ACYTAXN: Estate Taxation

Transfer taxes

Are taxes imposed upon the gratuitous disposition of private properties or rights.

Gratuitous transfer

Is one that neither imposes burden nor requires consideration from transferee or recipient.

Estate Tax

Is a tax imposed on the privilege that a person is given in controlling to a certain extent, the disposition of his property to take effect upon death.

Estate Tax

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.

Accrual

Estate tax accrues as of the death of the decent, notwithstanding the postponement of the actual possession or enjoyment of the estate by the beneficiary. Upon the death of the decedent, succession takes place and the right of the State to tax the privilege to transmit the estate vests instantly upon death.

Within 6 months after death

The deadline of the filing of the estate tax return when the decedent died before 2018.

1 year from the date of death

The deadline of the filing of the estate tax return when the decedent died on or after Jan. 1, 2018.

True

(True or False) The law/statute in force as of the date of death of the decedent shall apply.

True

(True or False) Under meritorious cases (to be determined by the BIR), filing of estate tax return may be extended for a period of not more than 30 days.

Estate of the Decedent

The taxpayer for estate tax, as a juridical person.

Administrator or Executor

The one primary liable to the filing and payment of estate tax.

Any of the heirs

The one secondarily liable to the filing and payment of estate tax.

Succession

It is a mode of succession 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 will or by operation of law.

Testamentary Succession

Succession which results from the designation of an heir, made in a will executed in the form prescribed by law (the decedent executed a last will and testament).

Legal or Intestate Succession

Succession which is effected by operation of law or transmission of properties where:

* There is no will.

* If there is a will, the same is void or lost its validity, or nobody succeeds in the will.

Mixed Succession

Succession that which is effected partly by a will or operation of law.

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 from the moment of the death of the decedent, the rights to the succession are transmitted, and the possession of the hereditary property is deemed transmitted to the heir.

Notarial/Ordinary/Attested Will

A will which is executed in accordance with the formalities prescribed by Art. 804 to 808 of the New Civil Code. It is a will that is created for the testator by a third party, usually his lawyer, follows proper form, signed and dated in front of the required number of witnesses (3 or more witnesses) and acknowledged by the presence of a notary public.

Holographic Will

A written will which must be entirely written, dated and signed by the hand of the testator himself, without the necessity of any witness. This kind of will does not need formalities because many people can recognize his handwriting and it can be verified by a penmanship expert.

Codicil

A supplement or additional to a will, made after the execution of a will and annexed to be taken as a part thereof, by which any disposition made in the original will is explained, added to or altered.

Decedent

The person whose property is transmitted through succession, whether or not he left a will.

Heir

The person called to the succession either by the provision of a will or by operation of law.

Estate (Inheritance)

Refers to all property, rights, and obligations of a person which are not extinguished by his death.

Legitime

The portion of the testator's property which could not be disposed of freely because the law has reserved it for the compulsory heirs.

Free Portion

Is that part of the whole estate which the testator could dispose of freely through written will irrespective of his relationship to the recipient.

Compulsory Heirs

They inherit with or without a will.

Primary Compulsory Heirs

Heirs that include the:

a. Legitimate children and descendants

b. Illegitimate children

c. Widow or Widower

Secondary Compulsory Heirs

In default of legitimate children and descendants, legitimate parents and ascendants.

True

(True or False) The compulsory heirs are entitled to their legitime, with or without at all, unless validly "disinherited".

Voluntary Heirs

They inherit only if they are in the will.

Intestate Heirs

The compulsory heirs in testamentary succession are also heirs in intestate succession. They are entitled to their legitime.

Order of Priority (In the absence of a valid will)

a. Legitimate children

b. Legitimate parents

c. Illegitimate children

d. Spouse

e. Brothers or sisters

f. Relatives up to the 5th degree of consanguinity

g. State

6%

The estate tax rate beginning January 1, 2018 or upon the effectivity of RA 10963 (TRAIN Law). It is based on the net estate.

Gross Estate

All properties and interests in properties of the decedent at the time of his death as well as properties transferred during lifetime (only in form), but in substance was only transferred at the time of death.

Components of Gross Estate

Such properties include:

a. Real property and other intangible personal property

b. Decedent's interests and intangibles

c. Properties transferred gratuitously during lifetime, but in substance, transferred upon death

Decedent's Interest

Refer to the extent of equity or ownership participation of the decedent on any property physically existing and present in the gross estate, whether or not in his possession, control or dominion. It also refers to the value of any interest in property owned or possessed by the decedent at the time of his death (interest having value or capable of being valued, transferred).

Transfer in contemplation of death

The thought of death must be the controlling motive which includes the disposition of the property.

Transfer with retention or reservation of a certain right

Allows the transferor to continue enjoying, possessing or controlling the property (beneficial ownership) because only the naked title has been transferred.

Revocable transfer

Decedent transfers the enjoyment of his property to another, subject to his right to revoke the transfer at will, with or without notifying the transferee, any time before he dies.

Transfers for insufficient consideration

Not a boda fide sale for an adequate and full consideration in money or money's worth (sale of property at substantially below its fair market value).

