estate taxation

Estate Tax

A. Format of Computation

ExclusiveCommonTotal

Gross Estatexxxxxxxxx

Less: Deductions(xxx)(xxx)(xxx)

Net Estate before share of surviving spousexxxxxxxxx

Less: Share of surviving spouse---(xxx)(xxx)

Net estate before special deductionsxxxxxxxxx

Less: Special deduction

Family Home(xxx)

Standard deductions(xxx)

Medical expenses(xxx)

Taxable net estatexxx

Tax due(xxx)

Tax payablexxx

B. Estate tax rates

OverBut not overThe tax shall bePlusOf excess over

P 200, 000Exempt

P 200,000 500,00005 % 200,000

500,000 1,000,000P 15, 0008% 500,000

2,000,000 5,000,000135, 00011% 2,000,000

5,000,00010,000,000465, 00015% 5,000,000

10,000,0001, 215, 00020%10,000,000

C. Gross Estate1. Composition of Gross EstateResident or Citizen DecedentNon-Resident Alien Decedent

Exclusive properties of the decedentIncludedIncluded

Exclusive properties of the surviving spouseNot IncludedNot Included

Common propertiesIncludedIncluded

D. Rule of reciprocity (Non- Resident Alien Decedent)

1. Properties covered by reciprocityIntangible personal property situated in the Philippines owned by non-resident alien decedent

2. Basic RulesWhen there is reciprocity The intangible property of non-resident 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 PhilippinesThe 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.

E. Taxable Transfers

1. Examples of taxable transfera. Transfer in contemplation of death motivated by 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 transfer from the category of one made in contemplation of deatha. To relieve donor from the burden of management;b. To save income or property taxes;c. To settle family litigate and un-litigate disputes;d. To provide independent income for dependents;e. To see the children enjoy he property while the donor is alive;f. To protect the family from hazards of business operations; andg. To reward services rendered

F. Other Items

1. Proceeds of life insuranceGenerally 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 personsa. The full amount of the claims is included in the gross estate.b. The uncollectible amount of the claims is deducted from the gross estate.

3. Amount received by heirs under R.A. No. 4917a. R.A. No. 4917 is entitled An act Providing That Retirement of Employees of Private Firms Shall Not be Subject to Attachment, Levy, Execution, or Any Tax Whatsoever.b. The amount received by heirs from decedents 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 transmissionsa. 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; andd. 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 lawsa. Amount received as war damages;b. Amount received from US Veterans Administration;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. Propertiesa. Generally Fair market value at the time of the decedents 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 3d. 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 exchangea. 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 propertiesConjugal Properties

a. Properties brought into the marriage as either of the spouses own;a. Properties acquired by onerous title during the marriage at the expenses of the common fund, whether the acquisition be or for the partnership, or for only one of the spouses;

b. Properties acquired by gratuitous (or lucrative) title during the marriage;b. Properties obtained from labor, industry, work or profession of either or both of the spouses;

c. Properties acquired by right of redemption or by exchange with other property belonging to only one of the spouses;c. The fruits, industrial or civil, due or received during the marriage from the common property, as well as the net fruits from the exclusive property of each spouse;

d. Properties acquired with exclusive money of either spouse.d. The share of either spouse in the hidden treasure which the law awards to the finder or owner of the 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 the marriage by gratuitous (or lucrative) title by either spouse, and the fruits as well as the income thereof if any, unless it is specifically provided by the donor, testator or grantor that they shall form part of the community;a. All properties owned by spouses at the time of the celebration of marriage or acquired thereafter.

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 DeductionsResident or Citizen DecedentNon-Resident Alien Decedent

a. Expenses, losses, indebtedness, taxes, etc. (ELITE)DeductibleDeductible:Philippine GE/ Entire GE x ELITE

b. Transfer for public useDeductibleDeductible

c. Property previously taxed (vanishing deductions)DeductibleDeductible

d. Share of surviving spouseDeductibleDeductible

2. Special Deductions

Items of DeductionsResident or Citizen DecedentNon-Resident Alien Decedent

a. Family HomeDeducibleNot Deductible

b. Standard DeductionDeducibleNot Deductible

c. Medical expensesDeducibleNot Deductible

d. Amount received by heirs under R. A. No.4917DeducibleNot Deductible

K. Deductions Amplified

1. Expenses, Losses, Indebtedness, Taxes, etc. (ELITE)

DeductionsRequisites for DeductibilityAmount DeductibleDeducted From

a. Funeral expensesa. Incurred up to the time of internment;b. Not borne or defrayed by relative and friends;c. Supported by receipts or invoices or other evidence.Actual funeral expenses or 5% of gross estate whichever is lower, but in no case to exceed P200, 000Common Property

b. Judicial expensesa. Incurred during the settlement of the estate;b. Incurred not beyond the last day prescribed by law, or the extension thereof, for filing of estate tax return;c. Incurred for the benefit of the estate;d. Supported by receipts or invoices or by a sworn statement of account issued and signed by the creditorExpenses incurred in:a. Inventory-taking of assets comprising the gross estate;b. Their administration;c. Payment of debts of the estate;d. Distribution of the estate among the heirs Common property

c. Lossesa. Incurred during the settlement of the estate;b. Arising from fires, storms, shipwreck, or other casualties, or from robbery, theft or embezzlement;c. Not compensated for by insurance or otherwise;d. Not claimed as deduction for income tax purposes in an income tax return;e. Incurred not later than the last day for the payment of the estate taxValue of the property lostCommon property if connected to common

