ESTATE TAX

Imposed upon the privilege Of disposing Gratuitously Private properties

DIFFERENCE WITH INCOME TAX (TER) 1. On transfer of property; on income 2. Lower rates (Estate = 5%; Donors = 2%, 15%, 30%); Income = 5-32% 3. Lesser exemptions; More exemptions KINDS 1. 2.

Estate Tax Donors Tax

DIFFERENCE OF ESTATE AND DONOR (FARNRED PETERGC) 1. Filed, notice. 2mos after death or after qualifying as executor v None 2. Amount exempt. 200K v 100K 3. Rate. 5-20% v 2-15% 4. Nature of transfer. After death of decedent/between natural persons v During donors lifetime/natural & juridical 5. Requirements. a. Estate Notice required after decedents death in the ff cases: I. Transac subject to estate tax II. Transac exempt from estate tax but more than 20K b. Donors notice of donation not required, EXC: I. To NGOs, if more 50K or more, EXC to EXC i. More than 30% will be used for admin purposes II. To any candidate, political party or coalition of parties 6. Exemptions. Sec. 101 v Sec. 87 7. Deductions. None v Sec. 86 8. Payment of tax due. BOTH Pay as you file 9. Extension of filing return. 30 days (in meritorious cases) v None 10. Time of filing return. W/in 6mos from death v W/in 30days after donation 11. Extension of Payment. a. Estate Gen Rule: No extension; EXC: I. When it will result to undue hardship upon the estate/heirs i. EXC to EXC: When taxpayer is guilty of a. Negligence b. Intentional disregard t R&R c. Fraud b. Donors - None 12. Return. a. Estate: I. A transfer subject to estate tax II. Not subject to estate tax but gross estate = more than 200K

III. Estate consists of registered, registrable prop no matter the value b. Donors transfer subject to donors tax 13. Grant of extension of payment. Requirements: Bond (not exceeding tax (x) 2 plus sureties deemed necessary by commissioner vs None 14. Contents of Return. a. Estate (VOID) I. Value (gross estate) II. Other pertinent info III. If gross estate exceeds 2M, certified by CPA as to assets, deductions, tax due, w/n paid IV. Deductions (Sec. 86) b. Donors (GAPNO) I. Each gift made during the calendar yr (for computing net gifts) II. Allowable and claimed deductions III. Previous net gifts made during the same yr IV. Donees name V. Such other info as may be req by R&R DONATIONS Inter vivos subject to donors tax EXC: 1. Transfers in contemplation of death 2. and revocable transfers, since the control of the decedent is up to the time of his death. Therefore, subject to estate tax Mortis causa to estate tax DEFINITIONS Estate tax An excise tax On the privilege of transmitting prop at the time of death given to a person in controlling the disposition of prop to take effect upon his death not a direct tax on the decedents prop Estate Planning a manner by w/c a person takes step to conserve his property to be transmitted to his heirs by decreasing the estate taxes to be paid upon his death this is lawful since a person has the legal right to decrease the amount he will pay as taxes or avoid themby means w/c the law permits NATURE OF ESTATE TAX 1. excise tax imposed on the privilege of transferring the ownership of prop; not a prop tax 2. ad valorem the tax base is the fair market value as of the time of death of the decedent a. but the appraised value should be which ever is higher of the fair market value i. as assessed by the Commissioner (zonal) ii. as indicated in the schedule of values fixed by the Provincial or City Assessors 3. indirect can be passed to the transferee 4. national imposed only by the national govt, NOT LGUs 5. general revenue raised is for the general purposes 6. progressive rate increases as the base increases

BASES OF IMPOSITION 1. Benefits-Protection Theory State can collect taxes on the reciprocal duties of support and protection 2. Redistribution of Weath since successors inheritance are reduced and transferred to the govt coffers 3. State-partnership Theory State is a silent partner in accumulating wealth 4. Ability to Pay since inheritance is an unearned wealth, it creates the ability to pay REQUISITES (DSD) 1. Decedents death 2. Successor still living at the time of death 3. Successor not disqualified to inherit Time of Trasfer at the death of the decedent Law Applicable law at the time of death Accrual of Tax at the time of death; but obli to pay is w/in 6mos from death Residence permanent home a place where, despite business or employment, the person always intends to return PERSON TAXABLE OF ESTATE TAX 1. Residents and citizens comprising of all properties at the time of his death a. Real or personal b. Tangible or intangible c. All interests therein d. Wherever situated e. Revocable transfers f. Transfers for insufficient consideration 2. Non-resident aliens a. Real properties situated in the PH b. For intangible props subject to Reciprocity Rule GROSS ESTATE FORMULA Gross estate Less: Deductions; Net Share of Surviving Spouse ---------------------------------------------------------------Net Taxable Estate x Tax Rate = Estate Tax Due Less: Tax Credit (if any) VALUATION Real Prop Fair Market Value (FMV) as determined by a. The Commissioner (zonal value) b. The schedule of values of the City or Municipal Assessor c. If no zonal value, FMV in the latest tax dec Personal Prop FMV based on appraisal Shares of stock I. Unlisted a. Unlisted common book value Dont consider appraisal value

