Chabler 2 Gross Estate The first estate tax law in the Philippines is embodied in Act 2601 which took effect on July 1, 1916. It imposes graduated estate tax rates computed on net inventoried property left by a decedent. —_It_was subsequently amended by the Revised Administrative Code of the Philippines imposing upon “every transmission by virtue of inheritance, devise, bequest, gift mortis causa, or’ advance in anticipation of inheritance, devise or bequest.” Since then, several laws were introduced to amending Act 2601 RA 8424 also known as “Tax Reform Act” or the National Internal Revenue Code (NIRC) Effective Jan.1, 1998 further restructured the tax base and rates of both estate and donor's taxes in addition to allowing the deduction of medical expenses from the gross estate. Bulk of the estate tax law aside from determining the tax base and rates which are found in NIRC are embodied in the Civil Code and Family Code of the Philippines. The recent amendment to Estate T, by RA 10963, or the “Tax Reform for Acc (TRAIN) Act” which took effe amended the estate tax law by getting rid tax rate and changed estate as well as revising the thresholds Family Home and other amendments s; &xpenses, judicial expenses and medical expenses’ ‘ax law was introduced eleration and Inclusion 1, 2018. It Substantially 33 ee Ge aaGross Esta, Estate Tax - Definition and Nature ed on the privilege t, i Estate Tax isa tax imposed on the privilege th ao Phil rong to. certain oxtent, the disposition o _ a person is aver ct upon death. As discussed In SPT TN property ri ‘sed on the act of passing the ‘owners! ip pror ery a th orci tx inposstnat onthe valve ofthe property OF GTS Tot bas, dire time of eespould nok be construed as a direct {2% On te FATE Oh ough the tax is based thereon. es ; oie ‘death, the right of the State to tax the privilege to transmit the oene oats instantly upon death. The accrual of the tax is distinct from the obligation to pay the same. Justification for the Imposition of Estate Tax 1. Benefit-Received Theory ‘ The law considers the service rendered by the government in the distribution of the estate of the decedent, either by law or in accordance with his wishes. For the performance of these services and other benefits that accrue to the estate and the heirs, the State collects the tax. 2. Privilege or State Partnership Theory Under this theory, inheritance is not a right but a privilege granted by the State and legates have been acquired only with the protection of the State. Consequently, the State as a passive silent partner in the accumulation of property has the right to collect the share whichis properly due to it. 3. Ability to Pay Theory t Receipt of inheritance which is in the nature of an unearned wealth or windfall, are place assets into the hands of the heirs and beneficiaries. This creates an ability to pay the tax and thus contributes to government income. 4. Redistribution of Wealth Theory The receipt of inheritance is a cor ineniter a ee ntributing factor to the inequalities The imposition of estate tax reduces the uccessor, thus helping to promote equitable prepay ae if, Eyparessive scheme of taxation is precise molvated by mitigate the evils of inheritance in thé Classi (3); eit estate time « where decec only t shall | be suGross Estate Classification of Decedents and Composition of Gross Estate For estate taxation purposes, decedents are classified into three (3); citizens, resident aliens and nonresident aliens. Soction 85 of the Tax Code provides that the value of the gross estate of the decedent should be determined by including the value at the ime of his death of all property, real or personal, tangible or intangible, wherever situated; Provided, however, that in the case of a nonresident decedent who at the time of his death was not a citizen of the Philippines, only that part of the entire gross estate which is situated in the Philippines shall be included in his taxable estate. The composition of the estate may be summarized as follows: PES ore eer seme DECEDENT GROSS ESTATE * Citizen 1) Property (Real or Personal) wherever situated * Resident alien 2) Intangible personal property wherever situated * Nonresident alien 1) Real property situated in the Philippines 2) Tangible personal property situated in the Philippines 3) Intangible personal property wit situs in the Philippines, unless excluded on the basis of reciprocity. RECIPROCITY CLAUSE (Section 104 of the Tax Code, as amended) The Tax Code excludes “intangible” personal property with situs in the Philippines from the gross estate of a non-resident alien decedent if there is reciprocity. 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. 35= Gress Et fe ible Asset i Intangit as not defined in the Tax Cogg iT tant et" We ' , Us The term “intangible aS is defines intangible asset as a TUS) nonetheless, Accounting Standarms Cre ay substance”. They derig ‘identifiable nonmonetary ase" WT “ang from the value they add ty ‘Anonreside their value from intellectual or legal rights, the other assets. Hous et Je personal property is the domicig Car, As a rule, the situs of intangible earaemce im". However, such ‘Shar ofthe owner, also known a8 oso property has situs elsewhere o, ope fule is not applicable if the it , tue Ban ; da business situs in another where the intangible property has acquired ! repr Jurisdiction because the principle of “mobilia sequntur personant is ony Sha sed for convenience. It must yield to the actual situs of such property, aa ‘The situs of Franchise, for instance, should not be based on the domicie 5 of the owner but the place where such franchise is exercised. ina gy 7) INTANGIBLE ASSETS WITH SITUS “WITHIN” THE PHILIPPINES 4 Case A: A Section 104 of the Tax Code enumerates the following 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 a7 4 Shares, obligations, or bonds issued by any foreign corporation if = The: such shares, obligations or bonds have acquired a business situs Phil in the Philippines. ie 5. Shares or rights in any partnershi ; established in the Philippines.” meen, ‘business or: Indusky is = Inter CUE CERNE ioe aa CAEN dece }OPERTY "Real Property and : SITUS Case B: : Locati Tangible personal property ion ofthe property * Shae, franchise, cored cna Where the intangible is exercised regardless of where the corres sponding certificate is stored Residence of the debtor Location of the depository bank "Receivables Bank deposit 36Gross Estate TLLUSTRATION 1: Anonresident alien decedent left the following estate: House and Lot - Hongkong, inherited before marriage 15,000,000 Car, acquired during marriage in Cebu 1,500,000 Shares of stocks issued by a foreign corporation, 20% of its operation is in the Philippines 250,000 Bank deposit with PNB branch in New York, New York epresenting income eared during marriage 500,000 ‘Shares of stocks issued by PLOT group of companies, a 500,000 corporation organized under Philippine laws 5-year, 12% promissory note, received 2 years ago, during marriage. The debtor is a resident of Q.C. 500,000 Case A: Assume there is no reciprocity, what is the correct value of the gross estate? “Answer: P2,620,000 Solution: Car, acquired during marriage in Cebu 1,500,000 ‘Shares of stocks— PLDT 500,000 S-year, 10% Promissory Note 500,000 Interest income (P500,000 x 12% x 2) 120,000 Gross Estate ___ P2,620,000 + The shares of stock issued by a foreign corporation (20% of its operations is in the Philippines) is considered situated outside of the Philippines. Under the tax code, a nonresident alien decedent is taxable only for properties situated in the Philippines. Same rule applies to the House and Lot as well as the bank deposit in New York, USA. * Interest income eamed before or at the time of death shall likewise form part of the decedent's gross estate. Case B: Assume there is reciprocity, what is the correct value of the gross estate? Answer: P1,500,000 * Only the car in Cebu acquired during marriage shall be included in the decedent's gross estate. Intangible properties with situs within the Philippines are excluded in the determination of gross estate if there is reciprocity. 