TRANSFER & BUSINESS TAXATION Gross Estate Most individuals are familiar with filing income tax returns and paying income taxes. ‘What many individuals are surprised-to learn, however, is that their estate may have to Pay a tax as a result of their death, DEFINITION OF ESTATE TAX Fstatestax is the tax on the rightsto-transmit;property:at death and on certain transfers which are made by law the equivalent of testamentary dispositions. It is not a tax on property. It is a tax imposed on the privil itt leath of the owner, The estate tax is generated by the laws in force at the time of death notwithstanding the postponement of the actual Possession or enjoyment of the estate by the beneficiary. LAW THAT GOVERNS THE IMPOSITION OF ESTATE TAX 1. Estate taxation is governed by the statute in force at the timeof death’of the decedent. 2. Estate tax accruesvasiof the deathvofithe:decedent. The accrual of the tax is distinct from the obligation to pay the same. 3. Sueeession’takes:place upon the death-of'the'decedent. The right of the State to tax the privilege to transmit the estate vests instantly upon death. 4. Tax rates prescribed under RA:8424 apply to estate taxes falling due or have accrued beginning Jan. 1, 1998, the effectivity of the said law otherwise known as ‘The Tax Reform Act of 197°, PURPOSES OF ESTATE TAX While it is true that transfer taxes provide income to the government, there are other justifications for their imposition. One theory is the benefit-receivedtheory. It recognizes the role of the State in the distribution of the estate of a decedent to the heirs whether it be in accordance with the decedent’s will or by operation of law. For this service, estate tax is collected. Another theory is the privilegetheory. Since inheritance is a privilege granted by the State and since estate acquired and accumulated is under the State’s protection, it is but righteous that the State collect its share. The ability to"pay theory asserts that the heirs because of the inheritance they received are able and capable 25, ah fiil oe a ag wy ae to pay the taxes due the State. ee ee reduces the property received by the heirs ae ence there is a more equitable distribution of wealth in the society. iy Le ft GROSS ESTATE ‘A decedent's estate is defined as all property, wherever.Jocated, in which the decedent owned a beneficial interest atthe time’of death. In case of real property, it may happen that the certificate of ttle or the tax declaration of the property has not been transferred in the name of the decedent and is still in the name of the previous owner. In case, additional documents must be shown. For example, if the property was acquired by the decedent by purchase, deed-ofvabsolute"sale’ must be presented; if inherited, deed of extrajudicial settlement or a courtdecision; or if by donation, deed of donation. Gross.estate includes any right to income that had-accruéd, but had notyet been received as of the date of the decedent’s death. Examples of this income are interest, rents, royalties, salary and tax refunds. A decedent's gross estate does»not»include a mere expectancy such as an expected inheritance, Resident Citizen, Non-Resident Citizen And Resident Alien Decedents. ‘The gross estate of a resident citizen, a non-resident citizen or a resident alien decedent shall include all his properties and interests therein wherever situated. The following shall comprise his gross estate: 1. a, Tafigible personal property. Personal property that can be seen and touched. ‘These include appliances, jewelry, car and other movable property which can be transported from one place to another. ». Intangible personal property. Personal property that cannot be seen and touched because they have no physical form. Bank deposits, bonds, promissory notes, copyright, trademark, mortgages, patent and licenses are intangible personal property. 2. Real¥6Fimmovable property. These consist of land, building or anything attached to the soil with»permanence. ne : Tel te HOY, WE dary 3. TaxablesTransfefs. Although these transfers are it 8 (i ime) in form, they are actually mortisseausa in substance because they are intended to take effect upon or after the death of the transferor. a, Transfer in contemplation of death, In a transfer in contemplation of death, the thought of death is the motivating factor for the transfer although death may not be imminent. A donation mortisvcausa is a transferin-contemplation of death: It is a donation which takes effect upon orafter:the.donor’s.death. It partakes of the nature of a testamentary disposition. Tilustration: Mr. Ferman knows that he does not have enough time to live due to cancer, With this in mind, he executed a will transferring, his property to his heirs. 26ve tir wed b. Revocable:transfer. A revocable transfér is a transfer by trust orotherwise where the decedent may revoke, alter, amend or terminate the terms of enjoyment of the property. Trust, A trust is the legal:relationship created when a grantor known as the ustor, transfers property with the intention that it be managed by a trustee for the benefit of a beneficiary or beneficiaries. Eventhough the decedent did not exercise his power to revoke, the transfer just the same is includible in his gross estate, lustration: Mr. Fernan transferred his property in trust, the income of such property is payable to Junior, his son. In case of Junior's death, the property including the income shall belong to any of Junior's children, However, Mr. Ferman is retaining the power to revoke this designation. Mr. Fernan died without revoking the transfer. This revocable transfer is includible in the gross estate although the power to revoke was not exercised, Proceeds of Life Insurance. An insuraneeweontract, often described as an, insurance"policy, is a common will-related document. Insurance isa contract of Of protection against a naturalyrisk, such as death. In exchange for the payment of premiums, an insurance company agrees to pay a certain sum of money to a designated beneficiary if and when a covered event occurs. Proceeds of insurance under policies taken out by the decedent upon his life shall constitute part of the gross