tax estate 1

• Estate tax


  Example of a transfer tax
• Kinds of Transfers


  • Onerous/Bilateral Transfers (regular sales)
  • Gratuitous/Unilateral transfers (donation and succession)
  • Complex Transfers (combination of the two)
• Succession


  A mode of acquisition by virtue of which the property, rights and obligations to the extent of the value of the inheritance, of a person are transmitted through his death to another or others either by his will or by operation of law
• What is transferred in succession


  • Property (land, car, house, etc. Tangible / Intangible personal property or real property)
  • Rights (only those that are transmissible in nature and capable of pecuniary estimation)
  • Obligation (only up until the extent of the value of the inheritance)
• How to transfer the Estate


  • By Operation of Law
  • By a Will
• 3 Kinds of Succession


  • Intestate Succession (the law decides)
  • Testamentary or Testate Succession (There is a valid will)
  • Mixed Succession (There is a valid will but not all of the inheritance are included in the last will)
• Timing of Succession


  The rights to the succession are transmitted from the moment of the death of the decedent
• Elements of Succession


  • Decedent (or Testator)
  • Estate
  • Transferees (Heirs, Legatees, Devisees)
• Will


  An act whereby a person is permitted, with the formalities prescribed by law, to control to a certain degree the disposition of his estate, to take effect after his death
• Legitime


  Refers to compulsory heirs / heirs by right of law
• Summary Rules on Wills


  • A strictly personal act
  • Minors cannot make a will
  • Testator must be of sound mind at the time of execution
  • Must be in writing
  • In a language known to the testator
  • Joint wills are prohibited
• Kinds of Wills


  • Notarial Will (requires 3 witnesses, attested to a notary public)
  • Holographic Will (entirely handwritten, no witnesses needed)
• Probate of will


  If there is a will, the court will probe/inquire into the validity of the will. The court's area of inquiry is limited - to an examination of, and resolution on, the extrinsic validity of the will, the due execution thereof, the testatrix's testamentary capacity, and the compliance with the requisites or solemnities by law prescribed.
• Administrator


  Manages the properties of the decedent upon death. It is the court who appoints the administrator and is tasked to take care of the properties, handle all affairs related to the estate, and serve as the official representative of the estate.
• Executor


  Manages the properties of the decedent upon death. The Executor is determined by the will of the decedent.
• Estate Tax


  National Tax, Proportional Tax (fixed at 6% regardless of the amount of the estate), Ad Valorem Tax (based on the value and not on the volume), Privilege / Transactional Tax, Direct Tax (impact and incidence of taxation belongs to the same person. No tax shifting happens).
• Estate tax is different from inheritance tax. Estate tax is imposed on the act of transferring and on the transferor. Inheritance Tax is imposed on the act of inheriting and is paid by the legatees, heirs, and devisees. There is no inheritance tax under the Philippine Tax System (only before).
• Estate tax is not a tax on death. Rather is a tax on the act of transferring the estate from the decedent to the transferees.
• Gross Estate


  The value of the gross estate of the decedent shall be determined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated.
• Composition of Gross Estate


  • All properties that are: Real or personal, Tangible or Intangible, Owned by the decedent, At the time of his death
• Situs of Estate Tax vs Income Tax


  • RC (YES, YES), NRC (YES, YES), RA (YES, YES), NRA (YES, NO)
• Reciprocity Rule


  No tax shall be collected in respect of intangible personal property if the decedent at the time of his death was a citizen and resident of a foreign country which at the time of his death did not impose a transfer tax in respect of Intellectual Property Protection (IPP) of citizens of the Philippines not residing in that foreign country, or if the laws of the foreign country of which the decedent was a citizen and resident at the time of his death allows a similar exemption from transfer or death taxes in respect of IPP owned by citizens of the Philippines not residing in that foreign country.
• Intangible Personal Property within the Philippines (FRI8NDS)


  • Franchise which must be exercised in the Philippines
  • Share or rights in any partnership, business or industry established in the Philippines
  • Shares, obligations or bonds issued by any corporation organized or constituted in the Philippines
  • Shares, obligations or bonds issued by any foreign corporation if such shares, obligations or bonds have acquired a business situs in the Philippines
• The proceeds of life insurance refers to...
• Intangible Personal Property within the Philippines (FRI8NDS)


