Gross Estate

Characteristics of Estate
Tax
A.) Proportional- Fixed Rate (6%)

B.) National- Imposed by the National government

C.) Excise - Impose upon the privilege of transferring

property or shifting economic benefits.

D.) Ad Valorem- Based on the fair market value at the

time of death

E.) Direct - Amount to be paid by the person liable to

 Basic Formula of
Unmarried Decedent
Gross Estate
XXX
Less: Deductions
(XXX)
Net Taxable Estate
XXX
Estate Tax rate
6%
Estate Tax due XXX
FORM 1801 Page 1
FORM 1801 Page 2
 Justification for the
imposition of Estate tax
1.) Benefit Received Theory- in exchange for the state's assistance in distributing
the decedent's inheritance and for the benefit it brings to the estate and the
heirs

2.) Privilege or State Partnership Theory - estate tax represents the share of the State as
a passive or silent partner in the accumulation of property by the decedent

3.) Ability to pay Theory-receipt of inheritance creates an ability to pay and thus to
contribute to government income

4.) Redistribution of wealth Theory- lessen the excessive concentration of wealth in

society, which is a result of receiving an inheritance.
 Classification of
decedents
The decedent may be classified into:

Gross Estate
• Citizen, Both: 1.) Property (Real or
personal) wherever situated
• Resident alien; or 2.) Intangible personal property
wherever situated

• Non-resident alien. 1.)Real property situated in the Philippines

2.) Tangible property situated in the Philippines
3.) Intangible property with situs in the Philippines,
UNLESS excluded on the basis of reciprocity
 Tangible and Intangible
A.) Tangible Property- aProperty
physical asset that a business
owns and can be touched, moved, or used. (Examples:
Car, building, etc.)

B.) Intangible Property- a non-physical asset that has

value to a business over time. Identifiable non-monetary
asset without physical substance. (Examples: Intellectual
property, stocks, etc.)
 Concept of reciprocity
 Only applicable to Non-resident alien
 There is reciprocity when:
o The decedent, at the time of the donation was a citizen
and resident of a foreign country which at the time of the
death did not impose transfer tax on intangible personal
property of the citizens of the Philippines not residing in
that foreign country
o The foreign country described in the preceding paragraph
allows a similar exemption from transfer taxes of every
character or description in respect of intangible personal
property owned by citizens of the Philippines not residing
in that foreign country
 Concept of reciprocity

 If there is reciprocity, the intangibles personal property

shall be excluded in the computation of gross gift

 Assume there is no reciprocity unless stated. ( If

problem is silent as to reciprocity, assume no
reciprocity)
 Intangible Property with situs within the
1.) Franchise Which must bePhilippines
exercised within the Philippines

2.) Shares, obligations or bonds issued by any corporation or

sociedad anonima organized or constituted in the Philippines in
accordance with its laws

3.) Shares, obligations or bonds issued by any foreign corporation

85% of the business of which is located in the Philippines.

4.) Shares, obligations or bonds issued by a foreign corporation if

such shares, obligations or bonds have acquired a business situs
in the Philippines; and

5.)Shares or rights in any partnership, business or industry

Situs of tangible and intangible properties
Property Situs

 Real property and intangible personal Location of the property

property
 Shares, franchise, copyright and the Place where the intangible is exercised
like regardless of where the corresponding
certificate is stored
 Receivables Residence of the debtor

