RAFAEL ARSENIO S.

DIZON, in his capacity as the Judicial Administrator

of the Estate of the deceased JOSE P. FERNANDEZ, Petitioner vs. COURT
OF TAX APPEALS and COMMISSIONER OF INTERNAL REVENUE
J. Nachura. 3rd Division
Facts: On November 7, 1987, Jose P. Fernandez (Jose) died. Thereafter, a petition
for the probate of his will was filed with Branch 51 of the Regional Trial Court
(RTC) of Manila (probate court). The probate court then appointed retired
Supreme Court Justice Arsenio P. Dizon (Justice Dizon) and petitioner, Atty. Rafael
Arsenio P. Dizon (petitioner) as Special and Assistant Special Administrator,
respectively, of the Estate of Jose (Estate). In a letter dated October 13, 1988,
Justice Dizon
informed respondent Commissioner of the Bureau of Internal
Revenue (BIR) of the special proceedings for the Estate. After several extensions,
on April 17, 1990, Atty. Gonzales wrote a letter addressed to the BIR Regional
Director for San Pablo City and filed the estate tax return with the same BIR
Regional Office, showing therein a NIL estate tax liability. A Certification stating
that the taxes due on the transfer of real and personal properties of Jose had been
fully paid and said properties may be transferred to his heirs was issued. Sometime
in August 1990, Justice Dizon passed away. Thus, on October 22, 1990, the probate
court appointed petitioner as the administrator of the Estate.
Petitioner requested the probate court's authority to sell several properties
forming part of the Estate, for the purpose of paying its creditors, namely:
Equitable Banking Corporation, Banque de L'Indochine et. de Suez, Manila
Banking Corporation and State Investment House, Inc. Petitioner manifested that
Manila Bank, a major creditor of the Estate was not included, as it did not file a
claim with the probate court since it had security over several real estate
properties forming part of the Estate.
However, on November 26, 1991, the Assistant Commissioner for Collection
of the BIR, Themistocles Montalban, issued Estate Tax Assessment Notice
demanding the payment of P66,973,985.40 as deficiency estate tax.
The petition for review was denied by CTA. Nevertheless, the CTA did not
fully adopt the assessment made by the BIR and it came up with its own
computation of the deficiency estate tax. CA affirmed CTAs ruling.
Issues: Whether the actual claims of the aforementioned creditors may be fully
allowed as deductions from the gross estate of Jose despite the fact that the said
claims were reduced or condoned through compromise agreements entered into by
the Estate with its creditors.
Held: Yes. Claims against the estate, as allowable deductions from the gross
estate under Section 79 of the Tax Code, are basically a reproduction of the
deductions allowed under Section 89 (a) (1) (C) and (E) of Commonwealth Act No.
466 (CA 466), otherwise known as the National Internal Revenue Code of 1939,
and which was the first codification of Philippine tax laws. Philippine tax laws
were, in turn, based on the federal tax laws of the United States. Thus, pursuant to
established rules of statutory construction, the decisions of American courts
construing the federal tax code are entitled to great weight in the interpretation of
our own tax laws.
It is noteworthy that even in the United States, there is some dispute as to
whether the deductible amount for a claim against the estate is fixed as of the
decedent's death which is the general rule, or the same should be adjusted to
reflect post-death developments, such as where a settlement between the parties
results in the reduction of the amount actually paid. On one hand, the U.S. court
ruled that the appropriate deduction is the value that the claim had at the date of
the decedent's death. Also, as held in Propstra v. U.S., where a lien claimed against
the estate was certain and enforceable on the date of the decedent's death, the fact
that the claimant subsequently settled for lesser amount did not preclude the
estate from deducting the entire amount of the claim for estate tax purposes.
These pronouncements essentially confirm the general principle that post-death

developments are not material in determining the amount of the deduction. The
Propstra case applied the Ithaca Trust date-of-death valuation principle to
enforceable claims against the estate.
We express our agreement with the date-of-death valuation rule, made
pursuant to the ruling of the U.S. Supreme Court in Ithaca Trust Co. v. United
States. First. There is no law, nor do we discern any legislative intent in our tax
laws, which disregards the date-of-death valuation principle and particularly
provides that post-death developments must be considered in determining the net
value of the estate. It bears emphasis that tax burdens are not to be imposed, nor
presumed to be imposed, beyond what the statute expressly and clearly imports,
tax statutes being construed strictissimi juris against the government. Any doubt
on whether a person, article or activity is taxable is generally resolved against
taxation. Second. Such construction finds relevance and consistency in our Rules
on Special Proceedings wherein the term "claims" required to be presented against
a decedent's estate is generally construed to mean debts or demands of a
pecuniary nature which could have been enforced against the deceased in his
lifetime, or liability contracted by the deceased before his death. Therefore, the
claims existing at the time of death are significant to, and should be made the basis
of, the determination of allowable deductions.
WHEREFORE, the instant Petition is GRANTED. Accordingly, the
assailed Decision dated April 30, 1999 and the Resolution dated November 3,
1999 of the Court of Appeals in CA-G.R. S.P. No. 46947 are REVERSED and SET
ASIDE. The Bureau of Internal Revenue's deficiency estate tax assessment against
the Estate of Jose P. Fernandez is hereby NULLIFIED. No costs.