37ISTRATION 2: eae ef properties shown DeIW. 3 aa ne Fe oper is included in the decedent's gross estate, 2) et determine the following: Composition of Gross a Citizen Ra or With Wi SITUS | Resident | Reci ith tem No. PARTICULARS Parcel ofLand—Makai Parcel of Land= Bali, Indonesia House and Lot (Family Home) ~ Taguig Rest House — Batangas Rest House —Palawan Rest House — Malaysia Cars-Philippines Cars Abroad BPI Deposi- Philippine branch BPI Deposit-U.S. branch ‘ABN Amro Bank (Foreign bank) — 12 Philippine Branch 12. | ABN Amro Bank (Foreign bank) - London Branch 73_| Receivables-debtor from Philippines 14 | Reveivables-debtor from Canada 18. | Shares of stocks of domestic corporations. z Jon) eo no Zlolol~ a}s|o}eo|s)or]en]m}eofrs|— The certticates are stored in the . Philippines 17 | 16 | Shares of stocks of domestic corporations, The certificates are stored abroad 17_ | Shares of stocks of foreign corporations. 2 hi The certificates are stored in the 19. Z Philippines : 18 | Shares of stocks of foreign corporations. | 20.) The certificates are ‘stored abroad 19 | Shares of socks of foreign corporations, a — = 90% ofits operations is in the Philippines I a ‘of siocks of foreign corporations, = Fy tte erations isin the Philippines al ates of stocks of foreign corporations fi \hich acquired business situs in the ! ee = Philippines 2 | Patents and pans andcoprighS eRe —-—— | | Patents and copyrights exercised abroad — 38 \Citizen or With | GROSS ESTATE Without No, | PARTICULARS SITUS | Resident | Reciprocity |_ Reciprocity | Parcel of Land - Makati Within | Incude | Include [Include | | Parcel of Land — Bali, Indonesia Wo | Include | Exclude | Exclude [House and Lot (Family Home) - Taguig | Within | Include Include Include | 4_| Rest House -Batangas Within-| Include [Include |" Include |_5_| Rest House ~Pal Within | Include | Include Include |_ 6 _| Rest House - Malaysia Wio | Include | Exclude Exclude T_| Cars-Philippines Within | Include | Include Include [8 | Cars-Abroad ~ Wo | Include | Exclude | Exclude 9 | BPI Deposit-Philippine branch “Within [Include [Exclude Include | | 10_| BPI Deposit-U.S. branch _____| Who | include | Exclude Exclude 11 | ABN Amro Bank (Foreign bank) — Within | Include | Exclude [~~ Include |__| Philippine Branch 42 | ABN Amro Bank (Foreign bank) London |~Wio | Include |~ Exclude | Exclude Branch 43_| Receivables-debtors from Philippines | Within | Include | Exclude | Include 14 Receivables-debtors from Canada ‘Wo | Include |" Exclude |" Exclude _ | 15 Shares of stock of domestic corporations. | Within | Include | Exclude |. Include The certificates are stored in the 16 | Shares of siock of domestic corporations: | Within | Incude | Exclude | Include The certificates are stored abroad E 4 17 Shares of stock of foreign corporations. | Wo | Inde | Exclude | Exclude The certificates are stored in the ‘Philippines ch 48 | Shares of stock of foreign corporations. | Wo | Include | Exclude | Exclude |__| The certificates are stored abroad lita 19. | Shares of stock of foreign corporations, | Within | Include | Exdude | Indude | 90% of ts operations is inthe Philippines a 20. | Shares of stock of foreign corporations, | Wo | Indude | Exclude | Exclude ~_| 80% of its operations is in the Philippines faa 21. | Shares of stocks of foreign corporations | Within | Include | Exclude | Include | Which acquired business situs in the |__| Philippines be OE ee hat | 22. | Patents and copyrights exercised inthe | Within | include “| tnclude ___| Philippines 3 |_|. 23._| Patents and copyrights exercised abroad Wio | Include | Exclude Excludesion of Gross Estato (as amended by RA10963; RR 12-2018) Valuation " 5 decedent shall be appraised at its fair market va The ets of >. ‘Since succession and ne somal Of ‘the at the time O state tax takes effect upon death, it shall only be fair corresponding estate 1 sir market value at the time of the decedent's deayt paeliterr = ing rules shall apply in determining the valuation of the estate: 1. In General : Fair Market Value at the time of death i ue between: a ve a ternined by the Commissioner; and + 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 Phippine ino diferent ae or areas and shall, upon consultation wih competent appraisers, both from the private and public sectors, determine the fr 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 buiing permit or the fair market value per latest tax dectaration. Personal Property * Fair market value at the time of death 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 fo 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 . is of The bid price nearest the dat lis any association, Circulation, Mint fies recreation or ; amusement club ((e.,golt, polo, similar clubs) 6 Right to usuff . uso ornaaet fe tome dance with the latest Basic Standard and anna. OF aly Table taking into account the probable life es “led to be approved by the Secretary Commission on. 2¢Ommendation of the Insurance sioner [Section 88(A)-NIRC}, 40 ILLUSTRATION Determine the following indep Case A: Pedro bought installment wit of P700,000 fe died. oo Case B: The decedent with a 10% int due after three ol Case C: The decedent following valua Fair valu Zonal va FV deter oo : ' Case D: Decedent own that time, Alph Eamings amou oo { t Case E: A decedent lef exchange. AttCross Estate [ILLUSTRATION 3: a | Determine the correct amount fo be included in the gross estate of the decedent in the following independent cases: Case A: Pedro bought a brand new car with a cash price of P3,000,000. He bought the car on installment with the following terms: down payment of 500,000 and annual installment | ‘of P700,000 for four years. On his way home, he run over an approaching truck and | died. Answer: P3,000,000 Case B: The decedent granted a P2,000,000 loan to his best friend two years be with a 10% interest per annum evidenced by a note, Both the principal and intereot are due after three years, + Answer: 2,400,000. Principal amount plus inforot of 10% for 2 years Case C: The decedent devised to his son a 1,000 square meter lot in Global City, Taguig with the following valuation: Fair value as determined by city assessors P20,000/sq.an. Zorial value as determined by the CIR 47,000,000 FV determined by independent assessors 48,500,000 “+ Answer: P20,000,000 (1,000 sq.m x P20,000) The higher between the fair value as determined by city assessors and the zonal value as determined by the Commissioner of Internal Revenue (CIR) Case D: | Decedent owns 100,000 ordinary shares of Alpha Company at the time of his death, At | | that ime, Alpha's outstanding shares were 1,000,000 with P10 par value and Retained | Eamings amounting to P5,000,000. The shares are not traded in the stock exchange. | Answer: P1,500,000 | Book value per share of Alpha Company multiplied by the number of ehares held by the-decedent at the time of death P10M + 5M. 7,000,000 shares X 100,000 shares Case E: ‘A decedent left 10,000 Pinoy Telecom shares, The shares were traded in the local stock | exchange. Al the fime of death, the following were available: | Highest quotation 800 per share Lowest quotation P200 per share Book value P2350 per share |___+_Answer: P5,000,000__{10,000sh. x (800+200)2)— Gross Eta, T XCL IE SS ESTATE EXEMPTIONS AND EXCLUSIONS FROM THE GRO! TI * e) ss estate of a decedent: ‘The following shall be excluded fro! the gross estate of A, Exclusions under Sections 85 and 104 of the Tax Code 1. Exclusive property of the surviving spouse [See. 85(H)]. ‘The gross estate In case of married decedents, is composed of ; and + Exclusive properties of the decedent; an ] + Common properties of the decedent and the surviving spouse Exclusive properties of the surviving spouse should be excluded in the gross estate because these properties are not owned by the decedent upon his death. For estate tax purposes, exclusive properties of the husband are known as “capital” while exclusive properties of the wife are known as “paraphemal properties (Article 135 of the Civil Code). Whether such property is exclusive or common will depend on the type of properly relations or marriage settlement of the husband and wife, Marriage settlements are discussed in Chapter 4 of this book. .. Property outside