estate if the beneficiary is: 1) The estate of the decedent, his executor of administrator: or 2) A third*persomother than the estate, his executor, or administrator, and the j designation of the beneficiary is : ( lesignation of ni ry is revocable. ic was oe ear Under the Insurance Code, a designation of beneficiary is revocable unless stated expressly as irrevocable, Illustration: Mr. Fernan took for himself a life insurance for P! million, He designated Mr. Mitra, the executor whom he appointed in his will, as beneficiary. Since the designated beneficiary is the executor, the proceeds of life insurance shall be included in Mr. Fernan’s gross estate when he dies. This inclusion is irrespective of whether the designation was revocable or irrevocable. Illustration: Mr. Fernan took for himself a life insurance for Pl million. He designated Mrs. Fernan, his wife as beneficiary. The designation is presumed/revocable; hence, the proceeds of life insurance shall be included in Mr. Fernan's gross estate when he dies, But if't is expressly stated that the designation is irrevocable, then the proceeds shall not form part of the gross estate. gt eta anc. Transfer under a general power of appointment. A power ofiappointment is the right to designate the person or persons who will succeed to the property of a prior decedent. The person who ereates the power of appointment is the donorof the power. The person who is given the rightito:exereise the power is the donee t). The subject of the power of appointment which is the of the power (decedent property being transferred is the appointed property. ‘A power of appointment may be general or limited. A general power of ‘appointment is one which authorizes the donee of the power to appoint any person to possess or enjoy the property. Thus, a general power of appointment makes the donee of the power the owner of the property for all legal intents and purposes. The appointed property, in this case, is properly includible in the gross estate of the donee-decedent. Mlustration: Mr. Fernan transferred his property in trust for his son, Junior, for alg re sine i Junior, in his will, may designate anybody he pleases to Succeed to the property. F Mr, Fernan here is the donor of the power of appointment; Junior, the donee of the power. The power of appointment is general because Junior is not restricted by Mr. Fernan to designate in Junior’s will whom Junior wants to inherit the appointed property. When Junior dies, the appointed property shall form part of his gross estate. ‘A limited or special power of appointment is one which authorizes the donee of the power to appoint only from among:ardesignatedselass or group of persons other than himself. In concept, the donee-decedent here only holds the property in trust; hence, the property shall nov form part of the donee-decedent’s gross estate. Illustration: Mr. Fernan transferred his property in trust, the ineome of such property is payable to Junior, his son, It was stated that Junior, in his will, may designate only from among Junior’s children the one who shall succeed to the property. Since Junior’s power of appointment is limited, the property shall not form part of Junior’s gross estate upon his death. In the three transfers above, the values to include in the gross estate shall be in accordance with the following rules: + If the transfer was in the nature of a bonafidessaleyfor an adequate and full consideration in money or money's worth, no value shall be included in the gross estate. If the consideration received on the transfer was Il, the value to include in the gross estate shall be the excess of the fair market value Of"the property at the time of the decedent’s death over the consideration received.+ If there was no consideration received on the transfer as in donation mortis Causa, the value to include in the gross estate shall be the fairimarket value of the property-atthe time of the decedent's death, Illustration: t A B iG u 1. Fair market value at the time of, {| ‘transfer ~~ _ 00,000 -P500,000 _P00,000 | Ws 2. Consideration received by 4 transferor-decedent at the time of transfer 500,000 300,000 o 3. Fair market value at the time of ws % death of transferor 750,000 750,000 -750,000. 4, Value to include in gross estate 6 of transferor-decedent © 450,000 750,000 ee ® To determine the adequacy of consideration, compare items “I” and “2”. > If there is not enough consideration or if there is no consideration at all, obtain the difference between items “2 and “3” to determine the value for inclusion in the gross estate, > Case “C” is an example of a donation mortis causa. Non-Resident Alien Decedent. \f the decedent was a non-resident alien, only*his es shall form part of his gross estate. His gross estate shall include the following: 1. Franchise which must beexercised in the Philippines? 2. Shares, obligations, or bonds issued by any corporation or soeiedad: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 any 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 established in the Philippines. ‘The inclusion of intangible personal property located in the Philippines in the gross estate of a non-resident alien decedent is subject to reciproityule, Such intangible personal property shall nor’be included in the gross estate in the following cases: 29,© Ifthe decedent at the time of his death was a resident of a foreigmcountry which at the time of death did not impose a transfer tax or death tax of any character in respect of intangible: personal. property. of citizens of the Philippines not residing. in that foreign country; or Ifthe lawsof the foreign country of which the decedent was a resident at the time of his death allow a similar. exemption from transfer taxes or death taxes of every character in respect of intangible personal property owned by citizens of the Philippines not residing in that foreign country. Valuation of Gross Estate The imposition of estate:tax.arises from the death of a person and the need for that person’s property to be eventually distributed to his heirs. Without such death and property, no-estate-tax canbe imposed. The term “property” when used without qualification