Proceeds from Life Insurance (on insurance under policies taken out by the decedent upon his own life)

The following proceeds of insurance policies are included in the gross estate:

a. Whether designated as revocable or irrevocable when the beneficiary is the:

* Estate of the deceased

* His executor

* Administrator

b. When the beneficiary is a third person and the designation is revocable.

Not more than 30%

All bequests, legacies or transfer to social welfare, cultural and charitable institutions must not use _______ of such transfers for administration purposes.

Reciprocity Clause

No tax shall be imposed with respect to intangible personal properties of a non-resident alien (NRA) decedent situated in the Philippines:

a. When the foreign country, where such NRA is a resident and citizen,does not impose transfer tax with respect to intangible personal properties of Filipino citizens not residing in that country.

b. When the foreign country imposes transfer taxes, but grants similar exemption with respect to intangible personal properties of Filipino citizens not residing in that country.

FMV upon death

The valuation of gross estate, in general.

FMV

The valuation of personal properties.

FMV or Zonal Value (Whichever is higher)

The valuation of real property.

Mean value between the highest and lowest quotations nearest the date of death (If none is available on the date of death itself)

The valuation of shares of stock traded in the local stock exchange.

Book value

The valuation of common (ordinary) shares.

Par Value

The valuation of preferred (preference) shares.

Based on the latest Basic Mortality Table to be approved by the Secretary of Finance, upon recommendation of the Insurance Commissioner

The valuation of usufructs.

Conjugal Partnership of Gains

The default property relationship when date of marriage was before the effectivity of the National Family Code (Aug. 3, 1988).

Absolute Community of Property

The default property relationship when date of marriage was after the effectivity of the National Family Code (Aug. 3, 1988).

True

(True or False) Jewelry shall form part of the community property.

Allowable Deductions

Are items which the law on estate tax allows to be subtracted from the value of the gross estate in order to arrive at the net taxable estate. They are assumed to be common deductions unless specifically identified as exclusive.

Casualty Losses

Losses that are incurred during the settlement of the estate. The settlement periods are:

* Death before 2018 - within 6 months after death.

* Death on or after January 1, 2018 - within 1 year after death.

Casualty Losses

Are losses arising from fires, storms, shipwreck, or other casualties, or from robbery, theft, or embezzlement. Must not be compensated by insurance, and must not be claimed as deduction for income tax purposes. It must not be incurred not later than the last day for the payment of the estate tax.

Casualty Losses

The amount deductible is the value of the property lost.

Indebtedness or Claims Against the Estate

It is a personal debt of the decedent existing at the time of his death. It must be contracted in good faith. It must be valid in law and enforceable in court. It must not have been condoned by the creditors. Lastly, it must not have prescribed.

President/Vice President or Other Principal Officer of the Corporation

The required individual to have his signature be signed upon the Sworn Certification of loans if the creditor is a corporation.

Any of the general partners

The required individual to have his signature be signed upon the Sworn Certification of loans if the creditor is a partnership.

Branch manager of the bank or financial institution which monitors and manages the loan of the decedent-debtor

The required individual to have his signature be signed upon the Sworn Certification of loans if the creditor is a Bank/Financial Institution.

True

(True or False) If said loan is contracted within 3 years prior to the death of the decedent; a Statement under Oath executed by the administrator or executor of the estate reflecting the disposition of the proceeds of the loan.

True

(True or False) The person that should certify a decedent's loan must not be a relative within the fourth civil degree, either by consanguinity or affinity.

Unpaid Mortgage

A deductible loss from gross estate. Requisites include:

a. The fair market value of the mortgaged property undiminished by the mortgage indebtedness should be included in the gross estate.

b. It must be contracted in good faith.

c. It must be for an adequate and full consideration.

Unpaid Taxes

A deductible loss from gross estate. Requisites include:

* The tax must have accrued before the death of the decedent.

* Must not include any income tax upon income received after death, property taxes not accrued before death, and estate tax from the transmission of his estate.

Claims against insolvent persons

A deductible loss from gross estate. Requisites include:

* The value of the claims is included in the gross estate.

* The insolvency of the debtor must be established.

Transfer for Public Use

A deductible loss from estate. Requisites include:

* Must be given to the Government of the Philippines (National or Local).

* Must be testamentary in character.

* By way of donation mortis causa executed by the decedent before his death.

* Exclusively for public purpose.

Vanishing Deductions (Property Previously Taxed)

A deductible loss from estate. Requisites include:

a. The decedent died within 5 years from receipt of the property from a prior decedent or donor.

b. The property is located in the Philippines.

c. The property must have formed part of the taxable estate of the prior decedent or the taxable gift of the donor and the transfer tax (estate tax or donor's tax) relative thereto had been paid.

d. The property on which vanishing deduction is being taken must be identified as the one received from the prior decedent, or from the donor, or something acquired in exchange therefore.

e. No vanishing deduction on the property was allowable to the estate of the prior decedent.

100%

The rate of VD within 1 year.

80%

The rate of VD more than 1 year but not more than 2 years.

60%

The rate of VD more than 2 years but not more than 3 years.

