Chapter 2 Gross Estate

NAME: ____________________________________ Course, Year & Section: __________ TANGIBLE PERSONAL PROPERTIES – movable properties with physical form that could be
seen or touched such as vehicles, artwork, jewelry, clothing, equipment, and furniture
GROSS ESTATE
INTANGIBLE PERSONAL PROPERTIES – they have no physical form and their reportable
– describe as the total value of the decedent’s properties, real or personal, tangible or
values are determined by the rights and privileges conveyed in them such as cash, bank deposit,
intangible, at the time of his/ her death
interests and rights, usufruct, receivables, insurance, goodwill, franchise, patents, trademarks,
ESTATE TAX bonds, stock certificates and other investment securities
– tax imposed on the privilege that a person is given in controlling to a certain extent, the FILIPINO CITIZEN
disposition of his property to take effect upon death
- Those who are citizens of the Philippines at the time of the adoption of this Constitution
JUSTIFICATION FOR THE IMPOSITION OF ESTATE TAX - Those whose fathers or mothers are citizens of the Philippines;
1. BENEFIT-RECEIVED THEORY – the law considers the service rendered by the - Those born before January 17, 1973, of Filipino mothers, who elect Philippine
government in the distribution of the estate of the decedent, either by law or in accordance citizenship upon reaching the age of majority; and
with his wishes. For the performance of these services and other benefits that accrue to the - Those who are naturalized in accordance with law.
estate and the heirs, the State collects the tax.
RESIDENT ALIEN – person who is not a citizen of the Philippines but are residing within the
2. PRIVILEGE OR STATE PARTNERSHIP THEORY – inheritance is not a right but a
privilege granted by the State and legatees have been acquired only with the protection of Philippines including foreign individuals who have stayed in the Philippines for more than one
the State. Consequently, the State as a passive silent partner in the accumulation of year from date of arrival
property has the right to collect the share which is properly due to it.
NON-RESIDENT ALIEN – foreign individual whose residences are not within the Philippines, or
3. ABILITY TO PAY THEORY – receipt of inheritance which is in the nature of an unearned they are nonresident foreign individuals who have stayed within the Philippines for only 180 days
wealth or windfall, are place assets into the hands of the heirs and beneficiaries. This or less
creates an ability to pay the tax and thus contributes to government income.
RECIPROCITY – a tax exemption principle arising from mutual agreement between or among
4. REDISTRIBUTION OF WEALTH THEORY – The receipt of inheritance is a contributing
Sovereign States to free from tax some objects of taxation. There is reciprocity if:
factor to the inequalities in wealth and incomes. The imposition of estate tax reduces the
property received by the successor, thus helping to promote equitable distribution of wealth • The decedent at the time of his death was a resident citizen of a foreign country which
in society. The tax base is the value of the property and the progressive scheme of taxation at the time of his death did not impose an estate tax of any character in respect of
is precisely motivated by the desire to mitigate the evils of inheritance in the present form.
intangible personal property of citizens of the Philippines not residing in that foreign
SITUS OF REPORTABLE GROSS ESTATE country; or
• The laws of 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.
INTANGIBLE PERSONAL PROPERTY WITH SITUS IN THE PHILIPPINES FOR ESTATE TAX
PURPOSES
1. Franchise which must be exercised in the Philippines.
2. Shares, obligations or bonds issued by any corporation or Sociedad Anonima organized
or constituted in the Philippines in accordance with its laws.
3. Shares, obligations or bonds issued by any foreign corporation, 85% of the business of
which is located in the Philippines.
REAL PROPERTIES – immovable properties such as land, building, or any structure or even
4. Shares, obligations, or bonds issued by any foreign corporation if such shares,
equipment permanently attached to the land
obligations or bonds have acquired a business situs in the Philippines.

