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ESTATE TAX

1. Who are required to file the Estate Tax return?


a) The executor or administrator or any of the legal heirs of the decedent or
non-resident of the Philippines under any of the following situation:
- In all cases of transfer subject to Estate Tax;
- Where though exempt from Estate Tax, the gross value of the estate
exceeds two hundred thousand P 200,000.00; and
- Where regardless of the gross value, the estate consists of registered or
registrable property such as real property, motor vehicle, share of stocks
or other similar property for which a clearance from the Bureau of
Internal Revenue (BIR) is required as a prerequisite for the transfer of
ownership thereof in the name of the transferee. (part II par.(1.#3) of
RMC No. 34-2013)
b) Where there is no executor or administrator appointed, qualified and
acting within the Philippines, then any person in actual or constructive
possession of any property of the decedent must file the return.
c) The Estate Tax imposed under the Tax Code shall be paid by the executor
or administrator before the delivery of the distributive share in the
inheritance to any heir or beneficiary. Where there are two or more executors
or administrators, all of them are severally liable for the payment of the tax.
The estate tax clearance issued by the Commissioner or the Revenue District
Officer (RDO) having jurisdiction over the estate, will serve as the authority
to distribute the remaining/distributable properties/share in the inheritance
to the heir or beneficiary.
d) The executor or administrator of an estate has the primary obligation to
pay the estate tax but the heir or beneficiary has subsidiary liability for the
payment of that portion of the estate which his distributive share bears to
the value of the total net estate. The extent of his liability, however, shall in
no case exceed the value of his share in the inheritance.
2. What are included in gross estate?
For resident alien decedents/citizens:
a) Real or immovable property, wherever located
b) Tangible personal property, wherever located
c) Intangible personal property, wherever located
For non-resident decedent/non-citizens:
a) Real or immovable property located in the Philippines
b) Tangible personal property located in the Philippines
c) Intangible personal property - with a situs in the Philippines such as:
- Franchise which must be exercised in the Philippines
- Shares, obligations or bonds issued by corporations organized or
constituted
in
the
Philippines
- Shares, obligations or bonds issued by a foreign corporation 85% of
the
business
of
which
is
located
in
the
Philippines
- Shares, obligations or bonds issued by a foreign corporation if such
shares, obligations or bonds have acquired a business situs in the

Philippines ( i. e. they are used in the furtherance of its business in


the
Philippines)
- Shares, rights in any partnership, business or industry established in
the Philippines
3. What are excluded from gross estate?
GSIS proceeds/ benefits
Accruals from SSS
Proceeds of life insurance where the beneficiary is irrevocably
appointed
Proceeds of life insurance under a group insurance taken by employer
(not taken out upon his life)
War damage payments
Transfer by way of bona fide sales
Transfer of property to the National Government or to any of its
political subdivisions
Separate property of the surviving spouse
Merger of usufruct in the owner of the naked title
Properties held in trust by the decedent
Acquisition and/or transfer expressly declared as not taxable
4. What will be used as basis in the valuation of property?
The properties subject to Estate Tax shall be appraised based on its fair
market value at the time of the decedent's death.
The appraised value of the real estate shall be whichever is higher of
the fair market value, as determined by the Commissioner (zonal value) or
the fair market value, as shown in the schedule of values fixed by the
Provincial or City Assessor.
If there is no zonal value, the taxable base is the fair market value that
appears in the latest tax declaration.
If there is an improvement, the value of improvement is the
construction cost per building permit or the fair market value per latest tax
declaration.
5. What are the allowable deductions for Estate Tax Purposes?
Applicable for deaths occurring after the effectivity of RA 8424 which is
January 1, 1998
For a citizen or resident alien
A. Expenses, losses, indebtedness and taxes
(1) Actual funeral expenses (whether paid or unpaid) up to the time of
interment, or an amount equal to five percent (5%) of the gross estate,
whichever is lower, but in no case to exceed P200,000.
(2) Judicial expenses of the testamentary or intestate proceedings.
(3) Claims against the estate.
(4) Claims of the deceased against insolvent persons where the value of
the decedents interest therein is included in the value of the gross
estate; and,

(5) Unpaid mortgages, taxes and casualty losses


B. Property previously taxed (Vanishing Deduction) (Section 86(2) of the NIRC
as amended by Republic Act No. 8424)
An amount equal to the value specified below of any property forming a
part of the gross estate situated in the Philippines of any person who died
within five (5) years prior to the death of the decedent, or transferred to
the decedent by gift within five (5) years prior to his death, where such
property can be identified as having been received by the decedent from
the donor by gift, or from such prior decedent by gift, bequest, devise or
inheritance, or which can be identified as having been acquired in
exchange for property so received:
One hundred percent (100%) of the value, if the prior decedent died
within one (1) year prior to the death of the decedent, or if the
property was transferred to him by gift within the same period prior
to his death;
Eighty percent (80%) of the value, if the prior decedent died more
than one (1) year but not more than two (2) years prior to the death
of the decedent, or if the property was transferred to him by gift
within the same period prior to his death;
Sixty percent (60%) of the value, if the prior decedent died more than
two (2) years but not more than three (3) years prior to the death of
the decedent, or if the property was transferred to him by gift within
the same period prior to his death;
Forty percent (40%) of the value, if the prior decedent died more than
three (3) years but not more than four (4) years prior to the death of
the decedent, or if the property was transferred to him by gift within
the same period prior to his death; and
Twenty percent (20%) of the value, if the prior decedent died more
than four (4) years but not more than five (5) years prior to the death
of the decedent, or if the property was transferred to him by gift
within the same period prior to his death;
These deductions shall be allowed only where a donors tax or estate tax
imposed was finally determined and paid by or on behalf of such donor,
or the estate of such prior decedent, as the case may be, and only in the
amount finally determined as the value of such property in determining
the value of the gift, or the gross estate of such prior decedent, and only
to the extent that the value of such property is included in the
decedents gross estate, and only if in determining the value of the
estate of the prior decedent, no Property Previously Taxed or Vanishing
Deduction was allowable in respect of the property or properties given in
exchange therefor. (Section 6 & 7 of RR 2-2003)
C. Transfers for public use
D. The family home - fair market value but not to exceed P1,000,000.00
The family home refers to the dwelling house, including the land on
which it is situated, where the husband and wife, or a head of the family,
and members of their family reside, as certified to by the Barangay

