I.

Gross Estate vis-à-vis Net Estate  The decedent at the time of his death was a
Gross Estate resident citizen of a foreign country which
- Total value of all property, real or personal, tangible at the time of his death did not impose an
or intangible, the actual and beneficial ownership of estate tax in respect of intangible personal
which was in the decedent at the time of his death property of citizens of the Philippines not
residing in that foreign country; or
Net Estate o Partial Exemption
- Value of the estate after all the deductions have been  The laws of the foreign country of which the
made against the gross estate; decedent was a resident citizen at the time
of his death allow a similar exemption from
Main distinction: Gross estate is the totality of all the estate tax, in respect of intangible
properties in which the decedent had an interest existing at the property owned by citizens of the
time of his death while net estate is what remains after Philippines not residing in that foreign
subtracting from the gross estate the allowable deductions. Gross country
estate is not subject to tax while the net estate is the basis
for imposing the estate tax. Intangible Asset
- Identifiable nonmonetary asset without physical substance
II. Determination of Gross and Net Estate - Rule: situs of intangible personal property is the
Value of the Gross Estate domicile of the owner (Mobilia Sequntur Personam)
- Including all the value at the time of his death of all o Not applicable if the intangible property has
property, real or personal, tangible or intangible, acquired a business situs in another jurisdiction
wherever situated o Should not be based on the domicile of the owner
- In case of a nonresident: If at the time of his death was but the place where such franchise is exercised
not a citizen of the Philippines, only that part of the - Within the Philippines:
gross estate which is situated in the Philippines shall o Franchise which must be exercised in the
be included in his taxable estate Philippines
o Shares, obligations or bonds issued by any
Composition of Gross Estate corporation or sociedad anonima organized or
Decedent Gross Estate constituted in the Philippines in accordance with
1. Property (Real or its laws
 Citizen o Shares, obligations or bonds issued by any foreign
 Resident Alien Personal) wherever
situated corporation, 85% if the business of which is located
2. Intangible personal in the Philippines
property wherever o Shares, obligations or bonds issued by any foreign
situated corporation if such shares, obligations or bonds
have acquired a business situs in the Philippines
 Nonresident Alien 1. Real property situated
o Shares or rights in any partnership, business or
in the Philippines
industry established in the Philippines
2. Tangible personal
property situated in
the Philippines Situs of Tangible and Intangible Property
3. Intangible personal Property Situs
property with situs in  Real Property and Location of the property
the Philippines, unless Tangible Personal
excluded on the basis Property
of reciprocity  Shares, franchise, Where the intangible property
copyright is exercised regardless of
Reciprocity Clause where the corresponding
- Excludes “intangible” personal property with situs in the certificate is stored
Philippines from the gross estate of a non-resident alien  Receivables Residence of the debtor
decedent if there’s reciprocity  Bank Deposits Location of the depositary
- There’s reciprocity if: bank
o Total Exemption
Valuation of Gross Estate estate, whether or not in his possession, control
- Since succession and accrual of the corresponding estate or dominion.
tax takes effect upon the death, it shall only be fair to o Also refers to the value of any interest in property
appraise the estate at its fair market value at the time owned or possessed by the decedent at the time of
of the decedent’s death his death (interest having value or capable of being
valued or transferred)
 In General Fair Market Value at the time C. Property NOT PHYSICALLY IN THE ESTATE (these have
of death already been transferred during the lifetime of the
 Real Property Higher between; decedent but are still subject to payment of estate
- FMV determined by the tax)
Commissioner; and
- FMV as shown in the 1.) Transfer in contemplation of death
schedule of values o Disposition of property prompted by the thought of
fixed by the provincial death
and city assessors o Thought of death is the controlling motive which
 Personal Property Fair Market Value at the time induces the disposition of property for the purpose
of death of avoiding the tax
 Shares of Stock Unlisted Common Share o Included within this concept is donation mortis
- Book Value Per Share of causa
the issuing corporation o Include in the gross estate the value of property
Unlisted Preference Share transferred by the decedent during his lifetime in
- Par Value Per Share anticipation of his death such as:
Listed Share i. Transfer of property in favor of another
- FMV shall be the person, but the transfer was intended to take
average between the effect only upon the transferor’s death
highest and lowest ii. Transfer by gift intended to take effect at
quotation at the date death, or after death or under which the
nearest the date of donor reserved the income or the right to
death, if none is designate the persons who should enjoy the
available on the date income
of death itself o There’s no transfer in contemplation of death when
 Units of participation The bid price nearest the date the transfer of property is a bona fide sale for an
in any association, of death published in any adequate and full consideration in money or money’s
recreation or amusement newspaper or publication for worth
club general circulation o It is not the mere transfer that constitutes a
In accordance with the latest transfer in contemplation of death but the
 Right to usufruct, use
Basic Standard Mortality Table retention of some type of control over the property
or habitation and
taking into account the transferred
annuity
probable life of the o Five instances which constitutes transfer in
beneficiary, to be approved by contemplation of death according to Prof. Thomas
the Secretary of Finance upon Matic
recommendation of the  Secondary Life Estate – Retention by the
Insurance Commissioner grantor for life of the right to enjoy the
income or the fruits of the property
III. Items to be Included in the Gross Estate transferred in trust constitute what is
called reservation of a primary life estate.
A. Property owned by the decedent ACTUALLY AND PHYSICALLY
There is no question in this case that the
PRESENT IN HIS ESTATE at the time of his death
property would be included in the gross
B. Decedent’s Interest estate of the grantor upon his death.
o Refers to the extent of equity or ownership
 Interests Analogous to Life Estates – where
participation of the decedent on any property
the decedent had transferred certain shares
physically existing and present in the gross
of stock to his daughter “subject to your
 giving me the first dividends on these
P15,000,” and part of the P15,000 was still
unpaid when the decedent died, it was held
that the entire value of the securities was
properly included in the decedent’s gross
estate since he had retained the income for
a period which did not in fact end before
his death.
