Part I.

Estate and Donor’s Tax

ESTATE TAX

I. BASIC PRINCIPLES DEFINED

A. Estate Tax Defined: Estate Tax is the tax on the right to transmit property at death and on certain transfers by the
decedent during his lifetime which are made by the law the equivalent of testamentary dispositions. The tax is measured
by the value of the property at the time of death. (De Leon)

B. Nature and Purpose of Estate Tax:

(1) Estate tax is not a direct tax on property. Neither is it a capitation tax; that is, the tax is laid neither on the property
nor on the transferor or the transferee. In other words, it is an excise or privilege tax.
(2) The object of estate tax is to tax the shifting of economic benefits and enjoyment of property from the dead to the
living

Purpose:
- to add income to the government
- Benefits-Received theory: considers the services government renders in the distribution of the estate of the decedent,
either by law or in accordance with his wishes. To perform these services that accrue to the estate and heirs, State collects
taxes.
- Privilege theory/State Partnership theory: inheritance is a privilege granted by the state. As the state is a ‘silent partner’
in the accumulation of property, it has the right to collect taxes
- Ability to pay theory: the receipt of inheritance places assets in the hands of the heirs and creates an ability to pay tax +
contribute to govt income
- Redistribution of wealth theory: since the receipt of inheritance is a contributing factor to inequalities of wealth,
imposition of death tax brings an equitable distribution of wealth in society.

C. Time of Transfer of Properties

Lorenzo v. Posadas. Estate and inheritance tax laws rest in their essence upon the principle that death is the generating
source from which the taxing power takes it being and that it is the power to transmit, or the transmission from the dead
to the living in which the tax is more immediately based. Hence, it accrues as of the death o the decedent by operation of
law.

No manual transfer to heirs required, but the course and direction of the property are under the control of the probate
court (in case of testamentary disposition) and the actual transfer is not effected until its recipients are determined and
title is lodged in them. (85 CJS 990)

D. Governing Law – statute in force at the time of death of the decedent.

II. DETERMINATION OF GROSS ESTATE (NIRC Sec 85, RR 02-03)

NIRC, 85. Gross Estate. - the value of the gross estate of the decedent shall be determined by including the value at the
time 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.
A. Decedent's Interest. - To the extent of the interest therein of the decedent at the time of his death;
B. Transfer in Contemplation of Death. - 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 a 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 any 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 full
consideration in money or money's worth.
C. Revocable Transfer. –
1. To the extent of any interest therein, of which the decedent has at any time made a transfer (except in case of a bona
fide sale for an adequate and full consideration in money or money's worth) by trust or otherwise, where the enjoyment
thereof was subject at the date of his death to any change through the exercise of a power (in whatever capacity
exerciseable) by the decedent alone or by the decedent in conjunction with any other person (without regard to when or
from what source the decedent acquired such power), t o alter, amend, revoke, or terminate, or where any such power is
relinquished in contemplation of the decedent's death.
2. For the purpose of this Subsection, the power to alter, amend or revoke shall be considered to exist on the date of the
decedent's death even though the exercise of the power is subject to a precedent giving of notice or even though the
alteration, amendment or revocation takes effect only on the expiration of a stated period after the exercise of the power,
whether or not on or before the date of the decedent's death notice has been 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
if the decedent had lived, and for such purpose if the notice has not been given or the power has not 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.
D. Property Passing Under General Power of Appointment. - To the extent of any property passing under a general
power of appointment exercised by the decedent: (1) by will, or (2) by deed executed in contemplation of, or intended to
take effect in possession or enjoyment at, or after his death, or (3) 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 (a)
the possession or enjoyment of, or the right to the income from, the property, or (b) 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;

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except in case of a bona fide sale for an adequate and full consideration in money or money's worth.
E. Proceeds of Life Insurance. - To the extent of the amount receivable by the estate of the deceased, his executor, or
administrator, as insurance under policies taken out by the decedent upon his own life, irrespective of whether or not the
insured retained the power of revocation, or to the extent of the amount receivable by any beneficiary designated in the
policy of insurance, except when it is expressly stipulated that the designation of the beneficiary is irrevocable.
F. Prior Interests. - Except as otherwise specifically provided therein, Subsections (B), (C) and (E) of this Section shall
apply to the transfers, trusts, estates, interests, rights, powers and relinquishment of powers, as severally enumerated
and described therein, whether made, created, arising, existing, exercised or relinquished before or after the effectivity of
this Code.
G. Transfers of Insufficient Consideration. - If any one of the transfers, trusts, interests, rights or powers enumerated
and described in Subsections (B), (C) and (D) of this Section is made, created, exercised or relinquished for a
consideration in money or money's worth, but is not a bona fide sale for an adequate and full consideration in money or
money's worth, there shall be included in the gross estate only the excess of the fair market value, at the time of death, of
the property otherwise to be included on account of such transaction, over the value of the consideration received
therefor by the decedent.
H. Capital of the Surviving Spouse. - The capital of the surviving spouse of a decedent shall not, for the purpose of this
Chapter, be deemed a part of his or her gross estate

A. Classification of Decedent
1. Citizen and Resident – Resident and non-resident citizens and resident aliens
2. Non-resident Alien

B. Composition of Gross Estate, in General

RR 02-03, Sec. 4. COMPOSITION OF THE GROSS ESTATE. – The gross estate of a decedent shall be comprised of the
following properties and interest therein at the time of his death, including revocable transfers and transfers for
insufficient consideration, etc.:
A) Residents and citizens – all properties, real or personal, tangible or intangible, wherever situated.
B) Non-resident aliens – only properties situated in the Philippines provided, that, with respect to intangible personal
property, its inclusion in the gross estate is subject to the rule of reciprocity provided for under Section 104* of the Code.

*NB: Sec 104, NIRC is the rule on reciprocity, discussed below.

a. Rule on Reciprocity
NIRC, 104. Definitions. - For purposes of this Title, the terms 'gross estate' and 'gifts' include real and personal
property, whether tangible or intangible, or mixed, wherever situated: Provided, however, That where the decedent or
donor was a nonresident alien at the time of his death or donation, as the case may be, his real and personal property so
transferred but which are situated outside the Philippines shall not be included as part of his 'gross estate' or 'gross
gift': Provided, further, That franchise which must be exercised in the Philippines; shares, obligations or bonds issued by
any corporation or sociedad anonima organized or constituted in the Philippines in accordance with its laws; shares,
obligations or bonds by any foreign corporation eighty-five percent (85%) of the business of which is located in the
Philippines; shares, obligations or bonds issued by any foreign corporation if such shares, obligations or bonds have
acquired a business situs in the Philippines; shares or rights in any partnership, business or industry established in the
Philippines, shall be considered as situated in the Philippines: Provided, still further, that no tax shall be collected under
this Title in respect of intangible personal property: (a) if the decedent at the time of his death or the donor at the time of
the donation was a citizen and resident of a foreign country which at the time of his death or donation did not impose a
transfer tax of any character, in respect of intangible personal property of citizens of the Philippines not residing in that
foreign country, or (b) if the laws of the foreign country of which the decedent or donor was a citizen and resident at the
time of his death or donation allows a similar exemption from transfer or death taxes of every character or description in
respect of intangible personal property owned by citizens of the Philippines not residing in that foreign
country.
The term 'deficiency' means: (a) the amount by which tax imposed by this Chapter exceeds the amount shown as
the tax by the donor upon his return; but the amount so shown on the return shall first be increased by the amount
previously assessed (or Collected without assessment) as a deficiency, and decreased by the amounts previously abated,
refunded or otherwise repaid in respect of such tax, or (b) if no amount is shown as the tax by the donor, then the amount
by which the tax exceeds the amounts previously assessed, (or collected without assessment) as a deficiency, but such
amounts previously assessed, or collected without assessment, shall first be decreased by the amount previously abated,
refunded or otherwise repaid in respect of such tax

C. Concept of “Residence” for Estate Tax Purposes: For purposes of estate taxation, “residence” refers to “the
permanent home, the place to which whenever absent, for business or pleasure, one intends to return, and depends on
the facts and circumstances, in the sense that they disclose intent.” It is therefore, not necessarily the actual place of
residence. Residence and domicile are synonymous and used interchangeably.