may be perceived to include rights, other intangibles and physical things. It is at the time of death that the heir legally stieceeds to the inheritance-hence the values of the gross estate are based on values.at the time of the decedent's death, Generally, the properties comprising the gross estate shall be valued based on their asof thetime of death, Fair market value is the price which a property will bring when it is offered for sale by one who desires, but is not obliged to sell, and is bought by one who is under no necessity of buying it 1. Real property — ‘© FMV (zonal-value) as determined by the Comimissiorier, or * FMV as shown in the schedule of values fixed by the-provineial and city ‘assessors, whichever is higher. If there is no zonal value, the taxable base is the-fairmarket value:that-appears in the latest tax declaration, If there is an improvement, the value of improvement is the construction. cost.per»building. permit or the fairsmarket, value per latest tax declaration. 2. Shares of stock — “oo ‘ommon — book value Preferred =par value © Listedishares (in the stock exchanges) —arithmetic: mean between the highest and Jowest.quotation at a date, nearestithe-date- of death, if none is available’on the date of death itself.3. Right to usufruet, annuity — value shall be determined taki into account the ie beneficiary in accordance with the latest basic standard. mortalil P. proved by the Sectetarywof"Rinance, upon recommendation of the Tnsurance Commissioner, Situs of Property Asa general rule, the situs of real property is the placeorcountry where. issituated. Generally, the sitts oftangible personal property is the place or country where such is actually located at the time of the decedent's death. As a general rule, the situs of fitanigible personal propeniy is {he onsgesteaee of the owner. However, this rule may not control when the property has, in a situs ‘elsewhere. In addition to the ones already enumerated, the following tests of situs apply: 1. Accounts receivable = ‘ephipimeeepeteenchae?) 2. Bank deposit — location of depository bank 3. Copyright, trademark; patent & franchise — place or country where the intangible is used or exercised. ee ili a forresient aon dveden re ‘estate tax just once istration: A non-resident alien decedent held shares of stock of a corporation ized under Philippine laws. The transfer of ownership of said shares of stocks are ible in the Philippines since these shares receive protection and benefits under our if this non-resident alien decedent at the time of death is a Japanese citizen who in the United States, the transfer may also be taxed by the country (United States) hhe was a resident alien and may further be taxed by the country (Japan) where he a non-resident citizen. Of course, the transfer taxes which may be imposed by the two countries would all depend on their existing tax laws, test of situs of property of a non-resident alien decedent is finportant because it tells er the property is subject to estate tax in the Philippines or not. tion on Situs and Gross Estate: Nila Banez, single, died leaving the following property: House & lot in the Philippines P 2,500,000 ‘House & lot in Australia 3,000,000 Building & land on which it stands in ‘Quezon City, Philippines 10,000,000 31 #7‘Trees, plans, growing fruits & land on ‘which they are planted in Tiaong, Quezon 500,000 . Fish pond in Mario, Bulacan 200,000 £Carinthe Philippines 700,000 Vann Australia 800,000 Appliances in house & lot inthe Philippines 200,000 i. Appliances in house & lot in Australia 400,000 4. Jewelry in the Philippines 1,200,000 K. Jewelry in China 300,000 Bank deposit in Beijing, China 15,000,000 1m. Bank deposit at BPI Bank, Ayala Ave., Makati Cit $5,000,000 1, Notes receivable, debtor residing in the Philippines 150,000 ‘0, Accounts receivable, debtor residing in Sydney, Australi 175,000 . Copyright exercised inthe Philippines 300,000 q. Trademark used in Australia 400,000 Patent exercised in China 600,000 Franchise used in the Philippines 700,000 1. ABS-CBN certificate of stocks kept in a ; safe in Australia 450,000 1u. MERALCO certificate of stocks kept in the Philippines 550,000 ¥. Treasury bonds issued by Bangko Sentral ng inas (BSP) 850,000 ww. Foreign shares, 80% ofthe business is in the Philippines 900,000 X. Obligations issued by foreign corporation with no business situs in the Philippines 750,000 y. Foreign bonds with business situs in the Philipines 650,000 ‘2 Business right in a corporation established in Macau, China 1,500,000 a, Investment in a partnership established in the Philippines 2,250,000 bb. Foreign shares, 90% of the busines is in the Philippines 1,750,000 ce. Interest in an industry established in Brisbane, Australia 2,000,000 Total 755,975,000 Required: After determining the situs of each of the items above, compute for the gross estate if Ms. Banes died a/an: 1. Filipino residing in the Philippines. 2. Filipino residing in Australia, 3, Australian residing in the Philippines. 4, Australian residing in Australia, with reciprocity 5. Australian residing in ChinaSolution: The situs of each item above follows: a. b c gortrreme a u bb. ce. iy House & lot in the Philippines House & lot in Australi Building & land on which it stands in Quezon City, Philippines Trees, plants, growing fruits & land on which they are planted in Tiaong, Quezon Fish pond in Marilao, Bulacan Car in the Philippines Van in Australia Appliances in house & lot in the Philippines Appliances in house & lot in Australia Jewelry in the Philippines Jewelry in China Bank deposit in Beijing, China Bank deposit at BPI Bank, Ayala Ave,, Makati City Notes receivable, debtor residing in the Philippines Accounts receivable, debtor residing in Sydney, Australia Copyright exercised in the Philippines ‘Trademark used in Australia Patent exercised in China Franchise used in the Philippines ABS-CBN certificate of stocks kept in a safe in Australia MERALCO certificate of stocks kept in the Philippines ‘Treasury bonds issued by Bangko Sentral ng Pilipinas (BSP) shares, 80% of the business is in the Philippines Obligations issued by foreign corporation with no business situs in the Philippines Foreign bonds with business situs in the Philippines Business right in a corporation established in Macau, China Investment in a partnership established in the Philippines Foreign shares, 90% of the business is in the Philippines Interest in an industry established in Brisbane, Australia 900,000 750,000 650,000 1,500,000 2,250,000 1,750,000 2,000,000 within within within within within without within without within without without within within without within without ‘without within within within within without within without The gross estate of Ms. Banes being a resident citizen of the Philippines shall include all her property wherever situated, as enumerated in the illustration or P53,975,000. 