  • Franchise which must be exercised in PH
  • Share or rights in any partnership, business or Industry established in the PH
  • SOB by any foreign corporation 85% of the business of which is not located abroad
  • Shares, obligations or bonds issued by any corporation organized or constituted in the PH (Domestic corporations)
  • SOB issued by any foreign corporation if such SOB have acquired a business situs in PH
• IPP Sample


  • House and lot, USA
  • Condominium Unit, Philippines
  • Furniture and Appliances, Philippines
  • Car, USA
  • Bonds, Philippines
  • Common Shares, not traded in the local stock exchange, Philippine Corporation
  • Preferred Shares, foreign corporation, 85% of the business in the Philippines
  • Proceeds of life insurance, Philippines
• Proceeds of life insurance

  Cash payments received
• Cash is considered as an Intangible Personal Property. You can hold the cash physically but you are only holding the representation. Money represents your right to purchase an item of equal value.
• This concept similarly applies to bonds and shares of stock that are printed in paper but are considered as IPP.
• Valuation of Gross Estate


  The properties comprising the gross estate shall be valued according to their fair market value as of the time of decedent's death
• As of the time of death, the rights to the transfer of the estate is already bestowed upon the heirs, legatees and devisees. There is already a transfer that happened. However, the actual physical transfer of the estate may take some time.
• In the absence of FMV, the following shall be used:


  • Real Property - Zonal value or assessed value whichever is higher
  • Listed Shares - arithmetic mean between the highest and lowest quotation at a date nearest the date of death, if none is available on the date of death itself
  • Unlisted common shares - book value
  • Unlisted preference shares - par value
  • Personal Properties - Recently purchased - purchase price, Not recently purchased - pawn value x 3
• Valuation of Gross Estate Problem


  • Real property, ZV, time of death/donation, P1,500,000; value per tax declaration, time of death/donation, P1,200,000
  • Real property, ZV, 6 months before death, P1,500,000; assessed value, time of death, P1,200,000
  • Personal property, recently purchased, FMV, time of death/donation, P700,000; purchase price, P800,000
  • Personal property, recently purchased, purchase price, P800,000
  • Personal property, not recently purchased, pawn value, P80,000
  • 10,000 share of stock, traded in the local stock exchange, par value P20/share; mean between highest and lowest quotation, P15/share
  • 5,000 common shares, not traded in the local stock exchange, FMV time of death P2/share, par value, P5/share
  • 5,000 common shares, not traded in the LSE, par value, P5/share; book value, P4/share
  • 10,000 preferred shares, not traded in the LSE par value, P10/share; book value, P15/share
• Ownership and not possession determines whether or not an item is included in gross estate.
• Inclusions in Gross Estate (MNEMONICS: RIP C CAREGIVER)


  • Retirement proceeds under RA 4917
  • Transfers for Insufficient Consideration
  • Proceeds of Life Insurance
  • Transfers in Contemplation of Death
  • Conditional Transfers
  • Revocable Transfers
  • Transfers under General Power of Appointment
  • Void Transfers
  • Transfers with Retention / reservation of rights
• Transfers for Insufficient Consideration


  This pertains to complex transfers where the FMV is greater than the consideration received
• Insufficient Consideration Sample


  • FMV, time of transfer: P1,000,000, Consideration Received: P800,000, FMV, time of death/donation: P1,200,000, Amount included in the gross estate/gross gift: P400,000
  • FMV, time of transfer: P1,500,000, Consideration Received: P900,000, FMV, time of death/donation: P1,000,000, Amount included in the gross estate/gross gift: P100,000
  • FMV, time of transfer: P2,000,000, Consideration Received: None, FMV, time of death/donation: P1,500,000, Amount included in the gross estate/gross gift: P1,500,000
  • FMV, time of transfer: P2,500,000, Consideration Received: P3,000,000, FMV, time of death/donation: P3,500,000, Amount included in the gross estate/gross gift: Zero
  • FMV, time of transfer: P2,200,000, Consideration Received: P1,500,000, FMV, time of death/donation: P1,200,000, Amount included in the gross estate/gross gift: Zero
• Proceeds of Life Insurance


  Included in Gross Estate if revocable, not included if irrevocable
• If not clear whether revocable or not revocable, we assume the least transmissibility of rights, therefore REVOCABLE
• The insured shall have the right to change the beneficiary he designated in the policy, unless he has expressly waived this right in said policy. Notwithstanding the foregoing, in the event the insured does not change the beneficiary during his lifetime, the designation shall be deemed irrevocable.