Chapter 3 Gross Estate

The Gross Estate

-consists of all properties owned by a decedent at the time of his death. However, it shall NOT include the
separate (exclusive) properties of surviving spouse.

Composition of the Gross Estate

Decedent:
Filipino CITIZEN or RESIDENT alien- all properties wherever located shall be included as part of the gross
estate.

Nonresident alien- ONLY properties located in the Philippines, UNLESS the property is subject to
RECIPROCITY.

Classification of Properties
1. Real property- immovable property.
2. Personal property- movable property.
3. Intangible personal property- properties other than real and personal property. (e.g cash, bank
deposits, insurance, goodwill, franchise, patents, trademarks, bonds, stock certificates, & other
investment securities.

Valuation of the Gross Estate

1. In general, the gross estate shall be valued at its fair market value at the time of the decedent’s death.

2. Real properties-
a. Valued at current fair market value- fixed by Provincial/City Assessor; or
b. Valued at fair market value determined by BIR Commissioner, whichever is HIGHER.

3. Personal Properties
Recently acquired- acquisition cost
Previously acquired- current market price

4. Stocks, bonds, and other securities

a. If LISTED in the local stock exchange:
Value- the MEAN between the highest and the lowest quoted selling price at the date of death of nearest
to the date of death.

b. If NOT LISTED in the local stock exchange:

1. Unlisted common shares- valued at book value at the date of death.
2. Unlisted preferred shares- valued at par value.

Additions to Gross Estate

The following are the unidentifiable rights or properties to be added in the gross estate:

1. Taxable transfers:
(Transfer during lifetime of the decedent)
a. Revocable transfers;
b. Transfers in contemplation of death;
c. Properties passing under general power of appointment.
d. Transfers for insufficient consideration;

2. Others:
a. Decedent’s interest accrued at the date of death;
b. Proceeds of life insurance with revocable beneficiary;
Beneficiary- third party
REVOCABLE- taxable (included) √
IRREVOCABLE- not taxable (excluded) X
Beneficiary- decedent’s estate
administrator
executor
REVOCABLE or IRREVOCABLE- still taxable (included) √
c. Claims against insolvent person; and
d. Amount received by heirs under R.A No. 4917.

Exemptions From Estate Tax

1. Section 87 of NIRC provides that the following acquisitions and transmission shall not be subjected to
estate tax.

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

b. The transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to the
fideicommissary;
c. The transmission from the first heir, legatee, or donee in favor of another beneficiary, in accordance
with the desire of the predecessor; and
d. All bequests, devises, legacies, or transfers to social welfare, cultural and charitable institutions, no part
of the net income of which goes to the benefit of any individual; provided, however that not more than
30% of the said bequests, devises, legacies, or transfers shall be used by such institutions for
administrative purposes.

2. Bequests to be used, actually, directly and exclusively for educational purposes.

3. Proceeds of life insurance

a. Where the beneficiary is irrevocable appointed
b. Under a group insurance taken by th employer in favor of the employee.

4. Transfer by way of bona fide sales

5. Properties held in trust by the decedent;

6. Separate property of the surviving spouse;

7. Exemptions under reciprocity clause of estate tax law;

8. Exemptions under special laws such as:

a. Benefits received from SSS
b. Benefits received from U.S Veterans Administration
c. War benefits given by the Philippine government and U.S government dur to damages suffered during
war
d. Grants and donations to the Intramurous Administration

“Trust in the Lord with all your heart and lean not on your own understanding; in all your ways submit to
Him, and He will make your path straight.” Proverbs 3:5-6
Pre-test (Transfer and Business Taxation)

Write T if the statement is true, otherwise, write F.

1. The paraphernal is part of the gross estate of the decedent’s wife.
2. The gross estate of a nonresident citizen decedent includes all properties and interest situated in the
Philippines.
3. The citizenship and residency of the decedent determines the situs of properties subject to estate tax.
4. Cash and cash equivalents are classified as tangible personal properties for estate tax purposes.
5. Properties belonging to aliens are subject to Philippine estate tax only if located in the Philippines.
6. The fair value of the property at the time of death is considered in determining the value of gross
estate.
7. In valuing of shares of stocks not listed in the stock exchange, common shares and preferred stock are
valued at their book values.
8. Accrued interest, rents, and dividends declared to stockholders of record o or before the date of
decedent’s death are to be included in his estate although they are not collected until after his death.
9. The interest revenue to be included as part of the gross estate must exist at the time of the decedent’s
death.
10. A gift intended to take effect at death, or after death, or under which the donor reserved the income
or the right to designate the persons who should enjoy the income shall be subject to donor’s tax and not
estate tax.

Problem Solving (5 points)

The ff. are the lists of properties pertaining to the computation of the estate of Zuma Langit, a Filipino
citizen:
Real properties in the Philippines (fair market value) P1,000,000
Car in the Philippines 800,000
Collectibles in Philippines (20% uncollectible) 500,000
Franchise- Taiwan 200,000
Required: Zuma Langit’s Gross Estate

Post test (Transfer and Business Taxation)

Problem Solving: Show your solution. (5 points each)
1. The ff. are the lists of properties pertaining to the computation of the estate of Zuma Langit, a non-
resident alien with estate tax reciprocity:
Real properties in the Philippines (fair market value) P1,000,000
Car in the Philippines 800,000
Collectibles in Philippines (20% uncollectible) 500,000
Franchise- Taiwan 200,000
Required: Zuma Langit’s Gross Estate
a. P1,000,000 b. P800,000 c. P 2,300,000 d. P1,800,000

2. How much is the reportable amount of personal property owned by a resident Filipino citizen if the
property was acquired for P1,000,000 but at the time of his death it has a book value of P800,000 and a
market value of P750,000, respectively?
a. P800,000 b. P750,000 c. P1,000,000 d. Zero

3. The surviving spouse of a passenger who died in a bus collision received a total amount of P1,000,000
of which P200,000 comes from the bus company and P800,000 from the proceeds of life insurance
assigned an irrevocable beneficiary. How much is the amount to be declared in the estate tax return?
a. P800,000 b. P200,000 c. P1,000,000 d. Zero