Estate Tax

Estate Tax A. Format of Computation Exclusive Common Total Gross Estate

xxx

xxx

xxx

Less: Deductions

(xxx)

(xxx)

(xxx)

Net Estate before share of surviving spouse

xxx

xxx

xxx

Less: Share of surviving spouse

---

(xxx)

(xxx)

Net estate before special deductions

xxx

xxx

xxx

Less: Special deduction Family Home

(xxx)

Standard deductions

(xxx)

Medical expenses

(xxx)

Taxable net estate

xxx

Tax due

(xxx)

Tax payable

xxx

B. Estate tax rates Over

But not over

The tax shall be

P 200, 000

Exempt

P 200,000

500,000

500,000 2,000,000 5,000,000

Plus

Of excess over

0

5%

200,000

1,000,000

P 15, 000

8%

500,000

5,000,000

135, 000

11%

2,000,000

10,000,000

465, 000

15%

5,000,000

1, 215, 000

20%

10,000,000

10,000,000 C. Gross Estate

1. Composition of Gross Estate Resident or Citizen Decedent

Non-Resident Alien Decedent

1|Estate Tax

Exclusive properties of the

Included

Included

Not Included

Not Included

Included

Included

decedent Exclusive properties of the surviving spouse Common properties

D. Rule of reciprocity (Non- Resident Alien Decedent) 1. Properties covered by reciprocity 2. Basic Rules

Intangible personal property situated in the Philippines owned by non-resident alien decedent When there is reciprocity – The intangible property of nonresident alien situated n the Philippines are not included in the gross estate. When there is no reciprocity – The intangible personal property of non-resident alien situated in the Philippines are included in the gross estate.

3. Properties considered situated in the Philippines

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 anomia 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. Shares or rights in any partnership, business or industry established in the Philippines.

2|Estate Tax

E. Taxable Transfers 1. Examples of taxable

a. Transfer in contemplation of death – motivated by

transfer

thought of death may not be imminent; b. Revocable transfer – the enjoyment 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.

2. Motives that preclude

a. To relieve donor from the burden of management;

a transfer from the

b. To save income or property taxes;

category of one made

c. To settle family litigate and un-litigate disputes;

in contemplation of

d. To provide independent income for dependents;

death

e. To see the children enjoy he property while the donor is alive; f.

To protect the family from hazards of business operations; and

g. To reward services rendered F. Other Items 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. When the designation of the beneficiary is not clear, the Insurance Code assumes revocable designation.

2. Claims against insolvent persons

a. The full amount of the claims is included in the gross estate. b. The uncollectible amount of the claims is deducted

3|Estate Tax

from the gross estate. 3. Amount received by

a. R.A. No. 4917 is entitled “An act Providing That

heirs under R.A. No.

Retirement of Employees of Private Firms Shall Not

4917

be Subject to Attachment, Levy, Execution, or Any Tax Whatsoever”. b. The amount received by heirs from decedent’s employer as a consequence of death of the decedent-employee is included in the gross estate of the decedent. c. The amount above is also allowed as deduction from gross estate.

G. Exemptions/Exclusions 1. Exemptions of certain acquisitions and transmissions

a. The merger of usufruct in the owner of the 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 done in favor of another beneficiary in accordance with the desire of the predecessor; and d. All bequest, devises, legacies or transfers to social welfare, cultural and charitable institutions, no part of the net income of which inures to the benefit of any individual; Provided, however that not more than 30% of the said bequest, devises, legacies or transfers shall be used by such institutions for administration purposes.

2. Exclusions from gross estate under special

a. Amount received as war damages; b. Amount received from US Veterans Administration;

4|Estate Tax

laws

c. Benefits from GSIS and SSS.

H. Determination of the Value of the Estate 1. Usufruct

In accordance with the latest Basic Standard Morality Table, to be approved by the Secretary of Finance, upon the recommendation of the Insurance Commissioner.

2. Properties

a. Generally – Fair market value at the time of the decedent’s death; b. Real Property – Higher between fair market value, BIR (zonal value) and fair market value, Provincial and City assessor (assessed value). c. Personal Properties – recently purchased – Purchase price Nor recently purchased – Pawn value x 3 d. Securities (shares of stock) 1. Traded in the local stock exchange – Mean between the highest and lowest quotations on valuation date or on a date nearest the valuation date; 2. Not traded in the local stock exchange a. Common (ordinary) shares – Book value on valuation date or on a date nearest the valuation date; b. Preferred (preference) shares – Par value

I.

Gross Estate of Marries Decedents

1. Conjugal Partnership of Gains (Relative Community of Properties) Exclusive properties a. Properties brought

Conjugal Properties a. Properties acquired by onerous title during the

5|Estate Tax

into the marriage as

marriage at the expenses of the common fund,

either of the spouse’s

whether the acquisition be or for the partnership, or

own;

for only one of the spouses;

b. Properties acquired

b. Properties obtained from labor, industry, work or

by gratuitous (or

profession of either or both of the spouses;

lucrative) title during the marriage; c. Properties acquired

c. The fruits, industrial or civil, due or received during

by right of

the marriage from the common property, as well as

redemption or by

the net fruits from the exclusive property of each

exchange with other

spouse;

property belonging to only one of the spouses; d. Properties acquired

d. The share of either spouse in the hidden treasure

with exclusive money

which the law awards to the finder or owner of the

of either spouse.

property where the treasure is found; e. Properties acquired through occupation such as fishing and hunting; f.