the Philippines of a non-resident alien decedent (Sec. 85 and 104). THE N The Tax Code provides that for nonresident alien decedents, only his properties situated or -with situs within the Surree Philippines shall be included in his gross estate. Consequenly, or pri Properties outside of the Philippines are excluded in determining ortly. the gross estate of a nonresident alion decedent: ae prope’ 3. Intangible personal property in the Philippi i ate ilippines of a non-resident . alien under the Reciprocit ' é ‘procity Law, ILLUST = Section 104 of the Tax Cod need q intangible" personal « Code expressly Provides. thal In — alien decedent shall be exchadea Sir Che ee a, noes tk reciprocity, rom the gross estate if there is - in pa inte wil = be:Gross Estate . Exclusions under Section 87 of the Tax Code The merger of usufruct in the owner of the naked title. The transmission or delivery of the inheritance or legacy by the fiduciary heir (also known as the 1 heir) or legatee to the fideicommisary (also known as the 2™ heir). The transmission from the first heir, legatee or donee in favor of another beneficiary, in accordance with the desire of the predecessor. (also known as “Transfer under Special Power of Appointment’) All bequest 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: Provided, however, that not more than thirty percent (30%) of the said bequest, devises, legacies or transfers shall be used by such institutions for administration purposes. The government agency which is empowered to determine the exemption is'the BIR. To enable it to exercise such power, the value of transfer to social welfare, cultural and charitable institutions should be included in the gross estate. An equal amount, however, may be taken up as a deduction, THE MERGER OF USUFRUCT IN THE OWNER OF THE NAKED TITLE The decedent in this particular case (known as donee-decedent or current decedent) only received from the prior decedent (donor-decedent or prior decedent) usufruct over the latter's property. Usufruct pertains only to the right or privilege to enjoy the use and advantages of another's property. Thus, the current decedent is not considered the owner of the property. Consequently upon his death, the usufruct will be merged to the ‘owner of the naked fitle, the intended beneficiary of the property. ILLUSTRATION 4: In the last will and testament of Mr. Yumao, he assigned the usufruct of one of his parcels of land to his son (Juan) while his grandson (Pedro) was named the owner of the haked tie. Upon the death of Mr. Yumao, the parcel of land should be included in his gross estate. However, upon the death of Juan (the current decedent), the parcel of land should be “excluded” in his gross estate because he is not the intended ownerfbeneficiary of the land but his son, Pedro. Upon Juan's death, there will be merger of usufruct in the owner of the naked tile (Pedro). Meaning, Pedro will be enfitled to both the usufruct and ownership of the naked title upon Juan's death. 43+ Theintended owner ofthe land (naked ttle) + Theusufruct willbe merged to his naked title upon Juan's death J+ sufructuary but not the intended owner ofthe land + 4 in GE Subject to Estate Tax + +in GE upon death ' Subject to Estate Tax TRANSMISSION FROM THE FIRST HEIR, LEGATEE OR DONEE |y FAVOR OF ANOTHER BENEFICIARY (Also known as 2nd Heir), IN ACCORDANCE WITH THE DESIRE OF THE PREDECESSOR (Also known as Transfer under Special Power of Appointment) ILLUSTRATION 5: In the last will and testament of Mr. Yumao, he devised a parcel of land to Juan bit with a condition that such property should be given to Pedro upon Juan's death Thus, the parcel of land is intended to be inherited by Pedro, not Juan. Juans acting only as a trustee or fiduciary until such time that the property is transferred 0 Pedro. Upon Juan's death, the parcel of land should be “excluded in his gross est simply because he is not the owner of the property, donee-decedent or current decedent, uu nce Fower of Appointment exists when the donee-decede none an spam onky from a restricted or designated class © roreself. In the problem above, Juan is restricted eet, in accordance with the desi edent or Donor-Decedent). Propett) special ; 8 Of the not @PPoint ment should be exclud lones of the pow nee property in paar” Power because the do to transfer such Property only t of the Predecessor (Prior. be transferred under a from the gross esta decedent only holds the TRANSMK BY THE F THE FIDE ILLUSTRATI Using th 5) and 2 Pedro 2 substitu! Upon th estate. | his gros Fideicon property relations apart (R relations ElerGoss Estate | Special Power of Appointment LL RTA «the parcel of land # the Intended DSS is {snotintended for beneelary of Mr follows aan Yumao * Acting only as eas tuistee/tiduciary Sa of Pedia irene tty + Fine * Subject to Estate Tax * Not Subject to #18 GE upon death Estate Tan * Sub). to Estate Tax 4 TRANSMISSION OR DELIVERY OF THE INHERITANCE OR LEGACY BY THE FIDUCIARY HEIR/LEGATEE (Also known as the 1st helr) TO THE FIDEICOMMISARY (Also known as the 2nd heir), ILLUSTRATION 6: Using the same information in the immediately procoding illustration (Illustration No, 5) and assuming further that Juan is the father of 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 fideicommissary substitution. Upon the death of Mr. Yumao, the parcel of land should be included in his gross estate, However, upon the death of Juan, the parcel of land should be “excluded” in his gross estate because Juan is acting only as the trustee of Pedro, Fideicommisary transfer of property is in substanco, the same with transfer of property received under Special Power of Appointment (SPA), except that the relationship ofthe tst heir and the 2nd heir should not be moresthan one (1) degree apart (Refer to Iustration #7 of Chapter 1 for the determination of degree of relationship), Elements ofa fideicommissary substitution * The substitution must not go beyond one degree from tho heir originally instituted (i.e. father to son), + The fiduciary( first hei) and the fideicommissary(socond heir) must iving atthe time of the testator's deathame ¥ Gross Evy 1 Special Laws €, Exclusions under 8 and bonofits rocoivod BY. member 4 Section 85 4, Proceods of life Insurance ¢ eoiate 3Is (RA728). tho GSIS (R J by members from the Sgg 4 1. Property ov 2, Acoruals and benofits 1ec ‘eivac y » peamenk in * reason of death (RAI792) ae ated nares or st 3, Amounts recelved from Philippines ane States . An 28 " * Governmonts for war damages (RA227) : Decedent's States is Administrati 4. Amounts recoived from Unitod States Vetorans i nee 7 pe . Philippinos of US government to the legal hei, the interes ° Cad ot Wort War II Votorans and deceased civilian fg, included in { suppliesisorvices furnishod to the US and Philippine Amy pplies/s Decede (RA136) Sf a of participatio 6. Retirement benefits of officialsemployees of a private fim present in| (RAG917) or dominio ; ; EI sets 1d oF p 7. Personal Equity and Retirement Account (PERA) assets of the oan decedent-contributor (Sec. 14, RA 9505 — Personal Equity and having valu Retirement Account Act of 2008). Ml. Property N 8. Compensation paid to private and public health workers who have payment of 7 contracted COVID-19 in case of death, the said amount shall nol a be included as part of the gross estate of the decedent subject to These | P estate tax as provided under Republic Act No. 11494 or the of the dec “Bayanihan to Recover as One Act". gross estat only upon | the propert COMPOSITION OF THE GROSS ESTATE Transt a. Tran Generally, gross estate consists of a a decedent or which the decedent had an antareet ot oper owned by ° me do ‘ad an interest at the time of death, such * Real properly. * Personal tangible property * Intangible pers. / Cros aeeona! Property (shares of stocks, Bank deposit i Perna his doath but recoived after death, ii Usury ght Me crud before his death s488irs. lor ny ™ Gross Extate Section 85 of the Tax Code enumerates the composition of the Gross Estate. Properly owned by the decedent. that are actually and physically present in his estate at the time of his death such as land, buildings, shares of stock, vehicles, bank deposit, and