For Table of Contents

TAX ON ESTATES AND TRUSTS

A. Application of Income Tax
Exception on Application
B. Computation and Payment of the Tax
General Rule
Exceptions
Revocable Trusts
Income for Benefit of Grantor
Consolidation of Income of Two or More Trusts
C. How Taxable Income of the Estate or Trust is Computed
Allowable Deduction
Additional Deduction
Trust administered abroad
D. Exemption Allowed to Estates and Trusts
E. Fiduciary Returns
F. Fiduciaries Indemnified Against Claims for Taxes Paid
VII. TAX ON ESTATES AND TRUSTS
A. Application of Income Tax
The tax imposed upon individuals shall apply to the income of estates or of any kind
of property held in trust, including:
1. Income accumulated in trust for the benefit of unborn or unascertained
person or persons with contingent interests, and income accumulated or held
for future distribution under the terms of the will or trust;
2. Income which is to be distributed currently by the fiduciary to the
beneficiaries, and income collected by a guardian of an infant which is to be
held or distributed as the court may direct;
3. Income received by estates of deceased persons during the period of
administration or settlement of the estate; and
4. Income which, in the discretion of the fiduciary, may be either distributed to
the beneficiaries or accumulated.
EXCEPTION
The tax shall not apply to employee's trust which forms part of a pension, stock bonus
or profit-sharing plan of an employer for the benefit of some or all of his employees
i. if contributions are made to the trust by such employer, or employees, or
both for the purpose of distributing to such employees the earnings and
principal of the fund accumulated by the trust in accordance with such plan,
and

ii. if under the trust instrument it is impossible, at any time prior to the
satisfaction of all liabilities with respect to employees under the trust, for any
part of the corpus or income to be (within the taxable year or thereafter) used
for, or diverted to, purposes other than for the exclusive benefit of his
employees.
NOTE HOWEVER: Any amount actually distributed to any employee or distributee
shall be taxable to him in the year in which so distributed to the extent that it exceeds
the amount contributed by such employee or distributee.
B. Computation and Payment of the Tax
GENERAL RULE: The tax shall be computed upon the taxable income of the estate
or trust and shall be paid by the fiduciary.
EXCEPTIONS:
1. Revocable Trusts. - Where at any time the power to revest in the grantor
title to any part of the corpus of the trust is vested
a. in the grantor either alone or in conjunction with any person not
having a substantial adverse interest in the disposition of such part of
the corpus or the income therefrom, or
2. in any person not having a substantial adverse interest in the
disposition of such part of the corpus or the income therefrom, the
income of such part of the trust shall be included in computing the
taxable income of the grantor.
2. Income for Benefit of Grantor Where any part of the income of a trust
i. is, or in the discretion of the grantor or of any person not having a
substantial adverse interest in the disposition of such part of the income
may be held or accumulated for future distribution to the grantor, or
ii. may, or in the discretion of the grantor or of any person not having a
substantial adverse interest in the disposition of such part of the income, be
distributed to the grantor, or
iii. is, or in the discretion of the grantor or of any person not having a
substantial adverse interest in the disposition of such part of the income
may be applied to the payment of premiums upon policies of insurance on
the life of the grantor, such part of the income of the trust shall be included
in computing the taxable income of the grantor.
NOTE: 'In the discretion of the grantor' means in the discretion of the grantor, either
alone or in conjunction with any person not having a substantial adverse interest in
the disposition of the part of the income in question.

Consolidation of Income of Two or More Trusts

Where, in the case of two or more trusts, the creator of the trust in each
instance is the same person, and the beneficiary in each instance is the same,
the taxable income of all the trusts shall be consolidated and the tax computed
on such consolidated income, and such proportion of said tax shall be assessed
and collected from each trustee which the taxable income of the trust
administered by him bears to the consolidated income of the several trusts.
C. How Taxable Income of the Estate or Trust is Computed
[Sec. 61] The taxable income of the estate or trust shall be computed in the same
manner and on the same basis as in the case of an individual, EXCEPT that:
(A) There shall be ALLOWED AS A DEDUCTION in computing the taxable
income of the estate or trust the amount of the income of the estate or trust for
the taxable year which is to be distributed currently by the fiduciary to the
beneficiaries, and the amount of the income collected by a guardian of an
infant which is to be held or distributed as the court may direct, BUT the
amount so allowed as a deduction shall be included in computing the taxable
income of the beneficiaries, whether distributed to them or not. Any amount
allowed as a deduction under this Subsection shall not be allowed as a
deduction under Subsection (B) of this Section in the same or any succeeding
taxable year.
(B) In the case of income received by estates of deceased persons during the
period of administration or settlement of the estate, and in the case of income
which, in the discretion of the fiduciary, may be either distributed to the
beneficiary or accumulated, there shall be allowed as an ADDITIONAL
DEDUCTION the amount of the income of the estate or trust for its taxable
year, which is properly paid or credited during such year to any legatee, heir
or beneficiary but the amount so allowed as a deduction shall be included in
computing the taxable income of the legatee, heir or beneficiary.
(C) In the case of a trust administered in a foreign country, the deductions
mentioned in Subsections (A) and (B) of this Section shall not be allowed:
Provided, That the amount of any income included in the return of said trust
shall not be included in computing the income of the beneficiaries.
D. Exemption Allowed to Estates and Trusts
- P20,000 from the income of the estate or trust.
E. Fiduciary Returns
Guardians, trustees, executors, administrators, receivers, conservators and all persons
or corporations, acting in any fiduciary capacity, shall:
1. render, in duplicate, a return of the income of the person, trust or estate for
whom or which they act, and

2. be subject to all the provisions which apply to individuals in case such

person, estate or trust has a gross income of P20,000 or over during the
taxable year. Such fiduciary or person filing the return for him or it, shall:
a. take OATH that
i. he has sufficient knowledge of the affairs of such person,
trust or estate to enable him to make such return and
ii. that the same is, to the best of his knowledge and belief, true
and correct, and
iii. be subject to all the provisions of this Title which apply to
individuals.
A return made by or for one or two or more joint fiduciaries filed in the province
where such fiduciaries reside, under such rules and regulations as the Secretary of
Finance shall prescribe, shall be sufficient compliance.
F. Fiduciaries Indemnified Against Claims for Taxes Paid
Trustees, executors, administrators and other fiduciaries are INDEMNIFIED against
the claims or demands of every beneficiary for all payments of taxes which they shall
be required to make, and they shall have CREDIT for the amount of such payments
against the beneficiary or principal in any accounting which they make as such
trustees or other fiduciaries.