Effective January 1, 2018 (Under Train)

There shall be levied, assessed, collected

and paid upon the transfer of the net
estate of every decedent, whether
resident or nonresident of the
Philippines, a tax at the rate of 6%
based on thee value of such net estate.
For deaths prior to Jan. 1, 2018, the rate shall be the following
based on the net taxable estate:
 Format of computation
Exclusive Common Total

Gross estate xxx xxx xxx

Less: Deductions (xxx) (xxx) (xxx)

Net estate before special deductions xxx xxx xxx

Less: Special deductions

Family home (xxx)

Standard deduction (xxx)

Net estate after special deductions xxx

Less: Share of surviving spouse (xxx)

Taxable net estate xxx

Tax due (6%) xxx

Less: Estate tax credit (xxx)

Tax payable xxx

 Deductions allowed to estate
Before TRAIN Under TRAIN

a. Funeral expenses 5% Gross estate or actual No longer allowed

funeral expenses whichever is
higher but not more than
P200,000
b. Judicial expenses Allowed actual amount No longer allowed

c. Losses Allowed actual amount Actual amount

d. Indebtedness (Claims Allowed actual amount Allowed actual amount

against the estate)
e. Taxes Allowed actual amount Allowed actual amount

f. Claims against insolvent Uncollectible amount due to Uncollectible amount

debtor insolvency due to insolvency
g. Unpaid mortgage Allowed actual amount Allowed actual amount

h. Property previously taxed Allowed amount per Allowed amount per

(vanishing deduction) computation computation
i. Transfer for public purpose Allowed actual amount Allowed actual amount
 Special Deduction
Before TRAIN Under TRAIN

a. Family home Resident/Citizen- allowed Resident/Citizen- allowed

P1M max P10M max
Non resident alien-not Non resident alien-not
allowed allowed
b. Standard deduction Resident/Citizen- allowed Resident/Citizen- allowed
P1M P5M
Non resident alien-not Non resident alien-allowed
allowed P500K
c. Medical expenses Resident/Citizen- allowed No longer allowed
P500K max
Non resident alien-not
allowed
d. Amount received under Resident/Citizen- allowed Resident/Citizen- allowed
R.A. 4917 actual amount actual amount
Non resident alien-not Non resident alien-not
allowed allowed
Exercise
The decedent is a married man with a surviving spouse
with the following data:

Conjugal real and personal properties P14,000,000

Conjugal family home 9,000,000
Exclusive properties 5,000,000
Conjugal ordinary deductions (including P200,000 funeral expenses 2,300,000
and 100,000 judicial expenses)
Medical expenses 500,000
a. How much is the estate tax due and payable assuming
the decedent dies on January 1, 2018
Rule of Reciprocity (Non Resident Alien Decedent)
1. Properties covered by
reciprocity
2. Basic rules
3. Properties considered
situated in the Philippines
Intangible personal property situated in the Philippines
owned by non-resident alien decedent.
When there is no reciprocity- The intangible personal
property of non-resident alien situated in the Philippines
are included in the gross estate.
The following shall be considered as situated in the
Philippines (among others):
a. Franchise which must be exercised in the Philippines;
b. Shares, obligations or bonds issued by any corporation
or sociedad anonima organized and constituted in the
Philippines in accordance with its law;
c. Shares, obligations or bonds issued by any foreign
corporation 85% of the business of which is located in
the Philippines;
d. Shares, obligations or bonds issued by any foreign
corporation if such shares, obligations or bonds have
acquired a business situs in the Philippines;
e. Share of rights in any partnership, business or industry
established in the Philippines
A decedent died leaving the following properties. Check the
appropriate box if included in the gross estate.
Resident NRA-No NRA-With
decedent Reciprocity Reciprocity
House and Lot, USA
Condominium unit, Philippines
Furniture and appliances,
Philippines
Car, USA
Bonds, Philippines
Common shares of stock not traded
in the local stock exchange,
Philippine Corporation
Preferred shares of stock, foreign
corporation, 85% of the business in
the Philippines
Proceeds of life insurance,
Philippines (administrator of the
estate is irrevocable beneficiary).
Examples of taxable transfer