THIRD DIVISION
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. COURT OF
APPEALS, COURT OF TAX APPEALS and JOSEFINA P. PAJONAR, as
Administratrix of the Estate of Pedro P. Pajonar, respondents.
RESOLUTION
GONZAGA-REYES, J.:
Facts: Pedro Pajonar, a member of the Philippine Scout, Bataan Contingent, during
the second World War, was a part of the infamous Death March by reason of which
he suffered shock and became insane. His sister Josefina Pajonar became the
guardian over his person, while his property was placed under the guardianship of
the Philippine National Bank (PNB) by the Regional Trial Court of Dumaguete City,
Branch 31, in Special Proceedings No. 1254. He died on January 10, 1988. He was
survived by his two brothers Isidro P. Pajonar and Gregorio Pajonar, his sister
Josefina Pajonar, nephews Concordio Jandog and Mario Jandog and niece Conchita
Jandog.
On May 11, 1988, the PNB filed an accounting of the decedent's property
under guardianship valued at P3,037,672.09 in Special Proceedings No. 1254.
However, the PNB did not file an estate tax return, instead it advised Pedro
Pajonar's heirs to execute an extrajudicial settlement and to pay the taxes on his
estate. On April 5, 1988, pursuant to the assessment by the Bureau of Internal
Revenue (BIR), the estate of Pedro Pajonar paid taxes in the amount of P2,557.
On May 19, 1988, Josefina Pajonar filed a petition with the Regional Trial
Court of Dumaguete City for the issuance in her favor of letters of administration
of the estate of her brother. The case was docketed as Special Proceedings No.
2399. On July 18, 1988, the trial court appointed Josefina Pajonar as the regular
administratrix of Pedro Pajonar's estate.
On December 19, 1988, pursuant to a second assessment by the BIR for
deficiency estate tax, the estate of Pedro Pajonar paid estate tax in the amount of
P1,527,790.98. Josefina Pajonar, in her capacity as administratrix and heir of Pedro
Pajonar's estate, filed a protest on January 11, 1989 with the BIR praying that the
estate tax payment in the amount of P1,527,790.98, or at least some portion of it,
be returned to the heirs.
However, on August 15, 1989, without waiting for her protest to be resolved
by the BIR, Josefina Pajonar filed a petition for review with the Court of Tax
Appeals (CTA), praying for the refund of P1,527,790.98, or in the alternative,
P840,202.06, as erroneously paid estate tax.
The CTA ordered the Commissioner of Internal Revenue to refund Josefina
Pajonar the amount of P252,585.59, representing erroneously paid estate tax for
the year 1988. Among the deductions from the gross estate allowed by the CTA