the like. Decedent's Interest (Sec. 85(A)] The Tax Code provides that Decedent's Interest to the extent of the interest therein of the decedent at the time of death shall be included in the gross estate. Decedent Interest refers to the extent of equity or ownership participation of the decedent on any property physically existing and present in the gross estate, whether or not in his possession, control or dominion. It also refer to the value of any interest in property owned or possessed by the decedent at the time of his death (interest having value or capable of being valued or transferred). Property NOT PHYSICALLY IN THE ESTATE but are still subject to payment of estate tax. These properties have already been transferred during the lifetime of the decedent, however, such properties shall still form part of his gross estate because the transfers were either intended to take effect only upon his death or does not actually convey full ownership over the property transferred. a. Transfers in Contemplation of Death (Sec. 85(8)] 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 @ 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 ‘ny 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 ful consideration in money or money's wort.ee Gross Estat, leath is @ disposition in contemplation 01 AO is the thought of A eanaar coe h induces the disposition g erty POP ng motive we concept is donation mors or thin death, as 2 OOF cluded wit the property. causa. include the value of prope ee retires Bi wPdicpag the Seeodent during aces acto wansteret,(vansferin contemplation of deat person, but the of his death (trans erty in favor of ano' t only upon the 4) Transfer of propre vied to take effect transfer transferors death. io take effect at death, or afte The gross estal ft inten ed the income or [ILLUSTRATI 2) Transfer by gift inte fonor reserv TLLUSTRATI | ” ea cinder se fhe persone who should enjoy te the right to designa Case A: income. x ation of certain rights. The i 2 reeeat hed waratored Hs property dunk his lstins A high rank terete! or inset bansfoal enjoyment of the thing brought abou but retained for him Hence, he g the right to receive income from the same. Sea Section 85 of the Tax Code, as amended, provides veneer op that there is no transfer in contemplation of death when the Ang , transfer of property is a bonafide.sale for an adequate and full re : consideration in money or money's worth. ig b. Revocable Transfers [Sec. 85(C)} Case B: Renato, a r Jo 2 tansfer where the terms of enjoyment of the property 50,000,000 ! Ira Pe altered, amended, revoked or terminated by the decedent. Renato upon 1.8, Suficient that the decedent had the Power to revoke though + Ans he did not exercise the Power. Section 85(C) of the Tax Code, as The amended, provides: itsh e caus : () foil steno any interes therein, of wi | of which the decedent has at any ae 2 tans (except in con of @ bonafide sale for at Case C: st Seale and ful leration in money or money's worth) by tust Due to an ur His death appre loyment there wan Subject at the date of fae Cmnsly exercise) ries xercise ofa power (in whalevel eater tae \ wmluton with any ctr te? By the decedent it market value ~ re Souce te decedtoy tcp regard when or should be inci ©, OF terminate, op uch power), to alter, amend, . Contemplation ofthe ons dest, Such power is relinquished it ing ae 48Gross Estate (2) For the purpose of this Subsection, the powor to aller, amend or revoke shall bo considered to exist on the dato of the docedent’s death oven though the oxorcise of the powor Is subjoct lo a procedent giving of notice, or even though tho alteration, amendment or revocation lakes effect only on the expiration of a stated poriod aftor the exercise of the power, whether or not on or before the date of the decedent's death notice has boon 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 i the decedent had lived, and for such purpose ifthe notice has ‘not been given or the power has nol 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, ILLUSTRATION 7: Case A: A high ranking official realized that due to the nature of his illness, age and the pressure | | brought about by the various legal cases filed against him, death might not be that far. | Hence, he gratuitously transferred most of his properties to his children while stil alive. Should the properties transferred be included in the gross estate of the decedent- transferor upon his death? * Answer: Yes ‘The properties transferred should be included in the estate of the decedent because the transfers were intended to take effect upon his death (donation mortis causa), regardless of the date of the actual transfer to the beneficiaries or heir. Case B: Renato, a natural philanthropist, gratuitously transferred a property to CJ worth P50,000,000 during his lifetime. What amount should be included in the gross estate of Renato upon his death? Answer: PO. The transfer was not intended to take effect upon his death but during his lifetime, thus, jit should be treated as a “donation inter-vivos” rather than inheritance (donation mortis- causa). The transfer is subject to donor's tax instead of estate tax, Case C | Due fo an unstable medical condition, Pedro thought that it is ‘only proper for him to | 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 200,000,000 while fhe was undergoing major medical operation, At the time of Pedro's death, the falr market value of the properties transferred increased to P250,000,000. What amount | should be included in the computation of Pedro's gross estate?Gross Esty le pp teste ae swor. 250,000,000. intended to take effect af the time op ; The transfer is @ densi cava, as 0 controling malve which inducg ‘hsp 's death. i ty at , 7 en othe propery Tho fair markt value ofthe Property a the date of ye daced a ‘actual trensfor sould bo kjnored. 4 4 j Case D: rth P10,000,000 to Juan, in trust for Boy, | °) § Pdr transferred all his real propertios worth P10,000,000 to, p i sean legate minor son, Pedro reserved his right fo terminate the transfer anytin, : Question 1: . | i Whal amount should be included in Pedro's gross estate upon his death? | 9) ' + Answer: P10,000,000. | e) Question 2: é | ‘Assume Juan subsequently died a year after Pedro's death, what amount should be | included in Juan's gross estate? ILLUSTRATION: > Answer: PO The transfer is revocable on the part of the testator (Pedro). A revocable transfer does In the last w not actualy convey ownership over the property transferred because it may be revoked Batangas to anytime by the testator (regardless of whether the right to revoke was exercised). transfer the | c. Transfers under a General Power of Appointm . In tis Appointment [Sec. 85(0)] ae Power of appointment refers to the right to designate toce the person or persons who will succeed:-to the property of the prior with al the a decedent. The -Power of appointment may be “general” or estate of the d special’. It is considered “general” when the power of Mr Yume appointment authorizes, the donee of the power to appoint any ey he pleases. The power may be exercised in favor of Aloea ae y, eee ibe donee decedent. The donee of a general Is it i attributes of ownership thus, the epponind De at pra of the gross 4 ’ nue his decir estate of the donee (beneficiary) of the power upen Special Power of Appoir ; = donee can appoint only fone rest nant (SPA) exists when theThe power of appointment may be exercised by the donor- decedent through the following modes: a) Bywill b) By deed to take effect in possession or enjoyment at or after his death, ©) By deed under which he has retained for his life or any Period not ascertainable without reference to his death or for any period which does not in fact end before his death. The possession or enjoyment of, or the right to the income from the property. The right, either alone, or in conjunction with any person to designate the persons who shall possess or enjoy the property or the income therefrom, ILLUSTRATION 8 - GENERAL POWER OF APPOINTMENT (SP: In the last will and testament of Mr. Yumao, he devised a parcel of land located in Batangas to Juan, with the power to appoint any person he