 Discharging Legal obligation to transferor –
a transfer with the right retained to have
the income used to discharge a legal
obligation of the transferor or otherwise
for his pecuniary benefit is equivalent to a
reservation of the right to the income. Thus,
where a man created a trust with the
provision that the income should be paid to
his life for her “support and maintenance”,
remainder to their children, it was held that
the property was includible in his gross
estate. But there is no inclusion required
if the grantor’s dependent is free to use
the income for any purpose without
restriction, the reason being that inclusion
is required only where the transfer relieves
the grantor of his duty to support.
 Right Retained Alone or with another to
designate who shall enjoy property or income
therefrom – The situation contemplated here
usually occurs when the settlor or grantor
designates himself as trustee or co-trustee
with another.
 Retention of Power to distribute or
accumulate trust income – where the grantor,
either alone as trustee or as co-trustee with
others, reserved the power to accumulate or
distribute income and exercised such power
by accumulating and adding income to
principal and this power he held until the
moment of his death with respect to both the
original principal as well as the
accumulated income, this requires the
inclusion in the decedent settlor’s gross
estate.
o Motives which negate transfer in contemplation of
death
 To relieve the donor from the burden of
management;
 To save income taxes or property taxes;
 To settle family litigated and unlitigated
disputes;
 To provide independent income for
dependents;
 To see the children enjoy the property
while while the donor is alive;
 To protect family from hazards of business
operations;
 To reward services rendered.
o Circumstances to be taken into account in
determining whether the transfer is one in
contemplation of death
 Age of the decedent at the time the transfers
were made
 Decedent’s health, as he knew it at or before
the time of the transfers
 The interval between the transfers and the
decedent’s death
 The amount of property transferred in
proportion to the amount of property
retained
 The nature and disposition of the decedent
 The existence of a general testamentary
scheme of which the transfers were a part
 The relationship of the donee(s) to the
decedent
 The existence of a desire on the part of the
decedent to escape the burden of managing
property by transferring the property to
others
 The existence of a long established gift-
making policy on the part of the decedent
 The existence of a desire on the part of the
decedent to vicariously enjoy the enjoyment
of the donees for the property transferred
 The existence of the desire by the decedent
of avoiding estate taxes by means of making
inter vivos transfers of property (Estate of
Oliver Johnson v. Commissioner, 10 T.C. 680)
 Concurrent making of will or making a will
within a short time after the transfer (Roces
v. Posadas, 58 Phil. 108).
2.) Transfer with retention or reservation of certain
rights
o Decedent transferred his property during his
lifetime, but retained for himself beneficial
employment of the thing or the right to receive
income from the same
o Doesn’t convey full ownership
3.) Revocable transfers
o Transfer whereby the terms of enjoyment of the
property may be altered, amended, revoked or
terminated by:
  Decedent alone; o Power of appointment refers to the right to
 By the decedent in conjunction with any other designate the person who will succeed to the
person without regard to when or from what property of the prior decedent.
source the decedent acquired such power to o Appointment could be in favor of anybody, including
alter, amend, revoke or terminate; or himself, his estate, his creditors, or the
 Where any such power is relinquished in creditors of his estate
contemplation of the decedent’s death other
than a bona fide sale for an adequate and General Power of Special Power of
full consideration in money or money’s Appointment Appointment
worth. As to Nature Donee has the power to Donee appoints the
o The power to alter, amend or revoke shall be appoint any person he successor to the
considered to exist on the date of decedent’s death chooses or enjoy the property who is
even though: property without within a limited
 The exercise of the power is subject to a restriction group or class of
precedent giving of notice; or person according to
 The alteration, amendment or revocation the will of the
takes effect only on the expiration of a Donor
stated period for the exercise of the power,
As to tax Makes appointed Not includable in
whether or not on or before the date of the
implications property, for all the gross estate of
decedent’s death
intents, the property of the done when he
 Notice has been given the done; thus, forms dies
 The power has been exercised. part of the gross estate
o Revocable transfer is part of the gross estate of the donee
because the transferor can revoke the transfer any
time
o It is sufficient that the decedent had the power to As to effects Donee holds the Donee holds the
revoke though he did not exercise the power appointed property with appointed property
o Transfer not revocable, thereby not subject to all the attributes of in trust
estate tax when: ownership
 The decedent’s power could only be exercised
with the consent of all parties having an
interest in the transferred property and if
o Properties passing under a GPA is includible as
the power adds nothing to the rights the
part of a decedent’s estate through
parties possess under local law (Lober v.
 Will
United States, 346 US 335).
 Deed executed in contemplation of death, or
 When the decedent has been completely
intended to take effect in possession or
divested of the power at the time of his
enjoyment at, or after his death
death (ibid.)
 Deed under which he has retained for his life
 Where the exercise of the power by the
or for any period not ascertainable without
decedent was subject to a contingency beyond
reference to his death or for any period
the decedent’s control which did not occur
which does not in fact end before his death:
before his death (Hurd v. Commissioner
160F(2)610).  The possession, enjoyment or right to
 The mere right to name trustees. Neither is income from the property; or
the grantor’s limited power to appoint  The right to designate the person who
himself as trustee under conditions which will possess or enjoy the property or
did not exist at his death (24 Am Jur. 2d, p income therefrom (Sec. 85[D], NIRC).
790).
5.) Transfer for insufficient consideration
4.) Transfers under a general power of appointment o 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 of the fair market value of over the consideration
the transferred property at the time of death over received.
