TRANSFER & BUSINESS TAXATION

Introduction.

Ordinarily, a human being is born of a mother and a father, grows to adulthood, acquires and
controls property by venturing into business or otherwise, becomes the mother or the father of
children, lives a meaningful life, and dies. Part I of this book shall deal with the transfer of
property during the lifetime of an individual, or in contemplation of, or as a result of his death.
Part II deals with business taxes. Knowledge of the law on business taxes is a must for those who
are into business, for one who works as a bookkeeper or as an accountant of a private or
government office, for tax consultants, and for practicing CPAs and lawyers.

The focus of Part I of this book is on the transfer of property. Property embraces everything
which is or may be the subject of ownership. The term includes not only ownership and
possession but also the right of use and enjoyment for lawful purposes. The person in whom the
ownership, dominion or title of property is vested is known as the owner. Ownership is the
exclusive right of possessing, enjoying and disposing of a property.

MODES OF ACQUIRING OWNERSHIP

Under the Civil Code, ownership may be exercised over things or rights. The owner has the right
to enjoy and dispose of a thing, without other limitations than those established by law.
Ownership is acquired by occupation and by intellectual creation. Ownership and other real
rights over property are acquired and transmitted by law, by donation, by testate and intestate
succession, and in consequence of certain contracts, by tradition. They may also be acquired by
means of prescription.

The effectiveness of the various modes of acquiring ownership and other real rights over
property is premised on the existence of title or judicial justification. The following are the
modes of ownership acquisition:
 1. Occupation. When ownership is acquired by occupation, the property seized is without a
known owner. For example, a person’s occupation is fishing or hunting.

2. Intellectual Creation. By intellectual creation, the composer owns his musical

compositions while the author owns his literary, legal, historical, scientific or other work.
3. Donation, Donation is of and there acceptreby a person disposes gratuitously of a or right
favor another, who it.
4.
5. 4. Succession. Succession is a mode of are visition by virtue of which the property rights
and obligations to the extent of the value of the inheritance, of a person ave transmitted
through his death to another.
6.
7. 5. Prescription. By prescription, one acquires ownership and other real rights through the
lapse of time in the manner and under the conditions laid down by law. Inugh same way,
rights and actions are lost by prescription. The first is referred to as "acquisitive"
prescription and the second as "extinctive" prescription.
8.
9. CONCEPT AND NATURE OF TRANSFER TAXES
10.
11. Two of the five modes of acquiring ownership as enumerated in the Civil Code are
succession and donation. In succession, estate tax is levied on the transmission of
property from a prior decedent to his heirs. Estate encompasses the totality of assets and
liabilities a decedent owns at the time of his death. In donation, donor's tax is imposed as
ownership of the property passes from the donor to the donee.

12. Estate tax and donor's tax are the two transfer taxes under our laws. Transfer taxes are
taxes imposed upon the gratuitous disposition of private property. A transfer is said to be
gratuitous when there is no consideration for the transfer; it is onerous when a
consideration is received. Onerous transfers such as sale, barter or exchange are subject
to business taxes.

13. Estate and donor's taxes are excise taxes. Both taxes are imposed upon the right of a
person to transfer his property that may take effect during his lifetime or upon his death.

TRANSFER & BUSINESS TAXATION

Basic Concepts of Succession

An elderly couple requested that a lawyer stop at their home to discuss the task of writing their
wills. The gentleman was 85 years of age; his wife 83. They had raised 12 children, all of whom
had children of their own.

The lawyer explained the process involved in making a will and what the couple should be
thinking about regarding their property. But the old gentleman had a puzzled expression on his
face. When asked whether it was his wish that all his property pass to his wife, the man said,
“Yes, I leave everything to ‘Mama’, but if she will marry again, she’ll get nothing!” Despite the
fact that his wife had borne him 12 children and had been a good wife to him for many years, the
old gentleman was worried about her marrying again.

The case indicates the kinds of superstitions and fears that people entertain, even today,
concerning the making of a will. The feeling occurs mostly among elderly people, but many
younger persons do not appreciate the need for and importance of a will.

