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TAX 2

REVOCABLE TRANSFERS ALLOWABLE DEDUCTIONS


A revocable transfer is made when there is a transfer of property with the Resident or citizen decedent
transferor or decedent retaining the rights to alter, amend, terminate or Ordinary deductions
revoke the transfer during his lifetime whether or not such rights to 1. Expenses, losses, indebtedness, taxes
revoke, terminate, amend or alter has been exercised. a. Funeral expenses
b. Judicial expenses
So long as that right remains until the day of his death, it is still under the c. Claims against the estate
control of the decedent, it is part of his properties because he actually will d. Claims against insolvent persons
enjoy the income, the rights and the enjoyment of the property. e. Unpaid mortgage and debt
f. Taxes
Example: CONDITIONAL TRANSFER of a property to an heir or another g. Losses
person, and when the transferee predeceases, the property reverts back 2. Vanishing deductions
to the transferor. 3. Transfers for public use
4. Share in conjugal property
Remember: Transferor still has the full dominion over the property, thus, 5. Amounts received from Retirement Law (4917)
such property forms part of the gross estate. Special deductions
1. Family home
PROPERTY PASSING UNDER GENERAL POWER OF APPOINTMENT 2. Standard deduction
When a property has passed on to the decedent and that decedent during 3. Medical expenses
his lifetime had a right to designate any person including himself, the
executor, the administrator, or creditors of the estate, to designate such Non-resident alien decedent
property, then we consider that a general power of appointment over him. 1. Proportionate deduction for expenses, losses, indebtedness,
taxes
TN: The property is not totally in the name of the decedent. A property a. Funeral expenses
has passed on to him under a general power of appointment, and that b. Judicial expenses
decedent has the right to designate himself, his estate, his creditors (there c. Claims against the estate
is no restriction as to how he will use the property), then that is a general d. Claims against insolvent persons
power of appointment, which property forms part of his gross estate. e. Unpaid mortgage and debt
f. Taxes
g. Losses
PROCEEDS FROM LIFE INSURANCE 2. Vanishing deductions
TN: Proceeds from life insurance under Section 32-B are exempt from 3. Transfers for public use
income tax. 4. Share in conjugal property
Special deductions
Life insurance policies must be taken out by the decedent himself. If it is None
not taken by the decedent himself, it is not part of the estate.
FUNERAL EXPENSES
When a life insurance policy is taken out by the decedent upon Includes
his life: 1. Mourning apparel of the surviving spouse and unmarried minor
1. If the beneficiary is the ESTATE ITSELF, EXECUTOR OR THE children of the deceased, bought and used on the occasion of
ADMINSTRATOR, it forms part of the gross estate. the burial
2. Expenses for the deceaseds wake, including food and drinks
2. If the beneficiary is OTHER than estate, executor or 3. Publication charges for death notices (obituaries)
administrator, it will form part of the gross estate or not form 4. Telecommunications expenses incurred in informing relatives of
part of the gross estate depending on the designation: the deceased
5. Cost of burial plot, tombstones, monument or mausoleum but
a. If the designation of that 3rd person is not their upkeep. In case the deceased owns a family estate or
IRREVOCABLE: So it will all already belong to the 3rd several burial lots, only the value corresponding to the plot
person and not the executor, administrator or where he is buried is deductible.
executor of the decedent, then an irrevocable 6. Interment and/or cremation fees and charges
designation of a 3rd person other than EEA, means 7. All other expenses incurred for the performance of the rites and
that it will NOT FORM PART of the gross estate. ceremonies incident to interment
b. If the designation is REVOCABLE, which is the default
in your insurance code, it will FORM PART of your To be considered funeral expenses: must be incurred from the moment
gross estate. of death until interment.

How about if the beneficiary is estate itself, executor, administrator? Allowable deduction: For actual funeral expenses or in an amount equal
A. It will ALWAYS form part of the estate whether revocable to five percent (5%) of the gross estate, whichever is lower, but in no case
or irrevocable. to exceed Two hundred thousand pesos (P200,000);
a. Actual funeral expenses; or
Remember: When the estate, executor or administrator of the estate is b. 5% of gross estate; or
the beneficiary, the proceeds will form part of the gross estate. Take note: whichever is lower between actual funeral expenses, or 5% of gross
estate
c. 200,000
Take note: However, it shall not exceed 200,000

Take note: Any expense incurred for mass, prayer etc., i.e. 40th day prayer,
after interment are not covered as funeral expenses

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