a. Transfer in contemplation of death- motivated by

thought of death although death may not be
imminent.
b. Revocable transfer- the enjoyment of the property
may be altered, amended, revoked or terminated
by the decedent
c. Transfer passing under general power of
appointment
d. Transfer with retention or reservation of certain
rights
e. Transfer for insufficient consideration
Motives that preclude a transfer from the category of
one made in contemplation of death

a. To relieve donor from the burden of management

b. To save income or property taxes
c. To settle family litigated and unlitigated disputes
d. To provide independent income for dependents
e. To see the children enjoy the property while the
donor is alive
f. To protect the family from hazards of business
operations; and
g. To reward services rendered
Exercise: Determine whether or not the following fall under
taxable transfers for estate purposes (Y/N)
Taxable
transfer?

1) Property transferred, transferor is of advanced age and

thought of dying soon

2) Property transferred, transferor wanted to reward

services rendered to him

3) Property transferred, transferor has the right to take the

property back

4) Property transferred, transferror has the right to take the

property back but waived the right before he died
Exercise: Determine whether or not the following fall under
taxable transfers for estate purposes (Y/N)
Taxable
transfer?

5) Property transferred under power of appointment which

can be exercised in favor of anybody

6) Property transferred under power of appointment which

can be exercised in favor of a person designated by the
transferor of the power of appointment

7) Property transferred, the transferor has the right to the

income of the transferred property while still alive
Exercise: Determine what value shall be included in the
gross estate
Case FMV, time Consideration FMV, time of Amount
of transfer Received death included in GE

1 P1,000,000 P800,000 P1,200,000

2 P1,500,000 P900,000 P1,000,000

3 P2,000,000 None P1,500,000

4 P2,500,000 P3,000,000 P3,500,000

5 P2,200,000 P1,500,000 P1,200,000

1. Proceeds of life insurance Generally taxable, except when:
a. A third person is irrevocably designated as
beneficiary;
b. The proceeds/benefits come from SSS or
GSIS;
c. The proceeds come from group insurance

2. Claims against insolvent a. The full amount of the claims is included in

persons the gross estate.
b. The uncollectible amount of the claims is
deducted from the gross estate.

3. Amount received by heirs The amount received by heirs from decedent’s

under R.A. No. 4917 employer as a consequence of the death of the
decedent-employee is included in the gross
estate of the decedent.
Exercise: Determine whether or not the following proceeds
of life insurance shall be included in the gross estate.
1 Proceeds from life insurance, third person is irrevocably designated as
beneficiary
2 Proceeds from life insurance, third person is revocably designated as
beneficiary
3 Proceeds from life insurance, the beneficiary’s designation is not clear

4 Proceeds of life insurance, administrator of the estate is irrevocably

designated as beneficiary
5 Proceeds of life insurance, executor of the estate is revocably
designated as beneficiary
6 Benefits received from SSS, third person is irrevocably designated as
beneficiary
7 Benefits from GSIS, third person is revocably designated as
beneficiary
Exemptions
The following acquisitions and transmissions will not be subject to the estate tax:

a. The merger of usufruct in the owner of the naked title;

In this case, the usufruct and the naked title to the property were given to different persons. Upon the
death of the usufructuary, the usufruct merges with the naked title. This merger is no longer subject to
estate tax since it has already been subjected thereto upon the death of the original owner thereof.

b. The transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to the
fideicommissary;

A fideicommissary substitution by virtue of which the fiduciary or first heir instituted is entrusted with
the obligation to preserve and to transmit to a second heir the whole or part of the inheritance, shall be
valid and shall take effect, provided such substitution does not go beyond one degree from the heir
originally instituted, and provided further, that the fiduciary or first heir and the second heir are living at
the time of the death of the testator. (Art. 863, Civil Code)

