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The 1st Thing You Have To Do in Settling the Estate of a Deceased Person

An increasing number of people are thinking and searching for information on how to settle the
estate of a deceased relative (parent, grandparent, aunt or uncle) who left a valuable piece or
pieces of real property.
The motives of these people range from (1) wanting a closure on the issue of an unsettled estate;
(2) being wary of the enormous penalties that the BIR will charge if the estate of the deceased
remains unsettled; or (3) wanting to sell the property and cash in on a possible windfall due to
increasing value of real properties at this time of Philippine economic resurgence.
The death of a loved one is a painful emotional experience. But often times, this emotional pain
is exacerbated by financial pain when the heirs have no capacity to pay for estate taxes. This is
the reason why oftentimes the payment of estate tax (or the settlement of the estate) is relegated
to the least priority to do after the loss of a loved one.
But, whether you have the means now to pay the estate tax or not, what is the first and foremost
thing that the heirs have to do in settling the estate of their deceased loved one in the Philippines?
For both judicial and extrajudicial settlement the first thing you have to do is to notify the BIR of
the fact of death of the decedent. According to Section 89 of Republic Act 8242 (Tax Reform
Act of 1997, any of the legal heirs shall give a written notice of the death to the BIR within two
(2) months after the decedents death.
What if you dont notify the BIR of the fact of death within the 2 month period stated in the law
or did not submit a notice at all? In my experience, the BIR will penalize you in the amount of
P5,000.00 to P10,000.00 for non-submission of the notice of death. This is assessed at the time
of the presentation of all documentary requirements for the settlement of the estate tax with the
BIR.
So how do you comply with the provision of Section 89? I will share my experience on this in a
case that I handled way back in 2012. Within the period allowed by law, I wrote a letter
addressed to the RDO informing the BIR of the fact of death of my client with the intention to
pay the estate tax within the 6 month period allowed by the Tax Code. I attached the copy of the

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death certificate issued by the Local Civil Registrar to the letter. I had it stamped received by the
RDO.
At the time of filing the estate tax return, I was surprised that the Officer of the Day in ONETT
did not consider my letter (duly received by the RDO). I was informed that it was not in the
proper form. But, there is no form mandated by any RMO or RMC issued by the BIR.
In the end, rather than debate the issue with a non-lawyer, my clients ended up paying a penalty
for non-submission of the Notice of Death. This experience of mine was duplicated in other
RDOs several more times.
Now, what have I done to prevent the BIR from assessing penalty for non-submission of Notice
of Death within the prescribed time? I have applied for a TIN of the estate of the deceased
individual within the 2-month period of submitting the Notice of Death.
Remember Step 1 of the 6 Steps in Settling the Estate of a Dead Person in the Philippines? I now
use BIR Form 1904 [Application for Registration] as my Notice of Death required to be
submitted to BIR pursuant to Section 89. I do this because the Application for Registration
requires that the copy of the death certificate be attached to it.
So far, I have not had any problem with the ONETT Officer of the Day when I argue that the
application serves as the notice of death required by the tax code to be filed within the prescribed
period. You can use the same strategy to save your client or your relatives the penalty that BIR
will impose for late filing or non-filing at all.
For a step-by-step procedure on how to fill up BIR Form 1904, go and read 6 Steps in Settling
the Estate of a Dead Person in the Philippines.
We have written several articles about the settlement of the estate of a deceased Filipino to guide
and familiarize the readers about the process that they will undergo with the BIR. We like writing
articles that give valuable information to our subscribers and visitors of our website.
We also love you hear from you and what you think of our content. Keep sending us your
comments and questions.

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6 Steps in Settling the Estate of a Dead Person in the Philippines


by realttorney | Sep 30, 2013 | Estate Planning, Real Estate in the Philippines | 30 comments
but in this world nothing can be said to be certain, except death and taxes.
Benjamin Franklin, in a letter to Jean-Baptiste Leroy, 1789

By Realttorney

With property values rising in the last 6 months, more and more sellers are motivated to sell real
properties to get the maximum amount of money for their benefit. The rise in property values is
not limited only to the National Capital Region, but to all urban and suburban areas in various
provinces in Luzon, Visayas and Mindanao.

It is a fact that there are numerous real properties for sale that are still registered in the names of
the deceased parent, grandparent or next of kin. As licensed real estate service practitioners
(RESPs), we know that when the registered owner of a real property is dead the same cannot be
transferred to the name of the buyer until the estate of the deceased person has been settled.

To elucidate, settling the estate of the deceased means the declaration of all the properties of the
deceased real and personal and payment of the correct estate taxes on all the declared
properties with the Bureau of Internal Revenue (BIR). No property in the name of the deceased
can be transferred to the name of another person without the settlement of the estate whether
testate or intestate.

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RESPs should dissuade their seller-clients from resurrecting the dead to make it appear that the
deceased executed the deed of sale of the property just to pay capital gains and evade the
payment of estate taxes.
The savings made on paying capital gains tax only is not worth the trouble of a BIR
investigation. It is not good for your seller-client as well as to the RESPs who advised such a
mode of transfer.
Do what is right. Prepare the documents for the extrajudicial settlement of the estate when there
has been or prior to a meeting of the minds between the buyer and seller.