33 EOF chor!2. The gross estate of Ms. Banes, being a Filipino citizen residing in Australia is also 'P53,975,000 because Filipino citizens, whether residing or not in the Philippines, are subject to estate tax in the same manner. 3. The gross estate of Ms. Banes, being an Australian residing in the Philippines is also 53,975,000 because residents of the Philippines, whether Filipino citizens or aliens are subject to estate tax in the same manner. 4, The gross estate of Ms. Banes, being an Australian residing in Australia (non-resident alien in the Philipines but resident citizen in Australia) shall consist only of her property situated in the Philippines. ‘The reciprocity rule may apply in this ease because Ms. Banes at the time of her death is a resident and citizen of Australia and has intangible personal property located in the Philippines. When there is reciproci ission of intangible ‘of a nonresident alien decedent is not ‘2, House & lotin the Philippines P 2,500,000 c. Building & land on which it stands in Quezon City, Philippines 10,000,000 4. Trees, plants, growing fruits & land on which they are planted in Tigong, Quezon 500,000 Fish pond in Marilao, Bulacan 200,000 £. Carin the Philippines 700,000 h. Appliances in house & lot in the Philippines 200,000 J. Jewelry in the Philippines 41,200,000 ‘Total PI5,300,000 5. The gross estate of Ms. Banes, being an Australi her property situated in the Phil The reciprocity rule cannot apply in resident alien in the Philippines is not a So that the reciprocity rule may apply, the non- citizen of one particular foreign country at the time of his death. ‘When there is no reciprocity, the transmission of intangible personal property located in the Philippines of a non-resident alien decedent is subject to tax. ‘Accordingly, the computation of Ms. Banes’ gross estate is shown below: ‘8. House & lot in the Philippines P 2,500,000 ® and on which it stands in Quezon City, Philippines 10,000,000 4. Trees, plants, growing fruits & land! on which they are planted in Tiaong, Quezon 00,000 ce. Fish pond in Marilso, Bulacan 200,000 residing in China (non-resident alien in the Philippines while non-resident citizen in Australia) shall consist only of Ms. Banes, although a non-f. Carin the Philippines 700,000 h. Appliances in house & lot in the Philippines 200,000 J. Jewelry in the Philippines 1,200,000 m. Bank deposit at BPI Bank, Ayala Ave., Makati City 5,000,000 n, Notes receivable, debtor residing in the Philippines 150,000 . Copyright exercised in the Philippines 300,000 . Franchise used in the Philippines 700,000 1. ABS-CBN certificate of stocks kept in a safe in Australia 450,000 u, MERALCO certificate of stocks kept in. the Philippines 550,000 v, Treasury bonds issued by Bangko Sentral ng Pilipinas (BSP) 850,000 y. Foreign bonds with business situs in the Philippines 650,000 ‘aa, Investment in a partnership established in the Philippines 2,250,000 bb. Foreign shares, 90% of the business is in the Philippines 1,750,000 Total 27,950,000 Exemptions from Estate Tax ‘The following arelexemph from the estate tax ander the, Tax Code: ‘The merger of usufruct:in the owner of the naked title. Illustration: Mr. Fernan devised in his will the naked title of his fishpond to Junior, his son, and usufruct to Unica, his daughter, during her lifetime. After 10 years, Unica died by car accident. The fishpond shall be included in the gross estate of Mr. Fernan, hence subject to estate tax, This estate tax is for the transmission of the fishpond to Junior and Unica. But when Unica dies, the merging of the usufruct into the owner of the naked title, Junior, shall no? anymore be subject to estate tax. The transmission or delivery of the inheritance or legacy of the fiduciary heir or legatee to the fideicommissary. Mlustration: Mr. Fernan devised in his will his fishpond to Martin, his brother, entrusting Martin to preserve and to transmit the property to Hija, Martin's daughter when Hija celebrates her debut. ae Martin here is the fiduciary heir; Hija, the fideicommissary; and Mr. Ferman, the testator, In a fideicommissary substitution, the substitution must not go beyond one from the heir originally instituted (Martin, the father to Hija, the daughter), woth heirs must be living at the time of the testator’s death. © Tesratee — Cy Kea 35 sci = alta % MW i oY * ne \% Ae it ission from Mr. Feman to Martin is. subject to estate tax but the transmission from Martin to his daughter, Hija is exempt. 4 vy) 40° N3,_ The transmission from the first hei, legatee or donee in favor of another beneficiary, "in accordance with the will ofthe predecessor, a Mlustration: Mr. Fernan devised in his will his fishpond to Martin, his brother, for ms 10 years after which it shall belong to Gabriel, his first cousin. OF rustaceers fishpond from Mr. Feman to Martin shall be subject to estate tax; 8 P _ bur from Martin to Gabriel is exempt. A or transfers to soeial»welfare, a u DX’ 4. All bequests, devices, legacies ‘institutions :no part of the net income of which inures to the it of any lividual, provided that ) of the said bequests, legacies or transfers shall be used by such , ‘The following are exempt from the estate tax under special laws: 1. Benefits received by members from GSIS and SSS because fet, 2. Amounts received from the Philippine and U.S, governments for damages during the last war. ae 3. Benefits received by Philippine residents under laws administered by the U.S. ‘Veterans Administration. 