Business and Transfer Taxes Notes

Estate Tax
2 PARTS OF THE ESTATE

Legitime
This is a secured portion of the estate that the lawreserves for compulsory heirs.

Free Portion

Portion of the will that the testator can freelydispose of.
PROBATE OF THE LAST WILL AND TESTAMENT

This is a SpecialProceeding validating the last will and testament.No property of a
testator shall pass to an heir unless proven that allterms in the Last will and testament is
legal and valid in court.

Revocation of Will

the testator may revoke his last will andtestament at any time before he dies. If he
executed more than oneLast will and testament the last one before he dies will be
theprevalent one

DiSINHERITANCE

A compulsory heir may be deprived of hislegitime for a cause provided by law and
effected by will where thelegal cause of which is stated. If there is any discrepancy, there
mustbe proof or evidence.
EXECUTOR/ ADMINISTRATOR

Carries out the provisions of the lastwill and testament that is appointed by the testator. If
he does notaccept, the court shall appoint.
Articulo MORTIS

testator dies within 3 months of the time of marriage

ESTATE TAXES
A tax on the right of transmitting property at the time of deathand on the privilege that a
person is given control to a certainextent to the disposition of his property to take effect
upondeath.
Applies to:a) Citizens of the Philippinesb) Residents of the PhilippinesNon-resident
aliens with properties in thePhilippinesWhere to file- municipality in which thedecedent
was domiciled at the time of hisdeath or if there be no legal residence in thePhilippines,
with the Office of theCommissioner.
GROSS ESTATEA.Gross Estate of Citizen and Resident Decedent1. Real Property
located within and without thePhilippines2 Tangible personal property located within
andwithout the Philippines3. Intangible personal property located withinand without the
PhilippinesB.Gross Estate of a Non-Resident Alien Decedent1. Real Property located
within the Philippines2. Tangible personal property located within thePhilippines3.
Intangible personal property located within thePhilippines unless there is reciprocity in
whichcase it is not taxable in the Philippines.Situs or PLACe OF TAxATION
Property has a situs or location or a jurisdiction for taxpurposes. Situs is decisive in
determining the estate of adeceased person taxable in the Philippines.SUBJECT TO TAX
WITHINWITHOUTCitizen / ResidentyyResident AlienyyNon ResidentAlien/Non
ResidentCitizenyNNon ResidentCitizenyYReal Property- country where they are situated
Tangible Personal Property- country where theyare actually located at the time of death of
thedecedentIntangible Personal Property- considered asintangible personal properties
situated in thePhilippines:~franchise which must be exercised in thePhilippines~shares,
obligations or bonds issued by anycorporation organized in the Philippines
~
shares, obligations or bonds issued by anyforeign corporation 85% of the business of
which is located in the Phils~shares, obligations or bonds issued by aforeign corporation
if such shares haveacquired a business situs in the Phils.~Shares or rights in any
partnership,business or industry established in thePhils.
PROPERTIES INCLUDIBLE IN THE GROSS ESTATE
DECEDENTS INTEREST
- shall include all properties, rights andinterest which the decedent owns at the time of
death. It shall include:
Properties owned by the decedent actually andphysically present in his estate at the time
of hisdeathsuch as land, buildings, shares of stock,vehicles, bank deposit, etc
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Business and Transfer Taxes Notes

Estate Tax
The value of any interest in property owned orpossessed by the decedent at the time of
hisdeathsuch as dividends declared before hisdeath but received after his death,
partnershipprofits which have accrued before his death,usufructuary rights, etc. The value
of property, right or interest in theproperty, transferred by the decedent during hislifetime
which, under the law, are in the nature of testamentary dispositions

such as life insuranceproceeds in favor of a revocable beneficiary. TAXABLE

TRANSFERSValue of the property or inter

est in propertytransferred by the decedent during his lifetimewhich is in the nature of