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 Chapter 2 Gross Estate
5. Shares or rights in any partnership, business or industry established in the Philippines. Philippine Branch
13. Receivables – debtor from
SITUS OF TANGIBLE AND INTANGIBLE PROPERTY
California
PROPERTY SITUS 14. Shares of stocks of domestic
corporations. The certificates
1. Real Property and Tangible Personal Property Location of the Property
are stored abroad.
2. Shares, franchise, copyright, and the like Where the intangible is 15. Rest House – Baguio
exercised regardless of where the 16. Cars – Abroad
corresponding certificate is stored 17. BPI Deposit – Philippine
3. Receivables Residence of the debtor Branch
18. Shares of stocks of foreign
4. Bank deposits Location of the depository bank corporations, 90% of its
operations is in the
LET’S DO THIS! Philippines.
From the list of properties shown below, determine the following: 19. Parcel of land – Jeju Island
20. Patents and copyrights
1. Situs of the Property exercised abroad
2. Whether or not the property is included in the decedent’s gross estate. 21. Shares of stocks of foreign
corporations, 80% of its
COMPOSITION OF GROSS ESTATE operations is in the
CITIZEN NON-RESIDENT ALIEN Philippines.
PROPERTY SITUS
OR WITH WITHOUT 22. BDO Deposit – US Branch
RESIDENT RECIPROCITY RECIPROCITY
1. Shares of stocks of domestic VALUATION OF GROSS ESTATE (as amended under RA10963; RR 12-2018)
corporations. The certificates
are stored in the Philippines. Since succession and the accrual of the corresponding estate tax takes effect upon the death, it
shall only be fair to appraise the estate at its fair market value at the time of the decedent’s
2. Cars – Philippines
death. Specifically, the following rules shall apply in determining the correct valuation of the
3. House and Lot – Cebu
estate:
4. Receivables – debtor from
Philippines 1. GENERAL VALUATION RULE Fair Market Value at the time of death
5. Patents and copyrights
2. REAL PROPERTY The HIGHER value between:
exercised in the Philippines
6. Shares of stocks of foreign • FMV determined by the Commissioner
corporations which acquired
business situs in the • FMV as shown in the schedule of values
Philippines fixed by the provincial and city assessors
7. Shares of stocks of foreign 3. PERSONAL PROPERTY Fair Market Value at the time of death
corporations. The certificates
are store abroad. • Current Market Price (Purchase Value) –
8. Parcel of Land – Leyte for the recently or newly acquired personal
properties
9. Rest House - Maldives
10. Shares of stocks of foreign • Second-Hand Market Price (Second-hand
corporations. The certificates Value) – for the previously acquired
are stored in the Philippines. personal and used properties
11. ABC Bank (Foreign Bank) –
New York Branch • Grossed-Up Loan Value – for loaned or
12. ABC Bank (Foreign Bank) – pawned personal properties
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 Chapter 2 Gross Estate
• Fair Value Plus Accrued Interest – for CASE C: The decedent devised to his son a 1,000 square meter lot in Cebu City with the
interest-bearing receivables and bank following valuation:
deposits
Fair value as determined by city assessors P20,000 per sq. m.
• Discounted Value – for non-interest-bearing Zonal value as determined by the CIR P 21,000,000
notes receivables FV determined by independent assessors P 22,500,000
• Face value – for Philippine peso currency ANSWER: _____________________________________________________________