Here are 6 simple steps to follow when settling the estate of a deceased person in preparation to
sell the property to an interested buyer:

STEP 1: Fill out BIR Form 1904 (Application for Registration). All parties that transact with
the BIR should have a valid Tax Identification Number (TIN). Normally, Form 1904 is used to
verify the TIN of the seller as well as the buyer. But in payment of estate taxes, the estate of the
deceased will have to have a separate TIN from the seller-heirs.
In filling out Form 1904, here is what to do: (a) on the Taxpayer Type, mark with an X the box
indicating One-Time Taxpayer; (b) on Classification, mark with an X the box indicating
Non-individual; and (c) on Sex, mark with an X the appropriate box indicating gender of the
deceased.
Next, write ESTATE OF [THE DECEASED PERSONS NAME] in the space provided for the
Taxpayers Name. On the Civil Status, mark with an X the appropriate box indicating civil
status of the deceased. On the Date of Birth, write the date of death of the decedent as it appears
in the Certificate of Death.
Write the Local Address of the decedent in the space provided for. Take note that the Local
Address of the decedent should be the one indicated in the death certificate.

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If the person dies abroad and has no residence in the Philippines fill out the Foreign Address by
writing the address indicated in the death certificate. In such a case, the filing of the Estate Tax
Return should be made at the BIR Revenue District Office (RDO) No. 39 (South Quezon City).

Finally, put an X on the box indicating Transfer of Properties by Succession (Death); and
on Tax Types mark an X the box indicating Estate Tax. Remember to indicate the name of the
Taxpayer/Authorized Agent and sign the same. It is important to attach a photocopy of the
certified copy of the Certificate of Death to Form 1904.

STEP 2: Prepare the mandatory documentary requirements to be submitted to the BIR for
the settlement of estate of a deceased individual. You can get a copy of the Checklist of
Documentary Requirements by clicking on the link. Go to page 3 and 4 of the document to find
the list.

STEP 3: Prepare BIR Form 1801 (Estate Tax Return). Fill up the name and the TIN of the
Estate on the spaces provided in Form 1801. The ONETT Officer of the Day will assist you in
filling out the rest of the form based on the computation he/she has made based on the review of
the documents presented. However, if the estate of the deceased is more than P3 million then it
would be wise to consult a certified public account to determine the initial computation of the
taxable estate.

STEP 4: Pay the estate tax as computed. You can pay the estate tax with an Authorized Agent
Bank (AAB) of the RDO having jurisdiction over the place of residence of the decedent at the
time of his/her death.
Cash is best to settle the estate tax. But if the tax due is a large amount and security would be a
problem for the one paying it then the same can be paid by means of a Managers or Cashiers
Check.
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If payment is made through a Managers or Cashiers Check, the following should be written as
payee: [BANK, BRANCH] FAO BUREAU OF INTERNAL REVENUE IFO [TAXPAYERS
NAME] [TIN OF TAXPAYER]. However, if you will pay the estate tax using a AAB that is a
government financial institution like Landbank of the Philippines, then the payee may simply be
BUREAU OF INTERNAL REVENUE.

STEP 5: Submit all documentary requirements and proof of payment to the RDO having
jurisdiction over the place of residence of the decedent. Upon submission of the requirements
and proof of payment, the ONETT One-Time Transaction will issue a Claim Stub with a
reference number. When you follow up if aCertificate Authorizing Registration (CAR) has
already been issued then you only need to give the reference number.

Please note that the processing of estate taxes requires a minimum of 60 days by the BIR.
Depending on the review of the documents, the BIR has the right to require the heirs for
additional requirements especially in connection to any deductions claimed by the estate.

There is a P1 million standard deduction for all estates. If one of the properties being settled is
the family home then a barangay certificate should be presented to certify that the decedent is a
bona fide resident of the barangay where the family home is located, if the deduction of P1
million for the family home will be claimed. The family home should be in the name of the
decedent in order for the deduction to be claimed.

STEP 6. Wait for the release of the Certificate Authorizing Registration. Upon the release of
the CAR, the property can now be sold to a buyer. The CAR, along with the transferring
document Extra-judicial Settlement of Estate, Affidavit of Self-Adjudication, etc. and the Tax
Clearance Certificate should be part of the documents to be presented when paying the capital
gains and documentary stamp taxes covering the sale of the property.

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Some buyers, however, would want to have the title and tax declarations of the real property in
the name of the heir or heirs before they finalize the purchase of the property. In such a case, the
RESP should process the payment of transfer tax to the LGU concerned and the registration fees
with the Registry of Deeds having jurisdiction over the location of the real property.

The same process mentioned above will govern if the transferring document is an Extra-judicial
Settlement of Estate with Sale.

A final note should be made to alert RESPs and the concerned readers. If the Extra-judicial
Settlement of Estate contains a waiver of some sort for and in favor of a particular heir or heirs,
the BIR shall assess the Heirs additional taxes in the form of a donors tax.

The BIR considers such waiver as a donation on the part of the waiving heir/s to the recipient
heir/s. This has been ruling of the BIR when Commissioner Henares took the helm of the bureau
in 2010.

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