D. Items to be included in determining Gross Estate (NIRC Sec 85A – 85G [supra])

1. Decedent’s interest
2. Prior interest
3. Transfers in contemplation of death
4. Revocable Transfers
5. Transfers with retained interest
6. Property passing under a general power of appointment
7. Transfers for insufficient consideration

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 8. Proceeds of Life Insurance
E. Specific items to be included in the Gross Estate (NIRC Sec. 104 [supra])

F. Valuation of the Gross Estate (NIRC Sec. 88; Sec 4 RR-02-03)

NIRC, 88. Determination of the Value of the Estate. -

(A) Usufruct. - To determine the value of the right of usufruct, use or habitation, as well as that of annuity, there
shall be taken into account the probable life of the beneficiary in accordance with the latest Basic Standard
Mortality Table, to be approved by the Secretary of Finance, upon recommendation of the Insurance
Commissioner.
(B) Properties. - The estate shall be appraised at its fair market value as of the time of death. However, the
appraised value of real property as of the time of death shall be, whichever is higher of –
a. The fair market value as determined by the Commissioner, or
b. The fair market value as shown in the schedule of values fixed by the Provincial and City Assessors.

Sec. 4, RR-02 [supra]

III. DETERMINATION OF NET ESTATE/ALLOWABLE DEDUCTIONS FROM GROSS ESTATE (NIRC Sec. 86)

SEC. 86. Computation of Net Estate. - For the purpose of the tax imposed in this Chapter, the value of the net estate shall
be determined:
(A) Deductions Allowed to the Estate of Citizen or a Resident. - In the case of a citizen or resident of the Philippines,
by deducting from the value of the gross estate –

(1) Expenses, Losses, Indebtedness, and taxes. - Such amounts -

(a) For actual funeral expenses or in an amount equal to five percent (5%) of the gross estate, whichever is
lower, but in no case to exceed Two hundred thousand pesos (P200,000);
(b) For judicial expenses of the testamentary or intestate proceedings;
(c) For claims against the estate: Provided, That at the time the indebtedness was incurred the debt instrument
was duly notarized and, if the loan was contracted within three (3) years before the death of the decedent, the
administrator or executor shall submit a statement showing the disposition of the proceeds of the loan;
(d) For claims of the deceased against insolvent persons where the value of decedent's interest therein is
included in the value of the gross estate; and
(e) For unpaid mortgages upon, or any indebtedness in respect to, property where the value of decedent's
interest therein, undiminished by such mortgage or indebtedness, is included in the value of the gross estate, but not
including any income tax upon income received after the death of the decedent, or property taxes not accrued before his
death, or any estate tax. The deduction herein allowed in the case of claims against the estate, unpaid mortgages or any
indebtedness shall, when founded upon a promise or agreement, be limited to the extent that they were contracted bona
fide and for an adequate and full consideration in money or money's worth. There shall also be deducted losses incurred
during the settlement of the estate arising from fires, storms, shipwreck, or other casualties, or from robbery, theft or
embezzlement, when such losses are not compensated for by insurance or otherwise, and if at the time of the filing of the
return such losses have not been claimed as a deduction for the income tax purposes in an income tax return, and
provided that such losses were incurred not later than the last day for the payment of the estate tax as prescribed in
Subsection (A) of Section 91.

(2) Property Previously Taxed. - An amount equal to the value specified below of any property forming a part of the gross
estate situated in the Philippines of any person who died within five (5) years prior to the death of the decedent, or
transferred to the decedent by gift within five (5) years prior to his death, where such property can be identified as
having been received by the decedent from the donor by gift, or from such prior decedent by gift, bequest, devise or
inheritance, or which can be identified as having been acquired in exchange for property so received:
One hundred percent (100%) of the value, if the prior decedent died within one (1) year prior to the death of
the decedent, or if the property was transferred to him by gift within the same period prior to his death;
Eighty percent (80%) of the value, if the prior decedent died more than one (1) year but not more than two (2)
years prior to the death of the decedent, or if the property was transferred to him by gift within the same period prior to
his death;
Sixty percent (60%) of the value, if the prior decedent died more than two (2) years but not more than three
(3) years prior to the death of the decedent, or if the property was transferred to him by gift within the same period prior
to his death;
Forty percent (40%) of the value, if the prior decedent died more than three (3) years but not more than four
(4) years prior to the death of the decedent, or if the property was transferred to him by gift within the same period prior
to his death;
Twenty percent (20%) of the value, if the prior decedent died more than four (4) years but not more than five
(5) years prior to the death of the decedent, or if the property was transferred to him by gift within the same period prior
to his death;

These deductions shall be allowed only where a donor's tax or estate tax imposed under this Title was finally determined
and paid by or on behalf of such donor, or the estate of such prior decedent, as the case may be, and only in the amount
finally determined as the value of such property in determining the value of the gift, or the gross estate of such prior
decedent, and only to the extent that the value of such property is included in the decedent's gross estate, and only if in
determining the value of the estate of the prior decedent, no deduction was allowable under paragraph (2) in respect of

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the property or properties given in exchange therefor. Where a deduction was allowed of any mortgage or other lien in
determining the donor's tax, or the estate tax of the prior decedent, which was paid in whole or in part prior to the
decedent's death, then the deduction allowable under said Subsection shall be reduced by the amount so paid. Such
deduction allowable shall be reduced by an amount which bears the same ratio to the amounts allowed as deductions
under paragraphs (1) and (3) of this Subsection as the amount otherwise deductible under said paragraph (2) bears to
the value of the decedent's estate. Where the property referred to consists of two or more items, the aggregate value of
such items shall be used for the purpose of computing the deduction.

(3) Transfers for Public Use. - The amount of all the bequests, legacies, devises or transfers to or for the use of the
Government of the Republic of the Philippines, or any political subdivision thereof, for exclusively public purposes.

(4) The Family Home. - An amount equivalent to the current fair market value of the decedent's family home: Provided,
however, That if the said current fair market value exceeds One million pesos (P1,000,000), the excess shall be subject to
estate tax. As a sine qua non condition for the exemption or deduction, said family home must have been the decedent's
family home as certified by the barangay captain of the locality.

(5) Standard Deduction. - An amount equivalent to One million pesos (P1,000,000).

(6) Medical Expenses. - Medical Expenses incurred by the decedent within one (1) year prior to his death which shall be
duly substantiated with receipts: Provided, That in no case shall the deductible medical expenses exceed Five Hundred
Thousand Pesos (P500,000).