• Converted Philippine Peso Value – for CASE D: Decedent owns 10,000 ordinary shares of Alpha Company at the time of his death. At
foreign currencies that time, Alpha’s outstanding shares were 1,000,000 with P10 par value and Retained Earnings
amounting to P5,000,000. The shares are not traded in the stock exchange.
4. SHARES OF STOCK - UNLISTED COMMON SHARE: Book
Value per share of the issuing corporation ANSWER: _____________________________________________________________
(Appraisal surplus shall not be considered, CASE E: A decedent left 10,000 ABS GMA shares. The shares were traded in the local stock
as well as the assigned amount to exchange. At the time of death, the following were available:
preference shares, if any.)
- UNLISTED PREFERENCE SHARE: Par Highest Quotation P800 per share
Value per share Lowest Quotation P200 per share
- LISTED SHARES: FMV shall be the Book Value P350 per share
arithmetic mean between the highest and ANSWER: _____________________________________________________________
lowest quotation at a date nearest the date
of death, if none is available on the date of EXEMPTIONS AND EXCLUSIONS FROM THE GROSS ESTATE
death itself A. EXCLUSIONS UNDER SECTIONS 85 AND 86 OF THE TAX CODE
5. UNITS OF PARTICIPATION IN The BID price nearest the date of death 1. Exclusive property of the surviving spouse.
ANY ASSOCIATION, published in any newspaper or publication
RECREATION OR AMUSEMENT for general circulation. The gross estate in case of married decedents, is composed of:
CLUB (ie., golf, Polo, similar clubs) • Exclusive properties of the decedent
6. RIGHT TO USUFRUCT, USE OR In accordance with the latest Basic • Common properties of the decedent and the surviving spouse
HABITATION, AND ANNUITY Standard Mortality Table taking into
account the probable life of the beneficiary, CAPITAL – exclusive properties of the husband
to be Approved by the Secretary of Finance PARAPHERNAL – exclusive properties of the wife
upon recommendation of the Insurance
Commissioner. 2. Property outside the Philippines of a non-resident alien decedent.
ILLUSTRATIONS:
3. Intangible personal property in the Philippines of a non-resident alien under the
Determine the correct amount to be included in the gross estate of the decedent in the following Reciprocity Law.
independent cases:
B. EXCLUSIONS UNDER SECTION 87 OF THE TAX CODE
CASE A: Pedro bought a brand-new car with a cash price of P3,000,000. He bought the car on
1. The merger of usufruct in the owner of the naked title.
installment with the following terms: down payment of P500,000 and annual installment of
P700,000 for four years. On his way home, he run over an approaching truck and died. In the last will and testament of Mr. Yumao, he assigned the usufruct of his parcel of
land to his son (Juan) while his grandson (Pedro) was named the owner of the naked
ANSWER: _____________________________________________________________
title.
CASE B: The decedent granted a P2,000,000 loan to his best friend two years before his death
Upon the death of Mr. Yumao, the parcel of land should be included in his gross estate.
with a 10% interest per annum evidenced by a note. Both the principal and interest are due after
However, upon the death of Juan, the parcel of land should be “excluded” in his gross
three years.
estate because he is not the owner of the land but his son, Pedro. There will be merger
ANSWER: _____________________________________________________________ of usufruct in the owner of the naked title (Pedro) upon Juan’s death. Meaning, Pedro
will be entitled to both the usufruct and ownership of the naked title upon Juan’s death.
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 Chapter 2 Gross Estate
2. The transmission or delivery of the inheritance or legacy by the fiduciary heir (also known 2. Accruals and benefits received by members from the SSS by reason of death
as the 1st heir) or legatee to the fideicommissary (also known as the 2nd heir).
3. Life Insurance proceeds on life insurance policy taken out by the decedent himself,
In the last will and testament of Mr. Yumao, he devised his parcel of land to his son, Juan, upon his own life, where the beneficiary is a third person and is irrevocably designated.
but with a condition that such property should be given to his grandson, Pedro, when the
4. Life Insurance proceeds on Insurance policy (group insurance) taken out by his
former dies. Thus, the parcel of land is intended to be inherited by Pedro, not Juan. Juan
employer on the employee’s life, whoever the beneficiary maybe, whether the
is acting only as a trustee or fiduciary until such time that the property is transferred to
designation as beneficiary is revocable or irrevocable.
Pedro. Since Juan is the father of Pedro and both were alive at the time of the testator’s