 Interest Income Generally considered sourced from

where the debtor is located or resides
 Bank deposit Location of the depositary bank
 Situs of tangible and intangible properties
Situs Resident decedent NRA- No reciprocity NRA- With reciprocity
House and lot, Makati City Within
House and lot, Japan Without
Car- Philippines Within
Car- USA Without
Bonds Philippines Within
Bonds, Japan Without
Shares of stock of domestic Within
Corporation
Shares of stock of Foreign Without
Corporation
Shares of stock of Foreign Within
Corporation (90% of its
operation in Philippines)
Shares of stock of Foreign Without
Corporation (80% of its
operation in Philippines)
 Situs of tangible and intangible properties
Situs Resident decedent NRA- No reciprocity NRA- With reciprocity
House and lot, Makati City Within ✓ ✓ ✓
House and lot, Japan Without ✓ ✘ ✘
Car- Philippines Within ✓ ✓ ✓
Car- USA Without ✓ ✘ ✘
Bonds Philippines Within ✓ ✓ ✘
Bonds, Japan Without ✓ ✘ ✘
Shares of stock of domestic Within ✓ ✓ ✘
Corporation
Shares of stock of Foreign Without ✓ ✘ ✘
Corporation
Shares of stock of Foreign Within ✓ ✓ ✘
Corporation (90% of its
operation in Philippines)
Shares of stock of Foreign Without ✓ ✘ ✘
Corporation (80% of its
operation in Philippines)
 A non resident alien decedent left the
following estate:
• House and lot- Hongkong, inherited before marriage P15,000,000
• Car, acquired during marriage in Cebu P1,500,000
• Shares of stocks issued by a foreign corporation, 20% of its P250,000
operation is in the Philippines
• Bank Deposit, with the PNB branch in New York, New York P500,000
representing income earned during marriage
• Shares of stocks issued by the PLDT group of companies; a P500,000
corporation organized under the Philippines laws.
• 5 year, 12% promissory note, receive 2 years ago, during P500,000
marriage. The debtor is a resident of Q.C.
 A non resident alien decedent left the
following estate:
SITUS
• House and lot- Hongkong, inherited before marriage Without
• Car, acquired during marriage in Cebu Within
• Shares of stocks issued by a foreign corporation, 20% of its Without
operation is in the Philippines
• Bank Deposit, with the PNB branch in New York, New York Without
representing income earned during marriage
• Shares of stocks issued by the PLDT group of companies; a Within
corporation organized under the Philippines laws.
• 5 year, 12% promissory note, receive 2 years ago, during within
marriage. The debtor is a resident of Q.C.
 Assuming NO RECIPROCITY, the value of the
estate:

• Car, acquired during marriage in Cebu P1,500,000

• Shares of stocks issued by the PLDT group of companies; a P500,000
corporation organized under the Philippines laws.
• 5 year, 12% promissory note, receive 2 years ago, during
marriage. The debtor is a resident of Q.C. P500,000
• Interest Income (500,000 * 12% *2) P120,000
GROSS ESTATE
P2,620,000
 There is Reciprocity, the value of the estate:

• Car, acquired during marriage in Cebu P1,500,000

GROSS ESTATE
P1,500,000
 A Resident citizen decedent left the
following estate:
• House and lot in Dubai P1,000,000
• Vacant lot in Cebu 2,000,000
• Shares of stocks issued by a Domestic Corporation , 60% of 100,000
its operation is in the Philippines
• Shares of stocks issued by a Foreign Corporation , 70% of its 200,000
operation is in the Philippines .
• Car in Davao 500,000

What is the gross estate?

 A Resident citizen decedent left the
following estate: SITUS
• House and lot in Dubai P1,000,000 w/out
• Vacant lot in Cebu 2,000,000 W/in
• Shares of stocks issued by a Domestic Corporation , 60% of 100,000 W/in
its operation is in the Philippines
• Shares of stocks issued by a Foreign Corporation , 70% of its 200,000 w/out
operation is in the Philippines .
• Car in Davao 500,000 W/in

GROSS ESTATE
P3,800,000
All of it is subject
 A Resident Alien decedent left the following
estate: SITUS
• House and lot in Dubai P1,000,000 w/out
• Vacant lot in Cebu 2,000,000 W/in
• Shares of stocks issued by a Domestic Corporation , 60% of 100,000 W/in
its operation is in the Philippines
• Shares of stocks issued by a Foreign Corporation , 70% of its 200,000 w/out
operation is in the Philippines .
• Car in Davao 500,000 W/in

GROSS ESTATE
P3,800,000
Same as Resident citizen
 A Non Resident Alien decedent left the
following estate: SITUS
• House and lot in Dubai P1,000,000 w/out
• Vacant lot in Cebu 2,000,000 W/in
• Shares of stocks issued by a Domestic Corporation , 60% of 100,000 W/in
its operation is in the Philippines
• Shares of stocks issued by a Foreign Corporation , 70% of its 200,000 w/out
operation is in the Philippines .
• Car in Davao 500,000 W/in