Elements of Fideicommissary Substitution:

(1) There is a first heir who is tasked to preserve the property and transmit it to the second heir;
(2) There is a second heir to whom the property will be transferred once the right of the first heir
expires;
(3) The second heir is one degree from the first heir – which can either mean by relationship or by
degree of transfer.
Exemptions
The following acquisitions and transmissions will not be subject to the estate
tax:

c. The transmission from the first heir, legatee or donee in favor of another
beneficiary, in accordance with the desire of the predecessor; and

This is the transfer subject to a special power of appointment and the rules
are similar to a fideicommissary substitution. However, the requirement of
one degree transfer is not applicable.

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

Does not include religious institutions: are not included in the above
exemptions. Accordingly, it is subject to estate tax. Note that the estate tax is
an excise tax and not a property tax. As such, it is not covered by the
exemption under Sec. 28(3), Art. VI of the 1987 Constitution, since such
exemption covers only property taxes.
Exclusions from gross estate under special laws

a. Amount received as war damages;

b. Amount received from US Veterans
Administration;
c. Benefits from GSIS and SSS
Valuation
In general, the value of the properties shall be
determined as the fair market value at the time of the
decedent’s death.

1. Real Property – whichever is higher of the following:

a. Fair market value as determined by the
Commissioner of Internal Revenue; or
b. Fair market value as shown in the schedule of values
fixed by the provincial or city assessors.

Note that fair market values as determined by an

Independent Assessor is not an available option and
will be used only if both of the above are not available.
Valuation
2. Shares of Stock – depending whether:
a. Listed or traded in the stock exchange –
(1)The quotation available at the date of death; or
(2)the arithmetic mean between the highest and
lowest quotation at the date nearest the date of
death, if none is available on the date itself;

b. Not listed or traded in the stock exchange

(1)Common shares - book value for the common
shares;
(2)Preferred shares – par value.
 Exercise: Determine the value to be included in the gross
estate
1 Real property, zonal value, time of death,
P1,500,000; assessed value, time of death,
P1,200,000
2 Real property, zonal value, 6 months before
death, P1,500,000; assessed value, time of
death, P1,200,000
3 Personal property, recently purchased, FMV,
time of death, P700,000; purchase price,
P800,000
4 Personal property, recently purchased, purchase
price, P800,000
 Exercise: Determine the value to be included in the gross
estate
5 Personal property, not recently purchased, pawn value,
P80,000
6 10,000 shares of stock, traded in the local stock
exchange, par value, P20/share; mean between highest
and lowest quotation, P15/share
7 5,000 common shares, not traded in the local stock
exchange, FMV, time of death P2/share; par value,
P5/share
8 5,000 common shares, not traded in the local stock
exchange, par value, P5/share, book value, P4/share
9 10,000 preferred shares, not traded in the local stock
exchange, par value, P10/share, book value, P15/share
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.

The Gross Estate of a married individual will consist

of his exclusive properties and the conjugal
properties, which are to be determined based on
the husband and wife’s marital property relations.
ABSOLUTE COMMUNITY OF PROPERTY (ACP)–
in the absence of a marriage settlement, or
when the regime agreed upon is void, the
system of absolute community of property as
established in this Code shall govern. (Art. 75,
Family Code of the Philippines, effective Aug. 3,
1988) This is applicable to marriages solemnized
after Aug. 3, 1988 the effectivity of the Family
Code; prior to said date, marriages solemnized
without a marriage settlement (prenuptial
agreement) will be governed by CPG.
ABSOLUTE COMMUNITY OF PROPERTY (ACP)

a. Exclusive Properties: 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.
(Art. 92, Family Code)
ABSOLUTE COMMUNITY OF PROPERTY (ACP)

b. Conjugal/Community Properties: 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. (Art. 91, Family Code)
CONJUGAL PARTNERSHIP OF GAINS (CPG)