Exclusive property if connected to exclusive

d. Indebtedness (claims against the estate)a. The liability represents a personal obligation of the deceased existing at the time of his death;b. The liability was contracted in good faith and for adequate and full consideration in money or moneys 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 incurred the debt instrument was notarized; andf. 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 loanDebts or demands of pecuniary nature which could have been enforced against the deceased in his lifetime and could have been reduced to simple money termsCommon property if connected to common


e. Unpaid TaxesThe tax must have accrued before the date of the decedentUnpaid taxes that accrued before the decedents death but not including:a. Any income tax upon received after the death of the decedent, orb. Property taxes not accrued before his death,c. Or any estate taxCommon property if connected to common


f. Claims against insolvent personsa. Value of claims is included in the gross estate;b. The incapacity of the debtors to pay their obligation is provenClaims that are not collectibleCommon property if connected to common


g. Unpaid mortgage a. The fair market value of the mortgaged property without deducting the mortgage indebtedness been initially included as part of the gross estate;b. the mortgage indebtedness was contracted in good faith and for an adequate and full considerationAmount of unpaid mortgageCommon property if connected to common


2. Transfer for Public Use

Requisite for deductibilityAmount deductibilityDeducted from

The transfer must be testamentary in character or by way of donation mortis causa executed by the decedent before his deathAmount of all bequests, legacies, devises, or transfers to or for the use of the Government of the Philippines, or any political subdivision or exclusively public purposeExclusive property

3. Property previously taxed (vanishing deductions)

Requisites for deductionRates (based on time gap)Format of computation

a. The date of death of the present decedent must not exceed 5 years from the date of death of the prior decedent or date of donation.b. The property can be identified as the one received from prior decedent, or from the donor, or the property acquired in exchanged for the original property so received.c. The property must have formed part of the prior decedents gross estate situated in the Philippines or been included in the total amount of the gifts and donor made within 5 years prior to the present decedents death.d. The estate tax must have been finally determined and paid by the prior decedent or the donors 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 decedent100%- if not more than 1 year

80% - if more than 1 year but not more than 2 years

60% - if more than 2 years but not more than 3 years

40% - if not more than 3 years but not more than 4 years

20% - if not more than 4 years but not more than 5 yearsValue to MakeP xxx

Less: Mortgage paid by present decedent(xxx)

Initial BasisP xxx

Less: Proportional deduction (Initial basis /gross estate x deductions) (xxx)

Final BasisP xxx

RateXXX

Vanishing DeductionP xxx

Notes: 1. Under conjugal partnership of gains vanishing is a deduction from exclusive property.

2. Under absolute community of property, vanishing deduction may be deducted from exclusive property or community property.

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 home deductionAmount deductible

1. 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 Barangay Captain of the locality the family home is situated

1. Exclusive propertyFull value included in the gross estate

2. Conjugal/ community propertyOne-half (1/2) of the value included in the gross estate

3. Partly exclusive property, partly conjugal/communityExclusive part (full)

Conjugal / community part ( x value)

2. The total value of the family home must be included as part of the gross estate of the decedent; and3. 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 decedents interest (whether conjugal/community or exclusive property), whichever is lower, but not exceeding P1, 000, 000.Note: In all three (3) cases, the maximum amount of family home deduction is P 1, 000, 000

5. Standard Deduction

Amount deductibleP 1, 000,000

6. Medical Expenses

Requisites for deductionAmount deductible

1. Incurred within one (1) year before the death of the decedent;2. Duly substantiated with official receipts for services rendered by the decedents attending physicians, invoices, statements of account duly certified by the hospital and such other supporting documentsAll medical expenses incurred (whether paid or unpaid), provided the total amount does not exceed P 500, 000.

Examples of medical expenses:1. cost of medicines;2. Hospital bills;3. Doctors fees.

7. Amount received by heirs under R.A. No. 4917

Requisites for deductionAmount deductible

The amount of the separation benefits is included as part of the gross estate of the decedentAny amount received by the heirs from the decedents employer as a consequence of the death of the employee-decedent.

8. Share of surviving spouse

Gross conjugal/ community propertiesP 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 creditResident or citizen decedents

2. Deducted from estate tax dueThe 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 creditOnly one foreign country is involvedNet estate, foreign / entire net estate x Philippine estate tax

Two or more foreign countries are involvedLimit (a) >per foreign country net estate, per foreign country / entire net estate x Philippine estate tax due

Limit (b) > by totalNet estate (all foreign countries) / entire net estate x Philippine estate tax due

M. Administrative provisions

1. Notice of Death

a. Notice of death is required to be filed1. In all cases of transfer subject to tax;2. Where, though exempt from tax, the gross value of gross estate exceeds P20, 000

b. Who will file?1. Executor;2. Administrator;3. Any of the legal heirs

c. When is notice filed?Within 2 months after the decedents death, or within like period after qualifying as such executor or administrator.

9 | Estate Tax

estate taxation

Documents

Transcript of estate taxation