BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS)

SUGGESTED ANSWERS

Chapter 2: TRANSFER TAXES AND

BASIC SUCCESSION

CHAPTER 2

TRANSFER TAXES AND BASIC SUCCESSION

Problem 2-1
1. True
2. False first P100,000 of net gift is exempt.
3. False subject to business tax
4. False gratuitous
5. False an income earned
6. False upon right to transfer
7. True
8. False upon death
9. True
10. False the legitime is based on value of the estate, not on the form of the estate.
11. False they are voluntary heirs.
12. True
13. False fixed by law
14. False executor
Problem 2-2
1. False relatives up to the 5th degree
2. True
3. False the relative is the legitimate heir
4. False if part of inheritance is through the written will
5. False if the transfer is testamentary
6. False one for the legitimate child and half for the illegitimate child
7. True
8. True
9. False equal rights
10. True
11. False
12. True
Problem 2-3
1. A
2. C
3. A
4. A
5. C
6. C
7. C
8. D
9. A
10. D

Problem 2-4
1. C
2. A
3. A
4. C
5. D
6. B
7. B
8. B
9. D
10. B

Problem 2-5
1. B
2. C
3. D
4. A
5. B
6. A
7. C
8. A
9. C
10. A

Problem 2-6
1. C
Car first prize
Amount of mortgage assumed
Salary
Amount of onerous transfer

P1,000,000
1,900,000
240,000
P3,140,000

BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS)
SUGGESTED ANSWERS

Chapter 2: TRANSFER TAXES AND

BASIC SUCCESSION

2. C
House and lot as donation, net of mortgage (P2,000,000 P1,900,000)
Farm as inheritance
Amount of gratuitous transfer
Problem 2-7
1. A
Car
2.

C
House and lot mortis causa

P 100,000
500,000
P 600,000

P 800,000
P1,000,000

Problem 2-8
C
Net value of property left by the decedent (P5,000,000 P1,000,000)
Transfers in contemplation of death
Hereditary estate

P 4,000,000
2,000,000
P 6,000,000

Problem 2-9
C
Net hereditary estate
Legitime of children (P5,000,000 x )
Portion for the surviving spouse (P5,000,000 x )
Free portion may be distributed to strangers

P5,000,000
( 2,500,000)
( 1,250,000)
P1,250,000

Note: The distribution is testamentary because there is a devise or legacy.

Problem 2-10
B
Inheritance of the spouse (P5,000,000/5)

P1,000,000

Problem 2-11
A
Hereditary estate
Legitime of children (P3,000,000 x )
Portion for the spouse (P1,500,000/4)
Free portion
Multiplied by
Legacy to the sister-in-law

P3,000,000
( 1,500,000)
( 375,000)
P1,125,000
20%
P 225,000

Problem 2-12
C
Hereditary estate
Portion for the illegitimate child (P3,000,000 x 1/3)
Amount inherited by the wife

P3,000,000
(1,000,000)
P2,000,000

Problem 2-13
Hereditary estate, net of charges (P7,000,000 P1,000,000)
Legitime of legitimate children (P6,000,000 x )
Portion for the acknowledge natural child (P3,000,000/3) x 50%
Portion for the surviving spouse (P3,000,000/3)
Free portion could be disposed of as legacy to the nanny

P 6,000,000
( 3,000,000)
( 500,000)
( 1,000,000)
P 1,500,000

Problem 2-14
Inheritance of each child (P5,000,000/5)

P 1,000,000

Problem 2-15
Cash in bank
House and lot
Investments in securities

P 100,000
5,000,000
400,000

BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS)
SUGGESTED ANSWERS

Chapter 2: TRANSFER TAXES AND

BASIC SUCCESSION

Total gross estate

Less: Unpaid mortgage
Existing loan
Funeral expense
Estate tax
Hereditary estate

P5,500,000
P 200,000
100,000
100,000
100,000

Problem 2-16
Legitimate child Mario (P1,200,000 x )
Illegitimate child Maria (P600,000 x )
Surviving spouse (P600,000 x )

500,000
P5,000,000
P 600,000
300,000
300,000
P1,200,000

Problem 2-17
With respect to legitime:
Legitimate child (P4,200,000 P200,000) x 50%
Surviving spouse (P2,000,000 x )

Son
P2,000,000

Wife
P1,000,000

Remaining balance (divide based on the intention of the will)

Legitimate child (P1,000,000 x )
Surviving spouse (P1,000,000 x )

500,000
.
P2,500,000

500,000
P1,500,000

Problem 2-18
Gross estate
Less: Deduction
Net estate before share of the surviving spouse
Less: Share of the surviving spouse (P1,000,000 x 50%)
Net estate before estate tax
Less: Estate tax
Net distributable estate
Dorado (child)
Fraction of share - intestate
1/3
Distribution of inheritance
P161,667