were the amounts of P60,753 representing the notarial fee for the Extrajudicial
Settlement and the amount of P50,000 as the attorney's fees in Special
Proceedings No. 1254 for guardianship.
On June 15, 1993, the Commissioner of Internal Revenue filed a motion for
reconsideration of the CTA's May 6, 1993 decision asserting, among others, that
the notarial fee for the Extrajudicial Settlement and the attorney's fees in the
guardianship proceedings are not deductible expenses.
On June 7, 1994, the CTA issued the assailed Resolution 8 ordering the
Commissioner of Internal Revenue to refund Josefina Pajonar, as administratrix of
the estate of Pedro Pajonar, the amount of P76,502.42 representing erroneously
paid estate tax for the year 1988. Also, the CTA upheld the validity of the deduction
of the notarial fee for the Extrajudicial Settlement and the attorney's fees in the
guardianship proceedings.
On July 5, 1994, the Commissioner of Internal Revenue filed with the Court
of Appeals a petition for review of the CTA's May 6, 1993 Decision and its June 7,
1994 Resolution, questioning the validity of the abovementioned deductions. On
December 21, 1995, the Court of Appeals denied the Commissioner's petition.
Issue: Whether the notarial fee paid for the extrajudicial settlement in the
amount of P60,753 and the attorney's fees in the guardianship proceedings
in the amount of P50,000 may be allowed as deductions from the gross
estate of decedent in order to arrive at the value of the net estate.
Held: Yes. . Although the Tax Code specifies "judicial expenses of the testamentary
or intestate proceedings," there is no reason why expenses incurred in the
administration and settlement of an estate in extrajudicial proceedings should not
be allowed. However, deduction is limited to such administration expenses as are
actually and necessarily incurred in the collection of the assets of the estate,
payment of the debts, and distribution of the remainder among those entitled
thereto. Such expenses may include executor's or administrator's fees, attorney's
fees, court fees and charges, appraiser's fees, clerk hire, costs of preserving and
distributing the estate and storing or maintaining it, brokerage fees or
commissions for selling or disposing of the estate, and the like. Deductible
attorney's fees are those incurred by the executor or administrator in the
settlement of the estate or in defending or prosecuting claims against or due the
estate.
It is clear then that the extrajudicial settlement was for the purpose of
payment of taxes and the distribution of the estate to the heirs. The execution of
the extrajudicial settlement necessitated the notarization of the same. Hence the
Contract of Legal Services of March 28, 1988 entered into between respondent
Josefina Pajonar and counsel was presented in evidence for the purpose of showing
that the amount of P60,753.00 was for the notarization of the Extrajudicial
Settlement. It follows then that the notarial fee of P60,753.00 was incurred
primarily to settle the estate of the deceased Pedro Pajonar. Said amount should
then be considered an administration expenses actually and necessarily incurred in
the collection of the assets of the estate, payment of debts and distribution of the
remainder among those entitled thereto. Thus, the notarial fee of P60,753 incurred
for the Extrajudicial Settlement should be allowed as a deduction from the gross
estate.
Attorney's fees, on the other hand, in order to be deductible from the gross
estate must be essential to the settlement of the estate. The amount of P50,000.00
was incurred as attorney's fees in the guardianship proceedings. Petitioner
contends that said amount are not expenses of the testamentary or intestate
proceedings as the guardianship proceeding was instituted during the lifetime of
the decedent when there was yet no estate to be settled. Again, this contention
must fail. The guardianship proceeding in this case was necessary for the
distribution of the property of the deceased. The PNB was appointed guardian over
the assets of the deceased, and that necessarily the assets of the deceased formed
part of his gross estate.
The deductions from the gross estate permitted under section 79 of the Tax
Code basically reproduced the deductions allowed under Commonwealth Act No.

466 (CA 466), otherwise known as the National Internal Revenue Code of 1939, 16
and which was the first codification of Philippine tax laws. Section 89 (a) (1) (B) of
CA 466 also provided for the deduction of the "judicial expenses of the
testamentary or intestate proceedings" for purposes of determining the value of
the net estate. Philippine tax laws were, in turn, based on the federal tax laws of
the United States. In accord with established rules of statutory construction, the
decisions of American courts construing the federal tax code are entitled to great
weight in the interpretation of our own tax laws.
Judicial expenses are expenses of administration. Administration expenses,
as an allowable deduction from the gross estate of the decedent for purposes of
arriving at the value of the net estate, have been construed by the federal and
state courts of the United States to include all expenses "essential to the collection
of the assets, payment of debts or the distribution of the property to the persons
entitled to it." In other words, the expenses must be essential to the proper
settlement of the estate. Expenditures incurred for the individual benefit of the
heirs, devisees or legatees are not deductible. This distinction has been carried
over to our jurisdiction. Thus, in Lorenzo v. Posadas 22 the Court construed the
phrase "judicial expenses of the testamentary or intestate proceedings" as not
including the compensation paid to a trustee of the decedent's estate when it
appeared that such trustee was appointed for the purpose of managing the
decedent's real estate for the benefit of the testamentary heir. In another case, the
Court disallowed the premiums paid on the bond filed by the administrator as an
expense of administration since the giving of a bond is in the nature of a
qualification for the office, and not necessary in the settlement of the estate.
Neither may attorney's fees incident to litigation incurred by the heirs in asserting
their respective rights be claimed as a deduction from the gross estate.
Coming to the case at bar, the notarial fee paid for the extrajudicial
settlement is clearly a deductible expense since such settlement effected a
distribution of Pedro Pajonar's estate to his lawful heirs. Similarly, the attorney's
fees paid to PNB for acting as the guardian of Pedro Pajonar's property during his
lifetime should also be considered as a deductible administration expense. PNB
provided a detailed accounting of decedent's property and gave advice as to the
proper settlement of the latter's estate, acts which contributed towards the
collection of decedent's assets and the subsequent settlement of the estate.

SECOND DIVISION
G.R. No. 120880 June 5, 1997
FERDINAND R. MARCOS II, petitioner, vs.
COURT OF APPEALS, THE COMMISSIONER OF THE BUREAU
INTERNAL REVENUE and HERMINIA D. DE GUZMAN, respondents.