4. Bequests, legacies or donations mortis,causa to social welfare, cultural, or charitable organizations. 5. Bequests to be used actually, directly and exclusively for educational purposes.NAME: SCORE: ‘SECTION: PROFESSOR: True or False 1. The value of real property for inclusion in the gross estate shall be the higher amount between the current fair market value as shown in the schedule of values fixed by the Provincial and City Assessors and the fair market value as determined by the Commissioner of Internal Revenue, 2. The test of situs of property of a non-resident alien decedent is not important at all because only the transmissions of property located in the Philippines are subject to estate tax. 3. Asa general rule, the situs of real property is the place or country where itis situated. 4, Values in the gross estate are based on values at the time of the decedent’s death because itis at this time that the heir legally succeeds to the inheritance. 5. The rule that the situs of intangible personal property is the domicile or residence of the owner does not apply when the property has a situs elsewhere. 6. Only intangible personal property of a non-resident alien decedent may be subject to reciprocity rule. 7. Whenever there is death, there is estate tax payable. 8 Asa general rule, the situs of tangible personal property is the place or country where such is actually located at the time of the decedent's death. 9, Notes and accounts receivables are appraised on the basis of the amount of the principal and interests due and unpaid at the time of death. 10. Property may be perceived to include rights, other intangibles and physical things. 311. A non-resident alien decedent’s intangible personal property shall not be included in his gross estate if the laws of the foreign country of which the decedent was a resident at the time of his death allow a similar exemption from transfer taxes or death taxes of every character in respect of intangible personal property owned by citizens of the Philippines not residing in that foreign country. 12. A special power of appointment authorizes the donee of the power to appoint only from among a designated class or group of persons other than himself. 13, Ibis possible that a transfer may be infer vivos in form but mortis causa in substance, 14, ‘The donee-decedent of a special power of appointment only holds the property in ‘rust; hence, the property shall form part ofthe donce-decedent's gross estate. 15. ‘Transfer taxes provide income to the government. 16. Only the property located in the Philippines of a non-resident alien decedent form part of his gross estate, 17. ‘The designation of beneficiary in a life insurance is imevocable unless expressly stated as revocable, 18. A power of appointment is the right to designate the person or persons who shall succeed to the property of a prior decedent 19, An insolvent person is one whose liabilities exceed his assets. 20, A non-resident alien decedent’s intangible personal property shall not be included in his gross estate if the decedent at the time of his death was a resident of a foreign ‘country which at the time of death did not impose a transfer tax or death tax of any character in respect of intangible personal property of citizens of the Philippines not ing in that foreign country. 38NAME: ‘SCORE: ‘SECTION: PROFESSOR: Multiple Choice 1. Which is not true about transfer in contemplation of death? ‘a, Transfer in contemplation of death partakes of the nature of testamentary disposition. . Ina transfer in contemplation of death, death must be imminent. ¢. Transfer in contemplation of death is governed by the rules on succession. @._ Ina transfer in contemplation of death, the thought of death is the motivating factor for the transfer. 2. Which is not true? a, The power of appointment is general in nature. by. The person who creates the power of appointment is the donor of the power. ¢. The person who is given the right to exercise the power of appointment is the donee (decedent) of the power. 4. The property being transferred and the subject of the power of appointment is the appointed property. 3, Shares are not deemed property within the Philippines when ‘a, the shares are issued by a domestic corporation. b. the shares are issued by a foreign corporation with 85% business in the Philippines. c. the shares are issued by a corporation organized under Philippine laws. 4. the shares are issued by a foreign corporation with no business situs in the Philippines. 4, Allof the following statements are true except one. Which one? a. The power of the decedent-transferor to revoke terms may be exercised just once. b. In a revocable transfer, the decedent during his lifetime may revoke, alter, amend or terminate the terms of enjoyment or ownership of the property. c. A revocable transfer is always includible in the gross estate of the decedent- transferor. 4. A revocable transfer shall be included in the gross estate of the decedent- transferor even though the power to revoke was not exercised,‘Which is not ineludible in the gross estate? transfer under a general power of appointment tansfer in contemplation of death transfer under a special power of appointment revocable transfer pege Property that has no pliysical form intangible personal property real or immovable property” tangible personal property ‘personal property eese Property that can be seen, touched and moved from one place to another real or immovable property intangible personal property personal property tangible personal property ‘The transmission of propery of the following individuals receive the same tox ‘treatment with regard to estate tax. Whose transmission docs not? resident citizen decedent non-resident alien decedent non-resident citizen decedent resident alien decedent pecs Property that is attached to the soil with permanence ‘a. tangible personal property '. intangible personal property ¢. real or immovable property 4. personal property ‘The imposition of transfer taxes by the government are justified by the following, theories. Which does not? a. ability to receive theory b._benefit-eceived theory ©. privilege theory 4. redistribution of wealth theoryNAME: ‘SCORE: SECTION: — PROFESSOR: Multiple Choice 1, The following are exempt from the estate tax under special laws. Which is not? a. Amounts received from the Philippine and U.S. govemments for damages during the last war. b. Benefits received by Philippine residents under laws administered by the U. Veterans Administration, ©. Benefits received by members from GSIS and SSS because of retirement. d. Bequests, legacies or donations mortis causa to social welfare, cultural, or charitable organizations. 