Jess (husband)
1/3
P161,667

P2,000,000
1,000,000
P1,000,000
500,000
P 500,000
15,000
P 485,000
Total
1
P485,000

Maya (child)
Free Portion

P165,417 P333,883

P 500,000
161,667
P 661,667
Total
1
P 661,667

Maya (child)
1/3
P161,667

Death of Jess
Exclusive share when Sabel died
Add: Share from distributable share
Distributable estate
Fraction of share - testate
Distribution of inheritance

Dorado (child)

P165,417

Problem 2-19

Gross taxable value for:

1. Capital gain tax

P 300,000

2. Donors tax

P 500,000

3. Business tax

P - 0 -

4. Estate tax

P1,800,000

Problem 2-20
Gross estate
Less: Deductions

P3,000,000
1,000,000

BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS)
SUGGESTED ANSWERS

Chapter 2: TRANSFER TAXES AND

BASIC SUCCESSION
P2,000,000
135,000
P1,865,000

Net estate before estate tax

Less: Estate tax
Net distributable estate
Tito (legitimate son)
1
P1,243,333

Fraction of share - intestate

Distribution of inheritance

Vic (illegitimate son)

P621,667

Problem 2-21
1. Gross estate (P500,000 + P250,000 + P1,000,000 + P100,000)

Total
1.5
P1,865,000

P1,850,000

2. Inheritance of Tim (P500,000 x )

P 250,000

Problem 2-22

1. Testamentary
Legitime:
Legitimate son Peter (P35,000,000 x 50%) x
Legally adopted son Petros (P35,000,000 x 50%) x
Surviving spouse (P8,750,000 x )
Illegitimate son Rocky
Free portion that may be given to other relatives

P8,750,000
8,750,000
4,375,000
4,375,000
8,375,000
P35,000,000

2. Intestate Succession
Legitimate son Peter (P35,000,000/3.5)
Legally adopted son Petros (P35,000,000 x 3.5)
Surviving spouse (P35,000,000 x 3.5)
Illegitimate son Rocky (P35,000,000 x 3.5) x

1
1
1
1/2

P10,000,000
10,000,000
10,000,000
5,000,000
P35,000,000

Problem 2-23
Legitimate child 1

Fraction of share
Amount of inheritance

1
P2,857,143

Legitimate child 2

Surviving spouse

Illegitimate child

1
P2,857,143

1
P2,857,143

P1,428,571

Total

3.5
P10,000,000

Note: The last will and testament is void because the presence of legitimate child eliminates the parents from the
inheritance. In all cases, the legitime must not be impaired by the disposition through will.
Problem 2-24
1. Computation of net distributable share
Total gross estate (P10,000,000 + P20,000,000 + P30,000,000)
Less: Ordinary deductions
Net estate before share of surviving spouse
Less: Share of surviving spouse (P57,500,000 x 50%)
Net estate before estate tax
Less: Estate tax (P28,750,000 x 15%)
Net distributable estate

2.

Computation of the shares of the heirs

Share of legitimate son (P24,437,500 x )
Share of surviving spouse (P24,437,500 x )

P60,000,000
2,500,000
P57,500,000
28,750,000
P28,750,000
4,312,500
P24,437,500

P12,218,750
P12,218,750

BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS)
SUGGESTED ANSWERS

Chapter 2: TRANSFER TAXES AND

BASIC SUCCESSION

Note: His mother and brother, as secondary heirs, are disqualified to share from the portion of the legitime due to the
presence of a legitimate child. Hence, the will becomes void.
Problem 2-25
1.

2.

Computation of net distributable estate:

Gross estate (P4,000,000 + P1,000,000 + P200,000 + P5,000,000 + P3,000,000)
Less: Ordinary deductions:
Funeral expense
Unpaid mortgage
Allowable deduction - Standard deduction
Net taxable estate
Less: Estate tax (P11,900,000 x 15%)
Net estate after tax
Add: Standard deduction
Net distributable estate

P13,200,000
P 100,000
200,000

P 300,000
1,000,000

1,300,000
P11,900,000
1,785,000
P10,115,000
1,000,000
P11,115,000

Distribution of net distributable estate:

Testate succession
Intestate succession
Mixed succession

Christopher
(son)
P4,000,000
2,957,500
P6,957,500

Cristeta
(daughter)
P1,000,000
2,957,500
P3,957,500

Crisistomo
(driver)
P 200,000
.
P 200,000

Total
P 5,200,000
5,915,000
P 11,115,000