Review Materials
Prepared by:
Junior Philippine Institute of
Accountants UC-Banilad Chapter
F.Y. 2019-2020
Estate Taxes
ESTATE TAX
Is a tax on the right of the deceased person to transmit his/her lawful heirs and beneficiaries at
the time of death and on certain transfers, which are made by law as equivalent to testamentary
disposition.
Applies to:
a) Citizens of the Philippines
b) Residents of the Philippines
Non-resident aliens with properties in the Philippines
Where to file- municipality in which the decedent was domiciled at the time of his death or if there be
no legal residence in the Philippines, with the Office of the Commissioner.
GROSS ESTATE
A. Gross Estate of Citizen and Resident Decedent
1. Real Property located within and without the Philippines
2 Tangible personal property located within and without the Philippines
3. Intangible personal property located within and without the Philippines
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B. Gross Estate of a Non-Resident Alien Decedent
1. Real Property located within the Philippines
2. Tangible personal property located within the Philippines
3. Intangible personal property located within the Philippines unless there is reciprocity in
which case it is not taxable in the Philippines.
Situs or PLACE OF TAXATION
Property has a situs or location or a jurisdiction for tax purposes. Situs is decisive in
determining the estate of a deceased person taxable in the Philippines.
SUBJECT TO TAX
WITHIN WITHOUT
Citizen / Resident y y
Resident Alien y y
Non Resident Alien/ y N
Non Resident
Citizen
4 Non Resident y Y
Citizen
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PROPERTIES INCLUDIBLE IN THE GROSS ESTATE
DECEDENT’S INTEREST - shall include all properties, rights and interest which the
decedent owns at the time of death. It shall include:
Properties owned by the decedent actually and physically present in his estate at the time of
his death such as land, buildings, shares of stock, vehicles, bank deposit, etc
The value of any interest in property owned or possessed by the decedent at the time of his
death such as dividends declared before his death but received after his death, partnership
profits which have accrued before his death, usufructuary rights, etc.
The value of property, right or interest in the property, transferred by the decedent during
his lifetime which, under the law, are in the nature of testamentary dispositions such as life
insurance proceeds in favor of a revocable beneficiary.
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TAXABLE TRANSFERS
Value of the property or interest in property transferred by the decedent during his lifetime
which is in the nature of testamentary disposition:
▪ Transfers in contemplation of death
▪ Revocable transfers
▪ Property passing under a general power of appointment
▪ Transfer with retention or reservation of certain rights over the income or enjoyment of
the property transferred
▪ Transfer for insufficient consideration
Transfers in Contemplation of Death
Impelled by the thought of death, or the motivating factor or controlling motive for the
transfer of the property is the thought of death without regard to the state of health of the
transferor.
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Donation Mortis Causa
Takes effect upon the death of the donor. Its characteristics are:
▪ there is no conveyance of title or ownership to the donee or transferee
▪ the transfer is revocable by the donor at will during his lifetime
▪ the transfer shall be void id the donor survives the donee
REVOCABLE TRANSFERS
Where the enjoyment of the property transferred may be altered, amended, revoked or
terminated by the decedent. The revocability is not affected by the failure of the decedent to
exercise the power to revoke during his lifetime. If the notice has not been given, the power
to revoke has not been exercised on of before the date of his death, such notice shall be
considered to have been given, or the power exercised on the date of his death.
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PROPERTY PASSING UNDER A GENERAL POWER OF APPOINTMENT
The rule is the gross estate shall include any property passing or transferred under a general
power of appointment exercised by the decedent
♪ By will
♪ By deed to take effect in possession or enjoyment at or after his death
♪ By deed under which he has retained for his life or any period not ascertainable without
reference to his death or for any period which does not in fact end before his death
♪ The possession or enjoyment of, or the right to the income from the property
♪ The right, either alone, or in conjunction with any person to designate the persons who
shall possess or enjoy the property or the income therefrom
The donee of a general power of appointment holds the appointed property with all the
attributes of ownership thus, the appointed property shall form part of the gross estate of the
donee of the power upon his death.
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TRANFERS FOR INSUFFICIENT CONSIDERATION
▪ If the transfer is a bona fide sale for adequate and full consideration in money or money’s
worth, no value shall be included in the gross estate.
▪ If the transfer is not a bona fide sale for an adequate and full consideration in money or
money’s worth, there shall be included in the gross estate only the excess of the fair
market value of the property at the time of death over the value of the consideration
received by the decedent.
