G R O S S E S TAT E

• Section 85
TWO KINDS OF DECEDENT

• Resident OR Citizen of the Philippines

• A (citizen of the Philippines) died in the Philippines

• A (citizen of the Philippines) died abroad

• A (US citizen) died residing in the Philippines

• Non-resident, not citizen of the Philippines

• A (US Citizen) died in the US leaving properties in

the Philippines
W H AT T O B E I N C L U D E D I N T H E
G R O S S E S TAT E ?
• Resident OR Citizen of the Philippines

• ALL Real property (e.g. land) regardless of location

• ALL Tangible Personal Property (e.g. car) regardless

of location

• ALL Intangible Personal Property (e.g. shares of

stock) regardless of location

• Non-resident, not citizen of the Philippines

• ONLY properties located in the Philippines

D E B AT E O N I N TA N G I B L E
P R O P E R T Y ( S E C . 1 0 4 , TA X C O D E )
• Franchise which must be exercised in the Philippines

• Shares, obligations, or bonds issued by a domestic

corporation

• Shares, obligations, or bonds issued by a foreign

corporation, 85% of the business of which is located in
the Philippines

• Shares or rights in any partnership, business or

industry in the Philippines
OTHER INCLUSIONS IN THE
G R O S S E S TAT E
• Decedent’s Interest

• Transfer in Contemplation of Death

• Revocable Transfer

• Property Passing Under General Power of Appointment

• Proceeds of Life Insurance

• Prior Interests

• Transfers for Insufficient Consideration

• Capital of the Surviving Spouse (NOT INCLUDED)

DECEDENT’S INTEREST

• Decedent’s Interest refers to the value of any interest

in property owned or possessed by the decedent at the
time of his death

• Examples:

• Dividends declared before his death but

received after death

• Partnership profit which have accrued before his

death

• Rights of usufruct
T R A N S F E R I N C O N T E M P L AT I O N
O F D E AT H

• A transfer in contemplation of death is a transfer

motivated by the thought of death, although death may
not be imminent.

• Illustration. Mr. C is in a very poor state of health.

Suffering from an ailment with complications, he
transferred all his properties to his heirs under the
law.

• Takes effect only after death

REVOCABLE TRANSFER
• A revocable transfer is a transfer where the terms of
enjoyment of the property may be altered, amended,
revoked, or terminated by the decedent.

• Illustration. B transferred property to C, to be held in trust

for D.

• Without taking back the property, B can change C; or

• Without taking back the property, B can change D; or

• B can take back the property

• It is sufficient that the decedent had the power to revoke,

though he did not exercise the power
POWER OF APPOINTMENT
• A power of appointment is the right to designate the person or
persons who will succeed to the property of a prior decedent. It
may be a general power of appointment or a limited power of
appointment.

• A general power of appointment is one which may be exercised

in favor of anybody.

• A limited power of appointment is one which may be exercised

only in favor of a certain person or persons designated by the
prior decedent.

• In order that property passing under a power of appointment may

be included in the gross estate of the transferor, the power of
appointment must be a general power of appointment.
POWER OF APPOINTMENT

• General Power of Appointment

• Illustration. D transferred property to E, with a

provision that should E transfer the property, such
transfer may be in favor of anybody. E transferred the
property to F. The value of property shall be included
in the gross estate of E.

• Rationale. E, the transferee of D, acquired absolute

control over the property which was equivalent to his
ownership thereof.
POWER OF APPOINTMENT

• Limited Power of Appointment

• Illustration. G transferred property to H, with a

provision that should H transfer the property, such
transfer shall be in favor of I. H transferred the
property to I. The value of the property shall not be
included in the gross estate of H.

• Rationale. H, the transferee of G, did not acquire

absolute control of the property. The transfer by H to I
is only in compliance with the instructions of G. G was
actually the one who transferred the property to I.
TRANSFER FOR INSUFFICIENT
C O N S I D E R AT I O N

• Consideration is full and adequate = NO VALUE SHALL

BE INCLUDED

• Consideration is less than full and adequate = FMV (at

the time of death) less consideration

• Donation mortis causa (no monetary consideration at

all) = FMV at the time of death
TRANSFER FOR INSUFFICIENT
C O N S I D E R AT I O N
FULL AND LESS THAN FULL
MORTIS CAUSA
A D E Q U AT E A N D A D E Q U AT E

F M V AT T H E T I M E O F
100K 100K 100K
TRANSFER

C O N S I D E R AT I O N
100K 60K D O N AT I O N
RECEIVED

F M V AT T H E T I M E O F
180K 180K 180K
D E AT H

VA L U E T O I N C L U D E
IN THE GROSS NONE 120K 180K
E S TAT E
PROCEEDS OF LIFE INSURANCE

• Proceeds of Life Insurance under policies taken out by

the decedent upon his life shall constitute part of his
gross estate if the beneficiary is:

• The estate of the decedent, his executor, or

administrator; or

• A third person and the designation of beneficiary is

revocable
PROCEEDS OF LIFE INSURANCE

• Illustration. XX Co., the employer of Mr. YY, took out a

group insurance on its employees, paying premiums on
the group insurance. Mr. YY designated Miss ZZ as his
beneficiary. Mr. YY died. Would the proceeds of
insurance be included in the gross estate of Mr. YY?