GROSS ESTATE (2,000,000 + 100,000 +500,000)

P2,600,000
Because it is Non- Resident Alien, only those within (Assume no reciprocity)
 A Non Resident Alien decedent left the
following estate: SITUS
• House and lot in Dubai With Reciprocity P1,000,000 w/out
• Vacant lot in Cebu 2,000,000 W/in
• Shares of stocks issued by a Domestic Corporation , 60% of 100,000 W/in
its operation is in the Philippines
• Shares of stocks issued by a Foreign Corporation , 70% of its 200,000 w/out
operation is in the Philippines .
• Car in Davao 500,000 W/in

GROSS ESTATE (2,000,000 +500,000)

P2,500,000
If with reciprocity, remove those intangible personal property and include only
tangible personal property within
 Valuation of Gross Estate
• All Properties whether tangible or intangible are value or appraised as at the
time of death of the decedent for estate taxation purposes

A.) In general Fair market Value at the time of

death

B.) Real Property The HIGHER value between

1.) FMV determined by
the commissioner (Zonal Value),
and
2.) FMV shown in the
schedule of values fixed by
the provincial and city assessors (Assessed Value) .

C.) Personal Property GR: Fair market value at the time of

 Valuation of Gross Estate
D.) Shares of stocks/ securities
1.)LISTED/ TRADE IN STOCK EXCHANGE
- FMV shall be the arithmetic mean between the highest and
lowest quotation at a date nearest to the date of death if
none is available on the date itself

2.) UNLISTED/ NOT TRADE IN STOCK EXCHANGE

a.)Common Shares- Book Value of per share of the issuing
corporation
b.) Preference Shares- Par value of preference share
 Valuation of Gross Estate
E.) Units of participation in any association, recreation, or amusement club
- Shall be the bid price nearest the date of death published in any newspaper or
publication of general circulation

F.) Right to usufruct, use or habitation, and annuity

- In accordance with the latest Basic Standard Mortality Table, to be
approved by the secretary of finance, upon the recommendation of insurance
commissioner
 Practice problems
Situation A:
Peter Parker brought a truck with a purchase price of P3,000,000. He bought
the car on installment on the following terms: down payment of P500,000 and
annual installment of P700,000 for four years. On his way home he run over an
approaching tank and died. On the date of his death the fair value of the truck
is P2,000,000.
Answer: P2,000,000
 Practice problems
Situation B:
Peter Parker recently brought a truck with a purchase price of P3,000,000. He
bought the car on installment on the following terms: down payment of
P500,000 and annual installment of P700,000 for four years. On his way home
he run over an approaching tank and died.

Answer: P3,000,000
 Practice problems
Situation C:
Personal Property not recently purchased, pawn value is P300,000.

Answer: P900,000 (P300,000 X3)

 Practice problems
Situation D:
A decedent devised to his daughter a 1000 square meter lot in Cebu City with
the following valuation:

Fair Value as determined by city assessors

P20,000/sqm
Zonal Value as determined by the CIR
17,000,000
Fair Value determined by Independent Assessors 18,500,000
Answer: P20,000,000 (20000X 1000)
( Higher Between Zonal and Assessed Value)
*Ignore the Fair value determined by independent assessors
 Practice problems
Situation E:
Real Property
Zonal Value, 6 months before the death P1,700,000
Assessed Value, time of death
1,200,000

Answer: 1,200,000
 Practice problems
Situation F:
Decedent owns 100,000 ordinary shares of Beta company at the time of his
death. At that time, Beta company outstanding shares were 1,000,000 with 10
par value and retained earnings amounting to P5,000,000. The shares are not
traded in the stock exchange.