death, Mr. Yumao, the substitution or transfer from Juan to Pedro is known as 5. Amounts received from Philippines and United States governments for war damages.
fideicommissary substitution. Upon the death of Mr. Yumao, the parcel of land should be
6. Payments from the Philippines of US government to the legal heirs of deceased of
included in his gross estate. However, upon the death of Juan, the parcel of land should
World War II Veterans and deceased civilian for supplies/ services furnished to the US
be “excluded” in his gross estate because Juan is acting only as a trustee of Pedro.
and Philippine Army.
Elements of a fideicommissary substitution:
7. Amounts received from United States Veterans Administration
• The substitution must not go beyond one degree from the heir originally instituted.
8. Transfer by way of bona fide sales
• The fiduciary and the fideicommissary must be both living at the time of the
9. Properties held in trust by the decedent
testator’s death.
10. Acquisition and/or transfer expressly declared as not taxable
3. The transmission from the first heir, legatee or done in favor of another beneficiary, in
accordance with the desire of the predecessor (also known as “special” power of 11. Personal Equity and Retirement Account (PERA) assets of the decedent-contributor
appointment).
INCLUSIONS IN THE GROSS ESTATE
Assume the same data as presented in No. 2 except that the relationship between Juan
A. Property owned by the decedent ACTUALLY AND PHYSICALLY PRESENT IN HIS
and Pedro is beyond one degree. For instance, Juan is the uncle of Pedro. In this case,
ESTATE at the time of his death such as land, buildings, shares of stock, vehicles, bank
there is no fideicommissary substitution. Nonetheless, the parcel of land is still intended
deposit, and the like.
to be inherited by Pedro, not Juan. Juan is still acting as a trustee or fiduciary until such
time that the property is transferred to Pedro. Likewise, Juan is also known as the 1 st heir B. Decedent’s Interest – refers to the extent of equity or ownership participation of the decedent
while Pedro is the 2nd heir. The only difference between exemption in No. 2 and No. 3 is on any property physically existing and present in the gross estate, whether or not in his
the degree of relationship between the 1st heir and the 2nd heir. The effect as to whether possession, control or dominion. It also refers to the value of any interest in property owned
or not the property is included in the gross estate is the same. Hence, upon the death of or possessed by the decedent at the time of his death (interest having value or capable of
Mr. Yumao, the parcel of land should be included in his gross estate. However, upon the being valued or transferred). Example: (a) Dividends declared before his death but received
death of Juan, the property should be “excluded” in his gross estate because he is not the after death; (b) Partnership profit which have accrued before his death; and (c) usufructuary
owner of the property upon his death. and rights.
4. All bequest devises, legacies or transfers to social welfare, cultural and charitable C. Property NOT PHYSICALLY IN THE ESTATE (these have already been transferred during
institutions, no part of the net income of which inures to the benefit of any individual: the lifetime of the decedent but are still subject to payment of estate tax) such as:
Provided, however, that not more than thirty percent of the said bequest, devises,
1. TRANSFER IN CONTEMPLATION OF DEATH
legacies or transfers shall be used by such institutions for administration purposes.
- A disposition of property prompted by thought of death. Include in the gross estate the
The government agency which is empowered to determine the exemption is the BIR. To
value of property transferred by the decedent during his lifetime in anticipation of his
enable it to exercise such power, the value of transfer to social welfare, cultural and
death such as:
charitable institutions should be included in the gross estate. An equal amount, however,
may be taken up as a deduction. While the Tax Code includes this item in the exempt a. Transfer of property in favor of another person, but the transfer was intended to take
acquisitions and transmissions, it is actually considered a deduction from the gross effect only upon the transferor’s death.
estate. Failure to include the property transferred to social welfare, cultural or charitable
institutions will impair the power of the BIR to assess taxes properly. b. Transfer by gift intended to take effect at death, or after death, or under which the
donor reserved the income or the right to designated the persons who should enjoy
C. EXCLUSIONS UNDER SPECIAL LAWS the income.
1. Proceeds of life insurance and benefits received by members of the GSIS 2. TRANSFER WITH RETENTION OR RESERVATION OF CERTAIN RIGHTS