Going back to the story of the old couple, what do you think would the lawyer’s advice be to the
old gentleman who, although willing to pass all his property to his wife, would want to impose a
condition in his will? Would said condition-that the wife should not marry again-be valid under
the law on succession? Under our laws, such a condition is valid as to the free (disposable)
portion of the estate but not as to the legitime (that part of the testator’s estate reserved for
compulsory heirs.) Therefore, the wife, being a compulsory heir, still gets her legitime.

It is important to realize that the laws on succession and estate taxation deal with serious matters
of life and death. Matters of life and death bring forth strong human emotions. Lawyers know
from experience that no matter how strong a human being may seem, when asked about the
death of loved ones or friends that occurred years before, may suddenly burst into tears. As we
study these laws, we should develop a genuine compassion, empathy, and sympathy for our
fellow human beings and the matters of life and death.

Every country has laws governing their ways in which property passes on the death of the owner
who dies without a will. An “estate” is the sum total of all the property of a deceased individual.
That property passes to the deceased’s heirs at law, if he dies without a will, or to his
beneficiaries under his will.
Practically, every adult owns some property at death, including clothes, jewelry and other
personal effects. In fact, most adults, even if they do not own real property, do own a substantial
amount of personal property. Every adult has or may have a significant estate to plan and
administer. The process known as “estate planning” that is so much discussed today seeks to
insure that a decedent’s loved ones receive his property with a minimum of expenses and taxes.
However, in the Philippines, the concept of estate planning is not as popular as it is in the United
States.

SUCCESSION

As earlier defined, 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. The rights to the succession
are transmitted from the moment of death of the decedent.

Kinds of Succession

1. Testamentary or testate 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 – is that effected by operation of law since the decedent did not execute
a will.

3. Mixed-is that effected partly by will and partly by operation of law.

Elements of Succession

1. Death of the decedent. Decedent is the 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 the testator or testatrix.
 2. Inheritance. Inheritance includes all the property, rights and obligations of a person which
are not extinguished by his death. The inheritance of a person includes not only the
property and the transmissible rights and obligations existing at the time of his death, but
also those which have accrued thereto since the opening of the succession. A personal
right, such as a license to practice law, cannot be inherited. Devise is a testamentary
disposition of real estate while legacy is a gift or bequest by will of personal property.

3. Successors. Heirs, devisees and legatees are all successors. An heir is a person

To

Called to the succession either by the provision of a will or by operation of law; if by

1 will, they are called voluntary heirs; if by operation of law, legal or intestate heirs.

Devisees and legatees are persons to whom gifts of real property and personal property,
respectively, are given by virtue of a will.
4. Acceptance. The acceptance of an inheritance may be express or tacit. An express
acceptance may be made in a public or private document. A tacit acceptance is one
resulting from acts by which the intention to accept is necessarily implied, or which one
would have no right to do except in the capacity of an heir.

An heir may accept or repudiate an inheritance. The acceptance or repudiation of the inheritance
is an act which is purely voluntary and free. The effects of the acceptance or repudiation shall
always retroact to the moment of the death of the decedent. Any person having the free disposal
of his property may accept or repudiate an inheritance.

Executors and Administrators

An executor is a person appointed by a testator to carry out the directions and requests in his
will, and to dispose of the property according to his testamentary provisions after his death. An
administrator is a person appointed by the court to administer the assets and liabilities of a
decedent. He is usually a relative of the decedent who has come forward and applied for the
position.

All matters relating to the appointment, powers and duties of executors and administrators and
concerning the administration of estates of deceased persons shall be governed by the Rules of
Court.

TESTAMENTARY SUCCESSION

Wills

A person may make a legal declaration before his death regarding how he wants his property
transferred after his death. This declaration is known as a will. If a person dies leaving a will, the
person is said to have died testate, a status known as testacy.

A 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. The making of a will
is a strictly personal act; it cannot be left in whole or in part to the discretion of a third person, or
accomplished through the instrumentality of an agent or attorney.