OF

TORRES, JR., J.:

Facts: Petitioner Ferdinand R. Marcos II, the eldest son of the decedent, questions
the actuations of the respondent Commissioner of Internal Revenue in assessing,
and collecting through the summary remedy of Levy on Real Properties, estate and
income tax delinquencies upon the estate and properties of his father, despite the
pendency of the proceedings on probate of the will of the late president.
Petitioner had filed with the respondent Court of Appeals a Petition for Certiorari
and Prohibition with an application for writ of preliminary injunction and/or
temporary restraining order on June 28, 1993, seeking to:
I. Annul and set aside the Notices of Levy on real property dated February 22,
1993 and May 20, 1993, issued by respondent Commissioner of Internal Revenue;
II. Annul and set aside the Notices of Sale dated May 26, 1993;
III. Enjoin the Head Revenue Executive Assistant Director II (Collection Service),
from proceeding with the Auction of the real properties covered by Notices of Sale.
The Court of Appeals ruled that the deficiency assessments for estate and income
tax made upon the petitioner and the estate of the deceased President Marcos
have already become final and unappealable, and may thus be enforced by the
summary remedy of levying upon the properties of the late President, as was done
by the respondent Commissioner of Internal Revenue. Hence the instant petition.
Petitioner submits that the probate court is not precluded from denying a request
by the government for the immediate payment of taxes, and should order the
payment of the same only within the period fixed by the probate court for the
payment of all the debts of the decedent. On the other hand, it is argued by the
BIR, that the state's authority to collect internal revenue taxes is paramount. Thus,
the pendency of probate proceedings over the estate of the deceased does not
preclude the assessment and collection, through summary remedies, of estate
taxes over the same. According to the respondent, claims for payment of estate
and income taxes due and assessed after the death of the decedent need not be
presented in the form of a claim against the estate. These can and should be paid
immediately. The probate court is not the government agency to decide whether an
estate is liable for payment of estate of income taxes. Well-settled is the rule that
the probate court is a court with special and limited jurisdiction.
Issue: WON the Bureau of Internal Revenue has the authority to collect by
the summary remedy of levying upon, and sale of real properties of the
decedent, estate tax deficiencies, without the cognition and authority of
the court sitting in probate over the supposed will of the deceased.
Held: Yes. Strictly speaking, the assessment of an inheritance tax does not directly
involve the administration of a decedent's estate, although it may be viewed as an
incident to the complete settlement of an estate, and, under some statutes, it is
made the duty of the probate court to make the amount of the inheritance tax a
part of the final decree of distribution of the estate. It is not against the property of
decedent, nor is it a claim against the estate as such, but it is against the interest
or property right which the heir, legatee, devisee, etc., has in the property formerly
held by decedent. Further, under some statutes, it has been held that it is not a suit
or controversy between the parties, nor is it an adversary proceeding between the
state and the person who owes the tax on the inheritance. However, under other
statutes it has been held that the hearing and determination of the cash value of
the assets and the determination of the tax are adversary proceedings. The
proceeding has been held to be necessarily a proceeding in rem.
Taxes assessed against the estate of a deceased person, after administration
is opened, need not be submitted to the committee on claims in the ordinary
course of administration. In the exercise of its control over the administrator, the
court may direct the payment of such taxes upon motion showing that the taxes
have been assessed against the estate. Such liberal treatment of internal revenue
taxes in the probate proceedings extends so far, even to allowing the enforcement
of tax obligations against the heirs of the decedent, even after distribution of the
estate's properties. Claims for taxes, whether assessed before or after the death of

the deceased, can be collected from the heirs even after the distribution of the
properties of the decedent. They are exempted from the application of the statute
of non-claims. The heirs shall be liable therefor, in proportion to their share in the
inheritance.
From the foregoing, it is discernible that the approval of the court, sitting in
probate, or as a settlement tribunal over the deceased is not a mandatory
requirement in the collection of estate taxes. It cannot therefore be argued that the
Tax Bureau erred in proceeding with the levying and sale of the properties
allegedly owned by the late President, on the ground that it was required to seek
first the probate court's sanction. There is nothing in the Tax Code, and in the
pertinent remedial laws that implies the necessity of the probate or estate
settlement court's approval of the state's claim for estate taxes, before the same
can be enforced and collected.
On the contrary, under Section 87 of the NIRC, it is the probate or
settlement court which is bidden not to authorize the executor or judicial
administrator of the decedent's estate to deliver any distributive share to any party
interested in the estate, unless it is shown a Certification by the Commissioner of
Internal Revenue that the estate taxes have been paid. This provision disproves the
petitioner's contention that it is the probate court which approves the assessment
and collection of the estate tax.
If there is any issue as to the validity of the BIR's decision to assess the
estate taxes, this should have been pursued through the proper administrative and
judicial avenues provided for by law.
Section 229 of the NIRC tells us how:
Sec. 229. Protesting of assessment. When the Commissioner of Internal Revenue
or his duly authorized representative finds that proper taxes should be assessed,
he shall first notify the taxpayer of his findings. Within a period to be prescribed by
implementing regulations, the taxpayer shall be required to respond to said notice.
If the taxpayer fails to respond, the Commissioner shall issue an assessment based
on his findings.
Such assessment may be protested administratively by filing a request for
reconsideration or reinvestigation in such form and manner as may be prescribed
by implementing regulations within (30) days from receipt of the assessment;
otherwise, the assessment shall become final and unappealable.
If the protest is denied in whole or in part, the individual, association or
corporation adversely affected by the decision on the protest may appeal to the
Court of Tax Appeals within thirty (30) days from receipt of said decision;
otherwise, the decision shall become final, executory and demandable. (As inserted
by P.D. 1773)
Apart from failing to file the required estate tax return within the time
required for the filing of the same, petitioner, and the other heirs never questioned
the assessments served upon them, allowing the same to lapse into finality, and
prompting the BIR to collect the said taxes by levying upon the properties left by
President Marcos.
Issue of Prescription: Petitioner specifically points out that applying
Memorandum Circular No. 38-68, implementing Sections 318 and 324 of the old
tax code (Republic Act 5203), the BIR's Notices of Levy on the Marcos properties,
were issued beyond the allowed period, and are therefore null and void.
Notices of Levy were issued only on 22 February 1993 and 20 May
1993 when at least seventeen (17) months had already lapsed from the last service
of tax assessment on 12 September 1991. As no notices of distraint of personal
property were first issued by respondents, the latter should have complied with
Revenue Memorandum Circular No. 38-68 and issued these Notices of Levy not
earlier than three (3) months nor later than six (6) months from 12 September
1991. In accordance with the Circular, respondents only had until 12 March
1992 (the last day of the sixth month) within which to issue these Notices of
Levy. The Notices of Levy, having been issued beyond the period allowed by law,
are thus void and of no effect.