(7) Amount Received by Heirs Under Republic Act No. 4917. - Any amount received by the heirs from the decedent -
employee as a consequence of the death of the decedent-employee in accordance with Republic Act No. 4917: Provided,
That such amount is included in the gross estate of the decedent.

(B) Deductions Allowed to Nonresident Estates. - In the case of a nonresident not a citizen of the Philippines, by
deducting from the value of that part of his gross estate which at the time of his death is situated in the Philippines:

(1) Expenses, Losses, Indebtedness and Taxes. - That proportion of the deductions specified in paragraph (1) of
Subsection (A) of this Section which the value of such part bears to the value of his entire gross estate wherever situated;

(2) Property Previously Taxed. - An amount equal to the value specified below of any property forming part of the gross
estate situated in the Philippines of any person who died within five (5) years prior to the death of the decedent, or
transferred to the decedent by gift within five (5) years prior to his death, where such property can be identified as
having been received by the decedent from the donor by gift, or from such prior decedent by gift, bequest, devise or
inheritance, or which can be identified as having been acquired in exchange for property so received:

One hundred percent (100%) of the value if the prior decedent died within one (1) year prior to the death of
the decedent, or if the property was transferred to him by gift, within the same period prior to his death;
Eighty percent (80%) of the value, if the prior decedent died more than one (1) year but not more than two (2)
years prior to the death of the decedent, or if the property was transferred to him by gift within the same period prior to
his death;
Sixty percent (60%) of the value, if the prior decedent died more than two (2) years but not more than three
(3) years prior to the death of the decedent, or if the property was transferred to him by gift within the same period prior
to his death;
Forty percent (40%) of the value, if the prior decedent died more than three (3) years but not more than four
(4) years prior to the death of the decedent, or if the property was transferred to him by gift within the same period prior
to his death; and
Twenty percent (20%) of the value, if the prior decedent died more than four (4) years but not more than five
(5) years prior to the death of the decedent, or if the property was transferred to him by gift within the same period prior
to his death.

These deductions shall be allowed only where a donor's tax, or estate tax imposed under this Title is finally determined
and paid by or on behalf of such donor, or the estate of such prior decedent, as the case may be, and only in the amount
finally determined as the value of such property in determining the value of the gift, or the gross estate of such prior
decedent, and only to the extent that the value of such property is included in that part of the decedent's gross estate
which at the time of his death is situated in the Philippines; and only if, in determining the value of the net estate of the
prior decedent, no deduction is allowable under paragraph (2) of Subsection (B) of this Section, in respect of the property
or properties given in exchange therefore. Where a deduction was allowed of any mortgage or other lien in determining
the donor's tax, or the estate tax of the prior decedent, which was paid in whole or in part prior to the decedent's death,
then the deduction allowable under said paragraph shall be reduced by the amount so paid. Such deduction allowable
shall be reduced by an amount which bears the same ratio to the amounts allowed as deductions under paragraphs (1)
and (3) of this Subsection as the amount otherwise deductible under paragraph (2) bears to the value of that part of the
decedent's gross estate which at the time of his death is situated in the Philippines. Where the property referred to
consists of two (2) or more items, the aggregate value of such items shall be used for the purpose of computing the
deduction.

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(3) Transfers for Public Use. - The amount of all bequests, legacies, devises or transfers to or for the use of the
Government of the Republic of the Philippines or any political subdivision thereof, for exclusively public purposes.

(C) Share in the Conjugal Property. - the net share of the surviving spouse in the conjugal partnership property as
diminished by the obligations properly chargeable to such property shall, for the purpose of this Section, be deducted
from the net estate of the decedent.

(D) Miscellaneous Provisions. - No deduction shall be allowed in the case of a nonresident not a citizen of the
Philippines, unless the executor, administrator, or anyone of the heirs, as the case may be, includes in the return required
to be filed under Section 90 the value at the time of his death of that part of the gross estate of the nonresident not
situated in the Philippines.

(E) Tax Credit for Estate Taxes paid to a Foreign Country. -

(1) In General. - The tax imposed by this Title shall be credited with the amounts of any estate tax imposed by the
authority of a foreign country.
(2) Limitations on Credit. - The amount of the credit taken under this Section shall be subject to each of the following
limitations:

(a) The amount of the credit in respect to the tax paid to any country shall not exceed the same proportion of
the tax against which such credit is taken, which the decedent's net estate situated within such country taxable under this
Title bears to his entire net estate; and
(b) The total amount of the credit shall not exceed the same proportion of the tax against which such credit is
taken, which the decedent's net estate situated outside the Philippines taxable under this Title bears to his entire net
estate.

A. Net Estate of Decedent who is either Citizen or Resident of the Philippines

NIRC, 86(A), supra. – value of estate shall be determined by deducting from the value of gross estate:

1. Expenses, losses, indebtedness and taxes (ELIT)

RR 02-03, Sec. 6(A)(1). The value of the net estate of a citizen or resident alien of the Philippines shall be determined by
deducting from the value of the gross estate the following items of deduction :
(A) Expenses, losses, indebtedness, and taxes- Such amounts for:

(1) Actual funeral expenses (whether paid or unpaid) up to the time of interment, or an amount
equal to five percent (5%) of the gross estate, whichever is lower, but in no case to exceed P200,000.

Any amount of funeral expenses in excess of the P200,000 threshold, whether the same had actually been
paid or still payable, shall not be allowed as a deduction under this Subsection. Neither shall the unpaid portion of the
funeral expenses incurred which is in excess of the P200,000 threshold be allowed to be claimed as a deduction under
“claims against the estate” provided under Subsection (C) hereof.

The term "FUNERAL EXPENSES" is not confined to its ordinary or usual meaning. They include:
(a) The mourning apparel of the surviving spouse and unmarried minor children of the deceased bought
and used on the occasion of the burial;
(b) Expenses for the deceased’s wake, including food and drinks;
(c) Publication charges for death notices;
(d) Telecommunication expenses incurred in informing relatives of the
deceased;
(e) Cost of burial plot, tombstones, monument or mausoleum but not
their upkeep. In case the deceased owns a family estate or several burial lots, only the value
corresponding to the plot where he is buried is deductible;
(f) Interment and/or cremation fees and charges; and
(g) All other expenses incurred for the performance of the rites and
ceremonies incident to interment.

Expenses incurred after the interment, such as for prayers, masses, entertainment, or the like are not
deductible. Any portion of the funeral and burial expenses borne or defrayed by relatives and friends of the deceased are
not deductible.
Medical expenses as of the last illness will not form part of funeral expenses but should be claimed under
subsection (F) of this section.
Actual funeral expenses shall mean those which are actually incurred in connection with the interment
or burial of the deceased. The expenses must be duly supported by receipts or invoices or other evidence to show that
they were actually incurred.