pleases. Juan decided to transfer the property to Pedro through hs last will and testament. In this illustration, Juan received the property under "General Power of Appointment (GPAY'. GPA exists 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 shal form part of the gross estate of the donee (beneficiary) ofthe power upon his death Mr.Yumao = Donor ofthe power = Predevessor/ Donor-decedent Juan * Done of the power or 1st heir = Current decedent / Donee-decedent Parcel of land Appointed property General Power of Appointment. PC EEO Pree InGEupondesth = +InGE_ = +inGe 1 Subject to Estate Tax * Subjectto = Subject to Estate Estate Tax Tax(LLusTRATION of Appointment ai and testament. Includes 5 cave: GonaralPoner of Appin ares Rite, Manny doled prope 10 NO propery to anyone. Nonio tansiered pg FO orm nen take eect at the me of Nonito’s deat property | oF 4 What type of power of i oi Answer, General Power of appointment Bie ae To proves at Nonto ray Yancethe propery %o Sys” There the poner may be eared in favor of anjoody ning Se onee-docs (Nonio). The power of eppointment is “general” when the power Cf eopitmen ‘authorizes the donee of the power to appoint any person he pis appointment is tuseted 260 Question 2: hep Should the property be included in the determination of Manny's gross estate’ Answer: Yes Question 3: Should the property be included in Nonito's gross estate? Answer: Yes The donee of @ general power of appointment holds the appointed propery wit all the atrbutes of onnership. Thus, the appointed property shall form part of te 1055 estate ofthe donee-decedert (Nonto) upon his desth. Case B: Special Power of Appointment Manny donated property to Nonito through his last will and testament. it Prowsion that Nonto can transfer the property only to his son, Boomboor Question 1: What type of power of appointment i ilustraied above? % Answer: Special Power of Appoi Special power of appontment Appointment Question 3: Should the % Answer: No Property be included in Nonito's grogs The donee ofthe p 52 A pogne n “Gross Estate d. Transfers for Insufficient Consideration (Sec. 85(G)] 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. 4 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. Donor’s tax is discussed in Chapter 6. The above rules on insufficient consideration are ‘summarized in Table 2-3 below: 53,Gross Esty, MYC eee Bryce ek umuse able Bonafide sale. Excluded from ty Consideration 2 FMV at the — decedent's gross estate, time of transfer. Insufficient consideration. Consideration < FMV at the =P ciude in the gf058 estate the time of transfer. tycess of FMV @ the time of death over the consideration received. Bonafide sale regardless of the Se ra amount fconseraon ‘ved mmmampe Either donation mortis causa eee (subject to estate tax) or donation inter-vivos (subject to donor's tay) ILLUSTRATION 10: CASE A | On January 2021, Juan sold for P5,000,000 an apartment with carrying value of| 3,500,000 to Pedro, At the time of sale, the property has a prevailing market price ‘of P7,000,000. Juan died on June 2021. At the time of death, the prevailing far | market value ofthe property was P8,000,000. | Question 1: What amount should be included in the gross estate of the decedent? | Answer: P3,000,000. | ©The exces ofthe fa ae ofthe property athe time of death ore te| consideration received (P8,000,000 vs. P5,000,000). The carrying value | the property transfered is disregarded for purposes of determining whet | ‘or not the transfer was made for an adequate and full consideration. Question 2: What amount should be incl | 0 luded in the gross estate of the decedent assuming the fe | Fane amare value of the property athe time of death was PA, 000000" The fai Zaft att Sats at the fie of death was lower than the amount | | pasted Hence, the 5,000,000 is considered adequate and fi Question 3: As sft warden te ne on rary as “ou eda ot te gss ett fe a oes What TO | Wer: PO. The sale ort decedent? | ransfer is a result of a bona fide sale Sinn eet im. CASEB On January 202 3,500,000 to P ‘of P5,000,000. market value of Question 4: Wh > Answ Ifthe o Question 2: A amount should > Ansv The t shoul time. Question 3: corresponding estate at the t “> _ Ans MISCELLAI a: Claims: Fo properties < debt(s). A incapacity ¢ rule regard amount of t the gross e collectible s ILLUSTRATIC CASEA Juan died wit financially sta lifetime, howe Question 1: H e Question 2: + *Gross Estate CASEB pigeon operas On January 2021, Juan sold for P5,000,000 an apartment with carying value of 3,500,000 to Pedro. At the time of sale, the property has a prevaling market price of P5,000,000. Juan died on June 2021. At the time of death, the prevailing fair market value of the property was P8,000,000. Question 1: What amount should be included in the gross estate of the decedent? Answer: PO Ifthe consideration received is substantially the same with the fair market value at the time of transfer, such sale or transfer is considered a bonafide sale, hence, not ‘Subject fo estate tax. | Question 2: Assume Juan transfered the property without consideration, what amount should be included in his gross estate at the time of his death? “Answer: P8,000,000 The transfer is considered transfer in contemplation of death. Thus the transfer should take effect upon Juan's death. The fair market value of the property atthe time Juan's death should be included in his gross estate Question 3: Assume Juan transferred the property during his lifetime and the | ‘corresponding donor's tax was paid, what amount should be included in his gross estate at the time of his death? 4 Answer: PO, The tansferis subject to donor's tax, not estat tax MISCELLANEOUS ITEMS a: Claims against insolvent persons (Sec. 85) For estate tax purposes, an insolvent is a person whose properties are not sufficient to satisfy, whether fully or partially, his debt(s). A judicial declaration of insolvency is not required but the incapacity of the debtor to pay his obligation should be proven. As a rule regardless of the amount the debtor is unable to pay, the full amount of the claim against the insolvent person should be included in the gross estate of the decedent. The portion of the claim which is not collectible should be allowed as a deduction from the gross estate. CASEA | Juan died with an existing collectible of P5,000,000 against Pedro. Since Pedro is financially stable, Juan exerted all possible efforts to collect the amount during his lifetime, however, Pedro failed settle the same before Juan's death. Question 1: How much should be included in the gross estate of Juan? + Answer: the entire amount ofthe claim, P5,000,000 Question 2: How much is the deduction from the gross estate of Juan? Answer: PO.Gress Ect papaya ie 0 ction under this lego aly ns ld be es allect the arount due from Peso, | tion was gladly welcomed by Pegs 4e_Assume tha after Juan failed 1 © ! luded in the gross estate of Juan? The condonal ist condone the claim. a ve “han died, How much should Dein oS by him prior to his death Therefore, the condonat | fer} Meera den inter-vivos subject to donor's tax. Question hora 000,000 against Pedro whose properties | ‘ng colectble of P5,000, | a tsa) vets, Pedro's properties are valued at, PE,000,00) ca | | while his liabilities amounted to 10,000,000. } ‘Question 1: How much should be included in v Answer: The entire amount of ‘Question 2: How much is the deduction from the gross estate of Juan? Answer: P2,000,000. | ‘Only the uncollectible portion. Colecile portion = Debtor's assets/Debtor’s Liabilities x ‘Claims Collectible = PEM/P1OM x PSM = P3,000,000 | Uncollectible = PSM - 3M = P2,000,000 the gross estate of Juan? | the claim, PS,000,000 | Question 3: Assume that P2M of Pedro's liabilities are unpaid taxes from the goverment how much shouldbe included as a deduction from the gross estate Juan’ “Answer: P2,500,000, | Only the uncollectible portion, * Pedro's asses after unpaid taxes = PBM-2M = PAM Pedro's ables excluding unpaid taxes = P&M Pearle bala ascetsDebtor’s Liable x Claims | 2,500, | |__theotectise= P52 200600 a b. Proceeds of ie insurance (Sec. 85(E)] Proceeds of life insur: his own if should be ineluded tye by the decedent ot Tequisites