Answer: P1,500,000 (15X 100,000 shares)

Book value per share=

=P15
 Practice problems
Situation G:
Decedent left 10,000 Shares. The shares were traded in a local stock exchange.
At the death, the following were available:

Highest Quotation P800 per share

Lowest Quotation P200 per share
Book Value P400 per share
Par Value P600 per share

Answer: P5,000,000 (10,000 shares X ((800+200/2))

 Practice problems CORRECTION
Situation I:
Decedent left 10,000 Common Shares. The shares were not traded in a local
stock exchange. At the death, the following were available:

Book Value P400 per share

Par Value P200 per share
Fair market value at time of death P300 per share

Answer: P4,000,000
 Practice problems
Situation H:
Decedent left 10,000 common Shares. The shares were not traded in a local
stock exchange. At the death, the following were available:

Book Value P400 per share

Par Value P200 per share

Answer: P4,000,000
 Practice problems
Situation I:
Decedent left 10,000 Preference Shares. The shares were not traded in a local
stock exchange. At the death, the following were available:

Book Value P400 per share

Par Value P600 per share

Answer: P6,000,000
 Exemptions and Exclusions from the gross
estate

A.) Exclusions under Section 85 and 104 of the Tax Code

B.) Exclusions under Section 87 of tax code
C.) Exclusions under the special laws
 Exclusions under Section 85 and 104 of the Tax Code

A.) Exclusive Property of the surviving spouse

The Gross estate of married decedents:

a.) Exclusive property of the decedent
b.) Common property of the decedent and the surviving spouse

Exclusive property of Husband= Capital

Exclusive property of Wife= Paraphernal
 Exclusions under Section 85 and 104 of the Tax Code

B.) Property outside the Philippines if the decedent is a Non-Resident Alien

For Non-resident aliens, only his/her properties situated within then
Philippines are included in gross estate. Properties outside the Philippines are
not included for the gross estate of the Non-Resident Alien

C.) Intangible Personal property in the Philippines of the Non-Resident Alien

subject to reciprocity law
 Exclusions under Section 87 of tax code

A.) The Merger of usufruct in the owner of the naked title

B.) The transmission or delivery of the inheritance or legacy by the fiduciary
heir or legatee to the fideicommissary
C.) The transmission from the first heir, legatee or donee in favor of another
beneficiary, in accordance with the desire of the predecessor; and
D.) All 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: Provided, however, That not more than thirty percent (30%)
of the said bequests, devises, legacies or transfers shall be used by such
institutions for administration purposes
 The Merger of usufruct in the owner of the naked title

• Usufruct grants the right to use, possess and administer property, and to the income,
utility, profits and advantages produced from the property subject to usufruct.

• The Previous decedent gives only the right of usufruct to the current decedent and
names the other beneficiary the owner of naked title.

• The current decedent (Usufructuary) is not considered as the owner of the property.
Upon the death of the current decedent, the usufruct will be merged to the owner of
naked title, the intended beneficiary.

• The naked owners will become full owners at the end of the usufruct’s term or upon
the death of the usufructuary.
 The Merger of usufruct in the owner of the naked title

Upon death
merge to the
naked title. Not
Assigns subject to Estate
Usufruct

Front Man
Oh Il-Nam
Usufructuary
Upon Death subject to -Benefit the use of property
Estate tax Seong Gi Hun
Owner of
Naked Title
-Inherit title of ownership
 The transmission from the first heir, legatee or donee in favor
of another beneficiary, in accordance with the desire of the
predecessor (Transfer of Special Power of Appointment)

• Special Power of appointment exists when the donee-decendent can appoint

only from a restricted class or designated class of persons other than himself

• Property transferred under special power of appointment should be excluded

from gross estate of the donee of the power because the done decedent only
holds the property in trust
 The transmission from the first heir, legatee or donee in favor
of another beneficiary, in accordance with the desire of the
predecessor (Transfer of Special Power of Appointment)
Upon death Not
subject to Estate

Devised property
with condition to
give the property
to 2nd Heir

Hailey Taylor (1st Heir) Khalid (2nd Heir)

Upon Death subject to Acting only as

Estate tax trustee
 The transmission from the first heir, legatee or donee in favor
of another beneficiary, in accordance with the desire of the
predecessor; and
Upon death Not
subject to Estate

Devised property
with condition to
give the property
to 2nd Heir
Jaden (2nd Heir)
Willard Will (1st Heir) SON
Upon Death subject to FATHER
Acting as Fiduciary Fideicommissary
Estate tax