40%

The rate of VD more than 3 years but not more than 4 years.

20%

The rate of VD more than 4 years but not more than 5 years.

P5,000,000

The standard deduction for all estate taxpayers, other than non-resident aliens.

P500,000

The standard deduction for all taxpayers who are non-resident aliens.

FMV but not to exceed P10,000,000

The special deduction for purely exclusive family home.

FMV/2 but not to exceed P10,000,000

The special deduction for purely common family home.

Family Home Allowance

A special deduction. It has the following requisites:

a. The decedent is married or head of a family.

b. The family home must be the actual residential home of the decedent and his family at the time of his death, as certified by the Brgy. Captain of the locality the family home is situated.

c. It is located in the Philippines.

d. The value of the family home is included in the gross estate.

Amount received by heirs under RA 4917

A special deduction. It has the following requisites:

a. Include such amount in the gross estate.

b. The amount deductible is the amount received by the heirs from the decedent's employer as a consequence of the death of the decedent-employee.

Share of the Surviving Spouse

Only applicable to married decedents.

Amount Deductible:

Common Properties - Common Deductions = Net Common Properties Before Special Deductions

Net Common Properties Before Special Deductions x 50% = Share of the Surviving Spouse

Tax Credit if Only One Foreign Country is Involved

Philippine Estate Tax x Net estate, foreign / Net estate, world

Tax Credit if More than One Foreign Countries are Involved

The limit is the lower between Limit 1 and Limit 2

Limit 1 (Per Foreign Country where there was estate tax paid)

Philippine Estate Tax x Net estate, per foreign country / Net estate, world

Limit 2 (Total of ALL foreign countries involved)

Philippine Estate Tax x Net estate, all foreign countries / Net estate, world

True

(True or False) Regardless of the amount of the gross estate, any property for which a Certificate Authorizing Registration (CAR) From the BIR is required as a condition precedent for the transfer of ownership thereof in the name of the transferee, the administrator, or the executor, or any of the legal heirs, as the case may be, shall file a return under oath.

Exceeds P5,000,000

The monetary amount of the gross estate wherein which a CPA certification is required.

True

(True or False) The Commissioner or his/her duly authorized representative, shall have the authority to grant, in meritorious cases, a reasonable extension, not exceeding 30 days, for filing the return.

Place of filing in case of a resident decedent

a. Authorized Agent Bank

b. Revenue District Officer

c. Collection Officer

d. Duly Authorized Treasurer of the City or Municipality in which the decedent was domiciled at the time of his death.

Place of filing in case of a non-resident decedent

a. Revenue District Office where the executor or administrator is registered.

b. Revenue District Office having jurisdiction over the executor or administrator's legal residence (if executor or administrator is not registered)

c. Office of the BIR Commissioner (RDO No. 39 - South Quezon City) if the estate does not have an executor or administrator in the Philippines.

True

(True or False) Estate tax shall be paid at the time the return is filed (Pay as you File).

True

(True or False) When the Commissioner finds that the payment of the estate tax or of any part thereof would impose undue hardship upon the estate or any of the heirs, he may extend the time for payment as follows:

a. Extrajudicial Estate - 2 years

b. Judicial Estate - 5 years

True

(True or False) If an extension is granted, the CIR may require the executor, or administrator, or beneficiary, as the case may be, to furnish a bond in such amount, not exceeding double the amount of the tax and with such sureties as the Commissioner deems necessary.

Cash Installments

Shall be made within two (2) years from the date of the filing of the estate tax return.

In case of lapse of two (2) years without the payment of entire tax due, the remaining balance thereof shall be due and demandable subject to applicable penalties and interest reckoned from the prescribed deadline for filing the return and payment of the estate tax.

Partial Disposition of Estate and Application of its Proceeds to the Estate Tax Due

The disposition, for purposes of this option, shall refer to the conveyance of property, whether real or personal or intangible property, with the equivalent cash consideration.

Discharge of Executor or Administrator from Personal Liability

If the executor or administrator makes a written application to the Commissioner for determination of the amount of the estate tax and discharge from personal liability therefore, the Commissioner (as soon as possible, and in any event within 1 year after the making of such application, or if the application is made before the return is filed, then within 1 year after the return is filed, but not after the expiration of the period prescribed for it.

If bank has knowledge of the death of a person who maintained a joint account

The bank shall allow any withdrawal from the said deposit account, subject to a final withholding tax of six percent (6%).

True

(True or False) In instances where the deposit accounts have been duly included in the gross estate of the decedent and the estate tax due thereon paid, the executor, administrator, or any of the legal heirs shall present the eCAR issued for the said estate prior to withdrawing from the bank deposit account. Such withdrawal shall no longer be subject to the 6% withholding tax by the bank.

True

(True or False) For a non-resident alien, Loss, Indebtedness, and Taxes incurred by the taxpayer shall be proportioned based on the ratio of Philippine Gross Estate in relation to the World Gross Estate.

Net Distributable Estate

Gross Estate - Ordinary Deductions - Estate Tax - Unpaid Medical and Judicial Expenses - Share of Surviving Spouse