are present: In the gross estate if the following ‘ It must be an i The be A ores tea oben © Any third octot/aéministrator (revocable or no!) administratorexeoete (Other than estate ievocabie ©") Provided that the designation is 56 Ath benefic Also, pi the em) The of a pc is not ¢ states benefi waiver the 1 lifetime Benef Estate Executor Administrato 3 Party (ie. TLLUSTRAT Case A: A life insur designated | gross estate om Case B. ‘Assume the imevocable. death? oACpross Estate If the policy does not expressly say that the designation of the beneficiary is irrevocable, then it is presumed to be revocable. ‘Also, proceeds of life insurance under a group insurance taken by the employer are not subject to estate tax. The Philippine Insurance Code presumes that the designation of a policy is revocable in case the designation of the beneficiary is not clear or silent. Section 11 of the Insurance Code (RA 10607) states that ‘the insured should have the right to change the beneficiary he designated in the policy, unless he has expressly waived this right in said policy. Notwithstanding the foregoing, in the event the insured does not change beneficiary during lifetime, the designation shall be deemed irrevocable.” TABLE 2-4 PROCEEDS OF LIFE INSURANCE (Taken out by the Decedent) Beneficiary Designation Gross Estate Estate Revocable or Irrevocable Included Executor Revocable or lrrevocable Included Administrator Revocable or Irrevocable Included 30 Party (.e. wife) Revocable Included 30 Party (Le Irrevocable Excluded (EL Exclude proceeds from SSS and GSIS as provided by law. ILLUSTRATION 12: Case A: A life insurance worth P10,000,000 was taken out by Pedro upon his life. He designated his friend, Juan, as beneficiary. Should the proceeds be included in the gross estate of Pedro upon his death? + Answer: Yes ‘The beneficiary was his friend (other than the decedent's estate, executor or administrator). Since the designation is silent, it should be assumed that Juan's designation as beneficiary is revocable. As a rule, when the beneficiary is a third person and the designation is revocable, the amount of proceeds should form part of the decedent's gross estate. Irrevocable designation of a beneficiary is not presumed. To be excluded from the gross estate, Juan's designation should be clearly stated as irrevocable beneficiary. | Case B: ‘Assume the same data in case A, except that Juan's designation as beneficiary is irrevocable. Should the proceeds be included in the gross estate of Pedro upon his death? > Answer: No: beneficiary was Pedro's ex ae A except that the ed The fate! in ctnary was revocable. Should the proceeds be ingya’ signation ¥ Pisses ‘estate of Pedro upon his death’ inal an Id be ic . ‘ten ‘ary as irevocable benefiiary shouldbe ignored hg J cr rats coronal. ISU asthe mo ir in the gross estate of the deceg.” fife insurance should always be inaluded ‘i oe ss ofthe beneficiary's designation. ESTATE TAX RATE nsfer of the net estate of every decedent, whether residen acienaesilen ett Philippines, as determined in accordance with the Tax Code, as amended, should be subject to the estate tax. Beginning January 1, 2018 or upon the effectivity of RA 10963, otherwise known as the "Tax Reform for Acceleration and Inclusion Act” (TRAIN Law), the net estate of every decedent, whether resident or non-resident of the Philippines, shall be subject to an estate tax rate of six percent (6%). The law that Governs the imposition of Estate Tax and Accrual of Estate Tax Filing of Estate Tax Return and Payment of Estate Tax Due The Tax Code, as amend i Pet by tho executoriacminitrator or ary Cre tnt tate tax shall be ‘Stan's fled (Pay as you fle system.» {198 hers at the time the FILING and PAYMENT: * Primary responsibil administrator; eas ee ee }econdary Fesponsibility to file and pay — any of the heirs fate tax retum shay n (RR 12.2018), °° fled under oath in any of the |n cases of transfer Subject to, An este following situatioy 1. Estate Tax; and 58 vel Ce tra ex me fol TIME | Se estate deced furnist within Th disting accruz (RR 2 page ° The o withou EXTEI Reven the aut exceacGoss Estate 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 which a Certificate Authorizing Registration from the Bureau of Internal Revenue (BIR) is 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. Estate tax retums showing gross value exceeding five million pesos (P5,000,000) shall be supported 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; Itemized deductions allowed from the gross estate under Section 86 of the Tax Code, as amended; The amount of tax due, whether paid or still due and outstanding. TIME for FILING the Estate Tax Return Section 90(B) of the Tax Code, as amended, provides that the estate tax return is required to be filed within one (1) year from the decedent's death. The court approving the project of partition shall furnish the Commissioner with certified copy thereof and its order within thirty days (30) after promulgation of such order. The period allowed to file the estate tax return shall be distinguished from the “accrual” date of the estate tax due. The accrual of the estate tax is distinct from the obligation to pay the same [((RR 2-2003); (Lorenzo vs. Posadas, 64 Phil. 353)]. As discussed in page 1, the estate tax due “accrues” immediately at the time of death. The one-year time of filing is the allowable period of filing the return without incurring surcharge/penalty and interest. EXTENSION of Time to File the Estate Tax Return Under Sec. 90(C) of the Tax Code, “the Commissioner or any Revenue Officer authorized by him pursuant to the NIRC shall have the authority to grant, in meritorious cases, a reasonable extension not exceeding thirty (30) days for filing the return". The application for the 59Gros Estay, t be filed with return mus! 3 file the estate ane estate IS re aued 1 So of tne tage (RDO) Ye A) an fle the te rus a i r Rever ee identi as juisition ove ai DO, Henny party as @ f= estate, whicl ee a , > ries of the decedent. of the Estate Tax rel and li TIME for PAYMENT tax imposed under the Tax Cogg audio tan ey te ea oe a a ai opeyear period allowed to file the estate tax return. : EXTENSION OF TIME TO PAY ESTATE TAX joner finds hat the payment of the estate tax or ri veal beagles would bes undue hardship upon the estate or any of the heirs, he may extend the time for payment of such tax or any part thereof not to exceed five (5) years in case the estale is settled through the courts (Judicial Settlement), or two (2) years in case the estate is settled extrajudicially (extrajudicial settlement). In such case, the amount in respect of which the extension is granted 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 of any such extension. : The application for extension extension of time to pay estate ta District Officer (ROO) where the estat and file the estate tax return, TI Commissioner or fr of time to file ‘the return and hall be filed with the Revenue hig tate 8 required to secure its TIN Ny cPPlication shall be approved by the his duly authorized Tepresentative, Where the re quest for inter exter > the tal regard of rules an reau8 PY Feason of negligent! Sr extension wl be granted ons Of fraud on the pat I an extension ¥ the Commissioner. authorized rey 'S grant Presentative may neo: the Commigg; i i Im jul 20 cane Mee emasoner os a , a ’ Imi ;. Mount er Sh "sh @ bond in such amouts noe tSS8Ny, congia' with such sureties s “cessary, th the term of tne ooo ‘the pay! ion. 60 Payment of estate (RR In case estate tax d through the conditions: 1 Cash In a) The date (BIF for pay) b) The date c) The dear the d) Inc due, subj pres and e) No. pern subs enfo provi folloy Partial di estate ta a) The conv props b) The | date c) The | appre with ; exclu“ate Goss Estate \ the Cure : f the Payment of Estate Tax by installment and partial disposition of turn estate (RR 12-2018 as amended by RR 8-2019) rt - In case of insufficiency of cash for the immediate payment of the total estate tax due, the estate may be allowed to pay the estate tax due through the following options, including corresponding terms and conditions: oe 4. Cash Installment tan a) The cash installments