ESTATE TAX

- Levied on total net value of the property of deceased person

- Rate: 6% (TRAIN Law)

Decedent – deceased person

Net Estate – total net value of decedent’s estate, gross estate less allowable deductions and specific
exemptions

Gross Estate – total value of all property belonging to the decedent at the time of his death (net worth
before deduction of its liabilities and expenses)

 If property is not entirely owned by decedent, only the value of his interest shall form part.’
 Resident / Citizen decedent – estate includes all properties situated within and outside PH
 Non-resident decedent – estate includes all properties situated within PH only

PRENUPTIAL AGREEMENT

Gross estate shall not include exclusive properties of surviving spouse but the share of the surviving
spouse will form part of deduction to get net estate.

Agreement shall prevail, but in its absence:

CONJUGAL PARTNERSHIP OF GAINS OF PROPERTIES (CPOG)

 Applies to marriage before August 3, 1988

 Any property acquired by husband/wife before marriage shall be exclusively his/hers
 At marriage, these exclusive properties shall be joined together as part of one estate
within conjugal property, and fruits shall be shared
 Any property acquired during marriage shall be considered part of conjugal property
 Properties given gratuitously before and during marriage shall be owned exclusively
 Properties purchased with exclusive money – exclusive; with common fund – conjugal

ABSOLUTE COMMUNITY OF PROPERTY (ACOP)

 Applies to marriage on or after August 3. 1988

 All properties acquired before and during marriage shall be considered part of one
estate of absolute community of property owned by both spouses
 All properties donated, inherited, and given gratuitously to either spouses before
marriage shall be part of ACOP once they get married, (during – exclusive)
 Properties purchased with exclusive money – exclusive; with common fund – exclusive
 CPOG ACOP
Before Marriage During Marriage Before Marriage During Marriage
Acquired EXCLUSIVE CONJUGAL COMMUNITY
Gratuitous EXCLUSIVE COMMUNITY EXCLUSIVE
Purchased with EXCLUSIVE EXCLUSIVE
exclusive money
Purchased with CONJUGAL EXCLUSIVE
common fund
Purchased with EXCLUSIVE COMMUNITY
cash earned
Obtained by CONJUGAL COMMUNITY
working
Unidentified CONJUGAL COMMUNITY
when and who
acquired
Acquired by right EXCLUSIVE COMMUNITY
of redemption or
exchange
Fruits from CONJUGAL COMMUNITY
common and
exclusive
properties
Property for EXCLUSIVE
exclusive use
(except jewelry)
Spouse has EXCLUSIVE COMMUNITY
legitimate
descendants

COMPOSITION OF GROSS ESTATE

As to Location:

 Resident or Citizen decedent – within and outside Philippines

 Non-resident Alien decedent – within Philippines only
o Intangible Assets:
 With Reciprocity – not included
 No Reciprocity – included
o Franchise exercise in Philippines
o Shares, obligations, or bonds constituted in Philippines
o Shares, obligations, or bonds by foreign corporation, where 85% of business is located in
Philippines
o Shares, obligations, or bonds by foreign corporation, acquiring a business within the
Philippines
 o Shares or rights of any business established in Philippines

VALUATION OF GROSS ESTATE

Measurement:

- Generally: at fair market value at the time of decedent’s death

- Real property: FMV shall be the higher of:
o FMV determined by BIR (zonal)
o FMV in provincial or city (assessed)
- Personal Properties
o Recently purchased: purchase price
o Not recently purchased: Pawn value x 3
- Shares of Stock
o Listed: average of highest and lowest cost on (or nearest to) date of death
o Unlisted common: book value
o Unlisted preferred: par value

FAMILY HOME

- House where the family reside and land where it is situated (within Philippines)
- Included in gross estate

OTHER ITEMS AS COMPOSITION OF GROSS ESTATE

 Proceeds of Life Insurance – included, except when:

o Third person is irrevocably designated as beneficiary
 Revocable when not stated
o Come from SSS/GSIS
o Come from group insurance
 Claims against Insolvent Persons
o Full amount of claims – included
o Uncollectible amount – deduction
 Received by heirs from decedent’s employer
o Included, but also allowable deduction