Livestock existing upon the dissolution of the partnership in excess of the number of each kind brought to the marriage by either spouse;

g. Properties acquired by chance, such as winnings from gambling and betting. 2. Absolute Community of Properties a. Properties acquired during

a. All properties owned by spouses at the time

the marriage by gratuitous

of the celebration of marriage or acquired

(or lucrative) title by either

thereafter.

spouse, and the fruits as well as the income thereof if any, unless it is specifically

6|Estate Tax

provided by the donor, testator or grantor that they shall form part of the community; b. Property for personal and exclusive use of either spouse, however, jewelry shall form part of the community property, c. 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. J. Deductions Allowed to Estate 1. Ordinary Deductions Items of Deductions a. Expenses, losses,

Resident or Citizen Decedent

Non-Resident Alien Decedent

Deductible

Deductible:

indebtedness, taxes,

Philippine GE/ Entire GE x

etc. (ELITE)

ELITE

b. Transfer for public use Deductible

Deductible

c. Property previously

Deductible

Deductible

Deductible

Deductible

taxed (vanishing deductions) d. Share of surviving spouse 2. Special Deductions

7|Estate Tax

Items of Deductions

Resident or Citizen Decedent

Non-Resident Alien Decedent

a. Family Home

Deducible

Not Deductible

b. Standard Deduction

Deducible

Not Deductible

c. Medical expenses

Deducible

Not Deductible

d. Amount received by

Deducible

Not Deductible

heirs under R. A. No.4917

K. Deductions Amplified 1. Expenses, Losses, Indebtedness, Taxes, etc. (ELITE) Deductions

Requisites for

Amount Deductible

Deducted

Deductibility a. Funeral expenses

a. Incurred up to the

From Actual funeral expenses

Common

time of

or 5% of gross estate

Property

internment;

whichever is lower, but

b. Not borne or defrayed by

in no case to exceed P200, 000

relative and friends; c. Supported by receipts or invoices or other evidence. b. Judicial expenses

a. Incurred during the settlement of the estate; b. Incurred not beyond the last day prescribed by

Expenses incurred in: a. Inventory-taking

Common property

of assets comprising the gross estate; b. Their

8|Estate Tax

law, or the

administration;

extension thereof,

c. Payment of

for filing of estate

debts of the

tax return;

estate;

c. Incurred for the

d. Distribution of

benefit of the

the estate

estate;

among the heirs

d. Supported by receipts or invoices or by a sworn statement of account issued and signed by the creditor c. Losses

a. Incurred during the settlement of the estate; b. Arising from fires,

Value of the property lost

Common property if connected to common

storms, shipwreck, or other casualties, or from robbery, theft or

Exclusive

embezzlement;

property if

c. Not compensated

connected

for by insurance

to exclusive

or otherwise; d. Not claimed as deduction for income tax purposes in an income tax return; e. Incurred not later than the last day

9|Estate Tax

for the payment of the estate tax d. Indebtedness

a. The liability

Debts or demands of

Common

(claims against

represents a

pecuniary nature which

property if

the estate)

personal

could have been

connected

obligation of the

enforced against the

to common

deceased existing

deceased in his lifetime

at the time of his

and could have been

death;

reduced to simple

b. The liability was

money terms

Exclusive

contracted in

property if

good faith and

connected

for adequate and

to exclusive

full consideration in money or money’s worth; c. The claim must be a debt or claim which is valid in law and enforceable in court; d. The indebtedness must not have been condoned by the creditor or the action to collect from the decedent must not have prescribed; e. At the time the indebtedness was

10 | E s t a t e T a x

incurred the debt instrument was notarized; and f.

If the loan was contracted within three (3) years before the death of the decedent, the administrator or executor shall submit a statement showing the disposition of the proceeds of the loan

e. Unpaid Taxes

The tax must have

Unpaid taxes that

Common

accrued before the date

accrued before the

property if

of the decedent

decedent’s death but

connected

not including:

to common

a. Any income tax upon received after the death of the decedent, or

Exclusive property if

b. Property taxes

connected

not accrued

to exclusive

before his death, c. Or any estate tax f.