SC Ruling: The Notices of Levy upon real property were issued within the
prescriptive period and in accordance with the provisions of the present Tax Code.
The deficiency tax assessment, having already become final, executory, and
demandable, the same can now be collected through the summary remedy of
distraint or levy pursuant to Section 205 of the NIRC.
Sec. 223. Exceptions as to a period of limitation of assessment and collection
of taxes.(a) In the case of a false or fraudulent return with intent to evade tax or of
a failure to file a return, the tax may be assessed, or a proceeding in court for the
collection of such tax may be begun without assessment, at any time within ten
(10) years after the discovery of the falsity, fraud, or omission: Provided, That, in a
fraud assessment which has become final and executory, the fact of fraud shall be
judicially taken cognizance of in the civil or criminal action for the collection
thereof.
(c) Any internal revenue tax which has been assessed within the
period of limitation above prescribed, may be collected by distraint or levy or by a
proceeding in court within three years following the assessment of the tax.
The omission to file an estate tax return, and the subsequent failure to contest or
appeal the assessment made by the BIR is fatal to the petitioner's cause, as under
the above-cited provision, in case of failure to file a return, the tax may be assessed
at any time within ten years after the omission, and any tax so assessed may be
collected by levy upon real property within three years following the assessment of
the tax. Since the estate tax assessment had become final and unappealable by the
petitioner's default as regards protesting the validity of the said assessment, there
is now no reason why the BIR cannot continue with the collection of the said tax.
Any objection against the assessment should have been pursued following the
avenue paved in Section 229 of the NIRC on protests on assessments of internal
revenue taxes.
Petitioner further argues that "the numerous pending court cases
questioning the late president's ownership or interests in several
properties (both real and personal) make the total value of his estate, and
the consequent estate tax due, incapable of exact pecuniary determination
at this time. Thus, respondents' assessment of the estate tax and their
issuance of the Notices of Levy and sale are premature and oppressive."
Petitioner also expresses his reservation as to the propriety of the BIR's
total assessment of P23,292,607,638.00, stating that this amount deviates
from the findings of the Department of Justice's Panel of Prosecutors as
per its resolution of 20 September 1991.
SC: It is not the Department of Justice which is the government agency
tasked to determine the amount of taxes due upon the subject estate, but the
Bureau of Internal Revenue, whose determinations and assessments are presumed
correct and made in good faith. The taxpayer has the duty of proving otherwise. In
the absence of proof of any irregularities in the performance of official duties, an
assessment will not be disturbed. Even an assessment based on estimates is prima
facie valid and lawful where it does not appear to have been arrived at arbitrarily
or capriciously. The burden of proof is upon the complaining party to show clearly
that the assessment is erroneous. Failure to present proof of error in the
assessment will justify the judicial affirmance of said assessment. In this instance,
petitioner has not pointed out one single provision in the Memorandum of the
Special Audit Team which gave rise to the questioned assessment, which bears a
trace of falsity. Indeed, the petitioner's attack on the assessment bears mainly on
the alleged improbable and unconscionable amount of the taxes charged.
Petitioner argues that all the questioned Notices of Levy, however, must be
nullified for having been issued without validly serving copies thereof to
the petitioner. As a mandatory heir of the decedent, petitioner avers that
he has an interest in the subject estate, and notices of levy upon its
properties should have been served upon him.
SC: In the case of notices of levy issued to satisfy the delinquent estate tax, the
delinquent taxpayer is the Estate of the decedent, and not necessarily, and

