ESTATE TAX

Imposed upon the privilege

Of disposing
Gratuitously
Private properties

DIFFERENCE WITH INCOME TAX (TER)

1. On transfer of property; on income
2. Lower rates (Estate = 5%; Donors = 2%, 15%, 30%); Income = 5-32%
3. Lesser exemptions; More exemptions
KINDS
1.
2.

Estate Tax
Donors Tax

DIFFERENCE OF ESTATE AND DONOR (FARNRED PETERGC)

1. Filed, notice. 2mos after death or after qualifying as executor v None
2. Amount exempt. 200K v 100K
3. Rate. 5-20% v 2-15%
4. Nature of transfer. After death of decedent/between natural persons v During donors lifetime/natural &
juridical
5. Requirements.
a. Estate Notice required after decedents death in the ff cases:
I. Transac subject to estate tax
II. Transac exempt from estate tax but more than 20K
b. Donors notice of donation not required, EXC:
I. To NGOs, if more 50K or more, EXC to EXC
i.
More than 30% will be used for admin purposes
II. To any candidate, political party or coalition of parties
6. Exemptions. Sec. 101 v Sec. 87
7. Deductions. None v Sec. 86
8. Payment of tax due. BOTH Pay as you file
9. Extension of filing return. 30 days (in meritorious cases) v None
10. Time of filing return. W/in 6mos from death v W/in 30days after donation
11. Extension of Payment.
a. Estate Gen Rule: No extension; EXC:
I. When it will result to undue hardship upon the estate/heirs
i.
EXC to EXC: When taxpayer is guilty of
a. Negligence
b. Intentional disregard t R&R
c. Fraud
b. Donors - None
12. Return.
a. Estate:
I. A transfer subject to estate tax
II. Not subject to estate tax but gross estate = more than 200K

III. Estate consists of registered, registrable prop no matter the value

b. Donors transfer subject to donors tax
13. Grant of extension of payment. Requirements: Bond (not exceeding tax (x) 2 plus sureties deemed
necessary by commissioner vs None
14. Contents of Return.
a. Estate (VOID)
I. Value (gross estate)
II. Other pertinent info
III. If gross estate exceeds 2M, certified by CPA as to assets, deductions, tax due, w/n paid
IV. Deductions (Sec. 86)
b. Donors (GAPNO)
I. Each gift made during the calendar yr (for computing net gifts)
II. Allowable and claimed deductions
III. Previous net gifts made during the same yr
IV. Donees name
V. Such other info as may be req by R&R
DONATIONS
Inter vivos subject to donors tax
EXC: 1. Transfers in contemplation of death 2. and revocable transfers, since the control of the decedent
is up to the time of his death. Therefore, subject to estate tax
Mortis causa to estate tax
DEFINITIONS
Estate tax
An excise tax
On the privilege
of transmitting prop at the time of death
given to a person in controlling the disposition of prop
to take effect upon his death
not a direct tax on the decedents prop
Estate Planning
a manner by w/c a person takes step to conserve his property to be transmitted to his heirs by decreasing
the estate taxes to be paid upon his death
this is lawful since a person has the legal right to decrease the amount he will pay as taxes or avoid
themby means w/c the law permits
NATURE OF ESTATE TAX
1. excise tax imposed on the privilege of transferring the ownership of prop; not a prop tax
2. ad valorem the tax base is the fair market value as of the time of death of the decedent
a. but the appraised value should be which ever is higher of the fair market value
i. as assessed by the Commissioner (zonal)
ii. as indicated in the schedule of values fixed by the Provincial or City Assessors
3. indirect can be passed to the transferee
4. national imposed only by the national govt, NOT LGUs
5. general revenue raised is for the general purposes
6. progressive rate increases as the base increases