• In a fideicommissary substitution, there must be a first heir and a second heir whose relationship must be one
degree such that of parent and child, vice versa
 All 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:
Provided, however, That not more than thirty percent (30%) of
the said bequests, devises, legacies or transfers shall be used by
such institutions for administration purposes

• The value of transfer to social welfare, cultural, and charitable

institutions should be included in the gross estate. An equal
amount, however, may be taken up as a deduction.
 Exclusions under the special laws

1. Benefits received from the Government Service Insurance System (GSIS).

2. Benefits received from the Social Security System (SSS)
3. Amounts received from the Philippines Government and the United State
governments from damages suffered during the last war
4. Benefits received from the U. S. Veterans Administration
5. Retirements benefits of officials/employees of a private firm (R.A 4917)
6. Bayanihan to Recover as one Act (Compensation paid to private and public
health workers who have contracted COVID-19)
7. A veteran of his/her shares of stock, common or preferred, with the
Philippine Veterans Bank shall not be subject to Estate Tax (REVENUE
REGULATIONS NO. 5-2022 )
COMPOSITION OF GROSS
ESTATE
 Sec 85 of the NIRC enumerates the composition of Gross Estate

A. Decedent's Interest
B. Transfer in Contemplation of Death
C. Revocable Transfer
D. Property Passing Under General Power of Appointment
E. Transfers for Insufficient Consideration
F. Claims against the insolvent persons
G. Proceeds of life insurance
 Decedents Interest

• To the extent of the interest therein of the decedent at the time of his death

• Person’s estate, the wealth that he would have possessed, enjoyed and
disposed, had he lived.

• As a rule, the interest must exist at the time of the decedent’s death to be
included as part of the gross estate
 Addition to Gross Estate: Retirement Benefit of
officials/employees of a private firm (R.A 4917)
• One of exclusions included in special laws

• RA No. 4917 – AN ACT PROVIDING THAT RETIREMENT BENEFITS OF EMPLOYEES OF PRIVATE

FIRMS SHALL NOT SUBJECT TO ATTACHMENT, LEVY, EXECUTION OR ANY TAX WHATSOEVER.

Requirements for R.A 4917

A.) Registered Reasonable Private Benefit Plan
B.)At least 10 years of service
C.) Not less than 50 years of age
D.) Availed only once

• Included in Gross estate at first then we deduct the full amount (special deduction).
 Transfer in Contemplation of Death
• To the extent of any interest therein of which the decedent has at any time made a transfer,
by trust or otherwise, in contemplation of or intended to take effect in possession or
enjoyment at or after death, or of which he has at any time made a transfer, by trust or
otherwise, under which he has retained for his life or for any period which does not in fact
end before his death (1) the possession or enjoyment of, or the right to the income from
the property, or (2) the right, either alone or in conjunction with any person, to designate
the person who shall possess or enjoy the property or the income therefrom; except in case
of a bona fide sale for an adequate and full consideration in money or money's worth.

• Disposition of property with the thought of death as controlling motive.

• If the transfer of property is a Bonafide sale for an adequate and full consideration, it is not
a transfer in contemplation of death
 Transfer in Contemplation of Death

• An elderly person, realized that due to the nature of his illness and age, death might not be
too far. Motivated by the thought of death, he gratuitously transferred most of his
properties to his children while he is still alive. Should the properties transferred included in
the gross estate of the decedent at the time of death?

• Answer: Yes, The properties were intended to take effect upon his death
 Transfer in Contemplation of Death

• Rodrigo, a singer, gratuitously transferred property to Sabrina worth

P100,000 during her lifetime. What amount should be included in
the gross estate at the time of her death?

• Answer: None, Treat as donation inter-vivos

 Transfer in Contemplation of Death
• On Jan 25, 2025, due to severe prostate cancer, Egon donated his properties to Claudia, his
daughter. The value of the property at the time of transfer is P500,000. A week after, Egon
died. At the time of his death the fair market value of the properties was increased to
P550,000. What amount should be included in the gross estate of the decedent?
• Answer: P550,000
- Donation mortis causa intended to take effect at the time of death
 Revocable Transfer including conditional transfer

• A transfer where the terms of enjoyment of the property may be altered, amended,
revoked, or terminated by the decedent.
• It is sufficient that the decedent had the power to revoke even though he did not exercise
that power.