 Dont consider value of par preffered shares b. Unlisted presferred par value II. Listed the arithmetic mean of the highest and lowest quotation at a date nearest the date of death if none is available on the date of death Right to use, usufruct, habitation, annuity take into account the probable life of the beneficiary according to the basic standard mortality table to be approved by the Sec of Finance on the recommendation of the Insurance Commissioner If there is improvement, its value is the construction cost per bldg permit or the FMV in the latest tax dec COMPUTATION OF GROSS ESTATE A. Resident, non-res citizen; Resident Alien Value at the time of death of a. Real property w/n in PH b. Personal property w/n in PH c. To the extent of the interest therein at the time of death Residency is determined by the intent to return despite business or work B. Non-resident alien a. Real prop in PH b. Personal prop w/situs in PH unless exempted under the reciprocity rule i. Franchise exercised in PH ii. Shares, bonds, obli in a corpo organized and constituted in PH iii. Shares, bonds, obli In an foreign corpo, 85% of its buss is located in PH Even if issued in favor of non-resident bec it has obtained situs in PH iv. Shares, bonds, obli Issued by a foreign corpo But has acquired buss situs in PH v. Shares, bonds, obli In a buss, industry, partnership Established in PH EXCEPTION: Reciprocity Rule a. Total exemption when the alien is a citizen/resident of a country w/c at the time of his death did not impose transfer tax of any character to intangible prop of PH citizens not residing in that country b. Partial exemption when the alien is a citizen/resident of a country w/c at the time of his death did not impose any similar transfer tax or death tax to intangible props of PH citizens not residing in that country INCLUSIONS IN GROSS ESTATE 1. Decedents interest Any interest of the decedent at the time of his death having value or capable of being valued 2. Transfer in Contemplation of Death

Transfer made by the decedent motivated by the thought of impending death although death may not be imminent Transfer by decedent, at any time In contemplation of Or to take effect in possession or enjoyment At or after death When decedent has, at any time, made a transfer where he Reserved for his life Or for a period not ascertainable w/o reference to his death Or any period w/c does not end before his death The possession, enjoyment or right to income of the prop The right (alone or in conjunction w/others) to designate the person who will possess, enjoy the prop or income therefrom

EXCEPTIONS a. Bona fide sale b. Sale for adequate or full consideration in money or moneys worth Transfer in contemplation of death is that where the person retains some control over the property therefore not effecting a full transfer of all interests therein not all transfers made by a dying person qualifies under this classification Transfers made by a person shortly before his/her death and simultaneous to his/her execution of a will is considered transfer in contemplation of death and forms part of gross estate because the intention of the decedent is to avoid estate tax 3-year presumption rule Any transfer made by a person w/in 3 years before his death is considered to be in contemplation of death (THIS WAS ALREADY DELETED by PD1705) Circumstances to Consider (HAGGAM DIVE) I. Age of decedent at the time of transfer II. Health as he knew it before or at transfer III. Interval. Between transfer and death IV. Amount transferred vis-a-vis amount retained V. Nature of disposition of the decedent VI. Existence of a general testamentary scheme of w/c transfers were part VII. Donee-Decedent relationship VIII. Long-established gift-making policy on the part of the decedent IX. Desire of the decedent to avoid the difficulty of managing his prop by transferring to others X. Desire of the decedent to vicariously enjoy the enjoyment of the donees of his prop XI. Desire of the decedent to avoid estate taxes by tansferring to donees inter vivos

3. -

Revocable Transfer A transfer By trust or otherwise Where the enjoyment thereof at the date of death Was subject to change through the exercise of power to alter, amend or revoke Power to AAR may be by the decedent alone Or in conjunction with any other person Where such power is relinquished in contemplation of the decedents death other than a bona fide sale or sale for adequate or full consideration Exists notwithstanding: Exercise of power is subject to precedent giving of notice AAR takes effect only upon the expiration of a stated period after the exercise of power w/n on or before death, notice has been given Power has been exercised In such a case o Proper adjustment shall be made representing the interest w/c would have been excluded from the power if decedent lived o And for such other purpose if notice has been given o Or the power has not been exercised on or before death o Such notice shall be considered given and power exercised Its part of the gross estate bec the transferor can revoke the transfer any time Although decedent did not exercise the power, it still falls under this classification

EXCEPTIONS (when it is not revocable; not usbject to estate tax) I. If the decedents power can only be exercised by the consent of others with interest in the prop II. When decedent was completely divested of such power at the time of death III. Where power is i. subject to contingency ii. beyond decedents control iii. and it did not happen before death IV. The mere right to name trustees i. The right of the decedent to designate himself as the trustee under conditions that did not happen before his death 4. Property Passing Under a General Power of Appointment (GPA) GPA Power to designate a person Who will succeed to the prop of the prior decedent In favor of anybody Himself Estate of decedent Creditors Creditors of his estate EXC:

a. b.

c.

When the donation contains a provision of reversion to the donor (it becomes revocable transfer) If it can only be exercised in favor of One or more classes of persons exclusive of decedent his estate creditors or estate creditors (specific power/SPA) if expressly not exercisable in favor of the abovementioned (specific power/SPA)

PROPERTIES COVERED Those passed by the decedent under GPA by I. his will II. deed executed in contemplation of death or to take effect in possession or enjoyment at death III. deed under w/c he reserves for his life or on a period unascertainable w/o reference ot his death or for any period that does not end before death possession, enjoyment and right to income of prop and right to designate a person to enjoy, possess prop and income thereof EXCEPTIONS: Transferred by bona fide sale or sale with adequate or full consideration DIFFERENCE FROM TRANSFER IN CONTEMPLATION... I. Effectivity ICOD at or after death v GPA for his life or period unascertainable... II. Means by trust or otherwise v under GPA, will or deed