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What is Estate Tax?

Estate tax is imposed on the transfer of the net estate, which is the difference
between the gross estate (as defined under Section 85 of the Tax Code) and
allowable deductions (under Section 86) of the decedent. Estate tax rates are
graduated and depend on the net estate amount.
Net Estate = Gross Estate Deductions
Real property may not be transferred from the decedent to his or her heirs without
the filing of the estate tax return and payment of the estate tax. Non-payment of
estate tax is common and this brings about many problems when the properties
need to be transferred to the names of buyers.

Gross Estate
Gross estate is the value at the time of death of all property, real or personal,
tangible or intangible, wherever situated. In the case of a nonresident decedent
who at the time of his death was not a citizen of the Philippines, only that part of
the entire gross estate which is situated in the Philippines shall be included in his
taxable estate.
The value of the properties shall be based on their fair market value (FMV)
as of the time of death.
If the property is a real property, the FMV shall be the highest between the zonal
valuation and fair market value.
The proceeds of life insurance are included in the gross estate (unless the
beneficiary is designated as irrevocable).

Deductions from Gross Estate

1. Expenses, Losses, Indebtedness, and Taxes (ELIT)
a. Funeral expenses Lowest among:
o Actual funeral expenses;
o 5% of the gross estate; and
o P200, 000.00.
b. Judicial expenses of the testamentary and intestate proceedings
c. Claims against the estate
o At the time the indebtedness was incurred, the instrument was duly
notarized; and

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If the loan was contracted within three (3) years before the death of the
decedent, the administrator or executor shall submit a statement
showing the disposition of the proceeds of the loan
2. Property Previously Taxed (Vanishing deduction)
3. Transfers for Public Use
4. Family Home
o Fair Market Value of the Family Home or P1 million, whichever is lower.
o As a condition for the exemption or deduction, said family home must
have been the decedents family home as certified by the barangay
captain of the locality.
5. Standard Deduction
6. Medical Expenses
o Medical expenses incurred by the decedent within one (1) year prior to
his death which shall be duly substantiated with receipts
o Maximum: P500,000.00
7. Amount received by heirs under RA 4917 (retirement benefits of employees of
private firms)
8. Share in the Conjugal Property
o

(The net share of the surviving spouse in the conjugal partnership

property as diminished by the obligations properly chargeable to such
property)

Estate Tax Rates

The estate tax rates depend on the date of death. For the purpose of this project we
will only cover the rates for those who died on January 1, 1998 and onwards, the
following are the estate tax rates based on the net estate:

Over

But not
over

The tax
shall be

Plus

Of the
excess over

200,000

Exempt

200,000

500,000

5%

200,000

500,000

2,000,000

15,000

8%

500,000

2,000,000

5,000,000

135,000

11%

2,000,000

5,000,000

10,000,000

465,000

15%

5,000,000

10,000,000

And Over

1,215,000

20%

10,000,000

5 RULES IN FILING ESTATE TAXES

When

to file Estate Tax Return

The return must be filed within six (6) months from the death of the decedent. In
meritorious cases, the Commissioner has authority to grant a reasonable extension
not exceeding thirty (30) days for filing the return.

Where

to file Estate Tax Return

The return must be filed with the BIR district office or its representative having
jurisdiction over the place of domicile of the decedent at the time of his death. If the
decedent has no legal residence in the Philippines, the return shall be filed with the
Office of the Commissioner (Revenue District Office No. 39, South Quezon City).

Who

shall file the Estate Tax Return

This return must be filed in triplicate by the executor, or administrator, or any of the
legal heirs of the decedent, whether resident or non-resident of the Philippines. If
there is no executor or administrator appointed, qualified, and acting within the
Philippines, then any person in actual or constructive possession of any property of
the decedent.
Basically, a return is required to be filed in all cases of transfers where estate
tax is due. However, where no estate tax is due, a return is still required where the
gross value of the estate exceeds two hundred thousand (P200,000) pesos; or
where regardless of the gross value of the estate, it consists of registered or
registrable property such as real property, motor vehicle, shares of stock or other
similar property for which a clearance from the BIR is required (i.e. bank deposits)
as a condition precedent for the transfer of ownership thereof in the name of the
transferee; or

When

and Where to Pay Estate Tax

Upon filing the return, the estate tax due is to be paid to the BIR authorized Agent
Bank (AAB) where the return is filed. In places where there are no AABs, payment

