GROSS ESTATE TAX - Excludes “intangible personal property” with situs in the

PH from the gross estate

 Act 2601 – First estate tax law in the Philippines; took effect on July B. Exclusions under Section 87 of the Tax Code
1, 1916 1. Merger of usufruct in the owner of the naked title
 RA 8424 – Tax Reform Act or National Internal Revenue Code; 2. Transmission/delivery of the inheritance or legacy by the
effective Jan. 1, 1998 fiduciary heir (1st heir) or legatee to the fideicommissary (2nd
 ESTATE TAX heir)
- tax imposed on the privilege that a person is given in ELEMENTS OF FIDEICOMMISSARY SUBSTITUTION
controlling to a certain extent, the disposition of his a. Substitution must not go beyond one degree from the
property to take effect upon his death heir originally instituted
- An excise tax imposed on the act of passing the b. Fiduciary and fideicommissary must be both living at
ownership of property at the time of death and not on the time of the testator’s death
the value of the property or right. 3. Transmission from the 1st heir, legatee or done in favor of
- Accrues as the time of death; the right of the state to another beneficiary, in accordance with the desire of the
tax the privilege to transmit the estates vests instantly predecessor (special power of appointment)
upon death 4. Bequests, devises, legacies, or transfers to social welfare,
cultural and charitable institutions, no part of the net income of
which inures to the benefit of any individual; not more than
EXEMPTIONS AND EXCLUSIONS FROM THE GROSS ESTATE 30% of the said bequests, devises, legacies, or transfers shall be
used by such institutions for administration purposes.
A. Exclusions under Sections 85 and 86 of the Tax Code C. Exclusions under Special Laws
1. Exclusive property of the surviving spouse 1. Proceeds of life insurance and benefits received by members of
- Should be excluded in the gross estate because these the GSIS (RA728).
properties are not owned by the decedent upon his 2. Accruals and benefits received by members from the SSS by
death. reason of death.
- Exclusive property of husband – “capital” 3. Life insurance proceeds on life insurance policy taken out by the
- Exclusive property of wife – “paraphernal” decedent himself, upon his own life, where the beneficiary is a
2. Property outside the Philippines of a non-resident alien third person and is irrevocably designated.
decedent. 4. Life insurance proceeds on Insurance policy (group insurance)
- Only the property situated or with situs within the PH taken out by his employer on the employee’s life, whoever the
shall be included in his gross estate. beneficiary maybe, whether the designation as beneficiary is
- Properties outside the Philippines are excluded in gross revocable or irrevocable.
estate 5. Amounts received from Philippines and United States
3. Intangible personal property in the Philippines of a non-resident governments for war damages (RA227)
alien under the Reciprocity Law
 6. Payments from the Philippines of US government to the legal - Disposition of property prompted by thought of death –
heirs of deceased of World War II Veterans and deceased induces the disposition of the property for the purpose
civilian for supplies/services furnished to the US and Philippine of avoiding tax
Army (RA136) - Included in the gross estate the value of property
7. Amounts receiver from United States Veterans Administration. transferred by the decedent during his lifetime in
8. Transfer by way of bona fide sales. anticipation of his death such as:
9. Properties held in trust by the decedent. o Transfer of property in favor of another person,
10. Acquisition and/or transfer expressly declared as not taxable. but the transfer was intended to take effect
11. Personal Equity and Retirement Account (PERA) assets of the only upon the transferor’s death.
decedent-contributor (Sec. 14, RA 9505 – Personal Equity and o Transfer by gift intended to take effect at death,
Retirement Account Act of 2008) or after death, or under which is the donor
reserved the income right to designate the
INCLUSIONS IN THE GROSS ESTATE persons who should enjoy the income.
A. Property owned by the decedent ACTUALLY AND PHYSICALLY 2. Transfer with retention or reservation of certain rights
PRESENT IN HIS ESTATE at the time of his death - Decedent transferred his property during his lifetime
 Land but retained himself the beneficial enjoyment of the
 Buildings thing or the right to receive income from the same
 Shares of Stock 3. Revocable Transfers
 Vehicles - Transfer where the terms of enjoyment of the property
 Bank Deposit may be altered, amended, revoked or terminated by
B. Decedent’s Interest the decedent. The decedent had the power to revoke
- extent of equity or ownership of the decedent on any though he did not exercise the power.
property physically existing and present in the gross  Donation mortis causa – transfers were intended to take effect
estate whether or not in his possession or control. upon death, included in gross estate of the decedent upon death
- Value of any interest in property owned or possessed by - FMV at the date of actual transfer be ignored and the
the decedent at the time of his death FMV at the time upon his death should be the one used.
 Dividends  Donation inter vivos – transfers were intended to take effect during
 Partnership Profit his lifetime, not included, but subject to donor’s tax
 Usufructuary 4. Transfers under a general power of appointment
 Share or rights in partnership - GENERAL: The power of appointment authorizes the
C. Property NOT PHYSICALLY IN THE ESTATE donee of the power to appoint any person he pleases.
1. Transfer in contemplation of death May be exercised in favour of anybody including the
done-decedent.
- SPECIAL: The donee can appoint only from a restricted
or designated class of persons other than himself.
 - Property transferred under special should be excluded 6. Claims against insolvent persons
from the gross estate of the donee of the power - INSOLVENT: A person whose properties are not
because the done-decedent only holds the property in sufficient to satisfy, whether fully or partially, his debt/s
trust. - RULE: Regardless of the amount the debtor is unable to
pay, the full amount of the claim against the insolvent
MODES where power of appointment may be exercised by the donor- person should be included in the gross estate of the
decedent: decedent
 By will - Portion of the claim w/c is not collectible – deduction
from gross estate
 By deed to take effect in possession or enjoyment at or after his
7. Proceeds of Life Insurance
death.
- Included on the gross estate if:
 By deed under which he has retained for his life or any period not
o it must be an insurance on the life of the
ascertainable without reference to his death or for any period which
decedent
does not in fact end before his death.
o The beneficiary must be either of the ff:
 The possession or enjoyment of, or the right to the income from the
 His estate, his executor, his
property.
administrator
 The right, either alone, or in conjunction with any person to
 Any third person provided that the
designate the persons who shall possess or enjoy the property or
designation is not irrevocable
the income therefrom.
TAX RATES: beginning 1/1/18, the net estate of every decedent, resident or
not in the PH, shall be subject to an estate tax rate of six percent (6%)
5. Transfer for insufficient consideration
 Estate taxation is governed by the statute in force at the time of
- Excess of the FMV over the value of consideration
death of the decendent
received should be included in the gross estate.
NOTICE OF DEATH: beginning 1/1/18, no longer required
FMVs:
FILLING OF ESTATE TAX RETURN AND PAYMENT OF ESTATE TAX DUE
 FMV of the property at the time of sale or transfer
- Use to determine whether or not the consideration was  Paid by the executor/administrator or any legal heirs
full and adequate
 FMV of the property at the time of death
- Use to determine the amount to be included in the
gross estate