the consideration received should be included in Sale was made in the Bona fide sale regardless
the gross estate ordinary course of trade of the amount of
o This is applicable to: consideration
 Transfers in contemplation of death No consideration received Either donation mortis
 Revocable transfers causa (subject to estate
 Transfers under general power of appointment tax) or donation inter-
o It is also subject to Donor’s Tax if there is no vivos (subject to donor’s
reference to: tax)
 Revocable transfer
 Contemplation of death 6.) Claims against insolvent persons
 General power of appointment o Insolvent = properties are not sufficient to
o Fair Market Values: satisfy, whether fully or partially, his debts
 FMV of the property at the time of sale or o Judicial declaration of insolvency is not required
transfer but the incapacity of the debtor to pay should be
 Determine whether or not the proven
consideration was full and adequate o Full amount of the claim should be included in the
gross estate
 If the consideration received is
o Portion of the claim which is not collectible should
substantially the same with the fair
be allowed as deduction
market value at the time of transfer,
hence not subject to estate tax  (Assets/Liabilities) x Claim = Collectible
 FMV of the property at the time of death  Claim – Collectible = Uncollectible
(deductible)
 Used to determine the amount to be
included in the gross estate
7.) Proceeds of life insurance
 If the consideration received is o Part of the gross estate to the extent of the amount
substantially lower or for less than receivable when the beneficiary in a life insurance
full and adequate consideration is:
compared to the fair market value at  The estate of the decedent, his executor or
the time of sale or transfer administrator taken out by the decedent upon
o If there was no consideration received at the date his own life regardless of whether the
of transfer and such transfer was made “in designation is revocable or irrevocable; OR
contemplation of date,” the fair market value of
 A third person, other than the decedent’s
the property at the date of death, not at the date
estate, executor, or administrator provided
of transfer, should be included in the gross estate
that the designation is not revocable
of the decedent
o In the absence of an express designation, the
o If there was no consideration received at the date
presumption is that the beneficiary is revocable
of transfer and such transfer was not made “in
designated. In the event the insured does not change
contemplation of death,” such transfer shall be
the beneficiary during his lifetime, the
considered inter-vivos subject to donors’ tax based
designation shall be deemed irrevocable
on the fair market value at the date the donation
o Not part of the gross estate when:
was made
 Proceeds from a life insurance policy is
Rules on insufficient consideration receivable by a 3rd person (NOT the
Consideration >/= FMV at the Bona fide sale; excluded decedent’s estate, executor or
time of transfer from gross estate administrator) AND that the said
Consideration < FMV at the Insufficient beneficiary is designated as irrevocable;
time of transfer consideration.  Where the life insurance was not taken by
Include in the gross the decedent upon his own life even though
estate at the excess of the beneficiary is the decedent’s estate,
FMV @ the time of death executor, or administrator;
  Accident insurance proceeds. NIRC deceased, executor or administrator under
specifically mentions only life insurance policies taken out by the decedent upon his
policies; own life or to the extent of the amount
 Proceeds of a group insurance policy taken receivable by any beneficiary not expressly
out by a company for its employees; designated as irrevocable
 Proceeds of insurance policies issued by
the GSIS to government officials and - Share of the surviving spouse is not included in the
employees are exempt from all taxes; gross estate; it is actually a deduction from the gross
 Benefits accruing from SSS law; estate
 Proceeds of life insurance payable to heirs - Capital = property brought by the husband to the
of deceased members of military personnel. marriage
- Paraphernal = property brought by the wife to the
marriage
Proceeds of Life Insurance (Taken out by the Decedent)
Beneficiary Designation Gross Estate IV. Deductions from the Gross Estate
Estate Revocable or Included - Deductions from the gross estate are classified as
Irrevocable ordinary and special deductions
Executor Revocable or Included
Irrevocable Allowable Deductions (Prior to TRAIN)
Administrator Revocable or Included Citizens and Resident Nonresident Alien Decedents
Irrevocable Decedents
3rd Party (i.e. Revocable Included I. Ordinary Deductions I. Ordinary Deductions
wife) Expenses, Losses, Proportionate Deductions for
3rd Party (i.e. Irrevocable Not Included Indebtedness, Taxes, etc. Expenses, Losses,
wife) (ELIT) Indebtedness, Taxes, etc.
- Funeral Expenses (ELIT) computed as follows:
o To determine the conjugal or separate character of - Judicial Expenses - (Gross Estate
proceeds, the following factors are considered: - Losses Phils./Gross Estate
 Policy taken before marriage – Source of - Indebtedness/Claims World) x ELIT world
funds determines ownership of the proceeds against the Transfer for Public Use
of life insurance estate/Mortgage Vanishing Deductions
 Policy taken during marriage payable
- Taxes II. Special Deductions
 Beneficiary is estate of the insured
- Claims against - Not allowed
– Proceeds are presumed conjugal;
Insolvent Person
hence, one-half share of the
Transfer for Public Use III. Share of the
surviving spouse is not taxable
Vanishing Deduction Survivng Spouse
 Beneficiary is third person –
Proceeds are payable to beneficiary II. Special Deductions
even in premiums were paid out of - Standard Deduction
the conjugal - Family Home
- Medical Expenses
8.) Prior Interest - RA 4917 (Retirement
o All transfers, trusts, estates, interests, rights, Benefits)
powers and relinquishment of powers made, created,
arising existing, exercised or relinquished before III. Share of the
or after the effectivity of the NIRC Surviving Spouse
o Coverage of prior interest
 Transfers in contemplation of death Allowable Deductions (TRAIN)
 Revocable transfers Citizen and Resident Nonresident Alien Decedents
 Life insurance proceeds to the extent of Decedents
the amount receivable by the estate of the I. Ordinary Deductions I. Ordinary Deductions
Expenses, Losses, Losses, Indebtedness, Taxes,  Cost of burial plot, tombstone monument or
Indebtedness, Taxes, etc. claims against insolvent mausoleum but not their upkeep. In case
(ELIT) persons deceased owns a family estate or several
- Losses - (Gross Estate burial lots, only the value corresponding
- Indebtedness/Claims Phils./Gross Estate to the plot where he is buried is
against the estate World) x LIT world deductible;
- Taxes Transfer for Public Use  Interment and/or cremation fees and
- Claims against Vanishing Deductions charges;
insolvent persons  All other expenses incurred for the
Transfer for Public Use II. Special Deductions performance of the ritual and ceremonies
Vanishing Deductions - Standard deduction of incident to the interment.
