How much is the total deductible item?

Funeral expense 200,000

Why 200,000?
We have 3 figures to choose from. Funeral expense as
deductible, which is 5% of the gross estate and the gross
estate is 10M which is 500k or the actual funeral expense
which in no case should exceed 200k
Judicial expenses it is deductible w/ out limit
Casualty losses are deductible only if it took place after
death and during settlement, should not be compensated
by insurance and was not included as deduction in
income tax purposes.
How much
deductible?

outstanding

indebtedness

(?)

is

it

Yes it is deductible
How much is deductible and how do we classify that?
It will be classified as an unpaid mortgage
And we know that the amount of the property that was
mortgage is included as part of the gross estate. The
condominium unit which is 3M its just that it is reduce by
the amount which is outstanding unpaid mortgage which
is 1.7M
Do we have a claim against the estate which is a
deductible amount other than the 3 mentioned?
Gross Estate = 10 M
Deductions (ELIT) = (as solved) 3 M
What are the other deductible amounts?
TAXES DUE for January-November 2012 Income.
Why are we allowed to deduct it?
It is still considered unpaid by the decedent. The entire
200,000 is considered as deductible.
Transfer for Public Use (as part of the political
subdivisions of the government) wherein the recipient is a
barangay. The entire 100,000 is deductible.
How about the medical expenses?
No. the medical expenses were considered incurred
more than one (1) year before/prior the death of the
decedent.

 Vanishing Deductions:
How much?
The FMV (Vintage Motor Vehicle) at the time of death, 1
M, since the said FMV is considered lower. At arriving with
the initial basis, the FMW less Pro-rated Deductions, which
is 1 M over the 10 M (the gross estate), then multiplied by
the 3 M (ELIT Expenses, Losses etc.).
ELIT plus TPU is 3 M plus. So ten percent of 3 M is
300,000. The Vanishing deduction is 700,000 but we have
to multiply it with the vanishing deduction rate which is
60 %. The vanishing deduction is now 420, 000. In
arriving at the vanishing deduction, make sure your gross
estate is correct and the ELIT and TPU is also correct.

However, we know that the first 200k is exempt. But do

not remove it from the 5,080,000 and get the tax due
afterwards because the tax table already takes into
consideration the layering of the net estate of 5,080,000.
How is it taxed? The first 200k is zero. The next layer of
300k is 15k.The next layer of 1.5M is 120k.
The next layer of 3M is 330k. And, finally, the excess of
5M. That is how estate tax is computed. You dont
automatically say that 5,080,000 is taxable at 15% after
deducting the 200k tax exempt. You have to look at the
table because the components of your net estate are
taxed differently. Effectively, 477,000 over 5,080,000 is
not even 15%. Its lower than that, the effective tax rate.

SO how much is the Net Estate?

Gross Estate
10,000,000
Less ELIT & TPU
3,000,000
Less Vanishing Deductions
420,000
Less Standard Deduction
1,000,000
_____________________________________________
5,080,000
Gross Estate is 10 M less the ELIT and TPU of 3 M less
Vanishing deduction of 420,000, is this the correct way of
getting your net estate? You shall not forget the standard
deduction of 1,000,000.
For estate not exceeding 200,000 is exempt. Anything
in excess of 200,000, but not over 500,000, the first
200,000 is exempt but anything beyond 200,000 but
below 500,000 is 5%. Three hundred thousand 5%, is
15,000.
Any gross estate in excess of 500,000 but not over 1.5
million, in between is another 1.5 million gross estate. The
first 500,000 is subject to 15,000 from the previous layer
and anything in excess is 8%. What was subjected to 8%
is the difference between 500k and 2M, which is 1.5M and
8% is 120k. Thats why you can see that the next layer
starts with 135k coming from 120k and 15k from the
previous layers.
The next 2 million, any net estate in excess of 2M not
over 5M will guaranty you a tax due of 135k. Plus 11% of
the excess of 2M. What is the excess of 5M over 2M?
Three million and 11% is 330k or a total of 465k.
Look at sec. 84. This is where the net estate of Mr. A
belongs. His net taxable estate is 5,080,000. The first 5M
has a tax of 465k. Any excess of 5M which is 80k and
taxed at 15% or 12,000 or a total of 477,000 which is Mr.
As tax due.
The point is whenever you are given a net taxable
estate even in practice you can go directly look at the
table.

2. Married Decedent
Rules in Property Ownership between Spouses
If an individual decedent is married, how do we treat
their properties?
If the marriage took effect after the family codes
effectivity, Aug. 3, 1998, the absolute community of
property governs. Prior to that, its conjugal ownership of
gains, unless a different property regime was agreed
upon.
What is absolute community of property?
Whatever property you bring during marriage is a
common property. What are exclusive are those which you
receive from gratuitous transfers, inheritances or
donations, wherein theres no mention on who owns it
unless the donor/testator mentions that both spouses coowns it. Another exclusive property under such regime is
when one of the spouses is a prior descendant in a
previous message then those properties will be
considered as exclusively owned.
What is the rule on conjugal partnership of gains?
All the properties they acquired before marriage will
remain exclusive and what is common are those acquired
during the marriage by onerous title, using common fund,
title/profession or any acquisition using conjugal funds will
form part of conjugal property.