2. Which is not a test of situs? place of storage in case of certificate of stocks residence of the debtor in case of accounts receivable location of depository bank in case of bank deposit place of exercise in case of copyright pose 3. Which is not an intangible personal property? a. copyright b. unused car c. franchise d. patent 4, The following are general rules on situs. Which one is not? a. The situs of real property is the place or country where itis situated. b. The situs of tangible personal property is the place or country where such is actually located at the time of the decedent’s death. c. The situs of intangible personal property is the domicile or residence of the owner. 4d. The situs of intangible personal property is the place or country where such is actually located at the time of the decedent's death, 4cre = ‘The following are exempt from the estate tax under the Tax Code. Which is not? @. merger of usufruct in the owner of the naked title b, transfers to social welfare, cultural and charitable institutions subject to. no imitat transmission of the inheritance of the fiduciary heir to the fideicommissary 4. transmission from the first heir, legate or donee to another beneficiary, in cordance with the will ofthe predecessor Which is not true?_In case of securities, as in shares of stocks, ‘athe fair market value at the time of death shall depend on whether or not the ‘securities are traded in the stocks exchange. b. If the particular security is traded in the stocks exchange, the fair market value shall be the mean between the highest and the lowest quotation of the security on the valuation date, or on the date nearest the valuation date, Ifthe security is not traded in the stocks exchange, the fair market value shall be the book value of the security on the valuation date, or on the date nearest the valuation date, 4. If the security is not traded in the stocks exchange, the fair market value shall be the par value of the security on the valuation date, or on the date nearest the valuation date, Which of the following statement isnot true? The appointed property passing under a general power of appointment is not includible in the gross estate ofthe donee-decedent. 6. A general power of appointment authorizes the donee of the power to appoint any person to possess or enjoy the property. A general power of appointment makes the donee of the power the owner ofthe property. 4. A power of appointment is not always general Which of the following is not true regarding a claim agai insolvent persons? ‘The decedent's claim must be included in full in the gross estate. ‘The decedent’s claim which cannot be collected-is deductible according to the ratio of the debtor's assets to his liabilities, ©. The decedent's claim is deductible in full because the debtor's liabilities exceed his remaining assets. 4. Claim against insolvent person is a claim against a person whose assets are not sufficient t0 pay his liabilities.surance not to constitute part of the gross estate a. must have been taken out by the decedent upon his life. b. must have designated a third person other than the estate, the decedent's executor or administrator as irrevocable beneficiary. ©. must have designated the estate of the decedent as revocable or irrevocable beneficiary . must have designated a third person other than the estate, the decedent's executor or administrator as revocable beneficiary. 10. In a transfer in contemplation of death, revocable transfer and transfer under a general power of appointment, there are rules to observe to determine what amount to include in the gross estate. Which is not a rule to observe? If the transfer was in the nature of a bona fide sale for an adequate and full consideration in money or money's worth, no value shall be included in the gross estate. b. If the consideration received on the transfer was less than adequate and filll, the value to include in the gross estate shall be the excess of the fair market value of the property at the time of the decedent's death over the consideration received, ¢. If there was no consideration received on the transfer as in donation mortis causa, the value to include in the gross estate shall be the fair market value of the property at the time of the decedent's death, d. If there was no consideration receiyed on the transfer as in donation mortis causa, the value to include in the gross estate shall be the fair market value of the property at the time of the transfer. 4BNAMI ‘SCORE: ‘SECTION: PROFESSOR: Identification Classification of Property Classify each property by indicating the appropriate letter in the space provided: LPLTITATLTTETETETEA ese real property ‘tangible personal property intangible personal property Sees ayaepn IL 12. Notes receivable 13. Copyright 14. Patent ‘ 15. Shares of stock 16. Fishing boat 17. Treasury bonds 18. Mango trees 19. Obligations by a domestic corporation 20, Foreign bonds 21. Interest in a domesti 22. Library 23, Farm industryNAME: ‘SCORE: SECTION: PROFESSOR: Identification Classification of Property Classify each property by indicating the appropriate letter in the space provided: LTTE real property tangible personal property intangible personal property 1. Lot 2. Land 3. Notes receivable 4, Bank deposit 5. Animal houses attached to land 6. Shares of stock 7. Rice field 8. Obligations issued by foreign corporation 9. Truck 10. Paintings 11. Bonds 12. Franchise 13, Trademark 14, Foreign shares of stock 15. Business right in a domestic partnership 16. Furniture 17. Interest in a foreign industry 18. Growing fruits 19. Business right in a foreign corporation 20. Investment in a domestic partnership 21. House and lot 45NAME: ‘SCORE: ‘SECTION: PROFESSOR: Identification Kind of Transfer Classify each transfer by indicating the appropriate letter. transfer in contemplation of death revocable transfer transfer under a general power of appointment transfer under a special power of appointment 1, Mr. Celerio has been fighting for his life since he was diagnosed to have cancer of the colon two months ago. The cancer is already on its terminal stage. Accepting his fate, he sought the assistance of his lawyer and made his will 2, Mr. Celerio designated his wife as beneficiary of an insurance which he took upon his own life. 3. Mr. Celerio transferred all his real property to Mr. Vicente in trust for Junior, Mr. Celerio’s minor son but reserved his right to terminate the ‘ransfer anytime. 