Captain of the locality. The family home is deemed constituted on the


house and lot from the time it is actually occupied as a family residence
and is considered as such for as long as any of its beneficiaries actually
resides therein. (Arts. 152 and 153, Family Code)
E. Standard deduction A deduction in the amount of One Million Pesos
(P1,000,000.00) shall be allowed as an additional deduction without need of
substantiation.
F. Medical expenses All medical expenses (cost of medicines, hospital bills,
doctors fees, etc.) incurred (whether paid or unpaid) within one (1) year
before the death of the decedent shall be allowed as a deduction provided
that the same are 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 documents in support
thereof and provided, further, that the total amount thereof, whether paid or
unpaid, does not exceed Five Hundred Thousand Pesos (P500,000).
G. Amount received by heirs under Republic Act No. 4917-Any amount
received by the heirs from the decedents employer as a consequence of the
death of the decedent-employee in accordance with Republic Act No. 4917 is
allowed as a deduction provided that the amount of the separation benefit is
included as part of the gross estate of the decedent.
H. Net share of the surviving spouse in the conjugal partnership or
community property
For a non-resident alien
A. Expenses, losses, indebtedness and taxes
B. Property previously taxed
C. Transfers for public use
D. Net share of the surviving spouse in the conjugal partnership or
community property
No deduction shall be allowed in the case of a non-resident decedent not
a citizen of the Philippines, unless the executor, administrator, or anyone
of the heirs, as the case may be, includes in the return required to be
filed in the Section 90 of the Code the value at the time of the decedents
death of that part of his gross estate not situated in the Philippines.
Please note that the allowable deductions will vary depending on the law
applicable at the time of the decedents death.
6. What does the term "Funeral Expenses" include? (Sec 6 (A)(1) of RR 22003)
The term "FUNERAL EXPENSES" is not confined to its ordinary or usual
meaning. They include:
(a) The mourning apparel of the surviving spouse and unmarried minor
children of the deceased bought and used on the occasion of the burial;
(b) Expenses for the deceaseds wake, including food and drinks;
(c) Publication charges for death notices;
(d) Telecommunication expenses incurred in informing relatives of the
deceased;

(e) Cost of burial plot, tombstones, monument or mausoleum but not


their upkeep. In case the deceased owns a family estate or several burial
lots, only the value corresponding to the plot where he is buried is
deductible;
(f) Interment and/or cremation fees and charges; and
(g) All other expenses incurred for the performance of the rites and
ceremonies incident to interment.
Expenses incurred after the interment, such as for prayers, masses,
entertainment, or the like are not deductible. Any portion of the funeral
and burial expenses borne or defrayed by relatives and friends of the
deceased are not deductible. Actual funeral expenses shall mean those
which are actually incurred in connection with the interment or burial of
the deceased. The expenses must be duly supported by official receipts
or invoices or other evidence to show that they were actually incurred.
7. What does the term "Judicial Expenses" include? (Sec 6 (A)(2) of RR 22003)
Expenses allowed as deduction under this category are those incurred in the
inventory-taking of a assets comprising the gross estate, their
administration, the payment of debts of the estate, as well as the distribution
of the estate among the heirs. In short, these deductible items are expenses
incurred during the settlement of the estate but not beyond the last day
prescribed by law, or the extension thereof, for the filing of the estate tax
return. Judicial expenses may include:
(a) Fees of executor or administrator;
(b) Attorneys fees;
(c) Court fees;
(d) Accountants fees;
(e) Appraisers fees;
(f) Clerk hire;
(g) Costs of preserving and distributing the estate;
(h) Costs of storing or maintaining property of the estate; and
(i) Brokerage fees for selling property of the estate.
Any unpaid amount for the aforementioned cost and expenses claimed
under Judicial Expenses should be supported by a sworn statement of
account issued and signed by the creditor.
8. What are the requisites for deductibility of claims against the Estate? (Sec
6(A)(3) of RR 2-2003)
(a) The liability represents a personal obligation of the deceased existing at
the time of his death except unpaid obligations incurred incident to his death
such as unpaid funeral expenses (i.e., expenses incurred up to the time of
interment) and unpaid medical expenses which are classified under a
different category of deductions pursuant to these Regulations;
(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.
9. How do we determine the fair market value of the unlisted stocks? (RR NO. 6-2013) (Annex U)
In determining the value of the shares, the Adjusted Net Asset Method shall be used whereby all assets and
liabilities are adjusted to fair market values. The net of adjusted asset minus the adjusted liability value is the
indicated value of the equity.
For purposes of this item, the appraised value of real property at the time of sale shall be the highest among the
following:
(a) The fair market value as determined by the Commissioner, or
(b) The fair market value as shown in the schedule of values fixed by the Provincial and City Assessors, or
(c) The fair market value as determined by Independent Appraiser.