TRANSFER TAXES

Donor’s Tax or gift tax is an excise tax imposed on the right to

transfer gratuitously, directly or indirectly, real and personal
properties, tangible or intangible out of the owner’s liberality in favor
of another that accepts the gift.

Estate Tax -A tax levied upon the transfer of the net estate of a
decedent to his heirs

Levy – to impose
Transfer - to pass ownership, rights and obligation

Nature of Estate tax – it is a tax on the transfer of the net estate of

the decedent.
 Transfers of Property
GRATUITOUS
ONEROUS TRANSFER
TRANSFER

NORMAL FACT OF
CASUAL DONATION
COURSE OF DEATH
TRANSFER Inter Vivos
BUSINESS (Mortis
Causa)
TRANSFER
TAXES

BUSINESS
CAPITAL DONOR’S
TAXES ESTATE TAX
GAINS TAX TAX
(VAT, %age
TAX, EXCISE
TAX
 JUSTIFICATION OF ESTATE TAX
REDISTRIBUTION OF WEALTH
THEORY
BENEFIT-RECEIVED THEORY
PRIVILEGE OR STATE PARTNERSHIP
THEORY
ABILITY-TO-PAY THEORY
Inheritance received by the heir
contributes to the unequal distribution
of wealth because heir has not worked
for it
Government provides services for the
transfer of properties either by will or
by law.
Passive & silent partner in the
accumulation of wealth, as it protects
individual within the territory
Every inheritance is an unearned wealth
creating an ability to pay the tax
Distinctions between Donor’s Tax and Estate Tax
Donor’s Tax Estate Tax
Effectivity of transfer of During the lifetime of Upon the death of the
property donor and donee decedent

Taxpayer Donor Estate of the decedent

Basis of Tax Net gift Net Estate

Net gift of P100,000 and Net estate of P200,000

Exempt amount below and below
TRAIN (6% in excess of TRAIN – no more exempt
250K)
Within thirty (30) days Within six (6) months
Filing and payment after the date gift is from the decedent’s
made death.
TRAIN- within one year
from date of death
 BASIC ELEMENTS OF SUCCESSION
1. Decedent – person who died and whose property is
transmitted through succession whether he left a will
or not.
Testator –decedent who made the last will and
testament.
2. Estate – property or property rights
Inheritance –all properties, rights and obligations
which are not extinguished by his death which
includes those which have accrued thereto since the
opening of the succession.
3. Successor – heir or person to whom the property rights
is to be transferred.
 Basis of Succession
(transferring the decedent’s property to the heirs.)

1. Public order – person’s death brings property without

ownership, hence heirs are protected to avoid chaotic
conflicts.
2. Family relations- decedent’s wealth which he
acquired during his lifetime is intended for the benefit
of his heirs.
3. Implicit ownership- heirs assumed ownership
because they have primary rights over the
inheritance.
4. Socio-economic –Successor should continue to utilize
the resource left by the decedent in order that the
wealth shall be preserved.
 Definition of Terms
• Succession – is a mode of acquisition by virtue of which the
property, rights and obligations to the extent of the value of
the inheritance, of a person are transmitted through his
death to another or others either by will or by operation of
law.
• Will – is an act whereby a person is permitted with the
formalities prescribed by law, to control to a certain degree
the disposition of his estate, to take effect after his death.
• Special Proceedings – A remedy by which a party seeks to
establish a status, a right, or a particular fact relative to the
escheat and settlement of estate of deceased persons.
• Escheat - A proceeding whereby the State, by virtue of its
sovereignty, steps in and claims the real or personal
property of a person who dies intestate without heir.
• Decedent. The person whose property is transmitted
through succession, whether or not he left a will.
• Testator is the decedent whose properties are to be
transferred to his successor through a written will.
• Heir. The person called to the succession, either by the
provision of a will or by operation of law.
• Estate refers to all the property, rights and obligations of a
person which are not extinguished by his death
• Testamentary succession. Succession which results from
the designation of an heir, made in a will executed in the
form prescribed by law.
• Legal or intestate succession. Transmission of properties
where there is no will, or if there is a will, the same is void
or nobody succeeds in the will.
• Mixed succession. Transmission of properties which is
effected partly by will and partly by operation of law.
• Legatee. An heir to a particular personal property given
by virtue of a will.
• Devisee. An heir to a particular real property given by
virtue of a will.
• Executor /Executrix is the person nominated by the
testator to carry out the directions and requests in his
will and to dispose of his property according to his
testamentary provisions after his death.
• Administrator/Administratrix is a person appointed by
the court, in accordance with the governing statute, to
administer and settle intestate estate and such testate
estate as no executor designated by the testator.
• Holographic will . A will that is entirely written, dated
and signed by the testator.
• Codicil – An addition to a will, made after the execution of a
will and annexed to be taken as a part thereof, by any
disposition made in the original will is explained, added to,
or altered.
• Notarial Will – A will written in public instruments, notarized
by a lawyer, signed by the testator and witnesses.
• Testate Estate – An estate of a deceased person which is
settled or to be settled with a valid last will and testament.
• Intestate Estate – An estate of a deceased person without a
Will.
• Probate –A special proceeding to establish the validity of a
Will. It is mandatory, which means that no Will passes either
real or personal property unless it is proved and allowed in a
proper court.
• Reprobate – A special proceeding to establish the validity of
a will previously proved in a foreign court.
• Successors are the parties who have the legal right to receive
the estate:
• Classifications of Successors:
a. Primary compulsory heirs- successors to whom the legal
portion of the estate is first reserved by the law.
1. Legitimate children and their legitimate descendants
2. Surviving legitimate spouse (widow or widower)
3. Illegitimate children and their descendants.
b. Secondary compulsory heirs – are the successors to receive
the estate in the absence of the primary compulsory heirs.
1. Legitimate parents and legitimate ascendants- who inherit
only in default of LC and their descendants
2. Illegitimate parents (no other descendants) inherit in
default of surviving spouse and illegitimate children and
their descendants.
• In the absence of Compulsory heirs the successors would be:
a. decedent’s relatives up to the 5th degree of consanguinity
b. If there were no relatives, the government shall inherit the
whole estate.
c. If there is a will, the decedent may name other persons to
inherit the free portion of the net distributable estate.