Illustrations on how to determine the amount of allowable funeral expenses -

(a) If five percent (5%) of the gross estate is P70,000 and the amount actually incurred is P50,000,
only P50,000 will be allowed as deduction;
(b) If the expenses actually incurred amount to P90,000 and five percent (5%) of the gross estate is
P70,000, only P70,000 will be allowed as deduction;.
(c) If five percent (5%) of the gross estate is P220,000 and the amount actually incurred is
P215,000, the maximum amount that may be deducted is only P200,000;

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 (d) If five percent (5%) of the gross estate is P 100,000 and the total amount incurred is
P150,000 where P20,000 thereof is still unpaid, the only amount that can be claimed as deduction for funeral
expenses is P100,000. The entire P50,000 excess amount consisting of P30,000 paid amount and P20,000 unpaid
amount can no longer be claimed as FUNERAL EXPENSES. Neither can the P20,000 unpaid portion be deducted
from the gross estate as CLAIMS AGAINST THE ESTATE under Subsection (C) hereof.

i. Funeral expenses – lower between actual and 5% of gross estate; ceiling: PhP 200,000

ii. Judicial expenses of the testamentary and intestate proceedings (ROC Rule 81 & 86)

Rule 81: Bond of Executors and Administrators

Section 1. Bond to be given issuance of letters. Amount. Conditions. — Before an executor or administrator enters upon the
execution of his trust, and letters testamentary or administration issue, he shall give a bond, in such sum as the court
directs, conditioned as follows:

(a) To make and return to the court, within three (3) months, a true and complete inventory of all goods, chattels, rights,
credits, and estate of the deceased which shall come to his possession or knowledge or to the possession of any other
person for him;

(b) To administer according to these rules, and, if an executor, according to the will of the testator, all goods, chattels,
rights, credits, and estate which shall at any time come to his possession or to the possession of any other person for him,
and from the proceeds to pay and discharge all debts, legacies, and charges on the same, or such dividends thereon as
shall be decreed by the court;

(c) To render a true and just account of his administration to the court within one (1) years, and at any other time when
required by the court;

(d) To perform all orders of the court by him to be performed.

Section 2. Bond of executor where directed in will. When further bond required. — If the testator in his will directs that the
executors serve without bond, or with only his individual bond, he may be allowed by the court to give bond in such sum
and with such surety as the court approves conditioned only to pay the debts of the testator; but the court may require of
the executor a further bond in case of a change in his circumstance, or for other sufficient case, with the conditions named
in the last preceding section.

Section 3. Bonds of joint executors and administrators. — When two or more persons are appointed executors or
administrators the court may take a separate bond from each, or a joint bond from all.

Section 4. Bond of special administrator. — A special administrator before entering upon the duties of his trust shall give
a bond, in such sum as the court directs, conditioned that he will make and return a true inventory of the goods, chattels,
rights, credits, and estate of the deceased which come to his possession or knowledge, and that he will truly account for
such as are received by him when required by the court, and will deliver the same to the person appointed executor or
administrator, or to such other person as may be authorized to receive them.

RULE 86: Claims Against Estate

Section 1. Notice to creditors to be issued by court. — Immediately after granting letters testamentary or of
administration, the court shall issue a notice requiring all persons having money claims against the decedent to file them
in the office of the clerk of said court.

Section 2. Time within which claims shall be filed. — In the notice provided in the preceding section, the court shall estate
the time for the filing of claims against the estate, which shall not be more than twelve (12) not less than six (6) months
after the date of the first publication of the notice. However, at any time before an order of distribution is entered, on
application of a creditor who has failed to file his claim within the previously limited, the court may, for cause shown and
on such terms as are equitable, allow such claim to be filed within a time not exceeding one (1) month.

Section 3. Publication of notice to creditors. — Every executor or administrator shall, immediately after the notice to
creditors is issued, cause the same to be published three (3) weeks successively in a newspaper of general circulation in
the province, and to be posted for the same period in four public places in the province and in two public places in the
municipality where the decedent last resided.

Section 4. Filing of copy of printed notice. — Within ten (10) days after the notice has been published and posted in
accordance with the preceding section, the executor or administrator shall file or cause to be filed in the court a printed
copy of the notice accompanied with an affidavit setting forth the dates of the first and last publication thereof and the
name of the newspaper in which the same is printed.

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Section 5. Claims which must be filed under the notice. If not filed, barred; exceptions. — All claims for money against the
decent, arising from contract, express or implied, whether the same be due, not due, or contingent, all claims for funeral
expenses and expense for the last sickness of the decedent, and judgment for money against the decent, must be filed
within the time limited in the notice; otherwise they are barred forever, except that they may be set forth as
counterclaims in any action that the executor or administrator may bring against the claimants. Where an executor or
administrator commences an action, or prosecutes an action already commenced by the deceased in his lifetime, the
debtor may set forth by answer the claims he has against the decedent, instead of presenting them independently to the
court as herein provided, and mutual claims may be set off against each other in such action; and if final judgment is
rendered in favor of the defendant, the amount so determined shall be considered the true balance against the estate, as
though the claim had been presented directly before the court in the administration proceedings. Claims not yet due, or
contingent, may be approved at their present value.

Section 6. Solidary obligation of decedent. — Where the obligation of the decedent is solidary with another debtor, the
claim shall be filed against the decedent as if he were the only debtor, without prejudice to the right of the estate to
recover contribution from the debtor. In a joint obligation of the decedent, the claim shall be confined to the portion
belonging to him.

Section 7. Mortgage debt due from estate. — A creditor holding a claim against the deceased secured by mortgage or
other colateral security, may abandon the security and prosecute his claim in the manner provided in this rule, and share
in the general distribution of the assets of the estate; or he may foreclose his mortgage or realize upon his security, by
action in court, making the executor or administrator a party defendant, and if there is a judgment for a deficiency, after
the sale of the mortgaged premises, or the property pledged, in the foreclosure or other proceeding to realize upon the
security, he may claim his deficiency judgment in the manner provided in the preceding section or he may rely upon his
mortgage or other security alone, and foreclosure the same at any time within the period of the statute of limitations, and
in that event he shall not be admitted as a creditor, and shall receive no share in the distribution of the other assets of
estate; but nothing herein contained shall prohibit the executor or administrator from redeeming the property
mortgaged or pledged, by paying the debt for which it is held as security, under the direction of the court, if the court shall
adjudge it to be for the best interest of the estate that such redemption shall be made.

Section 8. Claim of executor or administrator against an estate. — If the executor or administrator has a claim against the
estate he represents, he shall give notice thereof, in writing, to the court, and the court shall appoint a special
administrator, who shall, in the adjustment of such claim, have the same power and be subject to the same liability as the
general administrator or executor in the settlement of other claims. The court may order the executor or administrator to
pay to the special administrator necessary funds to defend such claim.

Section 9. How to file a claim. Contents thereof. Notice to executor or administrator. — A claim may be filed by delivering
the same with the necessary vouchers to the clerk of court and by serving a copy thereof on the executor or
administrator. If the claim be founded on a bond, bill, note, or any other instrument, the original need not be filed, but a
copy thereof with all indorsements shall be attached to the claim and filed therewith. On demand, however, of the
executor or administrator, or by order of the court or judge, the original shall be exhibited, unless it be list or destroyed,
in which case the claimant must accompany his claim with affidavit or affidavits containing a copy or particular
description of the instrument and stating its loss or destruction. When the claim is due, it must be supported by affidavit
stating the amount justly due, that no payments have been made thereon which are not credited, and that there are no
offsets to the same, to the knowledge of the affiant. If the claim is not due, or is contingent, when filed, it must also be
supported by affidavits stating the particulars thereof. When the affidavit is made by a person other than the claimant, he
must set forth therein the reason why it is not made by the claimant. The claim once filed shall be attached to the record
of the case in which the letters testamentary or of administration were issued, although the court, in its discretion, and as
a matter of convenience, may order all the claims to be collected in a separate folder.

