ESTATE TAX MODEL

Exclusive Common Total

Gross Estate xx xx xx
Less: Ordinary Deductions (xx) (xx) (xx)
Estate after Deductions xx xx xx
Less: Special Deductions (xx)
Net Estate before Share of Surviving Spouse xx
Less: Share of Surviving Spouse (xx)
Taxable Net Estate xx
Estate Tax Rate 6%
Estate Tax Due xx
Tax Credits (xx)
Estate Tax Payable xx

GROSS ESTATE
Taxability of Estate
Decedent Properties within Properties abroad
Resident Citizen ✓ ✓
Non-Resident Citizen ✓ ✓
Resident Alien ✓ ✓
Non-Resident Alien ✓* X

*Intangible personal properties are subject to reciprocity rule

Reciprocity Rule
Intangible personal property situated in the Philippines owned by non-resident alien decedent
1. Franchise which must be exercised in the Philippines;
2. Shares, obligations or bonds issued by any corporation or sociedad anonima organized and
constituted in the Philippines in accordance with its law;
Properties Covered 3. Shares, obligations or bonds issued by any foreign corporation 85% of the business of which
is located in the Philippines;
4. Shares, obligations or bonds issued by any foreign corporation if such shares, obligations or
bonds have acquired a business situs in the Philippines;
5. Shares or rights in any partnership, business or industry established in the Philippines.
Reciprocity can take place when the foreign country where the non-resident alien was a citizen
and resident:
Existence
1. Does not have any kind of death taxes
2. Has death tax but allows exemption to non-resident Filipinos
When there is reciprocity - The intangible personal property of non-resident alien situated in
the Philippines are not included in the gross estate
Rules
When there is no reciprocity - The intangible personal property of non-resident alien situated
in the Philippines are included in the gross estate

Composition
The value of the gross estate of the decedent shall be determined by including the value at the time of his death of all
property, real or personal, tangible or intangible, wherever situated: Provided, however, that in the case of a non-resident
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.

Properties owned and possessed by the decedent

This would include properties owned and under the possession of the decedent at the time of his death.

Taxable Transfers
These are properties which at the time of the death of the decedent are not part of the decedent’s assets because these
were already transferred by him during his lifetime.
The values of these properties will be included in determining the value of the gross estate even though such properties
are not anymore the part of the assets of the decedent.

Transfer in contemplation of death is a transfer of property motivated by the thought of death,

although death may not be imminent.
Examples of a transfer made in contemplation of death
1. When the transferor of property is at an advanced age.
2. When the transferor of property is terminally ill or with incurable disease.
3. When a person concurrently makes a will and transfer a property.
Examples of motives that preclude a transfer from the category of one made in contemplation
Transfer in
of death (Motives associated with life)
Contemplation of Death
1. To relieve donor from the burden of management
2. To save income or property taxes
3. To settle family litigate and un-litigated disputes
4. To provide independent income for dependents
5. To see the children enjoy the property while the donor is alive
6. To protect the family from hazards of business operations, and
7. To reward services rendered
A revocable transfer is a transfer where the enjoyment of the property maybe altered,
Revocable Transfers
amended or revoked.
Property Passing Under General Power of Appointment = Included
General Power of Special Power of Appointment = Excluded
Appointment
Transfers of Property These are transfers previously made effective but at an inadequate consideration
for an Insufficient
Consideration
Transfer with retention Possession or enjoyment of, or the right to the income from the property, or the
or reservation of right to designate a person who may exercise such right
certain rights

Interests
Designation Beneficiary
Estate, administrator, executor Other parties
Revocable (by default) ✓ ✓
Proceeds of Life Irrevocable ✓ X
Insurance The following are also not taxable:
a. proceeds/benefits coming from SSS
b. proceeds/benefits coming from GSIS
c. the proceeds coming from group insurance
• Claims of the deceased against insolvent persons where the value of decedent's interest
Claims against therein is included in the value of the gross estate
insolvent persons • The full amount of the claims is included in the gross estate.
• The uncollectible amount of the claims is deducted from the gross estate.
Any amount received by the heirs from the decedent’s employer as a consequence of the
Amount received by
death of the decedent-employee in accordance with Republic Act No. 4917. It shall also be
heirs under R.A. No.
allowed as deduction from the gross estate provided, that such amount is included in the gross
4917
estate of the decedent.
The family home refers to the dwelling house, including the land on which it is situated, where
Family Home the husband and the wife, or an unmarried person who is the head of the family and members
of the family reside, as certified by the Barangay Captain of the locality.
Refers to the value of any interest in property or rights accrued in favor of the decedent on or
before his death which have been received only after his death.
As a rule, the interest must exist at the time of the decedent’s death to be included as part of
the gross estate.
Prior interest Examples
1. Dividends declared on or before the death of the stockholder, and received by the
estate after said stockholder’s death.
2. Partnership’s profit earned prior to death of the partner, received by the estate after
the partner’s death.
 3. Accrued interest and rents on or before the time of death, but collection was made
after death.

Married Decedents
Exclusive properties of the decedent Included
Exclusive properties of the surviving spouse Excluded
Common properties Included at full amount

Exemptions
When the same person becomes a usufructuary and owner of the naked title, it makes him/her
the absolute owner of the property.
USUFRUCT – the legal right to use and enjoy the benefits and profits of something belonging
to another.
Merger of the usufruct
Two persons involved in usufruct:
in the owner of the
USUFRUCTUARY – the person who has the right of enjoying the use and the fruits of the
naked title
property belonging to another.
OWNER OF THE NAKED TITLE – the person who is vested the ownership, dominion, or title of
the property under the usufruct agreement.