shall be made within two (2) years from the tals date of the filing of the estate tax return, using the payment form (BIR Form 0605) or a payment form dedicated for this transaction for succeeding installment payments after filing the first (1°!) payment through the estate tax return. The estate tax return shall be filed within one (1) year from the date of the decedent's death; late The frequency (i.e., monthly, quarterly, semi-annually, annually) the deadline and the amount of each installment shall be indicated in uch the estate tax return, subject to the approval by the BIR; tate In case of lapse of two (2) years without the payment of entire tax s in due, the remaining balance thereof shall be due and demandable _ In subject to applicable penalties and interest reckoned from the ited prescribed deadline for filing the return and payment of estate tax; the and ney No civil penalties or interest may be imposed on the estates permitted to pay the estate tax due by installment. Nothing in this subsection, however, prevents the Commissioner from executing enforcement action against the estate tax due of the estate tax provided that all the applicable laws and required procedures are followed/observed. Partial disposition of estate and application of its proceeds to the estate tax due 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; The estate tax return shall be filed within one (1) year from the date of the decedent's death; The written request for the partial disposition of estate shall be approve by the BIR. The written request shall be filed, together with a notarized undertaking that the proceeds thereof shall be exclusively used for the payment of the total estate tax due:Goss stay, J iN proporti 4 estate tax due shall be allocated in proportion. uted @: d) The compt : i state the value of ach prone BIR the proportionate Catal 13x dug fale of, oe ath intended to ba Registration (CCAR) shay | a ificate Au Hea eC) a j 0) pvcleorene “presen of ire, rot ot payment A te iss o proportionate sa OCARS shall be pated ee mney a ther spose ep be disposed to cover the fota eta ax de, Se atcnate estate tax(es) previously pai er this of ont ae | estate tax due Out from ty nee fn ee cea, the estate tax due shall p Prceety-due and domandable subject to the applicaty panattas wi interest reckoned from the prescribed deadline fy fling the return and payment of the estate tax, without prejudice withholding the issuance of eCARs on the remaining properties until the payment of the remaining balarice of the estate tax dye including the penalties and interest. 9 REQUEST FOR EXTENSION OF TIME, INSTALLMENT PA YMENT AND PARTIAL DISPOSITION OF ESTATE [Request for extension to file the return, extension to pay the estate Gra avment by installment shall be filed with the Revecue Disa Offcer (RDO) where the estate is required to secure ‘ts TIN and file the estate tax retum. This request shall be a his duly authorized representative, PLACE OF FILING THE RETURN tis death and shall fe the cots ©, Cecedent was fe tax return and ding the Ac ind pay the corresponding or Revenue Collection omcar ae" Bank (AB), Revenue District Officer eneecee" Was domiciled at tre time Jurisdiction on the place where eI following prev ling collection ry les and stra rae m ions, PLACE OF FILING THE RETURN In case of NON-Fesident decedent, Non-resident alien, with ween OF adn adi Whether non. itizen inistratey © n-resident citiz ‘°r in the Philippines, 62 ete At, weaned too aderinieaor on abmnicistez and the TW Sie raved residence, We Bh SOLE 6 be fled with 2 the Comenissi The tore internal Reve YOMAIIAR * LABILITY FOr The execsEstate Gros state tax return hall be filed with and the TIN for the estate shall be sooured from the Revenue District Office where such executor or administrator is registered. Provided, however, that in case the executor or administrator is not registered, the estate tax return shall be filed with and tho TIN of the estate shall be secured from the Revenue District Offico having jurisdiction over the executor or administrator's legal rosidence. Nonetheless, in case the non-resident decedent does not have an executor or administrator in the Philippines, the estate tax return shall bo filod with and the TIN for the estate shall be secured from the Office of the Commissioner though RDO No. 39-South Quezon City. The foregoing provision, not withstanding, 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 retum. 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 (RDO) having jurisdiction over the estate, will serve as the authority to distribute the Temaining/distributable properties/share in the inheritance to the heir or beneficiary, PAYMENT BY INSTALLMENT In case the available cash of the estate is insufficient to pay the estate tax due, payment by installment shall be allowed within two (2) years from the statutory date for its payment without civil penalty and interest, using the payment form (BIR Form 0605) or a payment form dedicated for this transaction for succeeding installment payments after filing the first (1%) payment through the estate tax return, 63Gross Est fe civil penalties and interest aid affer the statutory rast but not to surcharge oon ale ss ent intent on the taxpaye, Per exer ere is no false oF froudle intent on te eae, Penalty of 25% i false, mall Fema tele x | there puted on the unpaid, amount Of tx fron i taxpayer. Interest shall be cor lee EA on i que date of the tax, but wit tredate computed until fully paid (20% effectivity of the TRAIN Law). if Transfer of Shares, Bonds o, 7 Payment of Tax Antecedent to the Tr Rights (Sec. 97, as amended) There shall not be transferred to any new owner inte books if } any corporation, sociedad anonima, partnership, oe : _or industry organized or established in the Philippines-any share, obliga’ ion, bond or right by way of git inter-vivos or morfis causa, legacy or inheritance, unless a certification from the Commissioner that the applicable tax have been paid. 'f a bank has knowledge of the death of a person, who maintained a bank deposit account alone, Under RA No, 10963 the estate: is insufficient to installment shall be alloy its payment without ci RAN Law) In case the available cash a Pay the total estate tax due, payment by cd within tw Ml nally and inc2e® om the statutory date Me P2.1. A deceder Family Philipp Parcel whats Receiv REQU Detern ON seLae era PROBLEMS P24. A decedent taxpayer died leaving the following: Family home (land and residential house) in the 8,000,000 Philippines Parcel of land with vacation house in Malaysia 5,000,000 Farm land in the Philippines, with a mortgage in favor of 3,000,000 the Philippine National Bank for P600,000 Shares of stock of a domestic corporation 2,000,000 Shares of stock of a foreign corporation, the entire ‘500,000 business of which is in the Philippines Receivable from a friend who has no property 300,000 whatsoever Receivables under the following insurance policies: * Life insurance policy, taken by the decedent on 200,000 his own life, with his estate as revocable beneficiary ‘ * Life insurance policy, taken by the decedent on 300,000 his own life, with his daughter as revocable beneficiary * Life insurance policy, taken by the decedent on 600,000 his own life, with his son as imevocable beneficiary + Life insurance (group) taken by the employer of 150,000 the decedent, with the estate as revocable beneficiary wee ee REQUIRED: Determine the correct Gross Estate assuming the decedent was: 1. Aresident citizen Resident alien Non-resident alien with reciprocity Non-resident alien without reciprocity RON 65Chyler Ears — Estate %, arcels of land ys jg four (4) children separate P: ve re secedent devised to his four eae se Cor data! ‘eter lot in Sampaloc, the the foo iuAN, 1,000 square ™ ‘atoning valuation: ee aah Bp + Assessed value 25,000/sq.m- the CIR, P18,000,000 determines pendent assessors, P20,000,00 t in Q.C. with the following the Cily of Manis « FMV as determine TO PEDRO, 1,000 square meter lof ON determined by Q.C., P15,000/sq.m. : Assess oe ji CIR, P18,000,000 . 