Brothers, sisters, nephews and nieces are not compulsory heirs,

hence they are NOT ENTITLED TO THE LEGITIME. They can
become heirs only in the INTESTATE SUCCESSION.
STRANGERS are not compulsory heirs.
However, it is not contrary to law in giving them a share of the
inheritance if the testator desires it so long as the legitime of
the compulsory heirs is not impaired. They become
VOLUNTARY HEIRS.
 Preferences of Lines

FATHER A
Descending Line

SONS B1+ B2

Ascending Line
GRANDSONS
C1 C2

D1 D2
Collateral Line
NET HEREDITARY ESTATE=PROPERTY LEFT MINUS DEBTS AND
CHARGES PLUS COLLATIONABLE DONATION

Collationable donations are those whose values are imputable

into the hereditary estate of the donor at the tune of his
death, like donation given in contemplation of death.

Legitime is that part of the testator's property which he cannot

dispose of because the law has reserved it for certain heirs
which are therefore, called compulsory heirs. Testator cannot
deprive compulsory heirs to inherit because this is imposed
upon him directly by law.
Free Portion is that part of the whole estate which the testator
could dispose of freely through a written will irrespective of
his relationship to the recipient. This is a portion of the
decedent’s estate in excess of the legitime.
 TESTAMENTARY SUCCESSION
FREE
SURVIVOR/S LEGITIME PORTION
LEGITIMATE CHILDREN OR DESCENDANTS 1/2 1/2
ILLEGITIMATE CHILDREN ALONE 1/2 1/2
LEGITIMATE CHILDREN, NATURAL CHILDREN, LC=1/2,
IC NC= ½ OF 1 LC
IC= ½ OF 1 LC
ONE LC , SURVIVING SPOUSE (SS) LC=1/2; SS=1/4 ¼
2 OR MORE LC & SS SS= LEGITIME OF 1 LC
ILLEGITIMATE CHILDREN & SS 1/3; 1/3 1/3
2 OR MORE LC, IC & SS LC= ½; IC=1/2 OF 1 LC not
to exceed Free Portion;
SS= LEGITIME OF 1 LC
PARENTS OR ASCENDANTS ALONE 1/2 ½
SS ALONE ½ OR 1/3 (articulo mortis) ½ or 2/3
ASCENDANTS & SS A=1/2; SS=1/4 ¼
ASCENDANTS, SS & ILLEG. CHILDREN A=1/2; SS=1/8; IC=1/4 1/8
Illustration:
Survivors: Legitimate children or descendants alone.
The legitime of legitimate children and descendants consists
of 1/2 of the hereditary estate of the father and of the
mother.
Widower +

Child X Child Y

If the net hereditary estate is P5,000,000, the legitime of X

and Y would be P2,500,000.
Hereditary estate 5,000,000
Legitime (P5,000,00 x ½) 2,500,000
Free portion 2,500,000
Survivors: 2 LC, NC and IC
Hereditary estate P20,000,000