Conditional Transfer
• Conditional transfer where the attached conditions are not completed by the donee prior
to the donors death
 Revocable Transfer including conditional transfer
• For Revocable transfers:

Status Included in Gross estate?

Exercised the right Yes

Not exercised the right Yes

Waived the right No

Expiration of the right before death No

Expiration of the right after death Yes

 Revocable Transfer including conditional transfer
• For conditional transfer

Status Included in gross estate?

The condition is FULFILLED NO

BEFORE DEATH

The condition is FULFILLED YES

AFTER DEATH

The condition is NOT YES

FULFILLED

Waived the condition NO

 Property Passing Under General Power of Appointment

• Power of Appointment refers to the right to designate the person or persons who will
succeed to the property of the prior decedent.
• It can be General or Special

• General power of appointment- when the power of appointment authorizes the done of
the power to appoint any person he/she pleases. (Included in Gross estate of the donee
upon his death)

• Special power of appointment - when the donee can appoint only from a restricted or
designated class of persons other than himself. (Not Included in Gross estate of the donee
upon his death)
 The transmission from the first heir, legatee or donee in favor
of another beneficiary, in accordance with the desire of the
predecessor (Transfer of Special Power of Appointment)
Upon death Not
subject to Estate

Devised property
with condition to
give the property
to 2nd Heir

Hailey Taylor (1st Heir) Khalid (2nd Heir)

Upon Death subject to Acting only as

Estate tax trustee
 The transmission from the first heir, legatee or donee in favor
of another beneficiary, in accordance with the desire of the
predecessor (Transfer of General Power of Appointment)
Upon death
subject to Estate

Did not give any

condition
ANYONE

Hailey Taylor (1st Heir)

Upon Death subject to Can choose

Estate tax anyone
 Transfers for Insufficient Consideration

• If any one of the transfers, trusts, interests, rights or powers is made, created, exercised or
relinquished for a consideration in money or money's worth, but 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, at the time of death, of the
property otherwise to be included on account of such transaction, over the value of the
consideration received therefor by the decedent.

• When a sale or transfer was made for a price less than its fair market value at the time of
sale or transfer, the excess fair market value of the transferred property at the time of death
over the value of consideration shall be included in the Gross estate.
 Transfers for Insufficient Consideration

Two Fair market values to consider:

A.) Fair market value at the time of sale or transfer
• to determine whether or not the consideration was full and adequate

B.) Fair market value at the time of death

• To determined what amount to be included in the gross estate.

• If the Sale or transfer is a valid sale (Ordinary course of business) or a Bonafide sale, not
subject to estate tax
• If no consideration either estate or donors tax
 Transfers for Insufficient Consideration

Bojji, decedent, owns a property valued at P2,000,000 at the time of his death. The said
property was sold by Bojji during his lifetime to Kage for P1,000,000 when its value was
P1,500,000. For estate tax purposes, how much will be included in the gross estate?
Answer: P1,000,000

The FMV value at the time of transfer is used to know if the sale or transfer falls under
insufficient consideration. Since the FMV@ sale is greater than the consideration, there is an
insufficient consideration. (1.5M > 1M)

FMV At the time of death minus Consideration (2,000,000 – P1,000,000)

 Transfers for Insufficient Consideration

Bojji, decedent, owns a property valued at P2,000,000 at the time of his death. The said
property was sold by Bojji during his lifetime to Kage for P1,000,000 when its value was
P900,000. For estate tax purposes, how much will be included in the gross estate?
Answer: P0

Since the FMV@ sale is less than the consideration, there is an sufficient consideration or valid
sale.
 Transfers for Insufficient Consideration

Bojji, decedent, owns a property valued at P900,000 at the time of his death. The said
property was sold by Bojji during his lifetime to Kage for P1,000,000 when its value was
P1,500,000. For estate tax purposes, how much will be included in the gross estate?
Answer: P0