 In conjugal properties, we need to get the net conjugal

estate in order to get also the share of the surviving
spouse because the other half is owned by the surviving
spouse. But before the SS can share in this property we
have to deduct ordinary deductions, i.e. the ELIT.
Under conjugal we find the family house is at 1.3M,
other real properties at 2M, personal properties 1M.
Commercial arcade is exclusive because it was
inherited after marriage valued at 4M, the FMV at time of
death.
The 2 insurance proceeds will not form part of the GE
because the first is an irrevocable insurance having as its
beneficiary a person other than the estate, administrator
or executor while the 2nd insurance is not taken by the
decedent but by his employer.
Benefits received under RA 4917 is conjugal for 500k
because this is an asset derived by work.
Receivable from Y, an insolvent person, 300k is
conjugal.
Revocable transfer, conjugal, 900k.
Transfer for insufficient consideration, exclusive, 1.2M.

 For a total of 6M for exclusive, and another 6M for

conjugal. Adding both we have total gross estate of 12M.
What can reduce the conjugal estate to arrive at the
net conjugal estate?
ELIT expenses.
Funeral expenses, 200k, which is the limit provided by
law since it is lesser than the actual expense and the 5%
of 12M the GE.
Judicial expenses, 500k, without limit so long as it
pertains to settlement of estate.
Casualty expenses which took place after decedents
death at 500k.

Its tax due would be based on the table in excess of

2M but not over 5M. 2.6M will be subjected to 11%, while
the first 2M will guaranty you a tax of 135k, for a total of
421,000 estate tax due.
No estate tax credit because though he is a resident
alien, the problem did not provide for properties outside
the Philippines.
L. Net Estate and Estate Tax Rates
1. Estate tax rates
2. Exemption from Estate Tax
3. Estate Tax Credits

Unpaid mortgage, 1.2M.

Assuming Mr. A has properties located outside the

Philippines can he claim tax credit?

Unpaid taxes, because real property taxes accrue

every January 1 whether you pay it in full or in 4 quarterly
installments. It has already accrued, 100k.

RC, NRC, RA can claim tax credit because they have

properties outside which can be taxed by a foreign
country and would be subjected to double taxation.

Medical expenses do not form part of ELIT. It is a

special deduction. It will not reduce the conjugal estate.

Assuming that 1.5M foreign estate taxes have been

paid and the Philippine tax due is only 1.415M, can the
estate deduct the 1.5M paid abroad?

Claims against insolvent persons, 300k.

Total ELIT is 2.8M ordinary deductions.
How much is the share of the surviving spouse?
of 3.2M, which is 1.6M. The estate of Mr. A is only
the Gross estate minus the conjugal deductions. 6M
exclusive, while 1.6M which is of the conjugal estate.
We proceed with the 7.6M and reduce it with the other
special deductions which comprise of family home,
vanishing deduction, standard deduction, RA 4917,
medical expenses.
In the example, how much is the special deduction?

No, because the amount of the tax credit will be

subjected to limitations.
The law provides that the amount of credit in respect
to the foreign estate tax paid in a foreign country shall be
allowed but shall not exceed the proportion from which
the credit is taken, which refers to the Philippine estate
tax against whom the foreign estate tax credit will be
deducted. This proportion refers to the net estate of the
decedent on properties located in the Philippines that is
subject to Philippine estate tax to that which bears to the
worldwide net estate. It is not gross, its NET. So the
amount of credit in relation to the foreign tax paid shall
never exceed the Philippine estate tax.

1M for the standard deduction.

500k for the amounts received under RA 4917.
1M the amount limited by law for the family home. The
lot is 800k exclusive, while only 1/2 of the 1.3M house
being conjugal which is 650k. But law sets limit at 1M.
No vanishing deductions because donation was made
outside of the 5 years from donation.
500k medical expenses made within 1 year from death,
which is the limit, though the actual expense was 600k.
So total special deductions is 3M.
So gross taxable estate is 7.6M minus 3M special
deductions, which will result to a 4.6M net taxable estate.

Ex. Decedent is a NCR. Mr. A has properties located in

the Philippines, country A, and country B. Gross estate is
25M. Net estate prior to standard deduction is 12M.
Which of this 2 figures will be useful in determining the
foreign tax credit?

 The net estate. So the 25M will not matter. But in

determining the net estate, do not consider first the
standard deduction.
Taxable amount in the Philippines is 12M.
Standard deduction will
computing Philippine tax due.

later

be

computed

in

Using the table, Mr. As Philippine estate tax due is 11M

because 12M minus 1M standard deduction, so 10M and
over. 1,415,000 tax due. First 10M is 1,215,000, while
excess of 1M is subjected to 20%, which is 200,000. So
total of 1,415,000. It is even lower than what was paid
abroad of 1.5M on 9M properties.
Lets determine the limitation.
Global limitation put together country A and country B.
Country A + Country B
---------------------- or 9M/12M
Worldwide estate
It produces the global limitation of 1,061,250. It is
lower than the 1.5M estate taxes paid abroad.
So definitely this figure will not pass (actual taxes paid
abroad) because the global limitation provides for a lower
amount. But that is not the end of the story.
Why do we have to have this limitation?

Because it is 1.4415M, which is tax on the entire net

estate a portion of this tax imposed by the authorities
refers to the 6M properties that had already been taxed in
country A and 3M properties already taxed in country B. It
has been paid. Now if you want to claim this, only that
proportion to which the Philippines really imposed on. If
the Philippines only imposed a maximum of 20, then we
cannot deduct the entire 1.5M.
Per country limitation