CHAPTER 3: PROPERTIES INCLUDED IN DECEDENTS ESTATE

PROPERTIES TO BE INCLUDED IN ESTATE

A. Properties still owned by the decedent at the time of his death, to the point of his equity or
interest in that property, whether exclusive owner, conjugal or community property owner or
joint owner.
B. Asset or properties owned by the decedent during his lifetime but were no longer owned by
him at the time of his death because these properties have been transferred during his lifetime
by way of taxable transfer as follows:
- Transfer in contemplation of death
- Revocable transfer
- Property passing under the general power of appointment.
- Transfer of insufficient consideration

NOTE: A person’s inheritance/sucession/mamanahon kang sarong tao includes NOT ONLY the property,
transmissible rights and obligations that exist at the time of his death, but also those which have
accrued or added there from the opening of sucession.

DECEDENT INTEREST

It includes up to the extent of the decedent’s interest there in the properties at the time of his
death; it shall include the ff:

- Dividends declared by a corporation before the stockholder’s death, although paid

after death if the decedent was living/buhay pa on the record date.
- Partnership profits even if paid after death of a partner.
- Proceeds of life insurance policy payable to a revocable beneficiary
- Right of usufruct if transferable to heirs.

TRANSFER IN CONTEMPLATION OF DEATH

This means that it is the thought of death, as a controlling motive/ that pushes him/her , which
includes the disposition of the property to avoid estate tax. The main reason behind this provision is to
reach indigenous schemes to evade the estate tax liability, using other forms of conveyance rather than
by succession or transfer (mortis causa).

The ff are examples of circumstances that may be taken into consideration whether the transfer was
made in contemplation of death.

I. Age and health of the decedent at the time of the gift, especially when he/she was
aware of serious illness.
II. Length of time between the gift and the date of death, if a short interval suggests the
conclusion that the thought of death was in the mind of decedents and a long interval
would be the opposite.
III. Concurrent making of a will or making a will within a short time after the transfer in this
way, there is a transfer in contemplation of death when:
- The decedent transferred the possession or enjoyment of his property to another ,
but his transfer was intended to make happen only upon his death.
 - The decedent transferred title to the property but retained for his lifetime the right
to possess or enjoy the property/ the income there or the rights to designate who
shall possess or enjoy the property.

Note: this does not apply when the sale is in good faith and for adequate full
consideration, in which case nagigi siyang ACTUAL SALE.

REVOCABLE TRUST

This shows a situation, kung sain si decedent transfers the enjoyment of his property to
another, subject to his right to revoke the transfer at will, with or without notifying the transferee,
any time before he dies.

In this way, the GROSS ESTATE shall include the value of any property which the decedent has at
any time made a transfer by trust or otherwise:

A. WITH RESERVED POWER TO ALTER, AMEND, REVOKE OR TERMINATE – kapag ang enjoyment
was subject at the date of his death to any change through the exercise of a power(in whatever
capacity exercisable) by the decedent alone or by the decedent in conjunction with any other
person (without regard to when or from what source the decedent acquired that power) to
alter, amend, revoke or terminate.
B. WITH THE POWER RELINQUISHED- kapag any of that power which would bring the property in
the taxable estate, is relinquished in contemplation of decedent’s death.

Note: revocable transfer SHALL NOT be included as part of the gross estate, kapag ang transfer is a bona
fide sale for an adequate and full consideration in money`s worth.

PROPERTY PASSING UNDER THE GENERAL POWER OF APPOINTMENT

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

receive specific property from the estate of a prior decedent. A power of
appointment may be either general or limited (special)

An Special power of appointment authorizes the donee or holder of the power to appoint only
among a restricted class or designated class persons other than himself.

If a DONEE can appoint any beneficiary including:

A. Himself
B. His estate
C. His creditor
D. The creditors of his estate, then the power of appointment is a GENERAL.

However, If he can only appoint beneficiaries other than himself and those mentioned above, in that
case, the power of appointment is SPECIAL because his ability to appoint is limited to only a specific
class of persons.
 If the power of appointment is GENERAL, the decedent is practically the property’s owner, so the
property is assumed to be included in his gross estate. But if the power is SPECIFIC, the decedent is
only a trustee, tagahawak nung pera, so it should NOT be included in his estate.