exclusively, the petitioner as heir of the deceased. In the same vein, in the matter
of income tax delinquency of the late president and his spouse, petitioner is not the
taxpayer liable. Thus, it follows that service of notices of levy in satisfaction of
these tax delinquencies upon the petitioner is not required by law, as under
Section 213 of the NIRC, which pertinently states:
xxx xxx xxx
. . . Levy shall be effected by writing upon said certificate a description of the
property upon which levy is made. At the same time, written notice of the levy shall
be mailed to or served upon the Register of Deeds of the province or city where the
property is located and upon the delinquent taxpayer, or if he be absent from the
Philippines, to his agent or the manager of the business in respect to which the
liability arose, or if there be none, to the occupant of the property in question.
IN VIEW WHEREOF, the Court RESOLVED to DENY the present petition.
The Decision of the Court of Appeals dated November 29, 1994 is hereby
AFFIRMED in all respects.

SECOND DIVISION
THE ESTATE OF HILARIO M. RUIZ, EDMOND RUIZ, Executor, petitioner,
vs.
THE COURT OF APPEALS (Former Special Sixth Division), MARIA PILAR
RUIZ-MONTES, MARIA CATHRYN RUIZ, CANDICE ALBERTINE RUIZ,
MARIA ANGELINE RUIZ and THE PRESIDING JUDGE OF THE REGIONAL
TRIAL COURT OF PASIG, respondents.
PUNO, J.:
Facts: On June 27, 1987, Hilario M. Ruiz executed a holographic will naming as his
heirs his only son, Edmond Ruiz, his adopted daughter, private respondent Maria
Pilar Ruiz Montes, and his three granddaughters, private respondents Maria
Cathryn, Candice Albertine and Maria Angeline, all children of Edmond Ruiz. The
testator bequeathed to his heirs substantial cash, personal and real properties and
named Edmond Ruiz executor of his estate.

On April 12, 1988, Hilario Ruiz died. Immediately thereafter, the cash
component of his estate was distributed among Edmond Ruiz and private
respondents in accordance with the decedent's will. For unbeknown reasons,
Edmond, the named executor, did not take any action for the probate of his father's
holographic will.
On June 29, 1992, four years after the testator's death, it was private
respondent Maria Pilar Ruiz Montes who filed, a petition for the probate and
approval of Hilario Ruiz's will and for the issuance of letters testamentary to
Edmond Ruiz. Edmond opposed the petition on the ground that the will was
executed under undue influence.
On November 2, 1992, one of the properties of the estate the house and lot
at No. 2 Oliva Street, Valle Verde IV, Pasig which the testator bequeathed to Maria
Cathryn, Candice Albertine and Maria Angeline was leased out by Edmond to third
persons.
On January 19, 1993, the probate court ordered Edmond to deposit with the
Branch Clerk of Court the rental deposit and payments totalling P540,000.00
representing the one-year lease of the Valle Verde property. Edmond turned over
the amount of P348,583.56, representing the balance of the rent after deducting
P191,416.14 for repair and maintenance expenses on the estate.
In March 1993, Edmond moved for the release of P50,000.00 to pay the real
estate taxes on the real properties of the estate. The probate court approved the
release of P7,722.00.
On May 14, 1993, Edmond withdrew his opposition to the probate of the
will. Consequently, the probate court, on May 18, 1993, admitted the will to
probate and ordered the issuance of letters testamentary to Edmond conditioned
upon the filing of a bond in the amount of P50,000.00. The letters testamentary
were issued on June 23, 1993.
On July 28, 1993, petitioner Testate Estate of Hilario Ruiz, with Edmond
Ruiz as executor, filed an "Ex-Parte Motion for Release of Funds." It prayed for the
release of the rent payments deposited with the Branch Clerk of Court. Respondent
Montes opposed the motion and concurrently filed a "Motion for Release of Funds
to Certain Heirs" and "Motion for Issuance of Certificate of Allowance of Probate
Will." Montes prayed for the release of the said rent payments to Maria Cathryn,
Candice Albertine and Maria Angeline and for the distribution of the testator's
properties, specifically the Valle Verde property and the Blue Ridge apartments, in
accordance with the provisions of the holographic will.
On August 26, 1993, the probate court denied petitioner's motion for release
of funds but granted respondent Montes' motion in view of petitioner's lack of
opposition. It thus ordered the release of the rent payments to the decedent's three
granddaughters. It further ordered the delivery of the titles to and possession of
the properties bequeathed to the three granddaughters and respondent Montes
upon the filing of a bond of P50,000.00.
Petitioner moved for reconsideration alleging that he actually filed his
opposition to respondent Montes's motion for release of rent payments which
opposition the court failed to consider. Petitioner likewise reiterated his previous
motion for release of funds.
On November 23, 1993, petitioner, through counsel, manifested that he was
withdrawing his motion for release of funds in view of the fact that the lease
contract over the Valle Verde property had been renewed for another year.
Despite petitioner's manifestation, the probate court, on December 22, 1993,
ordered the release of the funds to Edmond but only "such amount as may be
necessary to cover the expenses of administration and allowances for support" of
the testator's three granddaughters subject to collation and deductible from their
share in the inheritance. The court, however, held in abeyance the release of the
titles to respondent Montes and the three granddaughters until the lapse of six
months from the date of first publication of the notice to creditors.
On appeal, CA affirmed probate courts decision, hence the instant petition.
Issue: Whether the probate court, after admitting the will to probate but before
payment of the estate's debts and obligations, has the authority: (1) to grant an
allowance from the funds of the estate for the support of the testator's

