that a trust is created.
” To constitute a valid testamentary trust there must be
LORENZO vs. POSADAS JR.
G.R. No. L-43082
June 18, 1937
FACTS: Thomas Hanley died, leaving a will and a considerable amount of real
and personal properties. Proceedings for the probate of his will and the
settlement and distribution of his estate were begun in the CFI of Zamboanga.
The will was admitted to probate.
The CFI considered it proper for the best interests of the estate to appoint a
trustee to administer the real properties which, under the will, were to pass to
nephew Matthew ten years after the two executors named in the will was
appointed trustee. Moore acted as trustee until he resigned and the plaintiff
Lorenzo herein was appointed in his stead.
During the incumbency of the plaintiff as trustee, the defendant Collector of
Internal Revenue (Posadas) assessed against the estate an inheritance tax,
together with the penalties for deliquency in payment. Lorenzo paid said
amount under protest, notifying Posadas at the same time that unless the
amount was promptly refunded suit would be brought for its recovery. Posadas
overruled Lorenzo’s protest and refused to refund the said amount. Plaintiff
went to court. The CFI dismissed Lorenzo’s complaint and Posadas’
counterclaim. Both parties appealed to this court.
ISSUE:
(e) Has there been delinquency in the payment of the inheritance tax?
HELD: The judgment of the lower court is accordingly modified, with costs
against the plaintiff in both instances
YES
The defendant maintains that it was the duty of the executor to pay the
inheritance tax before the delivery of the decedent’s property to the trustee.
Stated otherwise, the defendant contends that delivery to the trustee was
delivery to the cestui que trust, the beneficiary in this case, within the meaning
of the first paragraph of subsection (b) of section 1544 of the Revised
Administrative Code. This contention is well taken and is sustained. A trustee is
but an instrument or agent for the cestui que trust
The appointment of Moore as trustee was made by the trial court in conformity
with the wishes of the testator as expressed in his will. It is true that the word
“trust” is not mentioned or used in the will but the intention to create one is
clear. No particular or technical words are required to create a testamentary
trust. The words “trust” and “trustee”, though apt for the purpose, are not
necessary. In fact, the use of these two words is not conclusive on the question
a concurrence of three circumstances:
(1) Sufficient words to raise a trust;
(2) a definite subject;
(3) a certain or ascertain object; statutes in some jurisdictions expressly or in
effect so providing.”
There is no doubt that the testator intended to create a trust. He ordered in his
will that certain of his properties be kept together undisposed during a fixed
period, for a stated purpose. The probate court certainly exercised sound
judgment in appointmening a trustee to carry into effect the provisions of the
will
As the existence of the trust was already proven, it results that the estate which
plaintiff represents has been delinquent in the payment of inheritance tax and,
therefore, liable for the payment of interest and surcharge provided by law in
such cases.
The delinquency in payment occurred on March 10, 1924, the date when Moore
became trustee. On that date trust estate vested in him. The interest due should
be computed from that date.
NOTES: Other issues:
(a) When does the inheritance tax accrue and when must it be satisfied?
The accrual of the inheritance tax is distinct from the obligation to pay the same.
Acording to article 657 of the Civil Code, “the rights to the succession of a
person are transmitted from the moment of his death.” “In other words”, said
Arellano, C. J., “. . . the heirs succeed immediately to all of the property of the
deceased ancestor. The property belongs to the heirs at the moment of the
death of the ancestor as completely as if the ancestor had executed and
delivered to them a deed for the same before his death.”
Whatever may be the time when actual transmission of the inheritance takes
place, succession takes place in any event at the moment of the decedent’s
death. The time when the heirs legally succeed to the inheritance may differ
from the time when the heirs actually receive such inheritance. ” Thomas
Hanley having died on May 27, 1922, the inheritance tax accrued as of the date.
From the fact, however, that Thomas Hanley died on May 27, 1922, it does not
follow that the obligation to pay the tax arose as of the date. The time for the
payment on inheritance tax is clearly fixed by section 1544 of the Revised
Administrative Code as amended by Act No. 3031, in relation to section 1543 of
the same Code. The two sections follow:
SEC. 1543. Exemption of certain acquisitions and transmissions. — The following
shall not be taxed:
(a) The merger of the 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 trustees.
(c) The transmission from the first heir, legatee, or donee in favor of another
beneficiary, in accordance with the desire of the predecessor. xx
SEC. 1544. When tax to be paid. — The tax fixed in this article shall be paid:
(a) In the second and third cases of the next preceding section, before entrance
into possession of the property.
(b) In other cases, within the six months subsequent to the death of the
predecessor; but if judicial testamentary or intestate proceedings shall be
instituted prior to the expiration of said period, the payment shall be made by
the executor or administrator before delivering to each beneficiary his share.
The instant case does[not] fall under subsection (a), but under subsection (b), of
section 1544 above-quoted, as there is here no fiduciary heirs, first heirs,
legatee or donee. Under the subsection, the tax should have been paid before
the delivery of the properties in question to Moore as trustee.
(b) Should the inheritance tax be computed on the basis of the value of the
estate at the time of the testator’s death, or on its value ten years later?
If death is the generating source from which the power of the estate to impose
inheritance taxes takes its being and if, upon the death of the decedent,
succession takes place and the right of the estate to tax vests instantly, the tax
should be measured by the value of the estate as it stood at the time of the
decedent’s death, regardless of any subsequent contingency value of any
subsequent increase or decrease in value
(c) In determining the net value of the estate subject to tax, is it proper to
deduct the compensation due to trustees?
A trustee, no doubt, is entitled to receive a fair compensation for his services.
But from this it does not follow that the compensation due him may lawfully be
deducted in arriving at the net value of the estate subject to tax. There is no
statute in the Philippines which requires trustees’ commissions to be deducted
in determining the net value of the estate subject to inheritance tax
(d) What law governs the case at bar? Should the provisions of Act No. 3606
favorable to the tax-payer be given retroactive effect?
A statute should be considered as prospective in its operation, whether it
enacts, amends, or repeals an inheritance tax, unless the language of the statute
clearly demands or expresses that it shall have a retroactive effect, . . . .”
Act No. 3606 itself contains no provisions indicating legislative intent to give it
retroactive effect. No such effect can be given the statute by this court.
CIRV.CA G.R. 123206 March 22, 2000
Facts:·Pedro Pajonar was part of the Death March and became insane. Her sister
became the guardian of his person while his property was placed under PNB's
guardianship. ·When Pedro died, PNB filed an accounting of decendent's
property valued at P3,037,672.09 but did not file an estate tax return. ·Instead
PNB advised Pedro Pajonar's heirs to execute an extrajudicial settlement and to
pay the taxes on his estate. Pursuant to the BIR's assessment, the estate taxes
were paid. ·His sister, Josefina, became the administrator of Pedro's estate. A
second assessment for deficiency tax was given and paid. ·The administrator
filed a protest praying that portions of the taxes be returned to the heirs. The
administrator went to the CTA and the latter ordered the refund of the taxes.
·Among the deductions allowed were the notarial fee for the extra judicial
settlement of estate and attorney's fees for guardianship.
Issue: whether the notarial fee paid for the extrajudicial settlement and the
attorney's fees in the guardianship proceedings may be allowed as deductions
from the gross estate of decedent in order to arrive at the value of the net estate.
Held:YES. Supreme Court held that those 2 deductions are allowable. The
deductions from the gross estate permitted under section 79 of the Tax Code
basically reproduced the deductions allowed under Commonwealth Act No. 466
(CA 466), otherwise known as the National Internal Revenue Code of 1939,and
which was the first codification of Philippine tax laws. Section 89 (a) (1) (B) of
CA 466 also provided for the deduction of the "judicial expenses of the
testamentary or intestate proceedings" for purposes of determining the value of
the net estate. Philippine tax laws were, in turn, based on the federal tax laws of
the United States. In accord with established rules of statutory construction, the
decisions of American courts construing the federal tax code are entitled to
great weight in the interpretation of our own tax laws. Judicial expenses are
expenses of administration for purposes of arriving at the value of the net estate
which includes all expenses essential to the collection of the assets, payment of
debts, or the distribution of the property to the heirs. The notarial fee is clearly
a deductible expense since such settlement effect the distribution of Pedro's
estate to his lawful heirs. Same goes for the attorney's fees. The accounting
made by PNB and the advice given for the proper settlement of Pedro's estate
contributed to the collection of decedent's assets and subsequent settlement
thereof.
Dizon v CTA G.R. No. 140944 April 30, 2008

