Estate Taxes

(Gross Estate)
Prepared by: John D. Vargas
Consanguinity
Is the relation of persons descending from the same stock
or common ancestor (blood relatives)

1. Lineal - either descending or ascending

2. Collateral- neither descending nor ascending
 AB- Parents of C&D
C&D- Siblings
E- Wife/Husband of C

AB F- Wife/Husband of D
G&H- Sons of C&E
K- Wife of G
M- Son of G&K

CE DF

GK H I JL

M N
Order of Inestate Succession
1. Descending direct line
2. Ascending direct line
3. Illegitimate children/descendants
4. Surviving Spouse
5. Collateral relatives within 5th degree
6. The State
 Legitimate Legitimate Illegitimate Surviving Brothers, Other State
Children/ Parents/Asce Children/ Spouse Sisters/ Collateral
Descendants ndants Descendants Nephews Relatives
(w/in 5th)
Entire Excluded N surviving N surviving Excluded Excluded Excluded
½ if only child Excluded N surviving ½ Excluded Excluded Excluded
1/3 each if Excluded N surviving 1/3 Excluded Excluded Excluded
2 children
N surviving Entire N surviving N surviving Excluded Excluded Excluded

N surviving ½ 1/4 ¼ Excluded Excluded Excluded

N surviving N surviving ½ ½ Excluded Excluded Excluded

N surviving N surviving N surviving Entire N surviving Excluded Excluded
N surviving N surviving N surviving ½ ½ Excluded Excluded

N surviving N surviving N surviving N surviving Entire Excluded Excluded

N surviving N surviving N surviving N surviving N surviving Entire Excluded

N surviving N surviving N surviving N surviving N surviving N surviving Entire
Why do the government impose estate tax?
Justification on the Imposition of Estate Tax

1. Benefit- Received Theory- considers the

service rendered by the government
2. Privilege or State Partnership Theory-
inheritance is not a right but a privilege
granted by the State
3. Ability to Pay Theory- receipt of inheritance
creates the ability to pay
4. Redistribution of Wealth Theory- receipt of
inheritance is a contributing factor to the
inequalities in wealth and incomes
What is Estate Tax
• Tax on the right to transmit property at death on
certain transfers which are made by law
• It is an excise tax imposed on the act of passing the
ownership of property at the time of death and not
on the value of the property or right.
• Accrues as of the time of death
Illustration
• Pedro died April 1, 2017
• He was cremated on April 10, 2017
• Estate tax was paid September 1, 2017
• Inheritance was distributed February 1, 2018

1. When will the transfer of ownership from

decedent to heir take effect?
2. When should the estate tax accrue?
General Formula

Gross Estate
Less: Deductions
Net Estate
X 6%_________
Estate Tax
Composition of Gross Estate
Includes ALL property, real or personal, tangible or intangible
Decedent Gross Estate
• Resident Citizen 1. Real Property wherever situated
• Nonresident Citizen 2. Tangible Personal Property wherever situated
• Resident Alien 3. Intangible Personal Property wherever situated
• Nonresident alien 1. Real Property in the Philippines
2. Tangible Personal Property situated in the Phil
3. Intangible Personal Property with situs in the
Philippines, unless excluded on the basis of
reciprocity
Intangible Asset
• General Rule: Mobilia Sequntur Personam

1. Franchise which must be exercised in the Philippines

2. Shares, obligations, or bonds issued by any corporation
organized or constituted in the Philippines in accordance
to its law
3. Shares, obligations, or bonds issued by any foreign
corporation , 85% of business is located in the Philippines
4. Shares, obligations, or bonds issued by any foreign
corporation if such shares, obligations or bonds have
acquired a business situs in the Philippines
5. Shares or rights in any partnership, business or industry
established in the Philippines
Situs of Tangible/Intangible Property
PROPERTY SITUS
Real property and tangible personal Location of the property
property
Shares, franchise, copyrights, patents Where the intangible is exercised
regardless where the corresponding
certificate is stored
Receivables Residence of the debtor
Bank Deposits Location of the depository bank
 Composition of Gross Estate
NRA
Property SITUS
Citizen or With Without
Resident Reciprocity Reciprocity
1 Parcel of Land- Zamboanga WITHIN INCLUDE INCLUDE INCLUDE