The testator may entrust to a third person the distribution of specific property or sums of money
that he may leave in general to specified classes or causes, and also the designation of the
persons, institutions or establishments to which such property or sums of money are to be given
or applied.

A codicil is an instrument that amends (i.e., changes, modifies, or supplements) the provisions of
a will. A codicil must be executed with the same formalities as a will, but is Only required to
have a provision or provisions amending a will.
Probate of a will is the court procedure by which a will is proved to be valid or invalid,
Generally, the probate process involves collecting a decedent’s estate, liquidating liabilities,
paying necessary taxes (e.g., estate tax), and distributing property to heirs. These activities are
carried out by the executor or administrator of the estate, usually under the supervision of the
probate court or other court of appropriate jurisdiction.

Capacity and Intent to Make a Will

All persons who are not expressly prohibited by law may make a will. Persons of either sex
under eighteen years of age, which is the age of majority, cannot make a will. Although a child
under the age of majority may own property, he, as a minor, does not have the legal capacity to
make contracts, hence he cannot acquire and control property independently.

In order to make a will, it is essential that the testator be of sound mind at the time of its
execution. To be of sound’ mind, it is not necessary that the testator be in full possession of all
his reasoning faculties, or that his mind be wholly unbroken, unimpaired, or unshattered by
disease, injury or other cause. It shall be sufficient if the testator was able at the time of making
the will to know the nature of the estate to be disposed of, the proper objects of his bounty, and
the character of the testamentary act.

The law presumes that every person is of sound mind, in the absence of proof to the contrary.
The burden of proof that the testator was not of sound mind at the time of making his
dispositions is on the person who opposes the probate of the will; but if the testator, one month,
or less, before making his will was publicly known to be insane, the person who maintains the
validity of the will must prove that the testator made it during a lucid interval.

If someone who signs an instrument did not know what the instrument said at the time

Of signing, the instrument is not a will. The same holds true if one who signs an

Instrument is forced to sign it “against his will” as the result of duress (i.e., unlawful

Pressure to act, such as a gun held to one’s head), the instrument is not a will. In either
Case, not knowing what one is signing or signing under duress, the requirement of

Intention to make a will having legal effect, has not been met. Also because of this

Requirement, a will or a provision in a will, may also be invalidated by fraud (i.e.,

Intentional misrepresentation or concealment).

A married woman may make a will without the consent of her husband, and without the

Authority of the court. A married woman may dispose by will of all her separate

Property as well as her share of the conjugal partnership or absolute community

Property.

Capacity to Succeed by Will or by Intestacy

Persons not incapacitated by law may succeed by will or ab intestato. In order to be capacitated
to inherit, the heir, devisee or legatee must be living at the moment the succession opens, except
in case of representation, when it is proper.

A child already conceived at the time of the death of the decedent is capable of succeeding
provided it be born later. For civil purposes, the fetus is considered born if it is alive at the time it
is completely delivered from the mother’s womb. However, if the fetus had an intra-uterine life
of less than seven months, it is not deemed born if it dies within twenty-four hours after its
complete delivery from the maternal womb.
Bic A testamentary disposition may be made to the State, provinces, municipal corporations,
private corporations, organizations, or associations for religious, scientific, cultural, educational,
or charitable purposes. All other corporations or entities may succeed under a will, unless there is
a provision to the contrary in their charter or the laws of their creation, and always subject to the
same.

Forms of Wills

The formalities required for a written witnessed will were designed to limit fraud and 00 abuse
by making sure that each will was an authentic declaration of its maker’s desires. Hence, every
will must be in writing and executed in a language or dialect known to the testator. Every will,
other than a holographic will, must be subscribed at the end thereof by the testator himself or by
the testator’s name written by some other person in his presence, and by his express direction,
and attested and subscribed by three or more credible witnesses in the presence of the testator
and of one another.

Every will must be acknowledged before a notary public by the testator and the witnesses. The
notary public shall not be required to retain a copy of the will, or file another with the office of
the Clerk of Court.