500,000 is now allowed o Expenses incurred after the interment are not
II. Special Deductions deductible
- Standard Deduction III. Share of the o If borne by relatives and friends = Not deductible
- Family Home Surviving Spouse o Medical expenses as of the last illness will not
- RA 4917 (Retirement form part of funeral expense but should be claimed
Benefits) as Medical Expenses

III. Share of the 2.) Judicial Expenses of Testamentary or Intestate

Surviving Spouse
Ordinary Deductions
A. ELITe (Expenses, Losses, Indebtedness, Taxes, etc.)
1.) Funeral Expenses
o Repealed by TRAIN
o Whether paid or unpaid from the date of death up
to date of interment
o The amount deductible is the lower between:
 Actual funeral expenses (paid or unpaid);
or
 5% of the gross estate
**But not exceeding 200,000
o Any amount in excess of 200,000 are not deductible
 Neither shall the unpaid portion in excess
of 200,000 be allowed as deduction under
“claims against the estate”
o Supporting receipts or invoices
o Nonresidents:
 Lower between:
 (Phil GE/World GE) x F.E. World
 5% x Phil GE
o Funeral Expenses include:
 Mourning apparel of the surviving spouse
and unmarried minor children of the
deceased, bought and used in the occasion
of the burial;
 Expenses of the wake preceding the burial
including food and drinks;
 Publication charges for death notices;
 Telecommunication expenses in informing
relatives of the deceased;
Proceedings
o Repealed by TRAIN
o Expenses of testamentary or intestate proceedings
for the benefit of the estate; those incurred in
the:
 Inventory-taking of assets comprising the
gross estate;
 Administration;
 Payment of debts of the estate;
 Distribution of the estate among the heir
o Expenses incurred during the settlement of the
estate but not beyond the last day prescribed by
law, or the extension thereof, for the filing of
the estate tax return
 6 months or no more than 30 days
(extension)
o Extrajudicial Proceedings (Administration and
Settlement)
 Limited to expenses actually and
necessarily incurred in the collection of
the assets of the estate, payment of debts,
and distribution of the remainder
o Attorney’s fees
 Must be essential to the collection of
assets, payment of debts, distribution of
property in order to be deductible
o Examples of judicial expenses:
 Fees of executor or administrator
 Attorney’s fees
 Court fees
 Accountant’s fees
 Appraiser’s fees
  Clerk hire
 Costs of preserving and distributing the
estate
 Costs of storing or maintaining property of
the estate
 Brokerage fees for selling property of the
estate (Sec. 6[A][2], R.R. 2-2003)
o Non-deductible Judicial Expenses
 Expenditures incurred for the individual
benefit of the heirs, devisees, legatees
 Compensation paid to a trustee of the
decedent’s estate when it appeared that
such trustee was appointed for the purpose
of managing the decedent’s real property
for the benefit of the testamentary heir
 Premiums paid on the bond filed by the
administrator as an expense of
administration since the giving of a bond
is in the nature of a qualification for the
office and not necessary for the settlement
of the estate
 Attorney’s fees incident to litigation
incurred by the heirs in asserting their
respective rights (ibid).
3.) Casualty Losses
o Include storms, shipwreck or other casualties, or
from robbery, theft or embezzlement
o Amount deductible is the value of the property
lost
o Requisites for deductibility:
 Arising exclusively from:
 Acts of God (fire, storm, shipwreck)
 Acts of man (robbery, theft,
embezzlement)
 Not compensated by insurance or otherwise
 Not claimed as a deduction in an income tax
return of the estate subject to income tax
 Occurred during the settlement of the
estate (not beyond the last day – 1 year
from date of death)
o Losses are allowed as deductions from the gross
estate of non-resident alien decedent:
 Proportion of such deductions which the
value of his gross estate in the
Philippines bears to the value of his
entire gross estate, wherever situated
o Casualty loss can be allowed as deduction in one
instance only, either income tax purposes or
estate tax purposes
4.) Indebtedness or Claims Against the Estate
o Claims are debts or demands of a pecuniary nature
which could have been enforced against the
deceased in his lifetime and could have been
reduced to simple money judgements
o Personal obligation of the deceased existing at
the time of his death
o Sources of claims (CTO)
 Contract
 Tort
 Operation of Law
o Claims against the estate may be claimed as a
deduction by a Filipino citizen, whether resident
or not, or of a resident alien decedent provided
that:
 At the time the indebtedness was incurred
the debt instrument was duly notarized; and
 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 (Sec 86[A][1][c],
NIRC)
o Requisites for its deductibility (TiG- VaCS)
 The liability represents a personal
obligation of the deceased existing at the
Time of his death except unpaid obligations
incurred incident to his death such as
unpaid funeral expenses and unpaid medical
expenses;
 The liability was contracted in Good faith
and for adequate and full consideration in
money or money’s worth;
 Must be a debt or claim must be Valid and
enforceable in court;
 Indebtedness must not have been Condoned by
the creditor or the action to collect from
the decedent must not have prescribed (R.R.
2-2003); and
 It must be duly Substantiated.
o Substantiation Requirements
 In case of simple loan (including advances)
 The debt instrument must be duly
notarized at the time the
indebtedness was incurred, except
for loans contracted by financial
institutions (notarization is not
part)
 Duly notarized Certification from
the creditor
 o If creditor is a corporation:
sworn certification signed by
the President, or Vice
President or other principal
officer
o If creditor is a partnership:
any of the general partners
o If creditor is a bank or other
financial institutions: branch
manager
o If creditor is an individual:
signed by him
o The one who should certify
must not be a relative within
the fourth degree (except if a
copy of the promissory note is
filed with RDO having
jurisdiction over the borrower
within 15 days from execution
 Proof of financial capacity of the
creditor
 Statement under oath executed by the
administrator or executor reflecting
the disposition of the loan if
contracted within 3 years prior to
death
o If the unpaid obligation arose from purchase of
goods or services
 Pertinent documents evidencing the purchase
of goods or services (invoice, delivery
receipt) as duly acknowledged, executed and
signed by decedent-debtor and creditor, and
statement of account given by the creditor
as duly received by decedent-debtor
 Duly notarized Certification from the
creditor
 Certified true copy of the last audited
balance sheet of the creditor with a
detailed schedule of its receivable;
Certified true copy of the updated latest
subsidiary ledgers/records of the debt
 If settlement is through the Court in a
testate or intestate proceeding, pertinent
documents filed with the Court evidencing
the claims against the estate , and the
Court Order approving the said claims
5.) Unpaid Mortgage
o Decedent leaves property encumbered by a mortgage
or indebtedness contracted in good faith
o Requisites for deductibility:
 The value of the property to the extent of
the decedent’s interest therein,
undiminished by such mortgage or
indebtedness is included in the gross
estate; and
 The mortgage indebtedness was contracted in
good faith and for an adequate and full
consideration in money or money’s worth.
