FOR:

FROM:

SUBJECT: EXTRAJUDICIAL SETTLEMENT OF ESTATE

MEMORANDUM

Please find below our memorandum regarding the above subject matter.

Settlement of an estate need not undergo judicial proceedings all the time. Rule
74, Section 1 of the Rules of Court allows the extrajudicial settlement of estate by
agreement among the heirs. Said Rule states:

Sec. 1. Extrajudicial settlement by agreement between heirs. – If

the decedent left no will and no debts and the heirs are all of age, or the
minors are represented by their judicial or legal representatives duly
authorized for the purpose, the parties may, without securing letters of
administration, divide the estate among themselves as they see fit by
means of a public instrument filed in the office of the register of deeds,
and should they disagree, they may do so in an ordinary action of
partition. If there is only one heir, he may adjudicate to himself the
entire estate by means of an affidavit filed in the office of the register of
deeds. The parties to an extrajudicial settlement, whether by public
instrument or by stipulation in a pending action for partition, or the sole
heir who adjudicates the entire estate to himself by means of an affidavit
shall file, simultaneously with and as a condition precedent to the filing of
the public instrument, or stipulation in the action for partition, or of the
affidavit in the office of the register of deeds, a bond with the said register
of deeds, in an amount equivalent to the value of the personal property
involved as certified to under oath by the parties concerned and
conditioned upon the payment of any just claim that may be filed under
Section 4 of this rule. It shall be presumed that the decedent left no debts
if no creditor files a petition for letters of administration within two (2)
years after the death of the decedent.

The fact of the extrajudicial settlement or administration shall be published in a

newspaper of general circulation in the manner provided in the next succeeding section;
but no extrajudicial settlement shall be binding upon any person who has not
participated therein or had no notice thereof.

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 However, extrajudicial settlement of estate cannot be resorted to every time.
There are conditions which must be satisfied such as:

1. The decedent left no will.

2. The decedent has no debts or his debts have been fully paid.
3. The heirs are all of legal age or the minors are duly represented
by their judicial or legal representatives.
4. A public instrument is duly executed by the heirs and filed
with the Register of Deeds.

Extrajudicial settlement of estate is often recommended to expedite the

transfer of properties of the decedent to his heirs. This is in view of the fact that
judicial settlement of estate takes years before the case is concluded. Furthermore, this is
more adversarial and is resorted to when the heirs disagree on the properties to be
partitioned and the corresponding shares of the respective heirs.

An extrajudicial settlement of estate is done by executing an “Extrajudicial

Settlement Among Heirs”. This is a legal document specifying:

1. Compliance with the legal conditions for an extrajudicial

settlement
2. Description of the properties to be extrajudicially settled (title
number, value, location, lot size, technical description, etc.)
3. Nature of the property (if conjugal property)
4. Name of the heirs
5. How the properties shall be divided amongst the heirs.
6. Posting of a bond if there is personal property involved.
7. Undertaking that the Deed will be published in a newspaper of
general circulation once a week for 3 consecutive weeks.

It must be noted that the Deed of Extrajudicial Settlement must be published in

a newspaper of general circulation once a week for 3 consecutive weeks. Kindly
consult with the Register of Deeds where the property is located for the listing of
these newspapers.

Before filing the Deed of Extrajudicial Settlement with the Register of Deeds
where the land is located, it is necessary that the estate taxes be paid first. Under
Philippine laws, estate tax is defined as a tax on the right of the deceased person to
transmit his estate to his lawful heirs and beneficiaries at the time of death and on
certain transfers, which are made by law as equivalent to testamentary disposition.
According to the Bureau of Internal Revenue, estate tax is not a tax on property but
rather imposed on the privilege of transmitting property upon the death of the owner.

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 IMPORTANT: The discussion below on the estate taxes, deduction and
procedure before the BIR is relevant only to those who died before 01 January 2018
since Republic Act No. 10963, otherwise known as the Tax Reform for Acceleration
and Inclusion Law (TRAIN Law), amended the Tax Code, including the procedure,
tax rates and deductions for estate taxes. The TRAIN Law became effective on 01
January 2018.

It bears great emphasis that the Estate Tax Return must be filed within six (6)
months from the decedent’s death. The deadline may be extended by the
Commissioner of the BIR, in meritorious cases, not exceeding thirty (30) days. It must
be noted that the estate itself is assigned its own Tax Identification Number (TIN). The
Estate Tax Return is filed with Revenue District Office (RDO) having jurisdiction over
the place of residence of the decedent at the time of his death. If the decedent has no
legal residence in the Philippines, then the return can be filed with:

1. The Office of the Revenue District Officer, Revenue District

Office No. 39, South Quezon City; or
2. The Philippine Embassy or Consulate in the country where
decedent is residing at the time of his death.

Furthermore, the estate tax shall be paid at the time the return is filed. However,
upon request and if the Commissioner of the BIR finds that payment on the due date of
the Estate Tax or of any part thereof would impose undue hardship upon the estate or
any of the heirs, he may extend the time for payment of such tax or any part thereof not
to exceed five (5) years, in case the estate is settled through the courts or two (2) years in
case the estate is settled extra-judicially. If an extension is granted, the BIR
Commissioner may require a bond in such amount, not exceeding double the amount of
tax, as it deems necessary.

After the estate taxes have been paid, the heirs may proceed to the Register of
Deeds where the land is situated. If the Register of Deeds would allow it, the filing
with the BIR and Register of Deeds may be simultaneous. The proof of payment of the
estate tax, Affidavit of Publication of the Deed, the Deed of Extrajudicial Settlement
of Estate are the basic requirements to be submitted to the Register of Deeds. When all
pertinent documents are submitted, the Register of Deeds will correspondingly issue
the Transfer of Certificates of Title to the proper heirs.

On a final note, it must be borne in mind that the extrajudicial settlement can be
nullified if it was done in fraud of creditors or other rightful heirs. Furthermore, this can
open the erring heirs to criminal liabilities.

-Nothing follows-

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