A holographic will is a will written entirely by the testator with his own hand and not witnessed
or attested. A person may execute a holographic will which must be entirely written, dated, and
signed by the hand of the testator himself. It is subject to no other form, and may be made in or
out of the Philippines, and need not be witnessed. The testator’s handwriting is deemed a
sufficient assurance of the will’s authenticity.

In the probate of a holographic will, it shall be necessary that at least one witness who

Knows the handwriting and signature of the testator explicitly declare that the will and

The signature are in the handwriting of the testator himself. If the signature of the
Testator in a will is contested, at least three of such witnesses shall be required.

The will of an alien who is abroad produces effect in the Philippines if made with the

Formalities prescribed by the law of the place in which he resides, or according to the formalities
observed in his country, or in conformity with those which the Civil Code prescribes.

A will made in the Philippines by a citizen or subject to another country, which is executed in
accordance with the law of the country of which he is a citizen or subje is and which might be
proved and allowed by the law of his own country, shall have the same effect as if executed
according to the laws of the Philippines.

Revocation of Wills and Testamentary Dispositions

A will may be revoked by the testator at any time before his death. Any waiver or restriction of
this right is void.

A revocation done outside the Philippines by a person who does not have his domicile in this
country, is valid when it is done according to the law of the place where the will was made, or
according to the law of the place in which the testator had his domicile at the time; and if the
revocation takes place in this country, when it is in accordance with the provisions of the Civil
Code.

Subsequent will which do not revoke the previous ones in an express manner, annul only such
dispositions in the prior wills as are inconsistent with or contrary to those contained in the later
wills. A revocation of a will based on a false cause or an illegal cause is null and void.

Institution of Heir

Institution of an heir is an act by virtue of which a testator designates in his will the person or
persons who are to succeed him in his property and transmissible rights and obligations.
10

A will shall be valid even though it should not contain an institution of an heir, or such institution
should not comprise the entire estate, and even though the person so instituted should not accept
the inheritance or should be incapacitated to succeed. In such cases, the testamentary dispositions
made in accordance with law shall be complied with and the remainder of the estate shall pass to
the legal heirs.

Legitime

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 compulsory heirs. The

Rules on legitime safeguard the rights of the compulsory heirs with respect to their

Legitimes. The following are compulsory heirs:

1. Legitimate children and descendants, with respect to their legitimate parents

And ascendants;
2. In default of the foregoing, legitimate parents and ascendants, with respect to their
legitimate children and descendants;

3. The widow or widower;

4. Acknowledged natural children, and natural children by legal fiction;

 5. Other illegitimate children.

Compulsory heirs mentioned in nos. 3, 4 & 5 are not excluded by those in nos. 1 and 2; neither
do they exclude one another. For example, if the decedent is survived by his legitimate child (no.
1) and his widow (no. 3), both of them shall inherit.

One who has no compulsory heirs may dispose by will of all his estate or any part of it in favor
of any person having capacity to succeed. One who has compulsory heirs may dispose of his
estate provided he does not contravene the provisions of the Civil Code with regard to the
legitime of said heirs. Hence, if in the last will of a decedent, the disposition of his estate impairs
the legitime of his compulsory heirs, such will may be modified accordingly. The table below
explains the legitime of the compulsory heirs
a. The legitime of legitimate children/descendants consists of one-half of the
hereditary estate of the father and of the mother. Legitimate parents/ascendants
are excluded by the presence of the legitimate children and descendants. Should
there be only one legitimate child/descendant, one-half of the hereditary estate
goes to the child, one-fourth to the surviving spouse and the other one-fourth is
free portion. Thus, if the hereditary estate is P1,500,000, P750,000 goes to the
child, P375,000 to the surviving spouse, and the other P375,000 is free portion.

If there are two or more legitimate children/descendants, one-half shall be divided equally among
the children while the surviving spouse gets the same share as each legitimate child. Thus, if the
hereditary estate is P1,500,000 and there are two legitimate children, P375,000 goes to the first
child, P375,000 to the second child, P375,000 to the surviving spouse and the remaining
P375,000 is free portion.