2 Parcel of Land- India OUTSIDE INCLUDE EXCLUDE EXCLUDE

3 House and Lot- Makati WITHIN INCLUDE INCLUDE INCLUDE

4 Vacation House- Laguna WITHIN INCLUDE INCLUDE INCLUDE

5 Vacation House- Marawi WITHIN INCLUDE INCLUDE INCLUDE

6 Vacation House- Macau OUTSIDE INCLUDE EXCLUDE EXCLUDE

7 Cars- Batanes WITHIN INCLUDE INCLUDE INCLUDE

8 Cars in New York OUTSIDE INCLUDE EXCLUDE EXCLUDE

9 BPI Deposit- Cavite City WITHIN INCLUDE EXCLUDE INCLUDE

10 BPI Deposit- Manhattan OUTSIDE INCLUDE EXCLUDE EXCLUDE

11 Foreign bank- PH branch WITHIN INCLUDE EXCLUDE INCLUDE

12 Foreign bank- UK branch OUTSIDE INCLUDE EXCLUDE EXCLUDE

 Composition of Gross Estate
NRA
Property SITUS
Citizen or With Without
Resident Reciprocity Reciprocity
1 Receivables- debtors from WITHIN INCLUDE EXCLUDE INCLUDE
Philippines
2 Receivables- debtors from OUTSIDE INCLUDE EXCLUDE EXCLUDE
US
3 Shares of domestic WITHIN INCLUDE EXCLUDE INCLUDE
corporation- Certificates
were stored in the
Philippines
4 Shares of domestic WITHIN INCLUDE EXCLUDE INCLUDE
corporation- Certificates
were stored in the abroad
5 Shares of foreign OUTSIDE INCLUDE EXCLUDE EXCLUDE
corporation- Certificates
were stored in the
Philippines
6 Shares of foreign OUTSIDE INCLUDE EXCLUDE EXCLUDE
corporation- Certificates
were stored in the abroad
 Composition of Gross Estate
NRA
Property SITUS
Citizen or With Without
Resident Reciprocity Reciprocity
1 Shares of stock of a foreign WITHIN INCLUDE EXCLUDE INCLUDE
corporation, 90% of
operation is in the PH
2 Shares of stock of a foreign OUTSIDE INCLUDE EXCLUDE EXCLUDE
corporation, 80% of
operation is in the PH
3 Shares of stock of a foreign WITHIN INCLUDE EXCLUDE INCLUDE
corporation, which acquired
business situs in the PH
4 Patents and copyright WITHIN INCLUDE EXCLUDE INCLUDE
exercised in the Philippines
5 Patents and copyright OUTSIDE INCLUDE EXCLUDE EXCLUDE
exercised abroad
6 Bonds purchased from a WITHIN INCLUDE EXCLUDE INCLUDE
domestic corporation
7 Bonds purchased from a OUTSIDE INCLUDE EXCLUDE INCLUDE
foreign corporation
VALUATION
• Real property (Fair Market Value at the time of death)
• Higher between
• Determined by the Commissioner
• Shown in the schedule of values fixed by the city assessor
• If there is no zonal value
• FMV in the latest tax declaration
• If there is an improvement
• Construction cost per building permit or
• FMV per latest tax declaration
• Personal Property (Fair Market Value at the time of death)
• Shares of Stocks
• Unlisted Common share- Book value per share
• Unlisted Preference share- Par Value per share
• Listed Share
• Arithmetic mean between the highest and lowest quotation at the date nearest
in the date of death
• If none, quotation on the day of death
• Right to usufruct, use or habitation
• In accordance with the latest Basic Standard Mortality Rate taking into account the
probable life of the beneficiary to be approved by the Secretary of Finance upon the
recommendation of the Insurance Commission
Pedro left the following
1. 1,000 sqm lot
1. Fair value by the city assessor – 10,000/sqm
2. Zonal value by BIR Commissioner- PHP 17MM
3. Fair value by an independent assessor- PHP 20MM
2. 100,000 unlisted OMG shares
1. Par value is PHP10/share of 2,000,000 outstanding shares
2. Retained Earnings of OMG is at 4MM
3. 2,000,000 uncollected loan for 2 years with a 20%
interest per annum
EXEMPTIONS AND EXCLUSIONS
(not to be taxed)
• Exclusive property of the surviving spouse
• Property outside the Philippines of a non- resident alien decedent
• Intangible personal property in the Philippines of a non-resident
alien under the Reciprocity Law
• The merger of usufruct in the owner of the naked title
• The transmission or delivery of the inheritance or legacy of a
fiduciary heir (1st) or legatee to the fideicommissary
• The transmission from the first heir, legatee or done in favor of
another beneficiary, in accordance with the desire of the
predecessor
• All bequests, devices, legacies or transfers to social welfare, cultural
or charitable institutions, no part of the net income of which inures
to the benefit of any individual. Provided, however that not more
than 30% shall be used by such institutions for admin purposes
INCLUSIONS
1. Property owned by the decedent actually
and physically present in his estate at the
time of death
2. Any right to income that had accrued but
not yet been received as of the date of
decedent’s death
INCLUSIONS
1. Property not physically in the estate in time of
death
1. Transfer in contemplation of death
2. Transfer with retention or reservation of rights
3. Revocable transfers
4. Transfers under general power of appointment
• General-authorizes the donee to have power to appoint any person
to possess or enjoy the property (INCLUDED)
• Limited- authorizes the donee to have power to appoint to any
specific or designated class or group of people (EXCLUDED)
2. Transfer for Insufficient Consideration
• If bona fide sale= FMV at the time of transfer is greater than equal
than the consideration received – NOT part of Gross Estate
• If consideration received is less than the FMV = part of the Gross
Estate = FMV on the time of death- Consideration received
INCLUSIONS
4. Claims against insolvent persons
• Full amount of the claim against insolvent persons
• The uncollectible portion should be allowed as a
deduction
5. Proceeds of Life Insurance
• It must be an insurance on the life of the decedent
• The beneficiary must be the ff:
• Estate
• Executor
• Administrator
• Any 3rd person provided that the designation is revocable
Property Relations
(Is it Exclusive, Conjugal or Community?)
• Applicable only to married persons
• Used to distinguish a conjugal or community property
• Should be governed in the following order:
• By marriage settlements executed BEFORE marriage
• By the provisions of people
• By the local custom
• Prenuptial agreements must be
• In writing
• Executed prior to the celebration of marriage
• Signed by future spouses
• Any modification may only be allowed before the celebration
of marriage
Kinds of marriage settlements