▪ If an inter vivos transfer of the decedent is proven to be fictitious, the total value of the
property at the time of death shall be included in the gross estate
PROCEEDS OF LIFE INSURANCE
Proceeds of life insurance under policies taken out by the decedent upon his own life shall
be included in his gross estate in the following cases:
when the beneficiary is the estate of the deceased, his executor or administrator whether or
not the deceased retained the power of revocation
when the beneficiary is other than the estate of the deceased, his executor or administrator
and
9 the decedent retained the power of revocation
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CLAIMS AGAINST INSOLVENT PERSONS
Are receivables due or owing from persons who are not financially capable of meeting their
obligations. The receivables shall be included in the gross estate at their full amount.
CAPITAL OF THE SURVIVING SPOUSE
The gross estate of a married decedent shall consist of the following:
▪ conjugal or community properties
▪ exclusive properties
The capital of the surviving spouse shall not be deemed part of the gross estate.
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VALUATION OF THE ESTATE
♪ Valuation Date- time of death
♪ Basis of Valuation- fair market value, which is the price which a property will bring
when it is offered for sale by one who desires, but is not obligated to sell and is bought
by one who is under not necessity of buying it
♪ Valuation of Usufruct- probable life of the beneficiary in accordance with the latest
Basic Standard Mortality Table
♪ Valuation of Real Property -
1) FMV as determined by the Commissioner; or
2) FMV as shown in the schedule of values fixed by the Provincial or City Assessors
♪ Valuation of Personal Properties- FMV at the time of the decedent’s death
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DEDUCTIONS FROM THE GROSS ESTATE
A)Funeral Expenses
The limit is the actual funeral expenses or the amount equal to 5% of the gross estate,
whichever is lower, but in no case to exceed P200,000.
Funeral expenses include the expenses for the mourning clothing of the spouse and
unmarried minor children, fees and charges for masses, rites, ceremonies incident to the
interment, expenses of interment, and the cost of the coffin, burial plot, tombstone,
mausoleum or niche. The cost of obituary notices, flowers and expenses of the wake
preceding the burial are also part of funeral expenses. Expenses incurred after burial can no
longer be deducted.
B) Judicial Expenses
Refers primarily to court expenses and expenses of administration. The expenses of
administration include those actually and necessarily incurred in the administration of the
estate
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C) Claims Against Insolvent Persons
The gross estate shall include receivables of the decedent at their full amount due from
debtors who are insolvent. The deduction is the amount of the receivable which cannot be
collected due to insolvency.
D) Unpaid Mortgage
Unpaid mortgage in respect to property is a deduction from the gross estate subject to the
condition that the decedent’s interest in the property, undiminished by the mortgage, is
included in the gross estate.
E) Losses
Requisites:
1. loss is not compensated by insurance or otherwise
2. loss was not claimed as a deduction in the income tax return
3. loss must occur not later than the last day for payment of the estate tax
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F) Vanishing Deduction
The purpose is to minimize the effect of a double taxation on the same property within a
short period of time
Conditions:
a) Decedent died within five (5) years from receipt of the property from a prior decedent or
donor;
b) Property on which vanishing deduction is being claimed must be located in the
Philippines;
c) Property must have formed part of the taxable estate of the prior decedent, or of the
taxable gift of the donor;
d) Estate tax on the prior succession or the donor’s tax on the gift must have been finally
determined and paid;
e) Property on which vanishing deduction is being taken must be identified as the one
received from the prior decedent or from the donor, or something acquired in exchange
therefore.
f) No vanishing deduction on the property was allowable to the estate of the prior decedent
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G) Family Home
A deduction from the gross estate is an amount equivalent to the current fair market value
of the decedent’s family home. The maximum is P1M.
As a condition for the deduction for the family home, it must be certified to as family home
by the barangay captain of the locality where it is located.
H) Standard Deduction
The law provides an amount equivalent to P1M.
I) Medical Expenses
There is a deduction for medical expenses incurred by the decedent within 1 year prior to his
death, substantiated with receipts. In no case shall the deductible medical expenses exceed
P500,000.
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J) Amount Received under RA 4917
Any amount received by the heirs from the decedent’s employer as a consequence of the
death of the decedent-employee in accordance with RA 4917 shall be deductible if such
amount is included in the gross estate of the decedent.
K) Procedural Requirements
Notice of death (Sec. 89) in all cases of transfers subject to tax, or if exempt from tax, the
gross value of the estate exceeds P20,000.00 must be filed two (2) months after the
decedent’s death or after qualifying as executor or administrator.
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End of Topic 1
Please see complementary test bank for
practice problems and theories.
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Dear, you.
Always be in pursuit for
the one you have not yet
become. Keep going!
Love,
Your UCB-JPIA family
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Reference:
Cataneda (2008). Business and Transfer Taxes Notes. Retrieved on
August 20, 2020 from
[Link]
Estate-Taxes-Reviewer
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