BASES OF IMPOSITION
1. Benefits-Protection Theory State can collect taxes on the reciprocal duties of support and protection
2. Redistribution of Weath since successors inheritance are reduced and transferred to the govt coffers
3. State-partnership Theory State is a silent partner in accumulating wealth
4. Ability to Pay since inheritance is an unearned wealth, it creates the ability to pay
REQUISITES (DSD)
1. Decedents death
2. Successor still living at the time of death
3. Successor not disqualified to inherit
Time of Trasfer at the death of the decedent
Law Applicable law at the time of death
Accrual of Tax at the time of death; but obli to pay is w/in 6mos from death
Residence
permanent home
a place where, despite business or employment, the person always intends to return
PERSON TAXABLE OF ESTATE TAX
1. Residents and citizens comprising of all properties at the time of his death
a. Real or personal
b. Tangible or intangible
c. All interests therein
d. Wherever situated
e. Revocable transfers
f. Transfers for insufficient consideration
2. Non-resident aliens
a. Real properties situated in the PH
b. For intangible props subject to Reciprocity Rule
GROSS ESTATE
FORMULA
Gross estate
Less: Deductions; Net Share of Surviving Spouse
---------------------------------------------------------------Net Taxable Estate x Tax Rate = Estate Tax Due
Less: Tax Credit (if any)
VALUATION
Real Prop Fair Market Value (FMV) as determined by
a. The Commissioner (zonal value)
b. The schedule of values of the City or Municipal Assessor
c. If no zonal value, FMV in the latest tax dec
Personal Prop FMV based on appraisal
Shares of stock
I.
Unlisted
a. Unlisted common book value
Dont consider appraisal value

 Dont consider value of par preffered shares

b. Unlisted presferred par value
II.
Listed the arithmetic mean of the highest and lowest quotation at a date nearest the date of death if
none is available on the date of death
Right to use, usufruct, habitation, annuity
take into account the probable life of the beneficiary
according to the basic standard mortality table
to be approved by the Sec of Finance
on the recommendation of the Insurance Commissioner
If there is improvement,
its value is the construction cost per bldg permit
or the FMV in the latest tax dec
COMPUTATION OF GROSS ESTATE
A. Resident, non-res citizen; Resident Alien Value at the time of death of
a. Real property w/n in PH
b. Personal property w/n in PH
c. To the extent of the interest therein at the time of death
Residency is determined by the intent to return despite business or work
B. Non-resident alien
a. Real prop in PH
b. Personal prop w/situs in PH unless exempted under the reciprocity rule
i. Franchise exercised in PH
ii. Shares, bonds, obli
in a corpo organized and constituted in PH
iii. Shares, bonds, obli
In an foreign corpo, 85% of its buss is located in PH
Even if issued in favor of non-resident bec it has obtained situs in PH
iv. Shares, bonds, obli
Issued by a foreign corpo
But has acquired buss situs in PH
v. Shares, bonds, obli
In a buss, industry, partnership
Established in PH
EXCEPTION: Reciprocity Rule
a. Total exemption when the alien is a citizen/resident of a country w/c at the time of
his death did not impose transfer tax of any character to intangible prop of PH citizens
not residing in that country
b. Partial exemption when the alien is a citizen/resident of a country w/c at the time of
his death did not impose any similar transfer tax or death tax to intangible props of PH
citizens not residing in that country
INCLUSIONS IN GROSS ESTATE
1. Decedents interest
Any interest of the decedent at the time of his death having value or capable of being valued
2. Transfer in Contemplation of Death

Transfer made by the decedent

motivated by the thought
of impending death
although death may not be imminent

Transfer by decedent, at any time

In contemplation of
Or to take effect in possession or enjoyment
At or after death
When decedent has, at any time, made a transfer where he
Reserved for his life
Or for a period not ascertainable w/o reference to his death
Or any period w/c does not end before his death
The possession, enjoyment or right to income of the prop
The right (alone or in conjunction w/others) to designate the person who will
possess, enjoy the prop or income therefrom

EXCEPTIONS
a. Bona fide sale
b. Sale for
adequate
or full consideration
in money or moneys worth
Transfer in contemplation of death is that
where the person retains some control over the property therefore not effecting a full transfer of
all interests therein
not all transfers made by a dying person qualifies under this classification
Transfers made by a person shortly before his/her death and simultaneous to his/her execution of a will is
considered transfer in contemplation of death and forms part of gross estate because the intention of
the decedent is to avoid estate tax
3-year presumption rule
Any transfer made by a person w/in 3 years before his death is considered to be in contemplation of
death (THIS WAS ALREADY DELETED by PD1705)
Circumstances to Consider (HAGGAM DIVE)
I.
Age of decedent at the time of transfer
II.
Health as he knew it before or at transfer
III.
Interval. Between transfer and death
IV.
Amount transferred vis-a-vis amount retained
V.
Nature of disposition of the decedent
VI.
Existence of a general testamentary scheme of w/c transfers were part
VII.
Donee-Decedent relationship
VIII.
Long-established gift-making policy on the part of the decedent
IX.
Desire of the decedent to avoid the difficulty of managing his prop by transferring to others
X.
Desire of the decedent to vicariously enjoy the enjoyment of the donees of his prop
XI.
Desire of the decedent to avoid estate taxes by tansferring to donees inter vivos