1. Absolute community (ACP)

2. Conjugal Partnership of Gains (CPG)
3. Complete Separation of Property
4. Any other regime
If the couple did not adopt any settlements?

• Before August 3, 1988- CPG

• On or after August 3, 1988- ACP
Absolute Community of Property (ACP)

• Provisions on co-ownership shall apply

• Spouses become co-owners of all properties
acquired before and during marriage
• All properties are considered community unless
proven that this is exclusive
Conjugal Partnership of Gains (CPG)
• Husband and wife place their properties in a
common fund which upon marriage dissolution its
net benefits will be divided equally between them
unless otherwise agreed
• When the future spouses agree to it in marriage
settlement
• Marriage happened before August 3, 1988
Property Conjugal/Exclusive Absolute/Exclusive
Property inherited or received as Exclusive Exclusive
donation during marriage
Property acquired during marriage Conjugal Community
(other than inheritance or donation)

Property acquired from labor, Conjugal Community

industry, work or profession of the
spouses

Fruits or income due or derived Conjugal Community

during the marriage coming from
common property

Property before the marriage or Exclusive Community

brought to the marriage
Fruits or income due or received Conjugal Exclusive
during the mortgage coming from
exclusive property
# PROPERTY CPG ACP
1 Cash owned by the decedent
before the marriage
2 Commercial building owned before
the marriage
3 Income from #2
4 Commercial building inherited
during marriage
5 Income from #4
6 Personal property received by the
surviving spouse as gift before the
marriage
7 Income from #6
8 Property acquired by the decedent
with cash owned before the
marriage
9 Personal belongings used
exclusively by the decedent
## PROPERTY
PROPERTY CPG
CPG ACP
ACP
1
1 Property
Property unidentified
unidentified when
when and
and
whom
whom acquired
acquired
2
2 Income
Income item
item from
from #1
#1
3
3 Cash
Cash from
from the
the compensation
compensation of of
the
the decedent
decedent
4
4 Lot
Lot acquired
acquired before
before the
the marriage
marriage
by
by the
the surviving
surviving spouse
spouse (surviving
(surviving
spouse
spouse has
has aa legitimate
legitimate children
children in
in
the previous marriage)
the previous marriage)
5
5 Income
Income from
from the
the Lot
Lot
6
6 Exclusive
Exclusive property
property was
was sold,
sold, and
and
was
was repurchased
repurchased using
using conjugal
conjugal
property
property
7
7 Residential
Residential house
house was
was built
built using
using
the salary of
the salary of the
the surviving
surviving spouse
spouse
during
during the
the marriage.
marriage. House
House waswas
built
built in
in the
the exclusive lot of
exclusive lot of the
the
decedent
decedent
8
8 Lot
Lot in
in item
item #7#7
# PROPERTY CPG ACP
1 Livestock brought into marriage
2 Livestock in excess of what we
brought into the marriage after
the dissolution of the marriage
3 Property acquired by the barter
using the exclusive property of the
decedent
Illustration
Estate of a decedent who was a resident alien with a surviving spouse

Family Home 1,000,000

Domestic shares inherited 6 years ago during marriage 500,000
Bank deposits 1,000,000
Jewelries received as gift during marriage 800,000

Determine total amount of exclusive/ conjugal for both ACP and CGP.