o Amount deductible would be the outstanding debt or
mortgage
o In case unpaid mortgage payable is being claimed
by the estate, and the loan is found to be merely
an accommodation loan where the loan proceeds went
to another person, the value of the unpaid loan,
to the extent of the decedent’s interest therein
must be included as a receivable of the estate
o If there is a legal impediment to recognize the
same as receivable of the estate: it shall not be
allowed as deduction
o If owned only half of the property so that half of
its value was included in his estate, only half of
the debt is deductible, even though the executor
paid the entire debt, the liability being solidary
6.) Taxes
o Unpaid taxes that accrued prior to death of the
decedent
o Taxes not deductible are those accruing after
death, such as:
 Income tax on income received after death
 Property taxes accrued after death
 Estate tax
7.) Claims against insolvent persons
o Receivables due or owing from persons who are not
financially capable of meeting their obligations
o Requisites for deductibility:
 The incapacity of the debtor to pay his
obligation
 The full amount owed must first be included
in the gross estate and the amount
uncollectible shall be allowed as a
deduction
 If the insolvent could only pay partial
amount, the full amount owed shall be
included and the uncollectible shall be
allowed as deduction
B. Transfer for Public Use
o Requisites for deductibility (WIG-PD)
 The disposition is in a Last Will and
testament;
  To take effect after Death the same property in the gross estate of the
 In favor of the Government or any political present decedent)
subdivision;
 For exclusive Public purposes; and Less: Mortgage Paid (1st deduction)
 The value of the property given is Included (XXX)
in the gross estate. (Paid by the present decedent from the
o If transfer to Red Cross = Deductible Mortgage assumed when the property was
Inherited or received as donation)
C. Vanishing Deductions (Property previously taxed)
o Deduction allowed from the gross estate for _____
properties which were previously subject to donors Initial Basis
or estate tax XXXX
o Lessen double taxation
o Property received by him from a prior decedent or Less: Proportionate deduction (2nd deduction)
donor by: (1) gift or by (2) bequest, device or Computed as:
inheritance has been the object of previous (Initial Basis/Gross Estate) x **ELIT + Transfer
transfer taxation (XXX)
o Requisites for deductibility (5-P2INT) For Public Use***
 The present decedent died within 5 years from
receipt of the property from the prior Final Basis
decedent or donor; XXXX
 The property on which vanishing deduction is X Vanishing Deduction %
being claimed is located within the %
Philippines; VANISHING DEDUCTION
 The property formed Part of the taxable XXX
estate of the prior decedent or of the
taxable gift of the donor; ***Funeral and Judicial expenses are no longer
 The estate Tax on the prior succession or allowed In TRAIN
donor’s tax on the gift must have been
finally determined and paid; Special Deductions
 The property on which the vanishing A. Standard Deduction
deduction is taken must be Identified as the o Standard deduction of 5,000,000 (1,000,000 prior
one received or acquired; and TRAIN)
 No vanishing deduction was allowed on the o Without need of substantiation
same property on the prior decedent’s o Nonresident Aliens = 500,000 deduction
estate. Standard Deduction in Optional Standard
o Vanishing deduction rates Estate Tax Deduction in Income
Period from receipt to Rate Tax
decedent’s death As to Nature Deduction in addition to Deduction in lieu
the other deductions of itemized
Within 1 year 100% deductions
Beyond 1 year to 2 years 80% As to Amount Fixed at 5,000,000 40% of gross income
Beyond 2 years to 3 years 60% of Deduction or gross
sales/receipts
Beyond 3 years to 4 years 40%
As to Available to all Applies to all
Beyond 4 years to 5 years 20% Availability individuals
More than 5 years No deduction allowed taxpayers except
o Pro-Forma Computation of Vanishing Deductions non-resident
Value to take (The lower amount between the aliens, and non-
XXXX resident foreign
value of the property in the gross estate of the corporations
prior decedent or value of the gift and value of
B. Family Home
o Dwelling house, including the land where it is
situated and where the family resides, as certified
by the Barangay Captain of the locality
o Lower between: (of the family home and the land)
 10,000,000
 Fair market value at the time of the
decedent’s death
o Family home is deemed constituted on the house and
lot from the time it is actually occupied as a
family residence and is considered as such for as
long as any of its beneficiaries actually resides
therein
o Actual occupancy shall not be considered
interrupted or abandoned in cases of temporary
absence due to travel or studies or work abroad
o Unmarried Head of a Family
 Unmarried or legally man or woman with one
or both parents, or with or more brothers or
sisters, or with one or more legitimate,
recognized natural or legally adopted
children living and dependent upon him (not
more than 21 years old)
o Beneficiaries of a family home:
 Husband and wife, or the head of a family;
and
 Their parents, ascendants, descendants
including legally adopted children, brothers
and sisters, whether the relationship be
legitimate or illegitimate, who are living
in the family home and who depend upon the
head of the family for legal support
o Limitation
 Person may constitute only 1 family home
o Requisites for deductibility
 Decedent was married or if single, head of a
family;
 Beneficiaries must be dwelling in the family
home
 The family home must be the actual
residential home of the decedent and his
family at the time of his death, as
certified by the Barangay Captain of the
locality where the family home is
situated;
 The total value of the family home must be
included as part of the gross estate of
the decedent; and
 Allowable deduction must be in the amount
equivalent to:
 The current FMV of the family home
as declared or included in the gross
estate, or
 The extent of the decedent’s
interest (whether
conjugal/community or exclusive
property), whichever is lower, but
not exceeding P10, 000,000.
