable, debtor resides in the Phils., P200,000
11. Shares of stocks in a domestic corporation, P400,000
12. Shares of stocks in a foreign corporation 90% of its
operation is in the Philippines, P500,000
13. Shares of stocks in a foreign corporation 80% of its
operation is in the Philippines, P250,000

Compute for the gross estate if the decedent is:

A. Resident Citizen
B. Non-resident Citizen
C. Resident Alien
D. Non-resident Alien without reciprocity
E. Non-resident Alien with reciprocity
 - relationship that exists between person by marriage
onsanguinity - relationship by blood

ypes of consanguinity
lineal consanguinity - relationship that subsists between persons having descended from a common anscestor and one directly descend
other. Ex. parents and children, grandparents and grandchildrent
collateral consanguinity - relationship that subsists between persons having descended from a common anscestor but one did not direct
descend from the other. Ex. uncle and nephew, uncle and niece, auntie and nephew, auntie and niece

A married W
B married to X C married to Y A-C 2 civil degrees apart
D F D-F 4 civil degrees apart
E G E-F 5 civil degrees apart
E-G 6 civil degrees apart
 s (real property, tangible personal property and intangible personal property)
s (real property, tangible personal property and intangible personal property)
s (real property, tangible personal property and intangible personal property)
y, tangible personal property and intangible personal property)
within the Philippines
and one directly descend from the

tor but one did not directly

hew, auntie and niece

2 civil degrees apart

4 civil degrees apart
5 civil degrees apart
6 civil degrees apart