If there are three legitimate children/descendants, each child gets 1/6 (1/2 + 3) of

The hereditary estate and the surviving spouse gets 1/6 also. Thus, if the hereditary

Estate is P1,500,000, the children share equally in one-half of the hereditary estate
Or P750,000 such that each child gets P250,000; the surviving spouse gets P250,000

Also; and the remaining free portion is P500,000.

The illegitimate child always gets one-half the share of a legitimate child. Thus, the free portion
varies depending on the number of legitimate children/descendants on whose share the surviving
spouse’s and the illegitimate children/descendants’ share depend.

b. The legitime of legitimate parents/ascendants consists of one-half of the

hereditary estate of their children/descendants. This case assumes that their
child/descendant has no legitimate children/descendants, surviving spouse and
illegitimate children/descendants. The free portion is one-half the hereditary
estate.

c. The legitime of legitimate parents/ascendants consists of one-half of the

hereditary estate of their children/descendants. The surviving spouse has the right
to one- fourth of the hereditary estate. This case assumes that their
child/descendant has no legitimate children/descendants and has no illegitimate
children/descendants The free portion is one-fourth the hereditary estate.

d. If the only survivor is the widow or widower, she or he shall be entitled to one-
half of the hereditary estate of the deceased spouse, and the testator may freely
dispose of the other half. If married in articulo mortis, and spouses had not been
living for 5 years together as husband and wife, and deceased spouse dies within
three months from the time of marriage, surviving spouse’s share is reduced to
one-third. This limitation does not apply to intestacy and is believed inapplicable
where the healthy spouse is the one who dies within the three-month period.

e. If the testator leaves illegitimate children, the surviving spouse shall be entitled to
one-third of the hereditary estate of the deceased and the illegitimate children to
another one-third. The remaining one-third shall be at the free disposal of the
Testator. There are other possible situations aside from those mentioned but the essence of the

Law on legitimes is that the surviving spouse is always entitled to his legitime depending on the
existence of other compulsory heirs.

Disinheritance

When a person expects or is expected to inherit, but does not, the person is said to be

Disinherited. A compulsory heir may, in consequence of disinheritance, be deprived of

His legitime, for causes expressly stated by law. Disinheritance can be effected only

Through a will wherein the legal cause therefor shall be specified. The burden of proving

The truth of the cause for disinheritance shall rest upon the other heirs of the testator, if

The disinherited heir should deny it.

The following shall be sufficient causes for the disinheritance of children and descendants,
legitimate as well as illegitimate:

1. When a child or descendant has been found guilty of an attempt against the life of the
testator, his or her spouse, descendants or ascendants;

2. When a child or descendant has accused the testator of a crime for which the law
prescribes imprisonment for six years or more, if the accusation has been found
groundless;
 3. When a child or descendant has been convicted of adultery or concubinage with the
spouse of the testator;

4. When a child or descendant by fraud, violence, intimidation, or undue influence causes

The testator to make a will or to change one already made;

5. A refusal without justifiable cause to support the parent or ascendant who disinherits such
child or descendant;

6. Maltreatment of the testator by word or deed, by the child or descendant; 7. When a child
or descendant leads a dishonorable or disgraceful life

7. Conviction of a crime which carries with it the penalty of civil interdiction.

The following shall be sufficient causes for disinheriting a spouse:

1. When the spouse has been convicted of an attempt against the life of the testator, his or
her descendants, or ascendants;

2. When the spouse has accused the testator of a crime for which the law prescribes
imprisonment for six years or more, and the accusation has been found to be false;

3. When the spouse by fraud, violence, intimidation, or undue influence causes the

Testator to make a will or to change one already made;

 4. When the spouse has given cause for legal separation;

5. When the spouse has given grounds for the loss of parental authority; 6. Unjustifiable
refusal to support the children or the other spouse.