grandchildren; (2) to order the release of the titles to certain heirs; and (3) to grant
possession of all properties of the estate to the executor of the will.
Held:
1) The grandchildren are not entitled to provisional support from the funds of the
decedent's estate. The law clearly limits the allowance to "widow and children" and
does not extend it to the deceased's grandchildren, regardless of their minority or
incapacity. It was error, therefore, for the appellate court to sustain the probate
court's order granting an allowance to the grandchildren of the testator pending
settlement of his estate.
2) The probate court erred when they ordered the release of the titles of the
bequeathed properties to private respondents six months after the date of first
publication of notice to creditors. An order releasing titles to properties of the
estate amounts to an advance distribution of the estate which is allowed only
under the following conditions:
Sec. 2. Advance distribution in special proceedings. Nothwithstanding a
pending controversy or appeal in proceedings to settle the estate of a decedent,
the court may, in its discretion and upon such terms as it may deem proper and
just, permit that such part of the estate as may not be affected by the controversy
or appeal be distributed among the heirs or legatees, upon compliance with the
conditions set forth in Rule 90 of these Rules. And Rule 90 provides that:
Sec. 1. When order for distribution of residue made. When the debts, funeral
charges, and expenses of administration the allowance to the widow, and
inheritance tax if any, chargeable to the estate in accordance with law, have been
paid, the court, on the application of the executor or administrator, or of a person
interested in the estate, and after hearing upon notice shall assign the residue of
the estate to the persons entitled to the same
In settlement of estate proceedings, the distribution of the estate properties can
only be made: (1) after all the debts, funeral charges, expenses of administration,
allowance to the widow, and estate tax have been paid; or (2) before payment of
said obligations only if the distributees or any of them gives a bond in a sum fixed
by the court conditioned upon the payment of said obligations within such time as
the court directs, or when provision is made to meet those obligations.
In the case at bar, the probate court ordered the release of the titles to the Valle
Verde property and the Blue Ridge apartments to the private respondents after the
lapse of six months from the date of first publication of the notice to creditors. The
questioned order speaks of "notice" to creditors, not payment of debts and
obligations. Hilario Ruiz allegedly left no debts when he died but the taxes on his
estate had not hitherto been paid, much less ascertained. The estate tax is one of
those obligations that must be paid before distribution of the estate. If not yet paid,
the rule requires that the distributees post a bond or make such provisions as to
meet the said tax obligation in proportion to their respective shares in the
inheritance. Notably, at the time the order was issued the properties of the estate
had not yet been inventoried and appraised.
It was also too early in the day for the probate court to order the release of the
titles six months after admitting the will to probate. The probate of a will is
conclusive as to its due execution and extrinsic validity and settles only the
question of whether the testator, being of sound mind, freely executed it in
accordance with the formalities prescribed by law. Questions as to the intrinsic
validity and efficacy of the provisions of the will, the legality of any devise or
legacy may be raised even after the will has been authenticated.
3) Petitioner cannot correctly claim that the assailed order deprived him of his
right to take possession of all the real and personal properties of the estate. The
right of an executor or administrator to the possession and management of the real
and personal properties of the deceased is not absolute and can only be exercised
"so long as it is necessary for the payment of the debts and expenses of

administration," Section 3 of Rule 84 of the Revised Rules of Court explicitly

provides:
Sec. 3. Executor or administrator to retain whole estate to pay debts, and to
administer estate not willed. An executor or administrator shall have the right to
the possession and management of the real as well as the personal estate of the
deceased so long as it is necessary for the payment of the debts and expenses for
administration.
Petitioner must be reminded that his right of ownership over the properties of his
father is merely inchoate as long as the estate has not been fully settled and
partitioned. 30 As executor, he is a mere trustee of his father's estate. He cannot
unilaterally assign to himself and possess all his parents' properties and the fruits
thereof without first submitting an inventory and appraisal of all real and personal
properties of the deceased, rendering a true account of his administration, the
expenses of administration, the amount of the obligations and estate tax, all of
which are subject to a determination by the court as to their veracity, propriety and
justness.