Section 10. Answer of executor or administrator. Offsets —Within fifteen (15) days after service of a copy of the claim on
the executor or administrator, he shall file his answer admitting or denying the claim specifically, and setting forth the
admission or denial. If he has no knowledge sufficient to enable him to admit or deny specifically, he shall state such want
of knowledge. The executor or administrator in his answer shall allege in offset any claim which the decedent before
death had against the claimant, and his failure to do so shall bar the claim forever. A copy of the answer shall be served by
the executor or administrator on the claimant. The court in its discretion may extend the time for filing such answer.

Section 11. Disposition of admitted claim. — Any claim admitted entirely by the executor or administrator shall
immediately be submitted by the clerk to the court who may approve the same without hearing; but the court, in its
discretion, before approving the claim, may order that known heirs, legatees, or devisees be notified and heard. If upon
hearing, an heir, legatees, or devisee opposes the claim, the court may, in its discretion, allow him fifteen (15) days to file
an answer to the claim in the manner prescribed in the preceding section.

Section 12. Trial of contested claim. — Upon the filing of an answer to a claim, or upon the expiration of the time for such
filing, the clerk of court shall set the claim for trial with notice to both parties. The court may refer the claim to a
commissioner.

Section 13. Judgment appealable. — The judgment of the court approving or disapproving a claim, shall be filed with the
record of the administration proceedings with notice to both parties, and is appealable as in ordinary cases. A judgment
against the executor or administrator shall be that he pay, in due course of administration, the amount ascertained to be

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due, and it shall not create any lien upon the property of the estate, or give to the judgment creditor any priority of
payment.

Section 14. Costs. — When the executor or administrator, in his answer, admits and offers to pay part of a claim, and the
claimant refuses to accept the amount offered in satisfaction of his claim, if he fails to obtain a more favorable judgment,
he cannot recover costs, but must pay to the executor or administrator costs from the time of the offer. Where an action
commenced against the deceased for money has been discontinued and the claim embraced therein presented as in this
rule provided, the prevailing party shall be allowed the costs of his action up to the time of its discontinuance.

iii. Claims of deceased against insolvent persons

iv. Casualty losses

v. Claims against the estate

1. Requisites for deductibility

RR 02-03, Sec 6(A)(3)(i). Claims against the estate. – The word “claims” is generally construed to mean debts or
demands of a pecuniary nature which could have been enforced against the deceased in his lifetime and could have been
reduced to simple money judgements. Claims against the estate or indebtedness in respect of property may arise out of :
(1) Contract; (2) Tort; or (3) Operation of Law.
i. Requisites for Deductibility of Claims Against the Estate –
(a) The liability represents a personal obligation of the deceased existing at the time of his death except unpaid
obligations incurred incident to his death such as unpaid funeral expenses (i.e., expenses incurred up to the time of
interment) and unpaid medical expenses which are classified under a different category of deductions pursuant to these
Regulations;
(b) The liability was contracted in good faith and for adequate and full consideration in money or money’s worth;
(c) The claim must be a debt or claim which is valid in law and enforceable in court;
(d) The indebtedness must not have been condoned by the creditor or the action to collect from the decedent
must not have prescribed.

2. Substantiation requirements

RR 02-03, Sec 6(A)(3)(ii). Substantiation Requirements. - All unpaid obligations and liabilities of the decedent at the
time of his death (except unpaid funeral or medical expenses which are deductible under a different category) are
allowed as deductions from gross estate. Provided, however, that the following requirements/documents are complied
with/submitted:

(a) In case of simple loan (including advances):

(1) The debt instrument must be duly notarized at the time the indebtedness was incurred, such as promissory note or
contract of loan, except for loans granted by financial institutions where notarization is not part of the business
practice/policy of the financial institution-lender;
(2) Duly notarized Certification from the creditor as to the unpaid balance of the debt, including interest as of the time of
death. If the creditor is a corporation, the sworn certification should be signed by the President, or Vice-President, or
other principal officer of the corporation. If the creditor is a partnership, the sworn certification should be signed by any
of the general partners. In case the creditor is a bank or other financial institutions, the Certification shall be executed by
the branch manager of the bank/financial institution which monitors and manages the loan of the decedent-debtor. If the
creditor is an individual, the sworn certification should be signed by him. In any of these cases, the one who should certify
must not be a relative of the borrower within the fourth civil degree, either by consanguinity or affinity, except when the
requirement below is complied with. When the lender, or the President/Vice-president /principal officer of the creditor-
corporation, or the general partner of the creditor-partnership is a relative of the debtor in the degree mentioned above,
a copy of the promissory note or other evidence of the indebtedness must be filed with the RDO having jurisdiction over
the borrower within fifteen days from the execution thereof.
(3) In accordance with the requirements as prescribed in existing or prevailing internal revenue issuances, proof of
financial capacity of the creditor to lend the amount at the time the loan was granted, as well as its latest audited balance
sheet with a detailed schedule of its receivable showing the unpaid balance of the decedent-debtor. In case the creditor is
an individual who is no longer required to file income tax returns with the Bureau, a duly notarized Declaration by the
creditor of his capacity to lend at the time when the loan was granted without prejudice to verification that may be made
by the BIR to substantiate such declaration of the creditor. If the creditor is a non-resident, the executor/administrator or
any of the legal heirs must submit a duly notarized declaration by the creditor of his capacity to lend at the time when the
loan was granted, authenticated or certified to as such by the tax authority of the country where the non-resident creditor
is a resident;
(4) A statement under oath executed by the administrator or executor of the estate reflecting the disposition of the
proceeds of the loan if said loan was contracted within three (3) years prior to the death of the decedent;

(b)If the unpaid obligation arose from purchase of goods or services:

(1) Pertinent documents evidencing the purchase of goods or service, such as sales invoice/delivery receipt (for sale of
goods), or contract for the services agreed to be rendered (for sale of service), as duly acknowledged, executed and signed
by decedent/debtor and creditor, and statement of account given by the creditor as duly received by the
decedent/debtor;
(2) Duly notarized Certification from the creditor as to the unpaid balance of the debt, including interest as of the time of
death. If the creditor is a corporation, the sworn Certification should be signed by the President, or Vice-President, or
other principal officer of the corporation. If the creditor is a partnership, the sworn certification should be signed by any

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of the general partners. If the creditor is a sole proprietorship, the sworn certification should be signed by the owner of
the business. In any of these cases, the one who issues the certification must not be a relative of the decedent-debtor
within the fourth civil degree, either by consanguinity or affinity, except when the requirement below is complied with.
When the lender, or the President/Vice-President/principal officer of the creditor-corporation, or the general partner of
the creditor-partnership is a relative of the debtor in the degree mentioned above, a copy of the promissory note or other
evidence of the indebtedness must be filed with the RDO having jurisdiction over the borrower within fifteen days from
the execution thereof.
(3) Certified true copy of the latest audited balance sheet of the creditor with a detailed schedule of its receivable
showing the unpaid balance of the decedent-debtor. Moreover, a certified true copy of the updated latest subsidiary
ledger/records of the debt of the debtor-decedent, (certified by the creditor, i.e., the officers mentioned in the preceding
paragraphs) should likewise be submitted.