TAXABLE TRANFERS

 Transfer in Contemplation of Death

 Revocable transfer
 Transfer passing under general power of appointment
  Transfer with retention/reservation of rights
 Transfer for insufficient consideration
EXCLUSIONS FROM GROSS ESTATE UNDER SPECIAL LAWS
 Proceed from war damages
 Proceeds from US Veterans Administration
 Benefits from SSS/GSIS
ALLOWABLE DEDUCTIONS
Ordinary Deductions
Non Resident:
Allowable Deductions =
(Philippine Gross Estate / World
Gross Estate) x Ordinary
Deductions
RESIDENTS / CITIZENS
 Funeral Expenses (repealed under Train Law)
 Judicial Expenses (repealed under Train Law)
*beginning January 1, 2018
 Claims against the estate
o must be personal obligation of deceased existing at
time of his death
o liability contracted in good faith and for adequate
consideration
o claim is valid in law and enforceable In court
o indebtedness must not be condoned by creditor
o must be adequately sustained
o duly notarized at the time incurred
o contracted within 3 years
 Claims of against insolvent persons
o Value of claims is initially included in gross estate
o Uncollectible claims are deductible
o Incapacity to pay must be proven
o Uncollectible claims = Claims – (properties less
deductions/obligations less deductions x Claims)
 Unpaid mortgage
Requisites:
o FMV of mortgaged property was initially included in
gross estate
o Indebtedness was contracted in good faith and
 Unpaid Taxes
o Accrued before death, except:
 Income tax on income received after death
 Property tax not accrued before death
 Any estate tax
 Losses
Requisites:
o Incurred during settlement of estate (after death)
 o Arising from casualties (fire, storms, shipwreck) or
robbery, theft, embezzlement
o Not compensated for by insurance
o Not claimed as deduction for tax
Other Deductions  Property previously taxed (Vanishing Deductions)
o Value of property received by decedent from prior
decedent, or transferred by gift, within 5 years before
decedent’s death
o Value to take, lower between:

 Transfers for public use
Special Deductions  Medical expenses (repealed under Train Law, January 1, 2018)
 Family home allowance (maximum of 10M, 1/2 if conj/comm)
 Standard deductions (resident – 5M; non-resident – 500K)
 Amount received by heirs from decedent’s employer
- Net share of surviving spouse in conjugal / community
property
NOTE: No deduction on gross estate not situated in Philippines unless executor/administrator/heirs
includes the value in pertinent return at time of death

* Funeral Expenses
- incurred for interment or burial of deceased
- must be paid up to time of burial
- deductible: lower of
a. actual funeral expense
b. 5% of gross estate
c. limit of 200K

* Vanishing Deductions
DONOR’S TAX

- imposed on transfer without consideration

- shall not apply unless there is a completed gift
o Requisites of a taxable/completed gift:
 Capacity of donor to make donation
 Donative intent
 Delivery – actual or constructive
 Acceptance by done
- Applies whether trust or otherwise, direct or indirect, real or personal, tangible or intangible
- Levied on total net gifts (net economic benefit that accrues to done)
- Cumulative basis over a period of one calendar year

VALUATION:

Fair Market Value at time of gift

By location:

 Resident/Citizen Donor: wherever situated

 Non-Resident Alien: only in Philippines

Real Property: FMV higher of

  Determined by BIR
 Assessed amount/Zonal

Intangible properties in PH given by non-resident alien

 With reciprocity: not subject to donor’s tax

 No reciprocity: subject to donor’s tax

TAX RATE:

6% in excess of 250,000

SPECIAL CONSIDERATIONS

Immovable properties

 Must be made in a public document

Incomplete gift (because of reserve powers) becomes complete when

 Donor renounces the power

 Right of reserve power ceases

Renunciation (SUBJECT)

 of surviving spouse of his/her share in the conjugal/absolute properties after dissolution of

marriage in favour of heirs of the deceased spouse or any other person
 by an heir of his/her share in the hereditary estate that is specifically done in favor of
identified heirs to exclusion of other heirs

TRANSFER FOR LESS THAN ADEQUATE AND FULL CONSIDERATION

FMV > consideration

Except:

 Real properties that are capital assets (capital gains tax)

 Sale, exchange, and transfer made in ordinary course of business

EXEMPTIONS OR DEDUCTIONS (Residents)

  Gifts for use of national government or agencies
 Gifts in favour of educations, charitable, religious, cultural, social welfare, or research (not more
than 30% of gifts shall be used for admin purposes)
 Encumbrance or obligation on property if assumed
 Specifically provided by donor as diminution or deduction from property
 Donations to:
o I
o P
o P
o R
o I
o D
o N
o A

COMPUTATION

FORMULA TO COMPUTE FOR DONOR’S TAX ON COMULATIVE GIFTS

TAXABLE GROSS GIFT, Second XXX

Less:

Allowable Deductions (xxx)

Taxable Net Gift xxx

Add: Previous net gift (xxx)

Total net gift xxx

Less: 250,000 exemption (250,000)

X Donor’s tax rate 6%

DONOR’S TAX DUE XXX

Less: Previous payment (xxx)

Donor’s tax payable XXX