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 Chapter 2 Gross Estate
The decedent has transferred his property during his lifetime, but retained for himself SPECIAL POWER OF APPOINTMENT – exists when the donee can appoint only from
beneficial enjoyment of the thing or the right to received income from the same. 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
3. REVOCABLE TRANSFERS – where the terms of enjoyment of the property may be altered,
donee of the power because the donee-decedent only holds the property in trust.
amended, revoked or terminated by the decedent. It is sufficient that the decedent had the
power to revoke though he did not exercise the power. The power of appointment may be exercised by the donor-decedent through the
following modes:
ILLUSTRATIONS:
a. By will
❖ A high-ranking official realized that due to the nature of her illness, age and the pressure
brought about by the various legal cases filed against her, death might not be that far. b. By deed to take effect in possession or enjoyment at or after his death
Hence, she gratuitously transferred most of her properties to her children while still alive.
c. By deed under which he has retained for his life or any period not ascertainable without
Should the properties transferred be included in the gross estate of the decedent-transferor
reference to his death or for any period which does not in fact end before his death
upon her death?
d. The possession or enjoyment of, or the right to the income from the property
ANSWER: _______________________________________________________
e. The right, either alone, or in conjunction with any person to designate the persons who
❖ Renato, a natural philanthropist, gratuitously transferred a property to Marinel worth
shall possess or enjoy the property or the income therefrom
P1,000,000 during his lifetime. What amount should be included in the gross estate of
Renato upon his death? ILLUSTRATIONS:
ANSWER: _______________________________________________________ ❖ Manny donated property to Nonito through his last will and testament. It includes a provision
that Nonito can transfer the property to anyone. Nonito transferred the property to
❖ Due to an unstable medical condition, Pedro thought that it is only proper for him to
Boomboom intended to take effect at the time of Nonito’s death.
gratuitously transfer his properties to his love ones now instead of waiting for his death. He
then transferred various condominium units to his children worth P2,000,00 while he was QUESTION 1: What type of power of appointment is illustrated above?
undergoing major medical operation. At the time of Pedro’s death, the fair market value of
ANSWER: _____________________________________________________________
the properties transferred increased to P3,000,000. What amount should be included in the
computation of Pedro’s gross estate? QUESTION 2: Should the property be included in the determination of Manny’s gross estate?
ANSWER: _______________________________________________________ ANSWER: _____________________________________________________________
❖ Pedro transferred all his real properties worth P5,000,000 to Juan, in trust for Klien, Juan’s QUESTION 3: Should the property be included in Nonito’s gross estate?
legitimate minor son. Pedro reserved his right to terminate the transfer anytime.
ANSWER: _____________________________________________________________
QUESTION 1: What amount should be included in Pedro’s gross estate upon his death?
ANSWER: _______________________________________________________ ❖ Manny donated property to Nonito through his last will and testament. It includes a provision
that Nonito can transfer the property only to his son, Boomboom.
QUESTION 2: Assume Juan subsequently died after Pedro’s death, what amount
should be included in Juan’s gross estate? QUESTION 1: What type of power of appointment is illustrated above?