Claims against

a. Value of claims is

Claims that are not collectible

Common

insolvent

included in the

property if

persons

gross estate;

connected

b. The incapacity of

to common

11 | E s t a t e T a x

the debtors to pay their obligation is proven

Exclusive property if connected to exclusive

g. Unpaid mortgage

Amount of unpaid a. The fair market

Common

mortgage

property if

value of the

connected

mortgaged

to common

property without deducting the mortgage indebtedness

Exclusive

been initially

property if

included as part

connected

of the gross

to exclusive

estate; b. the mortgage indebtedness was contracted in good faith and for an adequate and full consideration

2. Transfer for Public Use Requisite for deductibility

Amount deductibility

Deducted from

12 | E s t a t e T a x

The transfer must be

Amount of all bequests,

Exclusive property

testamentary in character

legacies, devises, or

or by way of donation

transfers to or for the use

mortis causa executed by

of the Government of the

the decedent before his

Philippines, or any political

death

subdivision or exclusively public purpose 3. Property previously taxed (vanishing deductions)

Requisites for deduction

Rates (based

Format of computation

on time gap) a. The date of death of the

100%- if not

Value to Make

P xxx

present decedent must not

more than 1

Less: Mortgage paid by

(xxx)

exceed 5 years from the

year

present decedent

date of death of the prior

Initial Basis

P xxx (xxx)

decedent or date of

80% - if more

Less: Proportional

donation.

than 1 year

deduction (Initial basis

but not more

/gross estate x

than 2 years

deductions)

b. The property can be identified as the one received from prior

Final Basis

P xxx

decedent, or from the

60% - if more

Rate

XXX

donor, or the property

than 2 years

Vanishing Deduction

P xxx

acquired in exchanged for

but not more

the original property so

than 3 years

received.

Notes:

c. The property must have

40% - if not

1. Under conjugal partnership

formed part of the prior

more than 3

of gains vanishing is a

decedent’s gross estate

years but not

deduction from exclusive

situated in the Philippines

more than 4

property.

or been included in the

years

total amount of the gifts and donor made within 5

2. Under absolute community 20% - if not

of property, vanishing

13 | E s t a t e T a x

years prior to the present

more than 4

deduction may be deducted

decedent’s death.

years but not

from exclusive property or

more than 5

community property.

d. The estate tax must have been finally determined

years

and paid by the prior decedent or the donor’s tax must have been paid by the donor. e. No vanishing deduction was allowed in determining the value of the net estate of the prior decedent 4. Family Home – The family home, constituted jointly by the husband and the wife or by an unmarried head of the family, is the dwelling house where they and their family reside and the land on which it is situated. Conditions for the allowance of family

Amount deductible

home deduction 1. The family home must be the

1. Exclusive

Full value included

actual residential home of the

property

in the gross estate

decedent and his family at the

2. Conjugal/

One-half (1/2) of

time of his death, as certified by

community

the value included

the Barangay Captain of the

property

in the gross estate

locality the family home is situated

3. Partly exclusive

Exclusive part (full)

property, partly conjugal/commu Conjugal / nity

community part ( ½ x value)

2. The total value of the family home Note: In all three (3) cases, the maximum must be included as part of the

amount of family home deduction is P 1, 000,

14 | E s t a t e T a x

gross estate of the decedent; and

000

3. Allowable deduction must be in an amount equivalent to the current fair market value of the family home as declared or included in the gross estate, or to the extent of the decedent’s interest (whether conjugal/community or exclusive property), whichever is lower, but not exceeding P1, 000, 000. 5. Standard Deduction Amount deductible

P 1, 000,000

6. Medical Expenses Requisites for deduction 1. Incurred within one (1) year before the death of the decedent; 2. Duly substantiated with official

Amount deductible All medical expenses incurred (whether paid or unpaid), provided the total amount does not exceed P 500, 000.

receipts for services rendered by the decedent’s attending physicians,

Examples of medical expenses:

invoices, statements of account duly

1. cost of medicines;

certified by the hospital and such

2. Hospital bills;

other supporting documents

3. Doctor’s fees.

7. Amount received by heirs under R.A. No. 4917 Requisites for deduction

Amount deductible

The amount of the separation benefits is

Any amount received by the heirs from the

included as part of the gross estate of the

decedent’s employer as a consequence of

15 | E s t a t e T a x

decedent

the death of the employee-decedent.

8. Share of surviving spouse Gross conjugal/ community properties

P xxx

Less: Conjugal/ community deductions

(xxx)

Net conjugal/ community properties (NCP)

P xxx

Share of surviving spouse (1/2 x NCP)

P xxx

L. Tax credit for estate tax paid to a foreign country 1. Entitled to tax

Resident or citizen decedents

credit 2. Deducted from estate tax due

The estate tax imposed in the Tax Code shall be credited with the amounts of any estate tax imposed by the authority of foreign country.

3. Limitations on credit

Only one foreign country is involved Net estate, foreign / entire net estate x Philippine estate tax

Two or more foreign countries are involved Limit (a) >per foreign country net estate, per foreign country / entire net estate x Philippine estate tax due Limit (b) > by total Net estate (all foreign countries) / entire net estate x Philippine estate tax due M. Administrative provisions 1. Notice of Death

16 | E s t a t e T a x

a. Notice of death is required to be filed b. Who will file?

1. In all cases of transfer subject to tax; 2. Where, though exempt from tax, the gross value of gross estate exceeds P20, 000 1. Executor; 2. Administrator; 3. Any of the legal heirs

c. When is notice filed?

Within 2 months after the decedent’s death, or within like period after qualifying as such executor or administrator.

17 | E s t a t e T a x