(c) Where the settlement is made through the Court in a testate or intestate proceeding, pertinent documents filed with the
Court evidencing the claims against the estate, and the Court Order approving the said claims, if already issued, in addition to
the documents mentioned in the preceding paragraphs.

vi. Unpaid Mortgages

vii. Taxes

2. Property Previously taxed (Vanishing Deduction) [pages 69-70, De Leon]

i. Requisites of Vanishing Deduction: death, identity of property, inclusion of the property,

previous taxation of the property, no previous vanishing deduction on the property

3. Transfers for Public Use [pages 57-58, De Leon]: Tax code, under Sec. 86-A3, allows the deduction from the gross
estate of the amount of all bequests, legacies or transfers, to or for the use of the government or any political subdivisions
thereof for exclusively public purposes. The transfer must be testamentary, Oral transfers are not deductible. Policy
behind the deduction is based on social need for such transfers and benefit to the public, as they provide mean to finance
socially desirable activities.

4. Family Home [RR 02-03, Sec 6D] [ pages 58-59, De Leon]

i. Ceiling on value of family home (P1M)

ii. Definition of family home/when deemed constituted
iii. Beneficiaries of a family home
iv. Conditions for deductibility

RR 02-03, Sec 6(D). The family home - An amount equivalent to the current fair market value of the decedent’s family
home: Provided, however, That if the said current fair market value exceeds One million pesos (P1,000,000), the excess
shall be subject to estate tax. As a sine qua non condition for the exemption or deduction, said family home must have
been the decedent’s family home as certified by the barangay captain of the locality.

a. Definition of terms:

Family home – The dwelling house, including the land on which it is situated, where the husband and wife, or a head of the
family, and members of their family reside, as certified to by the Barangay Captain of the locality. The family home is
deemed constituted on the house and lot from the time it is actually occupied as a family residence and is considered as
such for as long as any of its beneficiaries actually resides therein. (Arts. 152 and 153, Family Code)
For purposes of these regulations, however, actual occupancy of the house or house and lot as the family residence shall
not be considered interrupted or abandoned in such cases as the temporary absence from the constituted family home
due to travel or studies or work abroad, etc.
In other words, the family home is generally characterized by permanency, that is, the place to which, whenever absent
for business or pleasure, one still intends to return.
The family home must be part of the properties of the absolute community or of the conjugal partnership, or of the
exclusive properties of either spouse depending upon the classification of the property (family home) and the property
relations prevailing on the properties of the husband and wife. It may also be constituted by an unmarried head of a
family on his or her own property. (Art. 156, Ibid)
For purposes of availing of a family home deduction to the extent allowable, a person may constitute only one family
home. (Art. 161, Ibid)

Husband and Wife – Legally married man and woman.

Unmarried Head of a Family – An unmarried or legally separated man or woman with one or both parents, or with one or
more brothers or sisters, or with one or more legitimate, recognized natural or legally adopted children living with and
dependent upon him or her for their chief support, where such brothers or sisters or children are not more than twenty
one (21) years of age, unmarried and not gainfully employed or where such children, brothers or sisters, regardless of age
are incapable of self-support because of mental or physical defect, or any of the beneficiaries mentioned in Article 154 of
the Family Code who is living in the family home and dependent upon the head of the family for legal support.

The beneficiaries of a family home are: (1) The husband and wife, or the head of a family; and (2) Their parents,
ascendants, descendants including legally adopted children, brothers and sisters, whether the relationship be
legitimate or illegitimate, who are living in the family home and who depend upon the head of the family for legal
support. (Art. 154, Ibid)

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b. Conditions for the allowance of FAMILY HOME as deduction from the gross estate:

1. The family home must be the actual residential home of the decedent and his family at the time of his death, as
certified by the Barangay Captain of the locality where the family home is situated;
2. The total value of the family home must be included as part of the gross estate of the decedent; and
3. Allowable deduction must be in an amount equivalent to the current fair market value of the family home as declared
or included in the gross estate, or the extent of the decedent’s interest (whether conjugal/community or exclusive
property),whichever is lower, but not exceeding P1,000,000.

5. Standard deduction
RR 02-03, Sec. 6(E). Standard deduction. - A deduction in the amount of One Million Pesos (P1,000,000) shall be
allowed as an additional deduction without need of substantiation. The full amount of P1,000,000 shall be allowed as
deduction for the benefit of the decedent. The presentation of such deduction in the computation of the net taxable estate
of the decedent is properly illustrated in these Regulations.

6. Medical expenses
RR 02-03, Sec. 6(F). Medical expenses. - All medical expenses (cost of medicines, hospital bills, doctors’ fees, etc.)
incurred (whether paid or unpaid) within one (1) year before the death of the decedent shall be allowed as a deduction
provided that the same are duly substantiated with official receipts for services rendered by the decedent’s attending
physicians, invoices, statements of account duly certified by the hospital, and such other documents in support thereof
and provided, further, that the total amount thereof, whether paid or unpaid, does not exceed Five Hundred Thousand
Pesos (P500,000).

Any amount of medical expenses incurred within one year from death in excess of Five Hundred Thousand Pesos
(P500,000) shall no longer be allowed as a deduction under this subsection. Neither can any unpaid amount thereof in
excess of the P500,000 threshold nor any unpaid amount for medical expenses incurred prior to the one-year period from
date of death be allowed to be deducted from the gross estate as claim against the estate.

llustrations on how to determine the amount of allowable medical expenses given the P500,000 threshold amount:

a. If the actual amount of medical expenses incurred is P250,000, then only P250,000 shall be allowed as deduction and
not to the extent of the P500,000 threshold amount;
b. If the actual amount of medical expenses incurred within the year prior to decedent’s death is P600,000, only the
maximum amount of P500,000 shall be allowed as deduction. If in case the excess of P100,000 (P600,000-500,000) is still
unpaid, such amount shall not be allowed to be deducted from the gross estate as “claims against the estate”.

Ceiling: PhP 500,000.

7. Amounts received by Heirs under RA 4917

8. Net Share of Surviving Spouse in the Conjugal Partnership or Community Property

B. Net Estate of Decedent who is Non-Resident Alien of the Philippines (NRA)

NIRC, 86(B), supra.

RR 02-03, Sec. 7. COMPUTATION OF THE NET ESTATE OF A DECEDENT WHO IS A NON-RESIDENT ALIEN OF THE
PHILIPPINES. - The value of the net estate of a decedent who is a non-resident alien in the Philippines shall be
determined by deducting from the value of that part of his gross estate which at the time of his death is situated in the
Philippines the following items of deductions:

(1) Expenses, losses, indebtedness, and taxes – That proportion of the total expenses, losses, indebtedness, and taxes
which the value of such
part bears to the value of his entire gross estate wherever situated. The allowable deduction under this subsection shall
be computed using the following formula:

Phil gross estate X expenses, losses, indebtedness, taxes = allowable deduction

World gross estate

(2) Property previously taxed - xxx xxx xxx”

(3) Transfers for public use - xxx xxx xxx”
(4) Net share of the surviving spouse in the conjugal property or community property. - xxx xxx xxx”
No deduction shall be allowed in the case of a non-resident decedent not a citizen of the Philippines, unless the executor,
administrator, or anyone of the heirs, as the case may be, includes in the return required to be filed under Section 90 of
the Code the value at the time of the decedent’s death of that part of his gross estate not situated in the Philippines.