He is NOT the absolute owner of the property with respect to the right of the usufructuary.
The transfer is from fiduciary heir to the fideicommissary
Transmission or
LEGACY– a gift or bequest by WILL of a person.(Personal Property)
delivery of the
DEVISE – a TESTAMENTARY disposition of real property.
inheritance or legacy of
LEGATEE –the person to whom a legacy in a will is given of personal property.
the fiduciary heir or
FIDUCIARY HEIR – the FIRST HEIR of the property.
legatee to the
FIDEICOMMISSARY – the SECOND HEIR whose relationship to the fiduciary heir must be one
fideicommissary
degree of generation (a parent and a child)
Transmission from the The second transfer as desired by the predecessor.
first heir, legatee, or There is only one transfer from the testator.
donee in favor of
another beneficiary, in
accordance with the
desire of the
predecessor
All bequest, devices, Requisites
legacies or transfer to 1. no part of the net income of which inures to the benefit of any individual; and
social welfare, cultural 2. not more than 30% of such bequest, devises ,legacies or transfer shall be used for
and charitable administrative purposes
institutions

Exclusions
The following are excluded from the gross estate of the decedent:
a. Amounts received as war damages
b. Amounts received from the United States Veterans Administration
c. Benefits received from the GSIS
d. Benefits received from the SSS
e. Retirement benefits of employees of private firm (R.A. 4917)
f. Intangible personal property of a non-resident alien decedent under the reciprocity clause
g. Grants and donations to the Intramuros Administration.
h. Proceeds of life insurance where the beneficiary is irrevocably appointed
i. Proceeds of life insurance under a group insurance taken by employer (not taken out upon his life)
j. Transfer by way of bona fide sales
k. Separate property of the surviving spouse
l. Properties held in trust by the decedent
m. Acquisition and/or transfer expressly declared as not taxable
Valuation
General Rules
a. The fair value of the property as of the time of death shall be the value to include in gross estate.
b. Fair value rules set by law or revenue regulations must be followed.
c. In default of such fair value rules, reference may be made to fair value rules under generally accepted accounting
principles.
d. Encumbrances on the property or decrease in value thereof after death shall be ignored.

Fair Value Rules

Real Properties Higher between the zonal value (BIR) and assessor’s value
Listed shares = Price index from the PSE/latest FMV published in the newspaper at the time
of death
Unlisted shares:
Common shares = book value based on the latest available financial statements duly
Shares of Stocks
certified by an independent public accountant prior to the date of sale
Preferred shares = par value
Club shares = Price published in newspapers on the transaction date or nearest to the
transaction date
Usufruct is valued in accordance with the latest Basic Standard Mortality Table, to be approved
Usufruct and Annuities
by the Secretary of Finance, upon the recommendation of the Insurance Commissioner.
Newly purchased property = purchase price, otherwise, second-hand value
Pawned property = grossed-up pawn value
Other Properties
Receivables = fair value plus accrued income
Foreign currencies = peso value translated at the exchange rate at the date of death

ESTATE TAX COMPLIANCE

Filing
Tax Form BIR Form 1801 – Estate Tax Return
1. In all cases of transfer subject to tax;
2. Where the said estate consists of registered or registrable property (regardless of the value
of the gross estate).
Filing
a. Real Property
b. Motor Vehicle
c. Shares of Stock
1. Executor
Person to File 2. Administrator
3. Any of the legal heirs
Period of Filing Within 12 months (1 year) after the decedent’s death
When the estate tax returns show a gross value exceeding P5,000,000 with the following
contents:
1. Itemized assets of the decedent with their corresponding gross value at the time of
CPA Certification his death, or in case of non-resident alien, of that part of his estate situated in the
Philippines
2. Itemized deductions
3. The amount of tax due whether paid or still due and outstanding
Extension period for The Commissioner can, in meritorious cases, extend the filing of returns for a period not
filing the returns exceeding 30 days.
In case of resident decedent:
a. Accredited agent bank
b. Revenue district office
c. Collection officer
d. Duly authorized Treasurer of the city of municipality where the decedent was
Venue
domiciled at the time of death
In case of non-resident decedent:
a. Revenue District Office where the executor or administrator is registered;
b. Revenue District Office having jurisdiction over the executor or administrator’s legal
residence
 c. Office of the Commissioner [Office of the BIR Commissioner (RDO No. 39 – South
Quezon City) if the estate does not have an executor or administrator in the
Philippines]

Payment
Time At the time the estate tax returns are filed
Estate is settled through the courts – not to exceed 5 years
Estate is settled extra-judicially – not to exceed 2 years

Extension Except when there is:

1. Negligence
2. Intentional disregard of rules and regulations
3. Fraud on the part of the taxpayer
In case the available cash of the estate is insufficient to pay the total estate tax due, payment
Payment by Instalment by installment shall be allowed within two (2) years from the statutory date for its payment
without civil penalty and interest.
1. The estate tax shall be paid by the executor or administrator before the delivery of the
distributive share in the inheritance to any heir or beneficiary.
2. Where there are two or more executors or administrators, all of whom are severally liable
Liability for Payment for the payment of tax.
3. The executor or administrator of an estate has the primary obligation to pay the estate tax
but the heir or beneficiary has subsidiary liability for the payment of that portion of the estate
tax which his distributive share bears to the value of the total net asset.