The legitime of each compulsory heirs are:

Hereditary estate 20,000,000
Legitime of 2 LC (P20,000,000 x ½) (10,000,000)
Legitime of NC (P10,000/2 ) x ½ (2,500,000)
Legitime of Illeg. Son
(P10,000,000 /2) x ½ (2,500,000)
Free Portion 5,000,000

• LC=1/2,
• NC= ½ OF 1 LC
• IC= ½ OF 1 LC
 Order of Intestate Succession
Decedent is a LC Decedent is an IC
1. Legitimate children & their legitimate 1. Legitimate children and other
descendants (includes legitimate, legitimate descendants
adopted children & their ascendants
2. Legitimate parents and other legitimate 2. Illegitimate children and other
ascendants. If no LP, the adopting parents, descendants (whether legitimate or
will take their place but will concur with illegitimate)
the SS and IC
3. Illegitimate children and their 3. Illegitimate parents. Ascendants of
descendants whether legitimate or illegitimate parents are not included
illegitimate
4. SS, without prejudice to the rights of 4. SS, Illegitimate brothers and sisters;
brothers and sisters, nephews and nieces, nephews and nieces (by inference from
if there be any. Art. 994, 2nd par (NCC)
5. Collateral relatives up to 5th degree of 5. The State
relationship
6. The State
 INTESTATE SUCCESSION

SURVIVOR/S LEGITIME

LEG. CHILDREN (DESCENDANTS ALONE) ENTIRE ESTATE to be shared

equally
LEGITIMATE CHILDREN AND PARENTS 100% TO LC; PARENT=0
LEGITIMATE CHILDREN & BROTHERS/SISTERS 100% TO LC; BRO/SIS=0

LEGITIMATE CHILDREN & SS SS = SHARE OF 1 CHILD

LC & IC PROPORTION OF 10:5

LC, IC, SS 10:5 & SPOUSE= 1 SHARE OF

LC

ILLEGITIMATE CHILDREN ALONE ENTIRE ESTATE

IC & LEGAL PARENTS ½; 1/2

IC & SS ½; 1/2
IC, LEGAL PARENTS, SS ¼; ½; 1/4
 INTESTATE SUCCESSION

SURVIVOR/S LEGITIME

LEGAL PARENTS & SS ½; 1/2

ILLEGITIMATE PARENTS & SS ½; ½

PARENTS, BROTHERS/SISTERS ENTIRE TO PARENTS

SURVIVING SPOUSE, BROTHERS /SISTERS ½; ½

SURVIVING SPOUSE ALONE ENTIRE ESTATE

ADOPTED CHILDREN,LEGITIMATE CHILDREN EQUALLY

IN CASE OF DEATH OF ADOPTED CHILD WITH NO PARENTS BY BLOOD AND

DESCENDANTS RELATIVES BY BLOOD

SURVIVING RELATIVE IS BEYOND 5TH DEGREE THE STATE IS THE HEIR

ILLUSTRATION:
SURVIVORS: 5 LC or ASCENDANT ALONE
NET ESTATE 5,000,000
SHARE:
5 LC (5,000,000/5) 1,000,000 EACH

SURVIVORS: 5 LC and PARENTS

NET ESTATE 5,000,000
SHARE:
PARENTS NONE
5 LC (5,000,000/5) 1,000,000 EACH
SURVIVORS: 5 LC & 2 IC
NET ESTATE 6,000,000
SHARE: 5 LC 5 UNITS 5,000.000
2 IC (1/2) 1 UNIT 1,000,000

SURVIVORS: 5 LC, 2 IC & SS

NET ESTATE 7,000,000
SHARE: 5 LC 5 UNITS 5,000,000
SS 1 UNIT 1,000,000
2 IC (1/2) 1 UNIT 1,000,000
SURVIVORS: ADOPTING PARENTS
BIOLOGICAL PARENTS
ESTATE: 9,000,000
SHARE : ADOPTING PARENTS 9,000,000
BIOLOGICAL PARENTS NONE