In case the future spouses agree in the marriage

settlements that the regime of conjugal partnership
gains shall govern their property relations during
marriage (Art. 105, Family Code). The CPG will be the
default marital property relations that will govern
marriages solemnized prior to Aug. 3, 1988 (the
effectivity of the Family Code); after said date, the CPG
will govern only if contained in a marriage settlement
(pre-nuptial agreement), the default being ACP.
CONJUGAL PARTNERSHIP OF GAINS (CPG)

a. Exclusive Properties: 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. (Art. 109, Family Code)
CONJUGAL PARTNERSHIP OF GAINS (CPG)

b. Conjugal Properties: The following are conjugal partnership properties:

(1) Those acquired by onerous title during the marriage at the expense
of the common fund, whether the acquisition be for the partnership,
or for only one of the spouses;
(2) Those obtained from the labor, industry, work or profession of either
or both of the spouses;
(3) The fruits, natural, industrial, or civil, due or received during the
marriage from the common property, as well as the net fruits from the
exclusive property of each spouse;
(4) The share of either spouse in the hidden treasure which the law
awards to the finder or owner of the property where the treasure is
found;
(5) Those acquired through occupation such as fishing or hunting;
(6) Livestock existing upon the dissolution of the partnership in excess of
the number of each kind brought to the marriage by either spouse; and
(7) Those which are acquired by chance,
Exercise: The decedent was married at the time of death. He was survived by is
wife and children. Determine the taxable gross estate (FMV at the time of death).

FMV EXCL- CONJ- EXCL- COMM-

CPOG CPOG ACOP ACOP
Cash owned by the decedent 5,000,000
before the marriage
Real property inherited by the 6,000,000
decedent during the marriage
Personal property received by 400,000
the wife as gift before the
marriage
Property acquired by decedent 600,000
with cash owned before the
marriage
Personal effects of the decedent 500,000
purchased with the exclusive
money of the wife
Jewelry purchased with cash of 1,000,000
the surviving spouse earned
before the marriage
 Exercise: The decedent was married at the time of death. He was survived by
is wife and children. Determine the taxable gross estate (FMV at the time of
death).
FMV EXCL- CONJ- EXCL- COMM-
CPOG CPOG ACOP ACOP
Property unidentified when and 1,200,000
by whom acquired
Cash representing income 2,000,000
received during the marriage
from exclusive property
Property acquired before 3,000,000
marriage by the decedent who
has legitimate descendants by a
former marriage
Total
 Expenses, Losses, Indebtedness, Taxes, Etc. (ELITE)
a. Funeral expenses
b. Judicial expenses
c. Losses
d. Indebtedness
e. Taxes
f. Claims against insolvent
g. Unpaid mortgage
Before TRAIN Under TRAIN
Actual funeral expenses or Not deductible
5% of gross estate
whichever is lower, but in
no case to exceed P200k
Actual amount Not deductible
Actual loss not compensated by insurance or
otherwise
Actual amount
Amount accrued before death
Uncollectible amount due to insolvency
Actual amount
 Determine the deductible funeral expenses

Actual Allowed Under

TRAIN
1. Gross estate, P40,000
P1,000,000
2. Gross estate, 120,000
P2,000,000
3. Gross estate, 150,000
P5,000,000
4. Gross estate, 250,000
P6,000,000
 Exercise: A decedent dies on January 15, 2017. The interment
is on January 31, 2017. The following expenses are presented
to you.
Accountant’s fee in gathering the assets of the decedent
incurred on Feb. 15, 2017 P50,000
Lawyer’s fee in representing the estate in case filed on
August 15, 2017 70,000
Executor’s fee:
January 15, 2017 to July 15, 2017 120,000
July 16, 2017 to December 31, 2017 120,000

a. The deductible judicial expenses are P________.

b. Assuming the person dies January 1, 2018 and all the
expenses are incurred in 2018, the deductible judicial
expenses are ________.
 Exercise: Y, a Filipino resident, died on November 5, 2018, and
his estate incurred losses:

1st loss: From fire on February 2, 2018 of improvement

on his property, not compensated by insurance P500,000
2nd loss: From flood on Feb. 25, 2019 300,000
3rd loss: From sale on February 20, 2019 of a property 100,000
included in the gross estate
4th loss: From theft on April 5, 2019, 70% compensated 300,000
by insurance
5th loss: From robbery on May 5, 2019, claimed as 150,000
deduction from gross income

The deductible loss is?