Since the FMV@ death is less that consideration received, the payment is considered full and
adequate.
 Transfers for Insufficient Consideration

A revocable transfer with the following circumstances: Fair market value at the time of
transfer- P300,000; Fair market value at the time of death P170,000; consideration received
when transferred – P200,000:

A.) Include gross estate of P30,000

B.) Include gross estate of P130,000
C.) Include gross estate of P100,000
D.) Not include in Gross estate

Answer: D

Since the FMV@ death is less that consideration received, the payment is considered full and
adequate.
 Claims against the insolvent persons
• Insolvent persons- is someone who is unable to pay their debts or meet their financial
obligations.

• A juridical declaration of insolvency is not required but the incapacity of the debtor to pay
his obligation should be proven.

• The full amount of the claim against the insolvent person should be included as gross
estate

• The portion of the claim which is not collectible should be allowed as deduction from the
gross estate.
 Proceeds of life insurance
• To the extent of the amount receivable by the estate of the deceased, his executor, or
administrator, as insurance under policies taken out by the decedent upon his own life,
irrespective of whether or not the insured retained the power of revocation, or to the
extent of the amount receivable by any beneficiary designated in the policy of insurance,
except when it is expressly stipulated that the designation of the beneficiary is irrevocable.
Beneficiary Designation Gross Estate
Executor Revocable/Irrevocable Included

Administrator Revocable/Irrevocable Included

3rd Party Revocable Included

3rd Party Irrevocable Excluded

• Exclude proceeds from SSS and GSIS

• If problem is silent as to revocability, then assume revocable.
 Proceeds of life insurance

• Proceeds under group insurance taken by employer are not subject to estate tax

• Under Section 11 of the insurance code (RA10607)

-The insured should have the right to change the beneficiary he designated in the policy,
unless he has expressly waived this right in said policy. Notwithstanding the foregoing, in
event the insured does not change beneficiary during his lifetime, the designation shall be
deemed irrevocable.
 Proceeds of life insurance

Not Included in Gross estate

A.) 3rd Person designated as Irrevocable

B.) 3rd person designated as revocable but the

insured did not change the beneficiary during
his/her lifetime.

B.) Life Insurance under a group insurance taken by

the employer
 Void Transfer

A void transfer is considered as if it never happened, and the property

remains part of the estate, available for distribution to rightful heirs.

Included in gross estate

 Transfer with Retention/ reservation of rights
-allows the transferor to continue enjoying, possessing or controlling
the property (beneficial ownership) because only the naked title has
been transferred.
To the extent of any interest therein of which the decedent has at any time made a transfer,
by trust or otherwise, in contemplation of or intended to take effect in possession or
enjoyment at or after death, or of which he has at any time made a transfer, by trust or
otherwise, under which he has retained for his life or for any period which does not in fact
end before his death (1) the possession or enjoyment of, or the right to the income from the
property, or (2) the right, either alone or in conjunction with any person, to designate the
person who shall possess or enjoy the property or the income therefrom; except in case of a
bona fide sale for an adequate and full consideration in money or money's worth.
Determine if included in Gross Estate or not:

1.) Transfer with reservation of certain rights

2.) Transfer for insufficient consideration

3.) Transfer for an adequate and full consideration in money’s worth

4.) Transfer in contemplation of death

5.) Insurance proceeds from SSS and GSIS

6.) Proceeds from insurance taken out by a company for its employees

7.) Transfer from the first heir to the second heir designated by the predecessor

8.) Donation to the National Government

9.) Merger of naked title with the owner of usufruct

10.) Merger of usufruct in the owner of naked title

11.) Legacy to a charitable institution whose administrative expenses did not exceed 30% of the legacy
 Included in Gross Estate

Determine if included in Gross Estate or not:

1.) Transfer with reservation of certain rights ✓

2.) Transfer for insufficient consideration ✓
3.) Transfer for an adequate and full consideration in money’s worth ✗
4.) Transfer in contemplation of death ✓
5.) Insurance proceeds from SSS and GSIS ✗
Determine if included in Gross Estate or not: Included in Gross Estate

6.) Proceeds from insurance taken out by a company for its ✗

employees

7.) Transfer from the first heir to the second heir designated by ✗
the predecessor

8.) Donation to the National Government

✓
9.) Merger of usufruct in the owner of naked title ✗

10.) Legacy to a charitable institution whose administrative ✓

expenses did not exceed 30% of the legacy
Determine if included in Gross Estate or not: Included in Gross Estate

1. The decedent took an insurance on his life for P10,000,000.

2. The decedent took an insurance on his life for P20,000,000

and designated his estate as the revocable beneficiary.