SURVIVORS: SS, BROTHERS AND SISTERS OR THEIR CHILDREN

ESTATE: 9,000,000
SHARE: SS (1/2) 4,500,000
2 BROTHERS 2/3 OF 1/2 3,000,000
NEPHEW (SISTER SIDE) 1/3 OF ½ 1,500,000
 SURVIVORS: BEYOND 5TH DEGREE
P NET ESTATE 9,000,000
A+ B SHARE:
C 1 D
E 2 F
G 3 H
I 4 J 4TH COUSIN (I & J) 0
5TH COUSIN 0
STATE 9,000,000
 Intestate Succession
An intestate succession may be done when a person
dies under the following cases:
1. Without a written Will, or with a void Will, or one
which subsequently lost its validity
2. With a Will but no one was named as successor
3. If the suspensive condition attached to the institution
of heir does not happen or is not fulfilled, or if the
heir dies before the testator, or repudiates the
inheritance.
4. When the heir instituted is incapable of succeeding,
except in cases provided in this Code. (Art. 960, NCC)
In intestate succession, the entire
estate of the decedent is distributed
to his heirs in intestacy. The
compulsory heirs in testamentary
succession are also heirs in intestate
succession. Intestate heirs include
brothers and sisters, collateral relatives
within the fifth civil degree and the
state.
 ORDER OF INTESTATE SUCCESSION

1. Legitimate children or descendants

2. Legitimate parents or ascendants
3. Illegitimate children or descendants
4. Surviving spouse
5. Brothers and sisters, nephews and nieces
6. Other collateral relatives within the 5th
degree
7. State
 Mixed Succession
• A mixed succession takes place when a person
made a last will and testament and;
a) He omitted certain properties so that not all
his properties were disposed of in the last
will and testament; or
b) He acquired properties after executing his
last will and testament, so that at the time of
his death the after-acquired properties were
not disposed of by will.
 Persons incapable of succeeding
1. The PRIEST who heard the confession of the testator during his
last illness, or minister of the gospel who extended spiritual aid
to him during the same period.
2. The RELATIVES of such priest or minister of the gospel within
the 4th degree, the church order, chapter, community
organization, or institution to which such priest or minister may
belong;
3. A GUARDIAN with respect to testamentary dispositions given
by a ward in his favor before the final accounts of the
guardianship have been approved, even if the testator should
die after the approval thereof; nevertheless, any provision
made by the ward in favor of the guardian when the latter is
his ascendant, descendant, brother, sister, or spouse, shall be
valid.
 Persons incapable of succeeding
4. Any ATTESTING WITNESS to the execution of a
will, the spouse, parents, or children or any
one claiming under such witness, spouse,
parents or children.
5. Any PHYSICIAN, SURGEON, NURSE, HEALTH
OFFICER, or DRUGGIST who took care of the
testator during his last illness; and
6. INDIVIDUALS, ASSOCIATIONS, and
CORPORATIONS not permitted by law to
inherit.
Disinheritance- an act by which the owner of an estate
deprives a person who would otherwise be his heir or
have the right to inherit it.
Causes of disinheritance of children and descendants:
1. A child or descendant has been found guilty of an
attempt against the life of the testator, his or her
spouse, descendants, or ascendants.
2. A child or descendant has been convicted of adultery
or concubinage with the spouse of the testator;
3. A child or descendant has accused the testator for a
crime for which the law prescribes imprisonment for
6 years or more, if the accusation has been found
groundless;
• Causes of Disinheritance of children and
descendants:
4. A child or descendant by fraud, violence,
intimidation, or undue influence causes the testator
to make a will or to change one already made;
5. There is refusal without justifiable cause to support
the parent or ascendant who disinherits such child
or descendant;
6. There is maltreatment of the testator by word or
deed, by the child or descendant;
7. A child or descendant leads a dishonorable or
disgraceful life, and
 8. There is a conviction of a crime which carries
with it the penalty of civil interdiction. (Art. 919,
NCC)

Causes of disinheritance of parents

and ascendants:
1. The parents have abandoned their children or
induced their daughters to live a corrupt or
immoral life, or attempted against their virtue;
2. The parent or ascendant has been convicted of
an attempt against the life of the testator, his/her
spouse, descendants, or ascendants.
Causes of disinheritance of parents and
ascendants:

3. The parent or ascendant has accused the

testator of a crime for which the law
prescribes imprisonment for 6 years or more,
if the accusation has been found to be false.
4. The parent or ascendant has been convicted
of adultery or concubinage with the spouse of
the testator;
5. The parent or ascendant by fraud, violence,
intimidation, or undue influence causes the
testator to make a will or to change one
already made;
Causes of disinheritance of parents and
ascendants:

6. The loss of parental authority for causes

specified in this Code;
7. There is refusal to support the children or
descendants without justifiable cause; and
8. There is attempt by one of the parents
against the life of the other; unless there has
been reconciliation between them. (Art. 920,
NCC)