ANSWER: _______________________________________________________ ANSWER: _____________________________________________________________

4. TRANSFERS UNDER A GENERAL POWER OF APPOINTMENT QUESTION 2: Should the property be included in Manny’s gross estate?

POWER OF APPOINTMENT – the right to designate the person or persons who will ANSWER: _____________________________________________________________
succeed to the property of the prior decedent. QUESTION 3: Should the property be included in Nonito’s gross estate?
GENERAL POWER OF APPOINTMENT – when the power of appointment authorizes ANSWER: _____________________________________________________________
the donee of the power to appoint any person he pleases. The donee of a general
power of appointment holds the appointed property with all the attributes of ownership 5. TRANSFER FOR INSUFFICIENT CONSIDERATION
thus, the appointed property shall form part of the gross estate of the donee of the When a sale or transfer (other than a bona fide or valid sale) was made for a price less than
power upon his death. 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:
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 Chapter 2 Gross Estate
FAIR MARKET VALUES: ANSWER: _____________________________________________________________
a) FMV of the property at the time of SALE OR TRANSFER – used to determine whether ❖ In January 2015, Juan sold for P5,000,000 an apartment with carrying value of P3,500,000
or not the consideration was full and adequate. If the consideration received is to Pedro. At the time of sale, the property has a prevailing market price of P5,000,000. Just
substantially the same with the fair market value at the time of transfer, such sale or died on June 2015. At the time of death, the prevailing fair market value of the property was
transfer is considered a bona fide sale, hence, not subject to estate tax. P8,000,000.
b) FMV of the property at the time of DEATH – used to determine the amount to be QUESTION 1: What amount should be included in the gross estate of the decedent?
included in the gross estate. If the consideration received is substantially lower or for less
ANSWER: _____________________________________________________________
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, QUESTION 2: Assume Juan transferred the property without consideration, what amount should
the excess of the fair market value at the time of death over the consideration received at be included in his gross estate at the time of his death?
the time of sale or transfer should be included in the gross estate of the decedent.
ANSWER: _____________________________________________________________
If there was no consideration received at the date of transfer and such transfer was
QUESTION 3: Assume Juan transferred the property during his lifetime and the corresponding
made “in contemplation of death” (donation mortis causa), the fair market value of the
donor's tax was paid, what amount should be included in his gross estate at the time of his
property at the date of death, not at the date of transfer, should be included in the gross
death?
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 ANSWER: _____________________________________________________________
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. 6. CLAIMS AGAINST INSOLVENT PERSONS

RULES ON INSUFFICIENT CONSIDERATION INSOLVENT PERSONS - persons whose properties are not sufficient to satisfy, whether
fully or partially, his debts.
Consideration ≥ FMV at the time of transfer Bona fide sale. Excluded from the decedent’s
gross estate. A judicial declaration of insolvency is not required but the incapacity of the debtor to pay his
Consideration < FMV at the time of transfer Insufficient consideration. Include in the obligation should be proven. As a rule, regardless of the amount of the debtor is unable to
gross estate the excess of FMV @ the time of pay, the full amount of the claim against the insolvent person should be included in the gross
death over the consideration received. estate of the decedent. The portion of the claim which is not collectible should be allowed as
Sale was made in the ordinary course Bona fide sale regardless of the amount a deduction from the gross estate.
of trade of consideration. ILLUSTRATIONS:
No consideration received Either donation mortis cause or donation inter- ❖ Juan died with an existing collectible of P5,000,000 against Pedro. Since Pedro is financially
vivos stable, Juan exerted all possible efforts to collect the amount during his lifetime, however,
ILLUSTRATIONS: Pedro failed to settle the same before Juan's death.