3. The decedent took an insurance for his life for P5,000,000

and irrevocably designated the administrator of his estate as
the beneficiary.

4. The decedent took an insurance on his life for P10,000,000

and designated his son as beneficiary.

5. The decedent took an insurance on his life for P10,000,000

and designated his son as irrevocable beneficiary.
Determine if included in Gross Estate or not: Included in Gross Estate

1. The decedent took an insurance on his life for P10,000,000. ✓

2. The decedent took an insurance on his life for P20,000,000
and designated his estate as the revocable beneficiary.
✓

3. The decedent took an insurance for his life for P5,000,000 ✓

and irrevocably designated the administrator of his estate as
the beneficiary.

4. The decedent took an insurance on his life for P10,000,000 ✓

and designated his son as beneficiary.
✗
5. The decedent took an insurance on his life for P10,000,000
and designated his son as irrevocable beneficiary.
Administrative Provisions
 Filing of estate tax return and payment of estate tax due

• Estate Tax Return – BIR Form 1801

• BIR Form 1801 shall be filed in triplicate (3 copies)

• Notice of death is not required

• Tax Rate= 6%
 Filing of estate tax return and payment of estate tax due

• Pay as you file system

• Filing and Payment

Primary Obligation- Executor or administrator
Secondary Obligation- Heirs

• When there are two or more executors or administrators, all of them are severally liable
for the payment of tax.
 Filing of estate tax return and payment of estate tax due

• Certificated by a CPA needed for- Returns showing gross value of MORE than P5,000,000.
Contents of the certificate:
A.) Itemized assets of the decedent with their corresponding gross value at the time of his
death, or in case of non-resident alien, of that part of his estate in the Philippines
B.) Itemized deductions
C.) The amount of tax due whether paid or still due and outstanding

• Timing of filing the estate tax return

-Within one year from the decedent's death

Extension of time to FILE the estate tax return

-The commissioner or any Revenue officer authorized by him shall have the authority to
grant a reasonable extension not exceeding 30 days for filing of return.
 Filing of estate tax return and payment of estate tax due
Extension of payment of estate tax
A. Court- Not more than 5 years
B. Extra-Judicial- Not more than 2 years
• If fraud or negligent, no extension is allowed

If an extension is granted, the commissioner or his duly authorized representative may require
the executor, administrator, or beneficiary to furnish a bond in such amount, not exceeding
double the amount of the tax and with such sureties as commissioner deems necessary.

In case of insufficiency of cash for the payment of estate tax, the estate may be allowed the options:
A.) Payment by installment (BIR form 0605)
-allowed within two years without civil penalty and interest.

B.) Partial disposition of estate to be able to use its proceeds to pay the estate tax due
• Civil penalties and interest
Interest- 12%
Surcharge Penalty of 25%- no false or fraudulent
Surcharge Penalty of 50%- there is false, malice or fraudulent
intent.

Withdrawal of Bank deposit from decedent

-Subject to Final with holding tax of 6%
-Within one year
 Place of Filing and payment

UNDER EOPTA (RA11976)

• Place can be any
A.) Authorized Agent Banks (AABs)
B.) Revenue Collection Officers
C.) Authorized Tax software Providers (ATSPs)

Regardless of Venue

Note: Wrong venue for filing and payment of tax has been removed so there is no civil penalty
for wrong venue.
In filing estate tax return, a CPA certificate is required when:
a.) Gross estate is less than P5,000,000
b.) Gross estate is P5,000,000 or more.
c.) Gross estate is more than P5,000,000
d.) Gross estate is P2,000,000 or more.
ZHE END