Name:

Section/Course: BSA-ACC201
Professor: Bartolome Urbano
Assignment 3

Revocable Transfers of Property

It is a transfer where the terms of enjoyment of the property may be altered, amended,
revoked, or terminated by the decedent It is sufficient that the decedent had the power to
revoke it though he did not exercise power. Section 85(C) of the Tax Code, as amended,
provides:
(1) To the extent of any interest therein, of which the decedent has at any time made a
transfer (except in case of a bonafide sale for an adequate and full consideration in money
or money's worth) by a trust or otherwise, where the enjoyment thereof was subject at the
date of his death to any change through the exercise of 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 such power), to alter,
amend, revoke, or terminate, or where any such power is relinquished in contemplation of
the decedent's death.

(2) For the purpose of this Subsection, the power to alter, amend or revoke shall be
considered to exist on the date of the decedent's death even though the exercise of the
power is subject to a precedent giving of notice or even though the alteration, amendment or
revocation takes effect only on the expiration of a stated period after the exercise of the
power, whether or not on or before the date of the decedent's death notice has been given or
the power has been exercised. In such cases, proper adjustment shall be made representing
the interests which would have been excluded from the power if the decedent had lived, and
for such purpose, if the notice has not been given or the power has not been exercised on or
before the date of his death, such notice shall be considered to have been given, or the
power exercised, on the date of his death.

Donatio Mortis Causa

A gift made by a person (the donor) in contemplation of impending death, also known as a
deathbed gift. When the donor dies, the subject-matter of the gift does not pass to the
personal representative but to the person the deceased intended to benefit (the donee). To
qualify as a donatio mortis causa:

• The gift must be made by the donor in contemplation of the donor's impending death.
• The gift must be contingent on the donor dying.
• The donor must part with the gift or deliver it in some way to the donee.
• The subject-matter of the gift must be capable of being given away in this manner. The
doubt about whether land could be given away is now resolved.
 Donation Inter Vivos

A contract which takes place by the mutual consent, of the giver, who divests himself of the
thing given in order to transmit the title of it to the donee gratuitously, and the donee, who
accepts the thing and acquires a legal title to it.
This donation takes place when the giver is not in any immediate apprehension of death,
which distinguishes it from a donatio mortis causa.

Transfers under a General Power of Appointment

Power of appointment refers to the right to designate the person or persons who will
succeed to the property of the prior decedent. The power of appointment may be "general"
or "special". It is considered "general" when the power of appointment authorizes the donee
of the power to appoint any person he pleases. The power may be exercised in favor of
anybody including the donee-decedent. The donee of a general power of appointment holds
the appointed property with all the attributes of ownership thus, the appointed property shall
form part of the gross estate of the donee (beneficiary) of the power upon his death.
Special Power of Appointment (SPA) exists when the donee can appoint only from a
restricted or designated class of persons other than himself. Property transferred under a
special power of appointment should be excluded from the gross estate of the donee of the
power because the donee-decedent only holds the property in trust. Refer also to Exclusions
under Section 87 of the Tax Code as discussed in illustration #5.

Transfers in Contemplation of Death

The Tax Code, as amended, provides:

To the extent of any interest therein of which the decedent has at any time made a transfer,
by trust or otherwise, in contemplation of or intended to take effect in possession or
enjoyment at or after death, or of which he has at any time made a transfer, by trust or
otherwise, under which he has retained for his life or for any period which does not in fact
end before his death (1) the possession or enjoyment of, or the right to the income from the
property, or (2) the right, either alone or in conjunction with any person, to designate the
person who shall possess or enjoy the property or the income therefrom; except in case of a
bonafide sale for an adequate and full consideration in money or money's worth.
 Transfers for Insufficient Consideration
When a sale or transfer (other than a bonafide or valid sale) was made for a price less than
its fair market value at the time of sale or transfer, the excess of the fair market value of the
transferred property at the time of death over the value of the consideration received should
be included in the gross estate. For this purpose, the following fair market values shall be
used:
Fair Market Values (FMV):
• FMV of the property at the time of sale or transfer. This is use to determine whether or not
the consideration was full and adequate. If the consideration received is substantially the
same with the fair market value at the time of transfer, such sale or transfer is considered a
bona fide sale, hence, not subject to estate tax.
• FMV of the property at the time of death.
This is used to determine the amount to be included in the gross estate. If the consideration
received is substantially lower or for less than full and adequate consideration compared to
the fair market value at the time of sale or transfer, such sale or transfer was made for
insufficient consideration. In such cases, the excess of the fair market value at the time of
death over the consideration received at the time of sale or transfer should be included in the
gross estate of the decedent.
If there was no consideration received at the date of transfer and such transfer was made "in
contemplation of death" (donation mortis causa), the fair market value of the property at the
date of death, not at the date of transfer, should be included in the gross estate of the
decedent. If there was no consideration received at the date of transfer and such transfer
was not made "in contemplation of death", such transfer shall be considered donation
inter-vivos subject to donor's tax based on the fair market value of the property at the date
the donation was made.

COMPOSITION OF THE GROSS ESTATE

Generally, gross estate consists of all the property owned by a decedent or which the
decedent had an interest at the time of death, such as:

• Real property
• Personal tangible property
• Intangible personal property
✓Shares of stock
✓ Bank deposit
✓ Dividends declared before his death but received after death.
✓ Partnership profit which have accrued before his death.
✓ Usufructuary & right
Valuation of Gross Estate (as amended by RA10963; RR 12-2018)

The estate of the decedent shall be appraised at its fair market value at the time of his death.
Since succession and the accrual of the corresponding estate tax takes effect upon death, it
shall only be fair to appraise the estate at its fair market value at the time of the decedent's
death. Specifically, the following rules shall apply in determining the valuation of the estate:

1. In General : Fair Market Value at the time of death

2. Real Property - The higher value between:
a. FMV determined by the Commissioner; and
b. FMV as shown in the schedule of values fixed by the provincial and city assessors (also
known as assessed value or FMV for real estate tax purposes).
*For purposes of prescribing real property values, the CIR is authorized to divide the
Philippine into different zones or areas and shall, upon consultation with competent
appraisers, both from the private and public sectors, determine the fair market value of real
properties located in each zone or area. If there is an improvement, the value of
improvement is the construction cost per building permit or the fair market value per latest
tax declaration.
3. Personal Property: Fair market value at the time of death
4. Shares of stock:
• Unlisted common share: Book value per share of the issuing corporation (Appraisal surplus
shall not be considered, as well as the assigned amount to preference shares, if any).
• Unlisted Preference share: Par value per share
• Listed shares: FMV shall be the arithmetic mean between the highest and lowest quotation
at a date nearest the date of death if none is available on the date of death itself (RR 2-2003/
RR 12-2018).
5. Units of participation in any association, recreation or amusement club (ie.,golf, polo,
similar clubs): The bid price nearest the date of death published in any newspaper or
publication for general circulation.
6. Right to usufruct, use or habitation, and annuity: In accordance with the latest Basic
Standard Mortality Table taking into account the probable life of the beneficiary, to be
approved by the Secretary of Finance upon recommendation of the Insurance Commissioner
[Section 88(A)-NIRC].