Frayer Model

DEFINITION

CHARACTERISTICS/NATURE/PURPOSE

Estate Tax is a tax on the right of the deceased person to transmit

his/her estate to his/her lawful heirs and beneficiaries at the time
of death and on certain transfers, which are made by law as
equivalent to testamentary disposition. (BIR Website )

It is not a tax on property. It is a tax imposed on the privilege of

transmitting property upon the death of the owner. The Estate
Tax is based on the laws in force at the time of death
notwithstanding the postponement of the actual possession or
enjoyment of the estate by the beneficiary.

GROSS ESTATE The total value of all property, real or

personal, tangible or intangible, the actual and beneficial
ownership of which was in the decedent at the time of his death.
[Sec. 85, NIRC]

Tax on the right to transmit property at death and on certain

transfers which are made by the statute the equivalent of
testamentary dispositions and is measured by the value of
property at time of death.
It is in reality an excise or privilege tax imposed on the right to
succeed to, receive, or take property by or under a will or the
intestacy law, or deed, grant, or gift to become operative at or
after death. [Lorenzo v. Posadas, 64 Phil 353]
PURPOSE OF ESTATE TAX
(1) The object of estate tax is to tax the shifting of economic
benefits and enjoyment of property from the dead to the living.
(2) Death taxes are imposed to give added income to the
government.

EXAMPLES/MODELS

Gross Estate

Property Owned by the Decedent Actually and Physically

Present in His Estate at the Time of Death Land, ex. buildings,
shares of stock, vehicles, bank deposits. [Sec. 85 of NIRC]

NON-EXAMPLES

- Exclusive Property (capital/paraphernal) of surviving spouse

[Sec. 85 (H), NIRC]
-Property outside the Philippines of a non-resident alien decedent

Decedents interest
refers to the extent of equity or ownership participation of the
decedent on any property physical existing and present in the
gross estate, whether or not in his possession, control or
dominion; also refers to the value of any interest in property
owned or possessed by the decedent at the time of his death, ex.
dividends declared before his death but received after death;
partnership profits which have accrued before his death.
Properties Not Physically in the Estate
These have already been transferred during the lifetime of the
decedent but are still subject to payment of estate tax), such as the
following:

-Intangible personal property(stock shares, partnership shares,

franchise) in the Philippines of a non-resident alien if there is
reciprocity (both states must exempt nonresidents citizens of the
other state from transfer taxes in respect of intangible personal
property.)
-The donors tax is imposed on donations inter vivos or those
made between living persons to take effect during the lifetime of
the donor.

Transfers in contemplation of death [Sec. 85(B), NIRC]

The transfers referred to are those where the motivating factor or
controlling motive is the thought of death, regardless of whether
the transferor was near the possibility of death or not. Note:
There is no transfer in contemplation of death when the transfer
of property is a bona fide sale for an adequate and full
consideration in money or moneys worth.
Transfers with retention or reservation of certain rights [Sec.
85(B), NIRC]
It involves cases where the owner transfers his property during
life but still retains economic benefits, such as the possession or
enjoyment of the property, or the power to designate the persons
who may exercise such rights. By reason of the restriction or
encumbrance, the transferee is incapable of freely enjoying and
disposing of the property until the transferors death, and the
transfer may be regarded as having been intended to take effect in
possession or enjoyment at the transferors death.
Exception:Bona fide sale for an adequate and full consideration.
Revocable Transfers [Sec. 85(C), NIRC]
Decedents transfer of any interest by trust or otherwise, where
the enjoyment thereof was subject at the date of his death to any
change through the exercise of power by the decedent ALONE or
by the decedent IN CONJUNCTION WITH ANY OTHER
person, to alter, amend, revoke, or terminate such transfer, OR
where such power which would bring the property in the taxable
estate is relinquished in contemplation of the decedents death
[Sec. 85(C )(1), NIRC].
Exception:Bona fide sale for an adequate and full consideration.
The power to alter, amend or revoke shall be considered to exist
on the date of the decedents death EVEN THOUGH: (a) The
exercise of the power is subject to a precedent giving of notice, or
(b) The alteration, amendment or revocation takes effect only on
the expiration of a stated period after the exercise of the power,
whether or not on or before the date of the decedents death notice
has been given or the power has been exercised.
If notice has not been given or the power has not been exercised
before the date of his death, such notice shall be considered to
have been given, or the power exercised, on the date of his death.

Property passing under general power of appointment [Sec.

85(D), NIRC] Power of appointment refers to the right to
designate the person or persons who will succeed to the property
of the prior decedent.
When general.The power of appointment is general when the
power of appointment authorizes the donee of the power to
appoint any person he pleases. The power may be exercised in
favor of anybody including the done-decedent. The donee of a
general power of appointment holds the appointed property with
all the attributes of ownership, and, thus, the appointed property
shall form part of the gross estate of the donee of the power upon
his death.
Gross estate shall include any property passed or transferred
under a general power of appointment exercised by the decedent:
(1) By will, or

-SALE/EXCHANGE/TRANSFER OF PROPERTY FOR

INSUFFICIENT CONSIDERATION. Where property, other than
real property that has been subjected to the final capital gains tax,
is transferred for less than an adequate and full consideration in
money or moneys worth, then the amount by which the FMV of
the property at the time of the execution of the Contract of Sell or
execution of the Deed of Sale which is not preceded by a Contract
to Sell exceeded the value of the agreed or actual consideration or
selling price shall be deemed a gift, and shall be included in
computing the amount of gifts made during the calendar year.
[Sec. 11, RR 2-2003]
-Renunciation by a surviving spouse of his/her share in the CPG
or ACP after the dissolution of marriage in favor of the heirs or
any other person is SUBJECT to donors tax.

(2) By deed executed in contemplation of, or intended to take

effect in possession or enjoyment at, or after his death, or
(3) By deed under which he has retained (for his life or any period
not ascertainable without reference to his death or for any period
which does not in fact end before his death): (a) the possession or
enjoyment of, or the right to the income from, the property, or
(b) the right, either alone or in conjunction with any person, to
designate the persons who shall possess or enjoy the property or
the income therefrom [Sec. 85(D), NIRC].
Exception:Bona fide sale for an adequate and full consideration.
Transfers for insufficient consideration [Sec. 85(G), NIRC]
When a sale of transfer (other than a bona fide sales of property
for an adequate and full consideration in money or moneys
worth) was made for a price less than its fair market value at the
time of sale or transfer, the excess of the fair market value of the
transferred property at the time of death over the value of the
consideration received should be included in the gross estate.
Proceeds of life insurance[Sec. 85(E), NIRC]
Proceeds of life insurance taken out by the decedent on his own
life shall be included in the gross estate in the following cases:
(1) Beneficiary is the estate of the deceased, his executor or
administrator, irrespective of whether or not the insured retained
the power of revocation; or
(2) Beneficiary is other than the decedents estate, executor or
administrator, when designation of beneficiary is not expressly
made irrevocable [Sec. 85 (E), NIRC].
Claims Against Insolvent Persons
For estate tax purposes, an insolvent is a person whose properties
are not sufficient to satisfy, whether fully or partially, his debts. A
judicial declaration of insolvency is not required but the
incapacity of the debtor should be proven. As a rule, regardless of
the amount the debtor is unable to pay, the full amount of the
claim against the insolvent person should be included in the gross
estate of the decedent. The portion of the claim which is not
collectible should be allowed as a deduction from the gross estate,