1s determined by the a A . ee aloanined by independent assessors, P20,000,000 TO MARIA, 1,000,square meter lot in Makati with the following tion: : : ere value determined by the City of Manila, P15,000/sq.m. * FMV as determined by independent assessors, P20,000,000 REQUIRED: Determine the gross estate of the decedent P23, Pedro owns various shares of stock from lifetime. At the time of his death, the foll you by his administrator: 100,000 shares of Frozen ‘Company's ordinary shares, not traded Outstanding shares - 800,000 shares; P10 par * Retained Eamings - P3,000,000 100,000 shares of Diverg * Outstanding shai * Retained earnin * Mean value of t different companies during his lowing details were provided to jent Company's, ordinary shares, listed shares eS 1,000,000 shares; P10 par 9s - P5,000,000 he shares in the stock exchange - P15 -enovo, Company's ordi shares - 1,009 P2.4. For ec the property AP dece the valu the 20% (MODIFIEL Exercise A Determine estate. 1 Tra Ins Gs Pre outChapter Exercises — Estate Tae P2.4. For each of the following i it Fe pone inte ees. independent cases, determine the value of 1. A parcel of land inherited from the father was acquired by the Gscodants father then for a cost of P250,000. Upon inheritance, the fair market value was P200,000 as shown in the schedule of values from the Assessor's office and P230,000 as determined by the office of the BIR Commissioner. 2. A property, acquired for P1,000,000, was transferred in contemplation of death for a consideration of P100,000. Fair market value at the time of transfer, P1,500,000, while at the time of death, P1,200,000. 3. A property, acquired at a cost of P1,000,000, was transferred in contemplation of death for a consideration of P1,200,000. Fair market value at the time of transfer, P1,500,000, while at the time of death, P1,200,000. 4. The decedent was about to present to his girlfriend a brand new car worth P5,000,000 cash. Installment price is valued at 6,000,000. on his way to meet his girlfriend, he met a car accident and died. 5. On January 1, 2020, Pedro granted a loan worth P1,000,000 to Juan, due on January 1, 2022. The latter executed a promissory note with’ an annual interest of 10%. Pedro died on June 30, 2021. (MODIFIED) IDENTIFICATION: Exercise A (Inclusions and Exclusions) Determine whether the following is included or excluded from the gross estate. Included Excluded 1. Transfer with reservation of certain rights 2. Transfer for insufficient consideration 3. Transfer for an adequate and full consideration in money's worth 4. Transfer in contemplation of death 5. Insurance proceeds from SSS and GSIS 6. Proceeds of group insurance taken out by a company for its employees. NESClipe & to the 7. Transfer from the ee ihe Exercise second heir designated by pies Determi predecessor. co. aa 8. Donation to the national government — 24's 1 } 9, Merger of usufruct in the owner of 2 z the naked title — I ial e 10. Legacy to a charitable institution 3. whose administrative expenses did 1 not exceed 30% of the legacy estvthe 4 Exercise B (Insufficient Consideration) Determine the amount to be included in the Gross Estate of the Transferor. 5 Decedent from the following independent cases: ae Particulars: indluslan na te —Gross Estate (Q) 1. FMV at the time of Transfer 5,000,000 TRUE | EE Bie tine of Death 6,000,000 1. Est eration received 5,000,000 the Answer: tak 2. FMV at the tr haat 2. Est mivaemmesange —Ps0moan 2 Th Considerati i »,000,000 . ion received 6.000000 sar 3. FMV at the time of 7 4. Del f Tra ee FMV at the time of Date. P5,000,000 5. Un / Consideration received $000,000 Sis 4. FMV atthe ti 000000 thu FM atthe ime of anster 5,0 6. Re Consideration © 0! Death 000,000 Reg _ (on received 6,000,000 an 5. FMV at the time 2,000,000 = FMY at the time of Transfer 4 ——— 7. Sec Consideration rec eath °,000,000 of a eceived 6,000,000 the =e nil intal oo 8. The resi not 68Chapter Exercises — Estate Tag Exercise C (Proceeds of Life Insurance Premium) Determine the amount that should be included in the gross estate: Inclusion in the Particulars: Gross Estate (P) The decedent took an insurance on his life for 10,000,000 The decedent took an insurance on his life for 20,000,000 and designated his estate as the revocable beneficiary. The decedent took an insurance for his life for 5,000,000 and irrevocably designated the administrator of his estate as the beneficiary. The decedent took an insurance on his life for 10,000,000 and designated his son as. beneficiary. The decedent took an insurance on his life for 10,000,000 and designated his son as. irrevocable beneficiary. TRUE OR FALSE 1. Estate tax is a tax imposed on thé privilege that a person is given in the disposition of his property, either by will or by operations of law, to take effect upon death. Estate tax is an ad-valorem tax. The accrual of the estate tax is distinct from the obligation to pay the same. Delivery and acceptance are essential elements of estate taxation. Under the “ability to pay theory’, the imposition of estate tax is "justifiable because it reduces the property received by the successor, thus, helping to promote equitable distribution of wealth in society. Regardless ‘of situs, the tax code excludes intangible personal property of a non-resident alien decedent in determining his taxable estate. Section 85 of the Tax Code provides that the value of the gross estate of a nonresident alien should be determiined by including the value at the time of his death, of all property, real or personal, tangible or intangible, wherever situated. 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 tangibleClepter Euercives — of citizens of the Philippines not residing in take, Fe personal property foreign country. : ahea b i tate, in general, shall be valueg computation, real estate, bi 9. For estate vere atthe date of death of the decedent. | value of a real estate is available at date of death, and this ig 10. If zonal vali fair market value per assessor's listings Of values, they higher a be reported in the gross estate is the zonal value, i intended to take effect at the ti jortis causa are transfers inten ; Tierra secedent's death, Hence, the properly should be valued at the fair market value of the property at the date of the actual transfer. r i is an exempt transaction by 42. Donation to the national government is an i should still require inclusion of the property in the gross estate, 13, Juan devised in his will @ piece'of land; naked title to Pedro ang usufruct to Ana for as long as Ana lives, thereafter to Pedro. The transmission from Juan to Pedro and Ana is subject to estate tax but the merger of the usufruct and the naked title to Pedro upon the death of Ana is exempt. 14. Ron devised in his will real property to: his brother Bert who is entrusted with the obligation to preserve and transmit the property to Jay, son of Bert, when Jay becomes of age. The transmission from Bert to his son Jay is subject to estate tax 15.When an estate, under administration, has income-producing Property, the annual income of the estate becomes part of the taxable gross estate. 16. When an estate, under administration, has income-producing property and its Income during the year is distributed to the heirs, the income =] distributed is taxable to the heirs as Part of their gross income for year. 17. A special power of appointment authoriz ‘es the donee of the power to appoint onl than himeey "OT a™ong a designated class or group of persons other 18, ¢ 8. aun os vara a special Power of appointment only holds the decedent's gree ae '© Property shall form part of the donee 19. The that the ng 9 cmened under RA10963 (TRAIN Law) provides = fom the decedent's death return should be done within one (1) ye! Tne payment of : of thir estate tax coy ¥ GO) days om the date oe tended up to the maxim te of fling. MULTIPLE CHOICE Principles 4. An excise tax on tr ‘a. Donors ta b. Estate tax 2. An excise on tran: a. VAT b. Estate tay 3. Which among the |. Estate tas of death c Il, Estate ta Ill, Successi privilege | a. lonly b. Monly 4. Estate tax is a te estate to his laws 1. Ataxon I. Anexcis a. only b. Honly 5. Estate tax is ime a. Deceder b. Property c. Right to d._ Privilege 6. When will the tr a. Uponth b. Upon pe cc. Upon dé d._ Upon re