C. Medical Expenses
o Repealed by TRAIN
o All medical expenses (cost of medicine, hospital
bills, doctors’ fees, etc.) incurred within one
year before death(whether paid or unpaid), but
should not exceed P500,000
o If incurred within one year from death in excess of
500,000 shall no longer be allowed as deduction
o Requisites for deductibility
 Medical expenses incurred by the decedent;
 Incurred within one (1) year prior to the
decedent’s death;
 Must be substantiated with receipts; and
 Shall not exceed 500,000 whether paid or
unpaid.
D. Amounts received by heirs under RA 4917
o Any amount received by the heirs from the decedent’s
employer as a consequence of the death of the
decedent- employee in accordance with RA No. 4917
shall be allowed as a deduction from the gross
estate
 Provided it is included in the gross estate
o Requisites for deductibility
 Amounts received by the heirs from the
decedent’s employer;
 Received as a consequence of the death of
the decedent-employee; and
 Amount is included in the gross estate of
the decedent
E. Net Share of the Surviving Spouse
- Amount deductible is the net share of the surviving spouse
in the conjugal partnership property
o ½ or 50% of the conjugal property after deducting
the obligations chargeable to such property
Deductions from the Gross Estate of a Nonresident Alien
- No deduction shall be allowed, unless the executor,
administrator, or anyone of the heirs, as the case may be,
includes in their return required to be filed the value
 at the time of the decedent’s death of that part of his o Excludes intangible personal property with situs in
gross estate not situated in the Philippines the Philippines
- Value of the net estate of a non-resident alien in the B. Exclusions under the Section 87 of the Tax Code
Philippines: 1) The Merger of the usufruct in the owner of the naked title
o Determined after deducting from the value of that 2) The transmission or the delivery of the inheritance or
part of his gross estate which at the time of his legacy by the fiduciary heir or legatee to the
death is situated in the Philippines the following Fideicommissary
items of deductions: 3) The transmission from the first heir, legatee or donee in
favor of Another beneficiary, in accordance with the
Prior to 2018 Starting 2018 desire of the predecessor
1.) ELIT. That “proportion” of 1) LIT.** That “proportion” of 4) All the bequests, devises, legacies or transfers to social
the total expenses, losses, the total losses, welfare, cultural and charitable Institutions no part of
indebtedness, and taxes indebtedness, claim the net income of which inures to the benefit of any
which the value of such against insolvent persons individual: provided that not more than 30% of the value
part bears to the value of and taxes which the value given is used for administrative purposes
his entire gross estate of such part bears to the C. Exclusions under Special laws
wherever situated computed value of his entire gross 1) Proceeds of life insurance and benefits received by
using the following estate wherever situated members of GSIS, SSS, by reason of death
formula: computed using the 2) Life insurance proceeds on life insurance policy taken out
Computed as: following formula: by the decedent himself, upon his own life, where the
(GE Philippines/GE World) x Computes as: beneficiary is a third person and is irrevocably
ELIT World (GE Philippines/GE World) x designated
LIT World 3) Group Insurance taken out by his employer on the
2.) Transfer for public use 2) Transfer for public use employee’s life , whoever the beneficiary may be, whether
3.) Vanishing deduction 3) Vanishing deduction revocable or irrevocable
4.) Net share of the surviving 4) Net share of the surviving 4) Amounts received from Philippines and United States
spouse in the community spouse in the community government for war damages
property property 5) Payments from the Philippines of US government to the
5) Standard deduction of legal heirs pf deceased of World War II Veterans
500,000 6) Amounts received from Unites States Veterans Association
7) Transfer by way of bona fide sales
8) Properties held in trust by the decedent
IV. Exemptions and Exclusions from the Gross Estate 9) Acquisition and/or transfer expressly declared as not
A. Exclusions under Sections 85 and 86 of the Tax Code taxable
1) Exclusive property of the surviving spouse 10) Personal Equity and Retirement Account assets of the
o The gross estate in case of married decedents, is decedent-contributor
composed of:
 Exclusive properties of the decedent V. Tax Credit for Estate Taxes Paid in a Foreign
 Common properties of the decedent and the Country
surviving spouse - Deduction from the estate tax itself
o Exclusive properties of the surviving spouse should - Estate Tax Credit
be excluded in the gross estate o Taxpayer’s right to deduct from the tax due the
o Capital = Exclusive properties of the husband amount of tax it has paid to a foreign country
o Paraphernal = Exclusive properties of the wife o Remedy against international double taxation
2) Property outside the Philippines of a non-resident alien - Amount could be claimed a deduction if such taxes pertain
decedent to properties included in the gross estate
o Only his properties situated or with situs within - Nonresident alien decedents are not entitled to estate tax
the Philippines shall be included in his gross credit
estate - Only the estate of a citizen or resident alien at the time
3) Intangible personal property in the Philippines of a non- of death can claim tax credit for any estate taxes paid
resident alien under the Reciprocity Law in a foreign country
- Limitations in estate tax credit
 o The amount of the credit in respect to the tax paid Limit A P
to any country shall not exceed the same proportion XXX
of the tax against which such credit is taken, which Limit B XXX
the decedent’s net estate situated within such Allowed Tax Credit (lower) XXX
country taxable under the NIRC bears to his entire
net estate (per country basis); and Net Distributable Estate
o The total amount of the credit shall not exceed the - Amount arrived at from gross estate (all properties in
same proportion of the tax against which such the possession and control of the decedent at death and
cre\dit is taken, which the decedent’s net estate actual expenses, charges, and payments from gross estate)
situated outside the Philippines taxable under the
NIRC bears to his entire net estate (overall basis). VI. Filing of Estate Tax Return and Payment of Tax
- Philippine Estate Tax Due Due
o Estate Tax Due (based on estate tax table) Notice of Death
P XXXX
- Prior 2018: Filed by the executors or any of the legal
Less: Tax credit for foreign estate taxes paid
heirs (when the transfer mortis cause is subject to tax,
(XXXX)
or, where though exempt, the value of the gross estate
Philippine estate tax payable
exceeds 20000)
XXX
o Within 2 months after decedent’s death
Limit A or – If there is only 1 Foreign Country  Or within 2 months after the executor has
qualified
Net estate, foreign country X Philippine Estate Tax Due = P
XXX (Limit) - TRAIN (1/1/2018)