LEGAL OR INTESTATE SUCCESSION

If a person dies without leaving a will, the person is said to have died intestate, a status

Known as intestacy. In this case, the government provides a default estate plan under

Which the decedent’s estate is disposed. A person who succeeds in the ownership of an

Intestate decedent’s property is said to take the property by intestate succession. Legal

Or intestate succession takes place:

1. If a person dies without a will, or with a void will, or one which has subsequently lost its
validity; the will does not institute an heir to, or dispose of all the property belonging to

2. When the testator. In such case, legal succession shall take place only with respect to the
property of which the testator has not disposed;

3. If the suspensive condition attached to the institution of heir does not happen or is not
Fulfilled, or if the heir dies before the testator, or repudiates the inheritance, there being no
substitution, and no right of accretion takes place;

4. When the heir instituted. Is incapable of succeeding, except in cases provided in the Civil
Code
In default of testamentary heirs, the law vests the inheritance, in accordance with the rules
hereinafter set forth, in the legitimate and illegitimate relatives of the deceased, in the surviving
spouse, and in the State.

In every Inheritance, the relative nearest in degree excludes the more distant ones, saving the
right of representation when it properly takes place. Proximity of relationship is determined by
the number of generations. Each generation forms a degree.
Consanguinity is the relation of persons descending from the same stock or common ancestor.
These persons are known as blood relatives, and are said to be related by blood or consanguinity.
It may be lineal or collateral. Lineal consanguinity, which may be descending or ascending, is
that which subsists between persons of whom one is descended in a direct line from the other, as
between son, father, grandfather, great- grandfather, and so upwards in the direct ascending line;
or between son, grandson, great-grandson, and so downwards in the direct descending line.
Collateral consanguinity is that which subsists between persons who have the same ancestors,
but who not descend (or ascend) one from the other. Thus, father and son are related by lineal
consanguinity while uncle and nephew by collateral consanguinity.

Illustration:

AB
CE
DF
GK
JL
H
I
M
N

1. In the illustration, C and D are siblings (sister and brother, respectively). Their common
parents are A and B.

2. G is the daughter of C and E; J is the son of D and F.

3. M is the son of G and K; N is the daughter of J and L.

4. A, C, G and M, in that order, are relatives in the descending direct line. From A to C is
one degree; from C to G is another degree and from G to M is another degree.

5. N, J, D and B, in that order, are relatives in the ascending direct line.

6. C, G and M are relatives of D, J and N in the collateral line.

7. G is the niece of D, D is the uncle of G; J is the nephew of C, C is the aunt of J.

8. H and I are first cousins; they are four degrees apart, H to C, C to AB, AB to D and D to
1.

9. M and N are second cousins; they are six degrees apart.

10. Because of G’s marriage to K, K becomes H’s brother-in-law, H being G’s brother. They
become relatives by affinity. Affinity is the connection existing in consequence of a
marriage between each of the married spouse and the kindred of the other.
Right of Representation

Representation is a right created by fiction of law, by virtue of which the representative is raised
to the place and the degree of the person represented and acquires the rights which the latter
would have if he were living or if he could have inherited. The right of representation takes place
in the direct descending line, but never in the ascending. In the previous illustration, if C dies
ahead of A, C’s daughter G and son H may represent C to the succession when A dies.

In the collateral line, it takes place only in favor of the children of brothers or sisters, whether
they be of the full or half blood. Full blood relationship is that existing between persons who
have the same father and the same mother. Half blood relationship is that existing between
persons who have the same father, but not the same mother, or the same mother, but not the same
father.