 Exercise: You were appointed by court as an administrator of
the Estate of A. A died on March 15, 2018. The following
unpaid taxes were presented to you:
Unpaid real estate tax for the second, third and fourth
quarters of 2018 P90,000
Unpaid tax on the income received by the estate of A 20,000
Estate tax on the Estate of A 50,000
Unpaid tax on income received by A for the period 4,000
January 1 to March 14, 2018

The total deductible unpaid taxes is?

Exercise: Escolastica dies with a claim against
Juanico. Juanico has properties worth P250,000 and
obligations of P350,000. Included in the obligations
of Juanico are P50,000 unpaid taxes owed to the
Government of the Philippines and P90,000 payable
to Ms. Escolastica.

The deductible claim against insolvent debtors is

P______.
 Transfer for Public use
Requisites for Amount deductible Deducte
deductibility d from
The transfer must Amount of all bequest, Exclusive
be testamentary in legacies, devises, or property
character or by way transfers to or for the
of donation mortis use of the
cause executed by government of the
the decedent Philippines, or any
before his death political subdivision
for exclusively public
purpose.
Decedent was a citizen of the Philippines who was a single at the time of death.
Compute the vanishing deduction based on the following information that were
made available:
Land inherited 3 years before he died , located in the Philippines
FMV, when inherited 8,500,000
FMV time of death 7,000,000
Unpaid mortgage on the property when inherited 1,300,000
Unpaid mortgage on the property as the time of death 1,000,000
Property acquired through own labor 2,000,000
Shares of stock, Manila 800,000
House and lot, USA 4,800,000
Bank deposit, PNB-Manila 1,000,000
Expenses, losses, indebtedness, taxes, etc. 3,500,000
Transfer for public use 1,070,000
Medical expenses 500,000
A non-resident alien decedent, single, died on January 1, 2018 left the following
properties:
Car, Manila (inherited 4 years before he died, FMV, date of inheritance P1,500,000
was P1.7M)
Car, USA 2,600,000
Shares of stock, USA 900,000
Shares of stock, Manila 800,000
House and lot, USA 4,800,000
Bank deposit, PNB-Manila 1,000,000
Other tangible personal properties, Manila 500,000
The administrator claimed the following deductions:
Actual funeral expenses 40,000
Judicial expenses 30,000
Loss of certain tangible personal properties 25,000
Claims against the estate 20,000
Unpaid taxes, accrued before death 15,000
Claims against insolvent person 10,000
Transfer for public use 10,000
Medical expenses 50,000
Exercise: For year 2018, determine the amount to be included in the GE, decedent’s
interest and the FH deduction.

Gross estate Decedent’s Family Before

interest home train
deduction
1. FH is conjugal property,
P13M
2. FH is conjugal property,
P25M
3. FH is exclusive property,
P12M
4. FH is exclusive property,
P8M
5. FH is partly common, partly
exclusive
Exclusive-P5M
Conjugal house-P8M
 Standard Deduction
Before TRAIN Under TRAIN
Resident/Citizen
Non-resident alien
 Medical expenses
Total actual Deductible
medical
expenses
Cost of medicine, unpaid, incurred 12 P300,000
months before death
Hospital bills, paid, incurred 15 months 200,000
before death
Doctors’ fees, incurred within 12 months 100,000
before death (80% with receipts)
Total 600,000

Decedent died January 1, 2018

TAX CREDITS FOR ESTATE TAXES PAID
TO A FOREIGN COUNTRY