4. Mr. Celerio transfers his property in trust for his son, Junior for life ‘and then in trust for the children of Junior as Junior may appoint by will 5. Mr. Celerio, in his last will, devised is real property in favor of Mr. Vicente stating that Mr. Vicente’s subsequent transfer may be made to ‘ny person. Mr. Vicente transferred the property to Hospicio de San Jose. 6. Mr. Celerio just celebrated his 100" birthday. Feeling that death is not far, he transferred all his property to his heits. ‘Mr. Celerio transfers his property in trust for his son, Junior for life and in trust for whoever Junior shall designate by will to succeed to the property. 8. Mr. Celerio transfers his property in trust for his son, Junior for life ‘and then in trust for any of Junior's siblings as Junior may appoint by will 9. Mr. Celerio frequently travels abroad due to the nature of his business, He thinks that he is not spared from meeting air accidents considering the rampant occurrence of plane crash these days. He decided to execute his last will and testament. 10. Mr. Celerio transfers his property in trust for his son, Junior for life and then in trust for anybody whom Junior may, by will, appoint and designate.NAME: SCORE: ‘SECTION: PROFESSOR: Problem Adequacy of Consideration for Transfer For each case, determine the value to include in the gross estate computation: Gc: e A B © Consideration received by transferor- decedent at the time of transfer 1,000,000 P 500,000 0 Fair market value at the time of transfer 1,000,000 1,000,000 P1,000,000 Fair market value at the time of death of transferor 1,250,000 1,250,000 1,250,000 For each case, determine the value to include in the gross estate computation: ass A B c Fair market value at the time of death of transferor 900,000 P900,000 900,000 Fair market value at the time of transfer 800,000 800,000 800,000 Consideration received by transferor- decedent at the time of transfer 0 500,000 800,000 a7Sn NAME: ‘SCORE: ‘SECTION: PROFESSOR: Essay Proceeds of Life Insurance In each case below, determine whether or not the proceeds of life insurance shall be included in the gross estate of Mr. Felipe, the decedent. Justify your answer. |. Mr. Felipe took an insurance on his life for PS million and designated his estate as the revocable beneficiary. 2, Mr, Felipe took an insurance on his life for P10 million and designated the ‘administrator of his estate as the irrevocable beneficiary. 3. Mr. Felipe took an insurance on his life for P15 million and designated his mother as beneficiary 4, Mr. Felipe took an insurance on his life for P20 million and designated his wife as revocable beneficiary. 5, Mr, Felipe took an insurance on his life for P25 million and designated his son as, irrevocable benefNAME: SCORE: ‘SECTION: PROFESSOR: Problem ‘Claims Against an Insolvent Person ‘Mr. Sosa’s debtor suffered extreme financial setback that he was frank enough to tell Mr. Sosa that he can no longer pay the P900,000 debt owed. Nevertheless, he still has P4.5 mi assets but has P13.5 million outstanding liabilities. Even before Mr. Sosa died, hhe was already declared insolvent. 1. Should an amount be included as part of Mr. Sosa’s gross estate? If so, how much? a. P300,000 b. PO c. P900,000 d. P600,000 2. How much is assumed collectible from the debtor? a. P900,000 b. P600,000 ©, PO d. P300,000 3. May a deduction from the gross estate be taken? If'so, for what amount? a. P600,000 b. P900,000 c. PO d. P300,000 ‘Mr. Sosa’s debtor was recently declared insolvent. Mr. Sosa has an outstanding claim of 300,000 against the said debtor. The debtor has P1.S million worth of assets while his liabilities amount to P4.5 million. Mr. Sosa died with the debt uncollected. 4. How much must be included as part of Mr. Sosa’s gross estate? a. P100,000 b. P300,000 ©. PO 4. P200,000 5. May the estate of Mr. Sosa still collect from the debtor? If'so, how much? a. P300,000 b. P100,000 ©. PO d. P200,000 ‘© How much may appropriately be deducted from the gross estate of Mr. Sosa relative to this claim? a. P200,000 b. P300,000 ©. PO d. P100,000 49.Problem Valuation of Property For each item that follows included in the gross estate of the decedent: 1. Mr. Cervantes devised to his son a 300 square meter [ot in Quezon City. Values available follow: ‘Approved zonal value for the locality - P10,000 per sa. m: ‘Assessed value Fair market valt 2. Mr. Cervantes died wAtthe time of his death, the highest quotation jn the stock exchange for each share was P200 while the lowest, P150. 3. Two years ag evidenced by a died. 4. Mr, Cervantes was about to present dinner date a 24K Fan80,000. Had he opted to buy it in one year installment scheme, it would have been more expen sway to meet her, however, he met a car accident and died 5. Warranty, Inc. is t Cervantes. The decedent hi time his death: Par value per Outstanding shares - 800,000 shs. Retained earnings - P1.2M “The shares of stock are not traded in the stock exchange. 1, Mr. Cervantes lent hhis friend-debtor P200,000 ‘ote. They mutually agreed that 18% simple interest per annum shall be charged. Exactly two years after, Mr. Cervantes ‘SCORE: PROFESSOR: indicate in the space provided the value which must be perassessment roll ~ P2,500,000 ue fixed by the assessor - P2,700,000 holding 8,000 shares issued by Warranty, Inc. to his long-time girlfriend in a gold engagement ring he bought that same day sive by P20,000. On his the issuer of 100,000 shares of stock held by Mr. .as the following financial data at the share - P4.00NAME: SCORE: ‘SECTION: PROFESSOR: Problem Situs of Property Indicate whether the situs of the property is within the Philippines or without. 