FACTS:
On November 7, 1987, Jose P. Fernandez (Jose) died. Thereafter, a petition for
the probate of his will was filed with Branch 51 of the Regional Trial Court
(RTC) of Manila (probate court). The probate court then appointed retired
Supreme Court Justice Arsenio P. Dizon (Justice Dizon) and petitioner, Atty.
Rafael Arsenio P. Dizon (petitioner) as Special and Assistant Special
Administrator, respectively, of the Estate of Jose (Estate). Petitioner alleged that
several requests for extension of the period to file the required estate tax return
were granted by the BIR since the assets of the estate, as well as the claims
against it, had yet to be collated, determined and identified.

ISSUES:
1. Whether or not the CTA and the CA gravely erred in allowing the admission of
the pieces of evidence which were not formally offered by the BIR; and

2. Whether the actual claims of the aforementioned creditors may be fully

allowed as deductions from the gross estate of Jose despite the fact that the said
claims were reduced or condoned through compromise agreements entered
into by the Estate with its creditors Or Whether or not the CA erred in affirming
the CTA in the latter's determination of the deficiency estate tax imposed
against the Estate.

RULING:
1. Yes. While the CTA is not governed strictly by technical rules of evidence, as
rules of procedure are not ends in themselves and are primarily intended as
tools in the administration of justice, the presentation of the BIR's evidence is
not a mere procedural technicality which may be disregarded considering that
it is the only means by which the CTA may ascertain and verify the truth of BIR's
claims against the Estate. The BIR's failure to formally offer these pieces of
evidence, despite CTA's directives, is fatal to its cause

2. Yes. The claims existing at the time of death are significant to, and should be
made the basis of, the determination of allowable deductions. Also, as held
in Propstra v. U.S., where a lien claimed against the estate was certain and
enforceable on the date of the decedent's death, the fact that the claimant
subsequently settled for lesser amount did not preclude the estate from
deducting the entire amount of the claim for estate tax purposes. This is called
the date-of-death valuation rule.