❖ In January 2015, Juan sold for P15,000,000 an apartment with carrying value of P3,500,000 QUESTION 1: How much should be included to the gross estate of Juan?
to Pedro. At the time of sale, the property has a prevailing market price of P7,000,000. Juan ANSWER: __________________________________________________________
died on June 2015. At the time of death, the prevailing fair market value of the property was
P8,000,000. QUESTION 2: How much is the deduction from the gross estate of Just?

QUESTION 1: What amount should be included in the gross estate of the decedent? ANSWER: __________________________________________________________

ANSWER: ___________________________________________________________ QUESTION 3: Assume that after Juan failed to collect the amount due from Pedro, he
decided to just condone the claim. The condonation was gladly welcomed by Pedro. A year
QUESTION 2: What amount should be included in the gross estate of the decedent assuming later, Juan died. How much should be included in the gross estate of Just?
the fair market value of the property at the time of delivery was P4,000,000.
ANSWER: __________________________________________________________
ANSWER: _____________________________________________________________
❖ Juan died with an existing collectible of P5,000,000 whose properties are not sufficient to
QUESTION 3: Assume that the property sold is classified as an ordinary asset and the sale or satisfy his debts. Pedro's properties are valued at P6,000,000 while his liabilities amounted
transfer was made in the ordinary course of trade or business. What amount should be included to P10,000,000.
as part of the gross estate of the decedent?
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 Chapter 2 Gross Estate
QUESTION 1: How much should be included in the gross estate of Juan? TAX RATE – Effective beginning January 1, 2018, the net estate of every decedent, whether
resident or non-resident of the Philippines, shall be subject to an estate tax rate of SIX
ANSWER: __________________________________________________________
PERCENT (6%).
QUESTION 2: How much is the deduction from the gross estate of Juan?
NOTICE OF DEATH – Effective beginning January 1, 2018, filing of notice of death is no longer
ANSWER: __________________________________________________________ required.
QUESTION 3: Assume that P2M of Pedro’s liabilities are unpaid taxes from the government, FILING OF ESTATE TAX RETURN AND PAYMENT OF ESTATE TAX DUE
how much should be included as a deduction from the gross estate of Juan?
Under the Tax Code as amended, the estate tax shall be paid by the executor/ administrator or
ANSWER: __________________________________________________________ any of the legal heirs at the time the return is filed (Pay as you file system). An estate tax return
(BIR FORM 1801) shall be filed under oath in any of the following situation:
7. PROCEEDS OF LIFE INSURANCE
1. In cases of transfer subject to Estate Tax; and
Proceeds of life insurance taken out by the decedent on HIS OWN LIFE should be
INCLUDED in the gross estate if the following requisites are present: 2. Where regardless of the gross value, the estate consists of registered or registrable
property such as real property, motor vehicle, share of stocks or other similar property for
a. It must be an insurance on the life of the decedent which a Certificate Authorizing Registration from the Bureau of Internal Revenue is
b. The beneficiary must be either of the following; required as a condition precedent for the transfer of ownership thereof in the name of the
transferee, the executor or the administrator, or any of the legal heirs, as the case may be.
• His estate, his executor, his administrator (revocable or not)
Estate tax returns showing gross value exceeding five million pesos shall be supported
• Any third person provided that the designation is not irrevocable with a statement duly certified to by a Certified Public Accountant containing the following:
a) Itemized assets of the decedent with their corresponding gross value at the time of
his death, or in the case of nonresident, not a citizen of the Philippines, of that part
of his gross estate situated in the Philippines;
b) Itemized deductions allowed from the gross estate under Section 86 of the Tax
Code, as amended;
c) The amount of tax due, whether paid or still due and outstanding.
TIME FOR FILING THE ESTATE TAX RETURN
The Philippine Insurance Code presumes that the designation of a policy is revocable in case The estate tax return is allowed to be filed one year from the date of death. The court
the designation of the beneficiary is not clear or silent. Section 11 of the Insurance Code states approving the project of partition shall furnish the Commissioner with certified copy thereof and
that “insured should have the right to change the beneficiary he designated in the policy, unless its order within 30 days after promulgation of such order. The one-year time of filing is the
he has expressly waived this right in said policy”. allowable period of filing the return without surcharges/penalties and interest.
ILLUSTRATIONS EXTENSION OF TIME TO FILE THE ESTATE TAX RETURN
❖ A life insurance worth P10,000,000 was taken out by Pedro upon his life. He designated his The Commissioner or any Revenue Officer authorized by him pursuant to the NIRC shall
friend, Juan, as beneficiary. Should the proceeds be included in the gross estate of Pedro have the authority to grant, in meritorious cases, a reasonable extension not exceeding thirty
upon his death? days for filing the return. The application for the extension of time to file the estate tax return
ANSWER: __________________________________________________________ must be filed with the Revenue District Office where the estate is required to secure its Taxpayer
Identification Number and file the tax returns of the estate, which RDO, likewise, has jurisdiction
❖ Assume the same data above, except that the beneficiary was Pedro’s executor. The over the estate tax return required to be filed by any party as a result of the distribution of the
designation of the beneficiary was irrevocable. Should the proceeds be included in the assets and liabilities of the decedent.
gross estate of Pedro upon his death?
TIME FOR PAYMENT OF THE ESTATE TAX
ANSWER: __________________________________________________________
As a general rule, the estate tax shall be paid at the time the return is filed by the
executor, administrator, or the heir(s).