1. Building & land in Makati City 2. Trees, plants, growing fruits & land in Mariveles, Bataan 3. Fish pond in Calatagan, Batangas 4, Appliances in house & lot in the Phil 5. Appliances in apartment rented in California, USA 6. Jewelry in the Philippines 7. Jewelry in Hong Kong 8. House & lot in the Philippines 9. 0. Bank deposit in Switzerland Foreign bonds with business situs in the 11, Van in Canada 12, Bank deposit at Metro Bank, Greenhills 13. Copyright exercised in Pulilan, Bulacan 14. Business right in a corporation established in ‘Shanghai, China 15. Trademark used in Japan 16. Patent exercised in Canad: 17. Franchise used in the Philippines 18. Car in the Philippines 19. Petron certificate of stocks kept in a safe in ‘Singapore 20. House & lot in Sj 21. Foreign shares, 90% of the business is in the Philippines 22. PLDT certificate of stocks kept in the Philippines 23. Treasury bonds issued by BangKo Sentral ng Pilipinas (BSP) 24, Foreign shares, 80% of the business is in the Philippines 25. Obligations issued by foreign corporation with no business situs in the Philippines 26, Investment in a partnership established in the Philippines 27. Notes receivable, debtor residing in the Philippines 28. Accounts receivable, debtor residing in Baghdad, Iraq 29. Interest in an industry established in Guam 31NAME: SCORE: SECTION: PROFESSOR: Problem Gross Estate For each type of decedent, compute for the gross estate of Mr. Bo if he left the property below: a. resident citizen b, non-resident citizen c. resident alien 4d. non-resident alien, with reciprocity €. non-resident alien, without reciprocity 1, Lot in Pakistan 1,500,000 2. Accounts receivable, debtor in Jolo, Sulu 150,000 3. Foreign bonds 2,800,000 4, Building in Quezon City 5,000,000 5. Fishing boat in Nasugbu, Batangas 175,000 6. Carin Pakistan 1,200,000 7, Van in Manila 1,400,000 8. Farm in Lean, Batangas 550,000 9, Appliances in Cotabato City 500,000 10, Jewelry in Pakistan 800,000 11, Shares of stock, domestic corporation 250,000 12, Bank deposit in a Swiss bank 3,000,000 13. Notes receivable, debtor in Pakistan 700,000 14, Copyright exercised in the Philippines 2,500,000 15. Patent used in Paris 4,500,000 16. Franchise used in Sta. Rosa, Laguna 2,000,000 17, Treasury bonds, government corporation 900,000 18, House & lot in Cotabato City 1,000,000 19. Fish pond in Nasugbu, Batangas 300,000 20. Mango fruits and trees in Zambales 850,000 21. Obligations by a domestic corporation 400,000, 22. Interest in a domestic industry 475,000 23. Library, house in Cotabato City 250,000NAME: ‘SCORE: ‘SECTION: PROFESSOR: Problem Gross Estate For each type of decedent, compute for the gross estate of Mr. Hu if he left property ‘enumerated below. a. resident citizen b. non-resident citizen ¢. resident alien ._ non-resident alien, with reciprocity €. non-resident alien, without reciprocity 1. Obligations issued by foreign corporation 500,000 2. Lot in Angeles City, Pampanga 250,000 3. Land in Marinduque 150,000 4, Notes receivable, debtor in Europe 350,000 5. Interest in a foreign industry 1,500,000 6. Animal houses attached to land in Tarlac, Tarlac 200,000 7. Furniture in Las Pinas City 350,000 8. Shares of stock in a domestic corporation 550,000 9. Rice field in San Jose, Nueva Eeija 375,000 10. Truck in San Jose, Nueva 900,000 11. Paintings in house in the Philippines 1,200,000 12. Bonds issued by a US-based corporation 2,750,000 13, Franchise used in Ormoe City 3,250,000 14. Bank deposit at Citibank, Hong 2,200,000 Kong 15. Business right ina foreign 3,250,000 corporation 16, Trademark in the Philippines 2,250,000 17. Foreign shares of stock 1,750,000 18. Business right in a domestic partnership 3,750,000 19. Growing fruits in Marinduque land 600,000 20. Investment in a domestic partnership 400,000 21. House and lot in Las Pinas City 4,500,000 3NAME: ‘SCORE: ‘SECTION: PROFESSOR: Problem Situs and Gross Estate Determine the situs of each property and for each type of decedent, be able to compute the gross estate of Mr. To if he left the following property: } f I | | a, resident citizen =o b. ‘non-resident citizen c. resident alien PR, 4. non-resident alien, with reciprocity 635) 1S e. non-resident alien, without reciprocity Lik Fy, Value eet Bank dpositet China Bank, Ayal Ave, Makati City 2,500,000 Ste 2. House lot in Thailand 1,500,000 fF ey ‘G _& _ Building & land on which it stands in Pasay City $,000,000 ey 4. Trees, plants, growing fruits & land on which they are 250,000 5. pines 350,000 6. Appliances in house & lot in the Philippines 100,000 7. Appliances in house & lot in Thailand 200,000 8. Jewelry in the Philippines 600,000 9. Jewelry in Thailand 250,000 10. Bank deposit in Zurich, Switzerland 7,500,000 11. House & fot in the Philippines 1.250,000 12, Interest in an industry established in Brisbane, Australia 1,000,000 13. Notes receivable, debtor residing in the Philippines 75,000 14, Accounts receivable, debtor residing in Switzerland 87,500 15, Fish pond in Laguna 100,000 16. Copyright exercised in the Philippines 150,000 17. Van in Malaysia 400,000 18, Trademark used in Malaysia 200,000 19. Obligations issued by foreign corporation with no business situs in the Philippines 375,000 20. Franchise used in the Philippines 350,000 21, Shell Corporation certificate of stocks kept in a safe in Thailand 225,000 22. Globe Telecom certificate of stocks kept in the Philippines 275,000 23. Treasury bonds issued by Bangko Sentral ng Pilipinas (BSP) 425,000 24. Patent exercised in China 300,000 25. Foreign shares, 80% of the business is in the Philippines 450,000 AG. Howes vons with usiness situs in the Philiggines 325,000 27, Business right in a corporation established in Macau, China 750,000 28. Investment in a partership established in the Philippines 1,125,000 39. Foreign shares, 90% of the business is in the Philippines 875,000