PABLO LORENZO, as trustee of the estate of Thomas Hanley vs. JUAN

POSADAS, JR., Collector of Internal Revenue
Facts: On May 27, 1922, Thomas Hanley died. He left a will. The proceedings for
its probate and the settlement and distribution of the estate begun on June 14,
1922. The will provides that:
a. The money left shall be given to deceaseds nephew, Matthew
b. The real estate shall be sold 10 years after death, which shall be handles
by the executors and proceeds thereof shall be given to Matthew, which proceeds
shall be used for the education of his brothers (Malachi Hanley) children and
descendants.
c. The other property may be disposed of in the way most advantageous by
Matthew 10 years after deceaseds death.
The CFI-Zamboanga considered it proper for the best interests of the estate to
appoint a trustee to administer the real properties. Hence, Moore, one of the two
executors named in the will was appointed as trustee. Moore took his oath of office
and gave bond on March 10, 1924. He resigned on January 29, 1932 and so,
Lorenzo replaced him.
During Lorenzos incumbency, Posadas, assessed an inheritance tax, with penalties
for delinquency, consisting of 1% interest from July 1, 1931, and a surcharge of
25% on the tax. Lorenzo paid the amount of P2,052.74 under protest. Lorenzo now
claims for refund. The trial court dismissed the complaint. Hence the appeal.
ISSUES:
1. When does the inheritance tax accrue and when it must be satisfied?
2. W/N the inheritance tax be based upon the value of the estate upon the death of
the testator or upon the value of the estate at the expiration of the 10 years.
3. W/N the compensation of the trustee is a lawful deduction.
4. What tax law governs the case at bar?
5. Was there any delinquency?
HELD:
1. The accrual of the inheritance tax is distinct from the obligation to pay the same.
The property belongs to the heirs at the moment of the death of the ancestor as
completely as if the ancestor had executed and delivered to them a deed for the
same before his death. From the fact that Thomas Hanley died on May 27, 1922, it
does not follow that the obligation to pay the tax arose as of that date. The time for
the payment of inheritance tax is clearly fixed by section 1544 of the Revised

Administrative Code, as amended by Act No. 3031, in relation to Sec. 1544. Sec.
1544 provides that, the tax should be paid within six months subsequent to the
death of the predecessor; but if judicial testamentary or intestate proceedings shall
be instituted prior to the expiration of said period, the payment shall be made by
the executor or administrator before delivering to each beneficiary his share.
Therefore, the tax should have been paid before the delivery of the properties to
Moore as trustee on March 10, 1924.
2. Death is the generating source from which the power of the state to impose
inheritance taxes takes its being. Upon the death of the decedent, succession takes
place and the right of the state to tax vests instantly, notwithstanding the
postponement of the actual possession or enjoyment of the estate by the
beneficiary. Hence, the tax should be measured by the value of the estate at the
time of the decedents death regardless of any appreciation or depreciation.
3. No. The contention that the trustees compensation is a judicial expense is
untenable. There is no law allowing the trustees compensation to be deducted in
determining the net estate subject to inheritance tax. Furthermore, though a
testamentary trust has been created, it does not appear that the testator intended
that the duties of his executors and trustees should be separated.
Judicial expenses are expenses of administration. However, the
compensation of a trustee, earned not in the administration of the estate but in the
management thereof, for the benefit of the legatees or devisees does not come
properly within the class or reason for exempting administration expenses.
Services rendered in that behalf have no reference to closing the estate for the
purpose of a distribution thereof to those entitled to it and are not required or
essential to the perfection of the rights of the heirs or legatees.
4. The law in force at the time of the death of testator, which is Sec. 1544 of
Revised Administrative Code as amended by Act No. 3031. Act. No. 3606, which
took effect on January 1, 1930 cannot be given retroactive effect, as there was no
legislative intent to that effect. Posadas contention is untenable, when he said that
the provisions of Act No. 3606 is favorable to the taxpayer, since (a) the surcharge
of 25% is based on the tax only, instead of on both tax and interest provided for by
Act 3031 and (b) the taxpayer is given 20 days from notice and demand to pay
instead of 10 days in Act 3031. Tax laws generally are not penal laws.
5. Yes. The mere fact that the estate of the deceased was placed in trust did not
remove it from the operation of our inheritance tax. The corresponding inheritance
tax should have been paid on or before March 10, 1924 to escape the penalties of
the law. This is because the delivery of the estate to the trustee is a delivery to the
beneficiary. A trustee is an agent for the beneficiary. Hence the estate vested
absolutely to the beneficiary. The Court reasoned that if it would be allowed that
the payment of the tax be after 10 years, then the collection would then be left to
the will of the private individual. This would be disastrous as taxes are essential to
the very existence of the government.