3.
-

Revocable Transfer
A transfer
By trust or otherwise
Where the enjoyment thereof
at the date of death
Was subject to change through the exercise of power to alter, amend or revoke
Power to AAR may be by the decedent alone
Or in conjunction with any other person
Where such power is relinquished in contemplation of the decedents death other than a bona
fide sale or sale for adequate or full consideration
Exists notwithstanding:
Exercise of power is subject to precedent giving of notice
AAR takes effect only upon the expiration of a stated period after the exercise of power
w/n on or before death, notice has been given
Power has been exercised
In such a case
o Proper adjustment shall be made representing the interest w/c would
have been excluded from the power if decedent lived
o And for such other purpose if notice has been given
o Or the power has not been exercised on or before death
o Such notice shall be considered given and power exercised
Its part of the gross estate bec the transferor can revoke the transfer any time
Although decedent did not exercise the power, it still falls under this classification

EXCEPTIONS (when it is not revocable; not usbject to estate tax)

I.
If the decedents power can only be exercised by the consent of others with interest in the prop
II.
When decedent was completely divested of such power at the time of death
III.
Where power is
i. subject to contingency
ii. beyond decedents control
iii. and it did not happen before death
IV.
The mere right to name trustees
i. The right of the decedent to designate himself as the trustee under conditions that did
not happen before his death
4.

Property Passing Under a General Power of Appointment (GPA)

GPA
Power to designate a person
Who will succeed to the prop of the prior decedent
In favor of anybody
Himself
Estate of decedent
Creditors
Creditors of his estate
EXC:

a.
b.

c.

When the donation contains a provision of reversion to the donor (it becomes revocable
transfer)
If it can only be exercised in favor of
One or more classes of persons
exclusive of decedent
his estate
creditors
or estate creditors (specific power/SPA)
if expressly not exercisable in favor of the abovementioned (specific power/SPA)

PROPERTIES COVERED
Those passed by the decedent under GPA by
I.
his will
II.
deed executed in contemplation of death or to take effect in possession or enjoyment at death
III.
deed under w/c he reserves for his life or on a period unascertainable w/o reference ot his death or for
any period that does not end before death possession, enjoyment and right to income of prop and right
to designate a person to enjoy, possess prop and income thereof
EXCEPTIONS:
Transferred by bona fide sale or sale with adequate or full consideration
DIFFERENCE FROM TRANSFER IN CONTEMPLATION...
I.
Effectivity ICOD at or after death v GPA for his life or period unascertainable...
II.
Means by trust or otherwise v under GPA, will or deed
5.

Proceeds of Life Insurance

CONSIDERED PART OF GROSS ESTATE
Beneficiary is
I.
Decedents estate, exec, admin (w/n revocable or irrevocable designation)
II.
Third person other than mentioned above (designation must be revocable)
CONSIDERED NOT PART OF GROSS ESTATE
I.
Proceeds receivable by third person other than estate, exec, admin (irrevocable)
II.
Insurance not taken by decedent on his own life and beneficiary not exec, admin, estate

Third person anyone other than estate, exec, admin

If the beneficiary irrevocable designated caused the decedents death, it s considered revocable desig
EXC: he acted in self-defense
Employers life insurance on employees life and employers the beneficiary
Premium paid by employer will not be deductible from ers gross income
It will not be included in gross income of ee-beneficiary
But proceeds will form part of the gross estate of the ee (if revocable designation, otherwise if
irrevocable)
If prop is destroyed, it will not be part of the estate but a receivable
Proceeds from an accident insurance given to the heir of the decedent is not liable for estate tax because:
It is not existing during the time of the death

Decedent did not exercise the privilege of transferring his/her prop

Decedent did not control the disposition of his prop

6.
-

Prior Interest
All transfers, trusts, estates, interests, rights, powers and relinquishment of powers made, created,
arising, existing, exercised, relinquished before or after the effectivity of the Tax Code

7.

Transfers for Insufficient Consideration

Excess of the FMV of the prop at the time of death over the consideration received
WHEN APPLICABLE
I.
Transfers in ICOD
II.
Under GPA
III.
Revocable transfers (all not including bona fide sale or with full or adequate compensation)