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shall be made directly to the Revenue Collection Officer or duly Authorized City or
Municipal Treasurer.
In certain cases, where the government finds that the payment on the due
date of the estate tax or of any part thereof would impose undue hardship upon the
estate or any of the heirs, it may allow extension of time for the payment of such
tax or any part thereof not to exceed five (5) years, in case the estate is settled
through the courts, or two (2) years in case the estate is settled extra judicially.
What

documents to submit

The following requirements are to be submitted upon field or office audit of the tax
case before the Tax Clearance Certificate/Certificate Authorizing Registration can be
released. However, for expediency it would be best to already attach the applicable
documents upon filing of the return.
1. Certified true copy of the Death Certificate
2. Notice of Death duly received by the BIR, if gross estate exceeds P20,000 for
deaths occurring on or after Jan. 1, 1998; or if the gross estate exceeds
P3,000 for deaths occurring prior to January 1, 1998
3. Any of the following:
4. Deed of Extra-Judicial Settlement of the Estate, if the estate is settled extra
judicially (sample forms may be found here and here).
5. Court Orders/Decision, if the estate is settled judicially;
6. Affidavit of Self-Adjudication (sample here) and Sworn Declaration of all
properties of the Estate
7. A certified true copy of the schedule of partition of the estate and the order of
the court approving the same, if applicable.
8. Certified true copy(ies) of the Transfer/Original/Condominium Certificate of
Title(s) of real property(ies) (front and back pages), if applicable
9. Certified true copy of the latest Tax Declaration of real properties at the time
of death, if applicable
10.Certificate of No Improvement issued by the Assessors Office declared
properties have no declared improvement or Sworn Declaration/Affidavit of
No Improvement by at least one (1) of the transferees
11.Certificate of Deposit/Investment/Indebtedness owned by the decedent and
the surviving spouse, if applicable
12.Photocopy of Certificate of Registration of vehicles and other proofs showing
the correct value of the same, if applicable
13.Photo copy of certificate of stocks, if applicable
14.Proof of valuation of shares of stocks at the time of death, if applicable
15.For listed stocks newspaper clippings or certification from the Stock
Exchange
16.For unlisted stocks latest audited Financial Statement of issuing corporation
with computation of book value per share
17.Proof of valuation of other types of personal property, if applicable
18.Proof of claimed tax credit, if applicable

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19.CPA Statement on the itemized assets of the decedent, itemized deductions
from gross estate and the amount due if the gross value of the estate
exceeds two million pesos, if applicable
20.Certification of Barangay Captain for claimed Family Home
21.Duly notarized Promissory Note for Claims against the Estate arising from
Contract of Loan
22.Accounting of the proceeds of loan contracted within three (3) years prior to
death of the decedent
23.Proof of the claimed Property Previously Taxed
24.Proof of claimed Transfer for Public Use
25.Copy of Tax Debit Memo used as payment, if applicable

Case Problem
On January 7, 2014, Mrs. Lalaina Aguirre and her family is celebrating her
birthday when her husband succumb to his long struggle of diabetes and died at
their family home condominium in Grass Residence, Quezon City. Because of her
husband untimely death, and the fact that shes old and cant support herself living
in a high maintenance condominium she decided to sell the conjugal property that
is the condominium. However the municipal of Quezon City wouldnt approved the
selling of the property because the decedent Mr. John Kent Aguirre didnt leave any
will and that Mrs. Aguirre isnt the sole heir of the property. Also, Tyler, 20, son of Mr.
John Kent Aguirre from Ms. Korina Mendoza before Mrs. Lalaina Aguirre contest his
share from the property. The Aguirre decided to seek the help of a Makati-based law
firm, Cho Khai Meng to settle the problem at hand.
Upon initial examination, Cho Khai Meng valued the property at 5 Million at
the time of Mr. Aguirres death. Mrs. Aguirre also told the following expenses:
Funeral expenses P170,000 and Medical expenses P550,000.
To solve the problem, Cho Khai Meng recommended that the Aguirre draw up
a deed of extra-judicial settlement from decedents conjugal estate. Have it
notarized, and then have the notice published in a newspaper of general circulation
once a week for three weeks. After they paid the estate tax, they can now proceed
in presenting the deed, the notarized affidavit of publication and the official
receipts, to the Register of Deeds so that new titles can be issued to the heirs. In
which both Mrs. Lalaina Aguirre and Tyler Aguirre receives of the estate. The
consultancy expenses of extraducial treatment of the problem costs P320,000.
Question: Based on the facts given, how much is the estate tax?

Suggested Answer:
Gross
Estate
(Condominium)
Less: Ordinary Deductions
Funeral Expenses
Actual 170,000
5% Limit 250,000

P 5,000,000.00

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Maximum 200,000
Judicial Expenses
Community Estate
Special Deductions
Medical Expenses
Standard Deduction
Family Home
Net Taxable Estate
Estate Tax On 2M
Excess of
10,000 @ 11%

Actual 550,000
Maximum 500,000
Actual of 5M, 2.5M
Maximum 1M

(170,000.00)
(320,000.00)
4,510,000.00
(500,000.00)
(1,000,000.00)
(1,000,000.00)
P 2,010,000.00

135,000
1,100
P 136,100

References
BIR Philippines. (n.d.). Retrieved February 14, 2015 from
http://www.bir.gov.ph/index.php/tax-information/estate-tax.html
Pinoy Lawyer. (n.d.). Retrieved February 14, 2015 from
http://www.pinoylawyer.org/t17288-extrajudicial-settlement
Cherry Castillo (n.d.). Retrieved February 14, 2015 from
http://www.foreclosurephilippines.com/death-real-estate-and-estate-tax/
Legal Advice (n.d.). Retrieved February 14, 2015 from
http://freelegaladvicephilippines.blogspot.com/2011/04/five-5-rules-you-shouldknow-about.html