• No. The life insurance was not taken

out by Mr. YY himself on his own life.
PROCEEDS OF LIFE INSURANCE
• Illustration. Mr. G was covered by an accident
insurance. An accident resulted in a physical injury for
which he should be paid Php. 2,000 by the insurance
company. While the insurance company was willing to
pay, however, Mr. G died from an illness before he was
paid. Should the proceeds receivable from the accident
insurance policy be included in his gross estate?

• Yes. Although the insurance was an accident

insurance and not on life, the amount receivable
becomes intangible property owned by him at the time
of his death, hence, included in his gross estate.
VA L U AT I O N O F G R O S S E S TAT E

• Gross estate must be valued at its fair market value at

the time of the decedent’s death

• Real Property, whichever is higher of:

• The current and fair market value, as shown in the

schedule of values fixed by the Provincial and City
Assessors; or

• The fair market value as determined by the

Commissioner of Internal Revenue (zonal value)
VA L U AT I O N O F G R O S S E S TAT E

• Shares of Stock

• Listed and traded in a stock exchange

• FMV = mean between the highest and lowest quotation of

the shares of stock on the valuation date, or on the date
nearest the valuation date if no stock market at the day of death

• Unlisted in a stock exchange

• FMV:

• Common = Book Value

• Preferred = Par Value

EXCLUSIONS AND EXEMPTIONS

• Exclusions under Section 85 and 86 of the Tax Code

• Exclusive property of the surviving spouse

• Absolute Community of Marriage

• Property acquired by gratuitous title by either spouse, and the

fruits as well as the income thereof, if any, unless it is expressly
provided by the donor, testator, or grantor that they shall form part
of the community property;

• Property for personal and exclusive use of either spouse;

however, jewellery shall form part of the community property; and

• Property acquired before the marriage by either spouse who has

legitimate descendants by a former marriage, and the fruits as well
as the income, if any, of such property.
EXCLUSIONS AND EXEMPTIONS

• Exclusions under Section 85 and 86 of the Tax Code

• Exclusive property of the surviving spouse

• Conjugal Partnership of Gains

• That which is brought to the marriage as his or her own;

• That which each acquires during the marriage by gratuitous title;

• That which is acquired by right of redemption, by barter, or by

exchange with property belonging to only one of the spouses; and

• That which is purchased with exclusive money of the wife or of the

husband
EXCLUSIONS AND EXEMPTIONS

• Exclusions under Section 85 and 86 of the Tax Code

• Intangible Personal Property in the Philippines of a non-resident

alien under the Reciprocity Clause

• There is reciprocity if:

• The decedent at the time of his death was a resident citizen of a

foreign country which at the time of his death did not impose an
estate tax of any character in respect of intangible personal property
of citizens of the Philippines not residing in that foreign country; or

• The laws of the foreign country of which the decedent was a resident
citizen at the time of his death allow a similar exemption from estate
taxes of every character, in respect of intangible personal property
owned by citizens of the Philippines not residing in that foreign
country.
EXCLUSIONS AND EXEMPTIONS

• Exclusions under Section 87 of the Tax Code

• The merger of usufruct in the owner of the naked title

• Illustration. In the last will and testament of Mr. Yumao Sr., he

assigned the usufruct of his parcel of land to his son, Junior,
while his grandson, Pedro, was named the owner of the naked
title of the land.

• GE of Yumao Sr. = Included

• GE of Junior = Excluded (He is not the owner of the land upon

his death)

• GE of Pedro = Included (Merger will happen upon Junior’s

death)
EXCLUSIONS AND EXEMPTIONS

• Exclusions under Section 87 of the Tax Code

• The transmission or delivery of the inheritance or legacy

by the fiduciary heir or legatee to the fideicommisary

• Illustration. In the last will and testament of Mr. Yumao

Sr., he devised his parcel of land to Junior but with an
additional instruction that such property should be given to
Pedro when Junior dies.

• GE of Yumao Sr. = Included

• GE of Junior = Excluded (He is merely acting as trustee of

the land upon his death)
EXCLUSIONS AND EXEMPTIONS

• Exclusions under Section 87 of the Tax Code

• The transmission from the first heir, legatee, or donee in

favour of another beneficiary in accordance with the desire
of the predecessor

• Illustration. Assume that Junior is the uncle of Pedro. In the

last will and testament of Mr. Yumao Sr., he devised his
parcel of land to Junior but with an additional instruction that
such property should be given to Pedro when Junior dies.

• GE of Yumao Sr. = Included

• GE of Junior = Excluded (He is merely acting as trustee of

the land upon his death)
EXCLUSIONS AND EXEMPTIONS

• Exclusions under Section 87 of the Tax Code

• All bequests, devises, legacies or transfers to

social welfare, cultural and charitable institutions,
no part of the net income of which inures to the
benefit of any individual and provided that not
more than 30% of the said bequests, etc. shall be
used by such institutions for administration
purposes

• Actually considered a deduction

EXCLUSIONS AND EXEMPTIONS

• Exclusions under Special Laws

• Benefits received by members from the GSIS (R.A. No. 1146) and
SSS (R.A. No. 1161) by reason of death

• Amounts received from Philippine and United States governments for

war damages (R.A. No. 227)

• Benefits received by beneficiaries residing in the Philippines under

laws administered by the U.S. Veterans Administration (R.A. No. 360)

• Retirement benefits of officials/employees of a private firm (R.A. No.

4917)

• Grants and donations to the Intramural Administration (P.D. No. 1616)