Order of Intestate Succession

1. Descending direct line (legitimate children/descendants)

2. Ascending direct line (legitimate parents/ascendants)

3. Illegitimate children/descendants

4. Surviving spouse

5. Collateral relatives within the 5th degree

6. The State
Descending Direct Line. Succession pertains, in the first place, to the descending direct line.
Legitimate children and their descendants succeed the parents and other ascendants, without
distinction as to sex or age, and even if they should come from different marriages.

a. When legitimate children/descendants survive alone, the entire estate is to be

divided among them in equal shares. Hence, if the hereditary estate is P1,000,000
and there are five legitimate children, each child gets P200,000.

b. When only one legitimate child and spouse survive, each is entitled to one-half of
the estate. Hence, if the hereditary estate is P1,000,000, the child and the spouse
get P500,000 each.

c. When two legitimate children with the spouse survive, each is entitled to one-
third of the estate. Hence, if the hereditary estate is P1,000,000, each of them gets
P333,333.33

Ascending Direct Line. In default of legitimate children and descendants of the deceased, his
parents and ascendants shall inherit from him, to the exclusion of collateral relatives.

d. When only the legitimate parents survive, the father and mother, if living, shall
inherit in equal shares. Should only one of them survive, he or she shall succeed
to the entire estate of the child.

Illegitimate Children.

e. If legitimate ascendants, the surviving spouse, and illegitimate children are left,
the surviving spouse, and illegitimate children are left, the ascendants shall be
entitled to one-half of the inheritance, and the other half shall be divided between
the surviving spouse and the illegitimate children so that such widow or widower
shall have one-fourth of the estate, and the illegitimate children the other fourth.
 f. If a widow or widower survives with illegitimate children, such widow or
widower shall be entitled to one-half of the inheritance, and the illegitimate
children or their descendants, whether legitimate or illegitimate, to the other half.

Surviving Spouse.

g. In the absence of legitimate descendants and ascendants, and illegitimate children

and their descendants, whether legitimate or illegitimate, the surviving spouse
shall inherit the entire estate.
h. Should brothers and sisters or their children survive with the widow or widower,
the latter shall be entitled to one-half of the inheritance and the brothers and
sisters or their children to the other half.

Collateral Relatives.

i. Should the only survivors be brothers and sisters of the full blood they shall
inherit in equal shares. Should brothers and sisters of the full blood survive
together with brothers and sisters of the half blood, the former shall be entitled to
a share double that of the latter.

j. If there are no descendants, ascendants, illegitimate children, or a surviving

spouse, the collateral relatives shall succeed to the entire estate of the deceased.

The State.

k. In default of persons entitled to succeed in accordance with law, the State shall
inherit the whole estate.
Mr. Manuel N. Najera wrote the BIR on May 31, 1999 requesting for a ruling that the parcel of
land with improvements classified as conjugal property, the lone property of the late Emigdio N.
Najera, Sr. And Rosalina N. Najera be computed separately for estate tax purposes. The late
spouses Emigdio and Rosalina died intestate on Dec. 1, 1986 and May 16, 1997, respectively;
both estates have not filed estate tax returns and paid the estate tax due thereon. A Deed of Extra-
Judicial Settlement was executed by and among the ten (10) surviving heirs each receiving 1/10
share.

The BIR explained: The estates of the spouses should be computed separately for estate tax
purposes. Accordingly, upon the death of the late Emigdio, only one-half of the property shall
form part of his gross estate for purposes of determining his net estate subject to estate tax which
is governed by the statute in force and based on the value of the property at the time of his death.

Under Art. 996 of the Civil Code, upon the death of the decedent, in this case Emigdio, the share
of the surviving spouse, Rosalina, shall be computed in relation to the share of their children, i.e.,
the surviving spouse should always be considered as one child in the division of the estate. In so
doing, the heirs of the late Rosalina should include her one-half part of the property, being a pro-
indiviso owner of the property covered by the Deed of Extra-Judicial Settlement as well as her
share in the estate of the late Emigdio N. Najera, Sr.
WHEN DISTRIBUTION OF HEREDITARY ESTATE TAKES PLACE

The executor or judicial administrator has the task of making sure that the estate tax has been
paid before he delivers a distributive share to any party interested in the estate.

In estate taxation, the gross estate of citizens and residents include all their property wherever
situated. This gross estate is allowed deductions under the tax law; the difference called the net
taxable estate is the basis of the estate tax to be imposed. Once the estate is closed and a final
distribution of assets is made to the beneficiaries, the executor transfers the assets to be held in
trust to the trustee.