1. Value of estate shall be determined by deducting from the value of gross estate:
a. Expenses, losses, indebtedness and taxes (ELIT)
b. Property previously taxed
c. Transfers for public use
d. Net share of surviving spouse in conjugal partnership or community property

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2. Conditions for Deductibility (NIRC Sec 86-D)

NIRC, 86(D). Miscellaneous Provisions. - No deduction shall be allowed in the case of a nonresident not a citizen of the
Philippines, unless the executor, administrator, or anyone of the heirs, as the case may be, includes in the return required
to be filed under Section 90 the value at the time of his death of that part of the gross estate of the nonresident not
situated in the Philippines.

IV. EXCLUSIONS FROM GROSS ESTATE/EXEMPTIONS OF CERTAIN ACQUISITIONS AND TRANSMISSIONS

A. Capital of Surviving Spouse

NIRC, 85(H). Capital of the Surviving Spouse. - The capital of the surviving spouse of a decedent shall not, for the
purpose of this Chapter, be deemed a part of his or her gross estate.

CC 148. The following shall be the exclusive property of each spouse:

1. That which is brought to the marriage as his or her own;
2. That which each acquires, during the marriage, by lucrative title;
3. That which is acquired by right of redemption or by exchange with other property belonging to only one of the
spouses;
4. That which is purchased with exclusive money of the wife or of the husband.

CC 150. Property donated or left by will to the spouses, jointly and with designation of determinate shares, shall pertain
to the wife as paraphernal property, and to the husband as capital, in the proportion specified by the donor or testator,
and in the absence of designation, share and share alike, without prejudice to what is provided in Article 753.

CC 201. The following shall be excluded from the community:

1. Property acquired by gratuitous title by either spouse, when it is provided by the donor or testator that it shall not
become a part of the community;
2. Property inherited by either husband or wife through the death of a child by a former marriage, there being brothers or
sisters of the full blood of the deceased child;
3. A portion of the property of either spouse equivalent to the presumptive legitime of the children by a former marriage
4. Personal belongings of either spouse

However, all the fruits and income of the foregoing classes of property shall be included in the community.

FC 91. Unless otherwise provided in this Chapter or in the marriage settlements, the community property shall consist of
all the property owned by the spouses at the time of the celebration of the marriage or acquired thereafter.

FC 92. The following shall be excluded from the community property:

1.Property acquired during the marriage by gratuitous title by either spouse, and the fruits as well as the income thereof,
if any, unless it is expressly provided by the donor, testator or grantor that they shall form part of the community
property;
2. Property for personal and exclusive use of either spouse. However, jewelry shall form part of the community property;
3. Property acquired before the marriage by either spouse who has legitimate descendants by a former marriage, and the
fruits as well as the income, if any, of such property.

FC 109. The following shall be the exclusive property of each spouse:

1. That which is brought to the marriage as his or her own;
2. That which each acquires during the marriage by gratuitous title;
3. That which is acquired by right of redemption, by barter or by exchange with property belonging to only one of the
spouses; and
4. That which is purchased with exclusive money of the wife or of the husband.

B. Proceeds of life insurance where designation of beneficiary is irrevocable (NIRC Sec 85-E)

NIRC, 85(E). Proceeds of Life Insurance. - To the extent of the amount receivable by the estate of the deceased, his
executor, or administrator, as insurance under policies taken out by the decedent upon his own life, irrespective of
whether or not the insured retained the power of revocation, or to the extent of the amount receivable by any beneficiary
designated in the policy of insurance, except when it is expressly stipulated that the designation of the beneficiary is
irrevocable.

C, Exemptions of Certain Acquisitions/Transmissions (NIRC Sec 87)

NIRC, 87. E xemption of Certain Acquisitions and Transmissions. - The following shall not be taxed:
(A) The merger of usufruct in the owner of the naked title;
(B) The transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to the fideicommissary;
(C) The transmission from the first heir, legatee or donee in favor of another beneficiary, in accordance with the
desire of the predecessor; and
D) All bequests, devises, legacies or transfers to social welfare, cultural and charitable institutions, no part of the net
income of which insures to the benefit of any individual: Provided, however, That not more than thirty percent (30%) of

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 the said bequests, devises, legacies or transfers shall be used by such institutions for administration purposes.

D. Exemptions under Special Laws

V. Computation of Estate Tax

A. Tax Rate

NIRC, 84. Rates of Estate Tax. - There shall be levied, assessed, collected and paid upon the transfer of the net estate as
determined in accordance with Sections 85 and 86 of every decedent, whether resident or nonresident of the Philippines,
a tax based on the value of such net estate, as computed in accordance with the following schedule:

If the net estate is:

Over But Not Over The Tax shall be Plus Of the Excess Over

P 200,000 Exempt

P 200,000 550,000 0 5% P 200,000

500,000 2,000,000 P 15,000 8% 500,000

2,000,000 5,000,000 135,000 11% 2,000,000

5,000,000 10,000,000 465,000 15% 5,000,000

10,000,000 And Over 1,215,000 20% 10,000,000

1. Tax Credit for Estate Taxes paid to a foreign country NIRC, 86(E).

NIRC 86-E: Tax Credit for Estate Taxes paid to a Foreign Country. –
1. In General. - The tax imposed by this Title shall be credited with the amounts of any estate tax imposed by the authority
of a foreign country.
2. Limitations on Credit. - The amount of the credit taken under this Section shall be subject to each of the following
limitations:
a. The amount of the credit in respect to the tax paid to any country shall not exceed the same proportion of the
tax against which such credit is taken, which the decedent's net estate situated within such country taxable under this
Title bears to his entire net estate;
b. The total amount of the credit shall not exceed the same proportion of the tax against which such credit is
taken, which the decedent's net estate situated outside the Philippines taxable under this Title bears to his entire net
estate.

VI. FILING OF NOTICE OF DEATH/FILING OF RETURNS/PAYMENT OF ESTATE TAX

A. Requirement of filing for notice of death – within 2 mos after death of decedent

NIRC, 89. Notice of Death to be Filed. - In all cases of transfers subject to tax, or where, though exempt from tax, the
gross value of the estate exceeds Twenty thousand pesos (P20,000), the executor, administrator or any of the legal heirs,
as the case may be, within two (2) months after the decedent's death, or within a like period after qualifying as such
executor or administrator, shall give a written notice thereof to the Commissioner.

B. Estate Tax Returns (NIRC Sec 90; RR 2-03, Sec 9-A,B,C)

1. Requirements
2. Time for filing
3. Extension of time to file
4. Place of filing return

SEC. 90. Estate Tax Returns. -

(A) Requirements. - In all cases of transfers subject to the tax imposed herein, or where, though exempt from tax, the
gross value of the estate exceeds Two hundred thousand pesos (P200,000), or regardless of the gross value of the estate,
where the said estate consists of registered or registrable property such as real property, motor vehicle, shares of stock

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or other similar property for which a clearance from the Bureau of Internal Revenue 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, shall file a return under oath in duplicate, setting forth:

(1) The value of the gross estate of the decedent at the time of his death, or in case of a nonresident, not a citizen of the
Philippines, of that part of his gross estate situated in the Philippines;
(2) The deductions allowed from gross estate in determining the estate as defined in Section 86; and
(3) Such part of such information as may at the time be ascertainable and such supplemental data as may be necessary to
establish the correct taxes.