TRANSFER FOR INSUFFICIENT CONSIDERATION

if any of the above transfer, trust, interest, rights, or powers enumerated and described
(transfer in contemplation of death, revocable trust, property passing under general appointment) is
made/created/exercised or relinquished for an ADEQUATE CONSIDERATION IN MONEY`S WORTH,
there shall be included in the (GROSS ESTATE ONLY THE EXCESS OF THE FAIR MARKET VALUE OF
THE PROPERTY, AT THE TIME OF DEATH) over the value of the consideration received by the
decedent otherwise, if hindi naman sufficient it is to be included on account of that transaction

If an inter vivos (donor) transfer of the decedent is proven fictitious, the total value of the
property at the time of death shall be included in the gross estate.

FAIR MARKET VALUE

(VALUE OF CONSIDERATION RECEIVED)

INCLUDED IN THE GROSS ESTATE

PROCEEDS OF LIFE INSURANCE

This occurs when a person takes out an insurance policy in his life and appoints somebody as a
beneficiary. The proceeds of the life insurance covering the life of the insured are includible in the
gross estate EXCEPT:

1. The beneficiary appointed in the policy is NOT the estate of the deceased, his executor or
administrator.
2. The person designated as the beneficiary is IRREVOCABLE.
It should be noted that there is a need to expressly stipulate the irrevocability of the
designation because, in the absence of any stipulation. The law provides that the
designation is revocable and subject to estate tax.

The rule applies even if the proceeds never formed part of the estate because they were paid by the
insurer to the estate’s beneficiary.

The life insurance proceeds payable to the person’s estate, on which the premiums were paid by the
conjugal partnership, constitute the conjugal property, and the other half pertain to the surviving
spouse.
NOTE: If the premiums were paid partly with paraphernal and partly conjugal funds, the proceeds are
in like portion paraphernal in part and conjugal in parts.

MATRIX

CASE POLICY BENEFICIARY/ ESTATE / EXECUTOR OR ADMINISTRATOR TAXABLE

1 Revocable YES YES
2 Revocable NO YES
3 irrevocable YES YES
4 Irrevocable NO NO
5 Silent NO YES

NOTE: The law speaks of policies ‘’taken out by the decedent upon his own life”. In this way,
proceeds of a group insurance policy taken out by the company for its employees are NOT subject to
estate tax.

Moreover, Accident Insurance proceeds are NOT included in the gross estate because the tax code
specifically mentions ONLY LIFE INSURANCE POLICIES.

ESTATE OF AN ABSENTEE

Ang ‘’ABSENTEE’’ is a person na bigla na sanang nawara from his domicile, dae aram kung nasain
siya and nag hali without leaving an agent to administer his property, or si power kang si agent na tg
assign niya is expired na.

AFTER AN ABSENCE OF SEVEN (7) YEARS of being unknown whether OR NOT the absentee is buhay pa,
he shall be presumed dead for ALL PURPOSES, EXCEPT for those of succession.

The absentee shall NOT be presumed dead to open his succession hanggat dae pa nag aabot 10 years. If
he disappeared after the age of 75 years, an absence of 5 years would be enough na for your succession
to be opened.

The following shall be presumed dead for all purposes, including the estate division among the heirs.

1. A person on board a vessel lost during as SEA VOYAGE or a missing AIRPLANE, who has not
been heard of for four years since the loss of the vessel or airplane.
2. A person in the armed forces who have taken part in the war and has been missing for 4 years.
3. A person who has been in danger of death under the circumstances and whose existence has
not been known for four years.
NOTE: If the absentee appears or without appearing, his existence is proved, he shall recover his
property in the condition in which it may be found, and the price of any property that may have
been alienated or the property acquired there, but CANNOT CLAIM EITHER FRUITS OR RENTS.

EFFECT OF ABSENCE UPON THE CONTINGENT RIGHTS OF THE ABSENTEE

Kung isay man ang mag claim kang right of a person kung sain ang existence is
UNKNOWN must prove that he was living when his existence was necessary to acquire the said
right.

Upon opening of succession to which an absentee is called, his share shall be added to
his CO-HEIRS, unless he has Heirs, assigned or representative, they shall, as the case maybe,
make an inventory of the property.

The provision of the preceding paragraph is understood to be without bias to the action of a
petition for inheritance or other rights vested in the absentee, his representative or successors’
interest.

These rights shall NOT BE EXTINGUISHED save by the lapse of time fixed for a prescription. In
the record made in the REGISTRY OF THE REAL ESTATE, which added to the CO-HEIRS, the
circumstances of its being subject to the provisions of this article shall be stated.

Those who may enter UPON THE INHERITANCE shall give/used or earn the fruits received in
good faith if the absentee DOES NOT APPEAR, or while his representative or successors in
interest DO NOT BRING PROPER ACTIONS. These rights shall end kapag ang absentee re-
appears or the representatives and successors brought an action.