BUSINESS AND TRANSFER TAXATION 5th Edition

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

BUSINESS AND TRANSFER TAXATION 5th Edition

Chapter 2: TRANSFER TAXES AND BASIC SUCCESSION

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

2. C House and lot as donation, net of mortgage (P2,000,000 1,900,000) Farm as inheritance Amount of gratuitous transfer Problem 2-7 1. A Car 2. C House and lot mortis causa 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 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 Note: The distribution is testamentary because there is a devise or legacy. Problem 2-10 B Inheritance of the spouse (P5,000,000/5) 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

P 100,000 500,000 P 600,000

P 800,000

P1,000,000

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

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

P1,000,000

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

BUSINESS AND TRANSFER TAXATION 5th Edition

Chapter 2: TRANSFER TAXES AND BASIC SUCCESSION

Legacy to the sister-in-law Problem 2-12 C Hereditary estate Portion for the illegitimate child (P3,000,000 x 1/3) Amount inherited by the wife 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 Problem 2-14 Inheritance of each child (P5,000,000/5) Problem 2-15 Cash in bank House and lot Investments in securities Total gross estate Less: Unpaid mortgage Existing loan Funeral expense Estate tax Hereditary estate Problem 2-16 Legitimate child Mario (P1,200,000 x ) Illegitimate child Maria (P600,000 x ) Surviving spouse (P600,000 x )

P 225,000

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

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

P 1,000,000

P 100,000 5,000,000 400,000 P5,500,000 P 200,000 100,000 100,000 100,000

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 ) Remaining balance (divide based on the intention of the will) Legitimate child (P1,000,000 x ) Surviving spouse (P1,000,000 x )

Son P2,000,000

Wife P1,000,000

500,000 . P2,500,000

500,000 P1,500,000

BUSINESS AND TRANSFER TAXATION 5th Edition

Chapter 2: TRANSFER TAXES AND BASIC SUCCESSION

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 Maya (child) (child) Fraction of share - intestate 1/3 1/3 Distribution of inheritance P161,667 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

Death of Jess Exclusive share when Sabel died Add: Share from distributable share Distributable estate Dorado (child) P165,417 Maya (child) P165,417 Free Portion P333,883

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

Fraction of share - testate Distribution of inheritance

Problem 2-19 Gross taxable value for: 1. Capital gain tax 2. Donors tax 3. Business tax 4. Estate tax Problem 2-20 Gross estate Less: Deductions Net estate before estate tax Less: Estate tax Net distributable estate

P 300,000 P 500,000 P - 0 P1,800,000

P3,000,000 1,000,000 P2,000,000 135,000 P1,865,000

BUSINESS AND TRANSFER TAXATION 5th Edition

Chapter 2: TRANSFER TAXES AND BASIC SUCCESSION

Fraction of share - intestate Distribution of inheritance

Tito (legitimate son) 1 P1,243,333

Vic (illegite son) P621,667

Total 1.5 P1,865,000

Problem 2-21 1. Gross estate (P500,000 + P250,000 + P1,000,000 + 100,000) 2. Inheritance of Tim (P500,000 x ) 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

P1,850,000 P 250,000

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 1 P2,857,143 Legitimate child 2 1 P2,857,143 Surviving spouse 1 P2,857,143 Illegitimate child P1,428,571 Total 3.5 P10,000,000

Fraction of share Amount of inheritance

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.

BUSINESS AND TRANSFER TAXATION 5th Edition

Chapter 2: TRANSFER TAXES AND BASIC SUCCESSION

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

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. 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 Stand deduction Net taxable estate Less: Estate tax (P11,900,000 x 15%) Net estate after tax Add: Standard deduction Net distributable estate 2. Distribution of net distributable estate: Christopher (son) Testate succession Intestate succession Mixed succession P4,000,000 2,957,500 P6,957,500

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

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