Net estate, world o No longer required

Versus Filing of Estate Tax Return and Payment of Estate Tax Due
- Shall be paid by the executor/administrator or any of the
Actual tax paid, foreign country legal heirs at the time the return is filed (Pay as you
P XXX (Actual) file system)
Actual tax credit (lower amount) - Required in cases of
P XXX (Tax Credit) o Transfers subject to tax
o Regardless of the gross value of the estate, where
the said estate consists of registered or
registrable property
- Estate tax returns showing gross value exceeding
Limit B – If there are >1 Foreign Country 5,000,000 shall be supported by a certificate duly
Step 1 – Compute limit A per foreign country certified by a CPA containing the following
Step 2 – Compute limit B: o Itemized assets of the decedent (w/ corresponding
gross value)
Net estate all foreign countries X Philippine Estate o Itemized deductions
= P XXX (Limit) o Amount tax due (whether paid or outstanding)
Net estate, world Tax
Due Time for Filing
- 1 year from date of death (without surcharges or
Versus interests)
o Court approving the project of partition shall
Actual Tax paid, all foreign countries furnish the Commissioner with certified copy
= P XXX (Actual) thereof and its order within 30 days after
Limit B (lower amount) promulgation
= P XXX (Limit)

Step 3 Extension of Time to File the Estate Tax Return

Choose the lower amount between Limit A and Limit B - Commissioner or any revenue officer
o Reasonable extension not exceeding 30 days
 - Filed in the Revenue District Office
Time for Payment of the Estate Tax
- Paid at the time the return is filed by the executor,
administrator, or the heirs
Extension of Time to Pay Estate Tax
- Requisites:
o The request for extension must be filed before the
expiration of the original period to pay which is
within 1 year from death;
o There must be a finding that the payment on the
due date of the estate tax would impose undue
hardship upon the estate or any of the heirs;
o The extension must be for a period not exceeding 5
years if the estate is settled judicially or 2
years if settled extra-judicially; and
o The Commissioner may require the posting of a bond
in an amount not exceeding double the amount of
tax to secure the payment thereof.
- If request is by reason of negligence, intentional
disregard if rules and regulations, or fraud
o No extension
Payment of Estate Tax by Installment and Partial Disposition of
Estate
- In case of insufficiency of cash for the immediate
payment of the total estate tax due, the estate may be
allowed to pay the estate tax due throught the following
options:
1. Cash Installment
o Shall be made within 2 years from the date of
filing the estate tax return
o Estate tax return shall be filed within 1 year
from date of decedent’s death
o Frequency (monthly, quarterly, etc) deadline and
the amount of each installment shall be included
in the estate tax return, subject to the approval
by the BIR
o In case of lapse of 2 years without the payment of
entire tax due, remaining balance shall be due and
demandable (plus penalties and interest from the
prescribed deadline for filing the return and
payment of tax)
o No civil penalties or interest may be imposed on
estates permitted to pay the estate tax due by
installment
2. Partial disposition of estate and application of its
proceeds to the estate tax due
o The disposition shall refer to the conveyance of
property (real, personal, tangible or intangible)
with the equivalent cash consideration
o Estate tax return shall be filed within 1 year
from decedent’s death
o Written request for partial disposition shall be
approved by the BIR
 Filed together with a notarized undertaking
– proceeds will be exclusively used for the
payment of total estate tax due
o Computed estate tax due shall be allocated in
proportion to the value of each property
o Estate shall pay to the BIR the proportionate
estate tax due of the property intended to be
disposed
o An electronic Certificate Authorizing Registration
shall be issued upon presentation of the proof of
payment of the estate tax due of the property
intended to be disposed
 eCARs shall be issued as many as there are
properties to be disposed to cover the
total estate tax due, net of the
proportionate estate taxes previously paid
o In case of failure to pay total estate tax due,
the estate tax shall be immediately due and
demandable
Request for Extension of Time, Installment Payment and Partial
Disposition of Estate
- Shall be filed with the Revenue District Officer (RDO)
where the estate is required to secure its TIN and file
the estate tax return
o Shall be approved by the Commissioner or his duly
authorized representative
Place of Filing the Return and Payment of the Estate Tax
- Resident Decedent
o Administrator/Executor shall register the estate
and secure a new TIN from the RDO where the
decedent was domiciled at the time of his death
and shall file the estate tax return and pay the
corresponding tax with the Accredited Agent Bank
(AAB), RDO or Revenue Collection Officer (RCO)
having jurisdiction over the place
- Non-Resident Decedent (Citizen or Alien – with executor
in the PH)
o Estate tax return shall be filed and the TIN for
the estate shall be secured from the RDO where
such administrator or executor is registered
 If executor is not registered; estate tax
return shall be filed and the TIN of the
estate shall be secured from the RDO having
jurisdiction over the executor’s legal
residence
Liability for the Payment of Estate Tax established in the PH any share, obligation, bond or
- Primary Obligation = Executor/Administrator right by way of gift inter-vivos or mortis causa, legacy
- Subsidiary Liability = Beneficiary or inheritance
o Portion of the estate which his distributive share o Unless a certification from the Commissioner that
bears to the value of the net estate the tax have been paid
o Liability shall not exceed the value of his share - If bank has knowledge of the death of a person (who
in the inheritance maintained a bank account alone, or jointly with another
- If there’s no executor or administrator, qualified and o It shall allow any withdrawal from the said
acting within the Philippines deposit account
o Any person in actual or constructive possession of  Subject to 6% withholding tax
any property of the decedent must file o All withdrawal slips shall contain a statement to
- Two or more executors or administrators the effect that all of the joint depositors are
o All of them are severally liable for the payment still living at the time of the withdrawal
o Estate tax issued by the Commissioner or the RDO - TRAIN
(having jurisdiction) will serve as the authority o In case the available cash is insufficient to pay
to distribute the remaining properties the total estate tax due, payment by installment
shall be allowed within 2 years from the statutory
Payment by Installment (TRAIN) date (without civil penalty and interest)
- Before 2018
o In case available cash of the estate is not
sufficient to pay its total estate tax liability,
the estate may be allowed to pay the tax by
installment (clearance shall be released to the