Provided, however, That estate tax returns showing a gross value exceeding Two million pesos (P2,000,000) 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 a
nonresident, not a citizen of the Philippines, of that part of his gross estate situated in the Philippines;
(b) Itemized deductions from gross estate allowed in Section 86; and
(c) The amount of tax due whether paid or still due and outstanding.

(B) Time for filing. - For the purpose of determining the estate tax provided for in Section 84 of this Code, the estate tax
return required under the preceding Subsection (A) shall be filed within six (6) months from the decedent's death.
A certified copy of the schedule of partition and the order of the court approving the same shall be furnished the
Commissioner within thirty (30) after the promulgation of such order.

C) Extension of Time. - The Commissioner shall have authority to grant, in meritorious cases, a reasonable extension not
exceeding thirty (30) days for filing the return.

(D) Place of Filing. - Except in cases where the Commissioner otherwise permits, the return required under Subsection
(A) shall be filed with an authorized agent bank, or Revenue District Officer, Collection Officer, or duly authorized
Treasurer of the city or municipality in which the decedent was domiciled at the time of his death or if there be no legal
residence in the Philippines, with the Office of the Commissioner.

RR 02-03, SEC. 9. TIME AND PLACE OF FILING ESTATE TAX RETURN AND
PAYMENT OF ESTATE TAX DUE. -
(A) Time for filing estate tax return. – For purposes of determining the estate tax, the estate tax return shall be filed
within six (6) months from the decedent’s death. The Court approving the project of partition shall furnish the
Commissioner with a certified copy thereof and its order within thirty (30) days after promulgation of such order.
(B) Extension of time to file estate tax return. - The Commissioner or any Revenue Officer authorized by him pursuant
to the Code shall have authority to grant, in meritorious cases, a reasonable extension, not exceeding thirty (30) days, for
filing the return. The application for the extension of time to file the estate tax return must be filed with the Revenue
District Office (RDO) where the estate is required to secure its Taxpayer Identification Number (TIN) and file the tax
returns of the estate, which RDO, likewise, has jurisdiction over the donor’s tax return required to be filed by any party as
a result of the distribution of the assets and liabilities of the decedent.
(C) Place of filing the return and payment of the tax. – In case of a resident decedent, the administrator or executor
shall register the estate of the decedent and secure a new TIN therefor from the Revenue District Office where the
decedent was domiciled at the time of his death and shall file the estate tax return and pay the corresponding estate tax
with the Accredited Agent Bank (AAB), Revenue District Officer, Collection Officer or duly authorized Treasurer of the
city or municipality where the decedent was domiciled at the time of his death, whichever is applicable, following
prevailing collection rules and procedures.
In case of a non-resident decedent, whether non-resident citizen or non-resident alien, with executor or administrator in
the Philippines, the estate tax return shall be filed with and the TIN for the estate shall be secured 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 the TIN of the estate shall be secured from the
Revenue District Office having jurisdiction over the executor or administrator’s legal residence. Nonetheless, in case the
non-resident decedent does not have an executor or administrator in the Philippines, the estate tax return shall be filed
with and the TIN for the estate shall be secured from the Office of the Commissioner through RDO No. 39 – South Quezon
City.
The foregoing provisions notwithstanding, the Commissioner of Internal Revenue may continue to exercise his power to
allow a different venue/place in the filing of tax returns.

C. Payment of Estate Tax (NIRC Sec 91; RR 02-03 Sec 9-D,E,F,G)

1. Time for payment
2. Extension of time to pay estate tax
3. Payment of estate tax by installment
4. Liability for payment

NIRC SEC. 91. Payment of Tax. -

(A) Time of Payment. - The estate tax imposed by Section 84 shall be paid at the time the return is filed by the executor,
administrator or the heirs.

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 (B) Extension of Time. - When the Commissioner finds that the payment on the due date of the estate tax or of any part
thereof would impose 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 estate is settled through the courts, or two (2) years in case the
estate is settled extrajudicially. 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
assessment as provided in Section 203 of this Code shall be suspended for the period of any such extension.

Where the taxes are assessed by reason of negligence, intentional disregard of rules and regulations, or fraud on the part
of the taxpayer, no extension will be granted by the Commissioner.

If an extension is granted, the Commissioner may require the executor, or administrator, or beneficiary, as the case may
be, to furnish a bond in such amount, not exceeding double the amount of the tax and with such sureties as the
Commissioner deems necessary, conditioned upon the payment of the said tax in accordance with the terms of the
extension.

(C) Liability for Payment - The estate tax imposed by Section 84 shall be paid by the executor or administrator before
delivery to any beneficiary of his distributive share of the estate. Such beneficiary shall to the extent of his distributive
share of the estate, be subsidiarily liable for the payment of such portion of the estate tax as his distributive share bears
to the value of the total net estate.

For the purpose of this Chapter, the term 'executor' or 'administrator' means the executor or administrator of the
decedent, or if 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.

RR 02-03 Sec. 9
(D) Time for payment of the estate tax. – As a general rule, the estate tax imposed under the Code shall be paid at the
time the return is filed by the executor, administrator or the heirs.
(E) Extension of time to pay estate tax. – When the Commissioner finds that the payment of the estate tax or of any part
thereof would impose 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 estate is settled through the courts, or two (2) years in case the
estate is settled extrajudicially. 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.
For purposes of these Regulations, the application for extension of time to file the return and extension of time to pay
estate tax shall be filed with the Revenue District Officer (RDO) where the estate is required to secure its TIN and file the
estate tax return. This application shall be approved by the Commissioner or his duly authorized representative.
Where the request for extension is by reason of negligence, intentional disregard of rules and regulations, or fraud on the
part of the taxpayer, no extension will be granted by the Commissioner.
If an extension is granted, the Commissioner or his duly authorized representative may require the executor, or
administrator, or beneficiary, as the case may be, to furnish a bond in such amount, not exceeding double the amount of
the tax and with such sureties as the Commissioner deems necessary, conditioned upon the payment of the said tax in
accordance with the terms of the extension.
Any amount paid after the statutory due date of the tax, but within the extension period, shall be subject to interest but
not to surcharge.
(F) Payment of the estate tax by installment. – In case the available cash of the estate is not sufficient to pay its total
estate tax liability, the estate may be allowed to pay the tax by installment and a clearance shall be released only with
respect to the property the corresponding/computed tax on which has been paid. There shall, therefore, be as many
clearances (Certificates Authorizing Registration) as there are as many properties released because they have been paid
for by the installment payments of the estate tax. The computation of the estate tax, however, shall always be on the
cumulative amount of the net taxable estate. Any amount paid after the statutory due date of the tax shall be imposed the
corresponding applicable penalty thereto. However, if the payment of the tax after the due date is approved by the
Commissioner or his duly authorized representative, the imposable penalty thereon shall only be the interest. Nothing in
this paragraph, however, prevents the Commissioner from executing enforcement action against the state after the due
date of the estate tax provided that all the applicable laws and required procedures are followed/observed.
(G) Liability for payment – The estate tax imposed under the 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 remaining/distributable properties/share in the inheritance to the heir or beneficiary.
The executor or 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.

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