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 Chapter 2 Gross Estate
EXTENSION OF TIME TO PAY ESTATE TAX b) The estate tax return shall be filed within one year from the date of the decedent’s death;
When the Commissioner finds that the payment of the estate tax or of any part thereof would c) The written request for the partial disposition of estate shall be approve by the BIR. The
impose undue hardship upon the estate or any of the heirs, he may extend the time for payment written request shall be filed, together with a notarized undertaking that the proceeds
of such tax or any part there of not to exceed five years in case the estate is settled through the thereof shall be exclusively used for the payment of the total estate tax due;
courts (Judicial Settlement), or two years in case the estate is settled extra judicially
d) The computed estate tax due shall be allocated in proportion to the value of each
(Extrajudicial Settlement). In such case, the amount in respect of which the extension is granted
property.
shall be paid on or before the date of the expiration of the period of the extension, and the
running of the statute of limitations for deficiency assessment shall be suspended for the period e) The estate shall pay to the BIR the proportionate estate tax due of the property intended
of any such extension. to be disposed of;
The application for extension of time to file the return and extension of time to pay estate tax f) An electronic Certificate Authorizing Registration shall be issued upon presentation of
shall be filed with the RDO where the estate is required to secure its TIN and file the estate tax the proof of payment of the proportionate estate tax due of the property intended to be
return. This application shall be approved by the Commissioner or his duly authorized disposed. Accordingly, eCARs shall be issued as many as there are properties to be
representative. disposed to cover the total estate tax due, net of the proportionate estate tax(es)
previously paid under this option; and
Where the request for extension is by reason of negligence, intentional disregard of rules
and regulations, or fraud on the part of the taxpayer, no extension will be granted by the g) In case of failure to pay the total estate tax due out from the proceeds of the said
Commissioner. disposition, the estate tax due shall be immediately due and demandable subject to the
applicable penalties and interest reckoned from the prescribed deadline for filing the
If an extension is granted, the Commissioner or his duly authorized representative may
return and payment of the estate tax, without prejudice of withholding the issuance of
require the executor, or administrator, or beneficiary, as the case may be, to furnish a bond in
eCARs on the remaining properties until the payment of the remaining balance of the
such amount, not exceeding double the amount of the tax and with such sureties as the
estate tax due, including the penalties and interest.
Commissioner deems necessary, conditioned upon the payment of the said tax in accordance
with the terms of the extension. REQUEST FOR EXTENSION OF TIME, INSTALLMENT PAYMENT AND PARTIAL
DISPOSITION OF ESTATE
PAYMENT OF ESTATE TAX BY INSTALLMENT AND PARTIAL DISPOSITION OF ESTATE
Request for extension to file the return, extension to pay the estate tax and payment by
1. CASH INSTALLMENT
installment shall be filed with the RDO where the estate is required to secure its TIN and file the
a) The cash installments shall be made within two years from the date of the filing of the estate tax return. This request shall be approved by the Commissioner or his duly authorized
estate tax return; representative.
b) The estate tax return shall be filed within one year from the date of the decedent’s death; PLACE OF FILING THE RETURN AND PAYMENT OF THE ESTATE TAX
c) The frequency (i.e., monthly, quarterly, semi-annually, annually) deadline and the In case of a resident decedent, the administrator or executor shall register the estate of
amount of each installment shall be indicated in the estate tax return, subject to the the decedent and secure a new TIN therefor from the RDO where the decedent was domiciled at
approval by the BIR; the time of his death and shall file the estate tax return and pay the corresponding estate tax with
the Accredited Agent Bank, Revenue District Officer or Revenue Collection Officer having
d) In case of lapse of two years without the payment of entire tax due, the remaining
jurisdiction on the place where the decedent was domiciled at the time of his death, whichever is
balance thereof shall be due and demandable subject to applicable penalties and
applicable following prevailing collection rules and regulations.
interest reckoned from the prescribed deadline for filing the return and payment of estate
tax; and In case of a non-resident decedent, whether non-resident citizen or non-resident alien,
with executor or administrator in the Philippines, the estate tax return shall be filed with and the
e) No civil penalties or interest may be imposed on the estates permitted to pay the estate
TIN for the estate shall be secured from the RDO where such executor or administrator is
tax due by installment. Nothing in this subsection, however, prevents the Commissioner
registered. Provided, however, that in case the executor or administrator is not registered, the
from executing enforcement action against the estate tax due of the estate tax provided
estate tax return shall be filed with and the TIN of the estate shall be secured from the RDO
that all the applicable laws and required procedures are followed/ observed.
having jurisdiction over the executor or administrator’s legal residence. Nonetheless, in case the
2. PARTIAL DISPOSITION OF ESTATE AND APPLICATINO OF ITS PROCEEDS TO THE non-resident decedent does not have an executor or administrator in the Philippines, the estate
ESTATE TAX DUE tax return shall be filed with and the TIN for the estate shall be secured from the Office of the
Commissioner through RDO No. 39-South Quezon City.
a) The disposition, for purposes of this option, shall refer to the conveyance of property,
whether real, personal or intangible property, with the equivalent cash consideration;
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 Chapter 2 Gross Estate
The foregoing provision, notwithstanding, the Commissioner of Internal Revenue may
continue to exercise his power to allow a different venue/ place in the filing of tax returns.
LIABILITY FOR THE PAYMENT OF ESTATE TAX
The EXECUTOR/ ADMINISTRATOR of an estate has the PRIMARY OBLIGATION to
pay the estate tax but the heir or beneficiary has SUBSIDIARY LIABILITY for the payment of that
portion of the estate which his distributive share bears to the value of the total net estate. The
extent of his liability, however, shall in no case exceed the value of his share in the inheritance.
Where there is no executor or administrator appointed, qualified and acting within the
Philippines, then any person in actual or constructive possession of any property of the decedent
must file the return. The Estate Tax imposed under the Tax Code shall be paid by the executor
or administrator before the delivery of the distributive share in the inheritance to any heir or
beneficiary.
Where there are two or more executors or administrators, all of them are severally liable
for the payment of the tax. The estate tax clearance issued by the Commissioner or the Revenue
District Officer having jurisdiction over the estate, will serve as the authority to distribute the
remaining/ distributable properties/ share in the inheritance to the heir or beneficiary.
CIVIL PENALTIES AND INTEREST
Any amount paid after the statutory due date of the tax, but within the extension period,
shall be subject to interest but not to surcharge. Penalty of 25% if there is no false or fraudulent
intent on the taxpayer. Penalty of 50% if there is false, malice or fraudulent intent on the
taxpayer. Interest of 20% on the unpaid amount of tax from the date computed until fully paid.
PAYMENT OF TAX ANTECEDENT TO THE TRANSFER OF SHARES, BONDS OR RIGHTS
There shall not be transferred to any new owner in the books of any corporation,
Sociedad anonima, partnership, business, or industry organized or established in the Philippines
any share, obligation, bond or right by way of gift inter-vivos or mortis causa, legacy or
inheritance, unless a certification from the Commissioner that the applicable tax has been paid.
If a bank has knowledge of the death of a person, who maintained a bank deposit
account alone, or jointly with another, it shall allow any withdrawal from the said deposit account,
subject to a final withholding tax of six percent. For this purpose, all withdrawal slips shall contain
a statement to the effect that all of the joint depositors are still living at the time of withdrawal by
any one of the joint depositors and such statement shall be under oath by the said depositors.

-END-

GODBLESS!!!

"For the LORD gives wisdom; from his mouth come knowledge and understanding." – Proverb
2:6

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Learning Today, Leading Tomorrow jcp, cpa, mba, ctt 😊