property the computed tax on which has been paid)
o Computation of the estate tax shall always be on
the cumulative amount of the net taxable estate
o If paid after the statutory due date = impose
penalty
 But if approved by the Commissioner (or
representative) the penalty shall only be
interest
- TRAIN
o In case the available cash of the estate is
insufficient
 Payment by installment shall be allowed
within 2 years from the statutory date
without civil penalty and interest

Civil Penalties and Interest

- If paid after the statutory due date, but within the
extension period
o Subject to interest but not to surcharge
o If no false or fraudulent intent = Penalty of 25%
o If there is false, malice or fraudulent intent =
Penalty of 50%
o Interest of 20% on the unpaid amount of tax from
the datge computed until fully paid

Payment of Tax Antecedent to the Transfer of Shares, Bonds, or

Rights
- Not be transferred to any new owner in the books of any
corporation, partnership, business or industry
 - Tax levied, assessed, collected and paid upon the
transfer by any person, resident or nonresident, of the
property or gift
- Tax imposed on the exercise of the donor’s right during
lifetime to transfer property to others
- Not a property tax – An Excise Tax imposed on the
transfer of property by way of gift inter-vivos
- Direct tax
o Imposed on the donor and determined with reference
to all the donor’s gifts
o Applies to both natural and juridical persons
- “Transfer of property in trust or otherwise, direct or
indirect”
o Not only the transfer of ownership in the fullest
sense but also the transfer of any right or
interest in property, but less than the title
- Transfer becomes complete and taxable only when the
donor has divested himself of all beneficiary interest
in the property and has no power to revest any such
interest in himself or his estate

II. Purpose or Object

- Two-fold purpose of Donor’s Tax
o To supplement estate tax
o To prevent avoidance of income tax through the
device of splitting income among numerous donees
who are usually members of a family or into many
trusts, with the donor thereby escaping the effect
of the progressive rates of income taxation

III. Requisites of Valid Donation (CIDA)

- Capacity of donor to donate
o Refers to the condition and legal competence of
the donor to enter into a contract
o All person who may contract and dispose of their
property may make a donation
 Not enough that a person be capacitated to
contract but also have the capacity to
dispose
o The donor’s capacity shall be determined as of the
time of the making of the donation (Art. 737,
NCC).
Donor’s Tax - Donative Intent
o Refers to the proper declaration of the legal
Donation is an act of liberality whereby a person disposes owner of a property or right to transfer ownership
gratuitously of a thing or right in favor of another, who without consideration
accepts it. o Such intent followed by a donative act is
- Law considers donation a contract (requires acceptance – essential to constitute a gift (and no strained
rules on Oblicon applies) and artificial construction of a supplementary
statute should be included to tax as gift)
I. Nature of Donor’s Tax
 o NOTE: Donative intent is necessary only in cases
of direct gift. If the gift is indirectly taking
place by way of sale, exchange or other transfer
of property as contemplated in cases of transfer
for less than adequate and full consideration
(Sec. 100, NIRC), not always essential to
constitute a gift.
- Actual or constructive Delivery of gift
o Donor’s tax applies to a completed gift
o Perfected from the moment the donor knows of the
acceptance of the donee
- Acceptance by the donee
o Perfected not from the time of acceptance but from
the time of knowledge of the donor that the done
has accepted the same
o Acceptance must be made during the lifetime of the
donor and of the
Formalities
- Donation of Movable Property
o May be made orally or in writing
o Oral donation requires the simultaneous delivery
of the thing or the document representing the
right donated
o If the value exceeds 5000
 Donation and acceptance must be made in
writing, otherwise void
- Donation of Immovable Property
o Must be made in a public document (specifying the
property donated and the value of the charges
which the done must satisfy)
o Acceptance may be made in the same deed of
donation or in a separate public document
 If separate document: donor shall be
notified thereof in an authentic form
Characteristics of Donor’s Tax
- An “excise tax” not a property tax
o Imposed on the right or privilege to transfer
property by way of gift inter-vivos
- Donor’s tax, being a contract, does not apply unless and
until there is a completed gift
o Completed by delivery either actual or
constructive
- Transfer is perfected from the moment the donor knows of
the acceptance of the done
- Donor’s tax is a direct tax because the tax is imposed
on the donor and determined with reference to all the
gifts
- Renunciation by the surviving spouse of his/her share in
the conjugal partnership or absolute community after
dissolution of the marriage is subject to donor’s tax
- General renunciation by an heir, including the surviving
spouse, of his/her share in the hereditary estate is not
subject to tax, unless specifically and categorically
done in favor of identified heirs to the exclusion or
disadvantage of other co-heirs
Classification of Donation
- As to motive or purpose
o Simple
 Pure liberality
o Renumeratory
 Due to past services rendered or future
services or charges or burdens
 Not really donations in substance
 Not gratuitous – Not subject to donor’s tax
o Modal
 Consideration is less than the value of the
thing donated
- As to time of taking effect (Perfection)
o Donation inter-vivos
o Donation mortis-causa
IV. Transfers which may be constituted as donation
- Sale/exchange/transfer of property for insufficient
consideration
o Rule regarding transfer for less than adequate
and full consideration:
 GR: Where a property is transferred for
less than adequate and full
consideration in money or money’s worth,
the amount by which the FMV exceeds the
consideration shall be deemed a gift and
be included in computing the amount of
gifts made during the calendar year. It
is as if the property was donated but in
order to avoid paying donor’s tax, the
donor opted to transfer the property for
inadequate consideration.
 XPN: Where property transferred is real
property located in the Philippines
considered as capital asset, the
transfer is not subject to donor’s tax
but to a capital gains tax, which is a
final income tax of 6% of the fair
market value or gross selling price,
whichever is higher, and therefore,
there can be no instance where the
seller can avoid any tax by selling his
capital assets below its FMV
- Condonation/Remission of debt
o If the creditor condones the indebtedness of
the debtor the following rules apply:
 On account of debtor’s services to the
creditor the same is in taxable income
to the debtor.
 If no services were rendered but the
creditor simply condones the debt, it is
taxable gift and not a taxable income.