testamentarydisposition:Transfers in contemplation of deathRevocable
transfersProperty passing under a general power of appointmentTransfer with retention
or reservation of certain rights over the income orenjoyment of the property
transferredTransfer for insufficient consideration Transfers in Contemplation of
DeathImpelled by the thought of death, or themotivating factor or controlling motive for
thetransfer of the property is the thought of deathwithout regard to the state of health of
thetransferor.Donation Mortis Causa Takes effect upon the death of the donor.
Itscharacteristics are:there is no conveyance of title orownership to the donee or
transfereethe transfer is revocable by the donor atwill during his lifetimethe transfer
shall be void id the donorsurvives the doneeREVOCABLE TRANSFERSWhere the
enjoyment of the property transferredmay be altered, amended, revoked or terminatedby
the decedent. The revocability is not affectedby the failure of the decedent to exercise
thepower to revoke during his lifetime. If the noticehas not been given, the power to
revoke has notbeen exercised on of before the date of his death,such notice shall be
considered to have beengiven, or the power exercised on the date of hisdeath.PROPERTY
PASSING UNDER A GENERAL POWEROF APPOINTMENT The rule is the gross
estate shall include anyproperty passing or transferred under a generalpower of
appointment exercised by the decedentBy willBy deed to take effect in possession
orenjoyment at or after his deathBy deed under which he has retained forhis life or any
period not ascertainablewithout reference to his death or for anyperiod which does not in
fact end beforehis deathThe possession or enjoyment of, or theright to the income from
the propertyThe right, either alone, or in conjunctionwith any person to designate the
personswho shall possess or enjoy the property orthe income therefrom The donee of a
general power of appointmentholds the appointed property with all theattributes of
ownership thus, the appointedproperty shall form part of the gross estate of thedonee of
the power upon his death. Transfers with Retention and Reservation of Certain Rights
Over the Income or Enjoyment of the Property Transferred Transfers where the donor
reserves the right tothe income of the property until death; or Transfers where the donor
reserves the right tothe possession or enjoyment of the property untildeath These transfers
do not actually convey fullownership over the property transferred hencethe property still
remains part of the gross estateof the transferor. TRANFERS FOR INSUFFICIENT
CONSIDERATIONIf the transfer is a bona fide sale foradequate and full consideration
in moneyor moneys worth, no value shall beincluded in the gross estate.

If the transfer is not a bona fide sale for anadequate and full consideration in money
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Business and Transfer Taxes Notes

Estate Tax
or moneys worth, there shall be includedin the gross estate only the excess of thefair
market value of the property at thetime of death over the value of theconsideration
received by the decedent
.
If an inter vivos transfer of the decedent isproven to be fictitious, the total value of the
property at the time of death shall beincluded in the gross estate.Reasons for Taxability of
the TransfersIt will be seen that in most of these transfers, theproperty remains
substantially that of thetransferor during his lifetime notwithstanding thetransfer as he
still retains either the BeneficialOwnership or Naked Title to the property.Hence, the
transfer is essentially similar inrespect to a transmission by testacy or intestacyupon the
death of the owner. In order to beexempted from the purview of the taxingprovisions, the
transfer by inter vivos must beabsolute and outright with no strings attachedwhatsoever
by the decedent.PROCEEDS OF LIFE INSURANCEProceeds of life insurance under
policies takenout by the decedent upon his own life shall beincluded in his gross estate in
the following cases:when the beneficiary is the estate of thedeceased, his executor or
administratorwhether or not the deceased retained thepower of revocationwhen the
beneficiary is other than theestate of the deceased, his executor oradministrator and the
decedent retainedthe power of revocationCLAIMS AGAINST INSOLVENT
PERSONSAre receivables due or owing from persons whoare not financially capable of
meeting theirobligations. The receivables shall be included inthe gross estate at their full
amount.CAPITAL OF THE SURVIVING SPOUSE The gross estate of a married
decedent shallconsist of the following:conjugal or community propertiesexclusive
properties The capital of the surviving spouse shall not bedeemed part of the gross estate.
EXEMPT ACQUISITIONS AND TRANSACTIONSFROM PAYMENT OF ESTATE
TAXES
the merger of the usufruct in the owner of the naked titlethe transmission or delivery of
theinheritance or legacy by the fiduciary heiror legatee to the fideicommissarythe
transmission from the first heir,legatee or donee in favor of anotherbeneficiary in
accordance with the desireof the predecessorall bequests, devises, legacies or transfersto
social welfare, cultural and charitableinstitutions, no part of the income of whichinures to
the benefit of any individual;Provided, however, that no more than 30%of the said
bequests, devices, legacies ortransfers shall be used by such institutionsfor administration
purposes.VALUATION OF THE ESTATE

Valuation Date- time of death

Basis of Valuation- fair market value,which is the price which a property willbring when
it is offered for sale by onewho desires, but is not obligated to selland is bought by one
who is under notnecessity of buying it

Valuation of Usufruc t- probable life of thebeneficiary in accordance with the latestBasic

Standard Mortality TableValuation of Real Property -1) FMV as determined by the
Commissioner; or2) FMV as shown in the schedule of values fixedby the Provincial or
City Assessors

Valuation of Personal Properties-FMV atthe time of the decedents death