FAR EASTERN UNIVERSITY

INSTITUTE OF ACCOUNTS BUSINESS AND FINANCE

Department of Accountancy

DISCLAIMER: Kindly note that no part of this Module may be reproduced in any form or any means without
the permission (e.g., written or oral) from the Instructor.

MODULE NO. 01
SUCCESSION AND TRANSFER TAX

MODES OF ACQUIRING OWNERSHIP (COLD TIPS ) Article 712, Civil Code:

The effectiveness of the various modes of acquiring ownership and other real rights over property is
premised on the existence of title or judicial justifications. The following are the different modes of acquiring
ownership:
✓ Contract
✓ Occupation - property seized is without a known owner
✓ Intellectual creation
✓ Law
✓ Prescription
o Acquisitive Prescription - one acquires ownership and other real rights through the lapse
of time in the manner and under the conditions laid down by law
o Extinctive Prescription – one rights, and actions are lost by prescription
✓ Tradition
✓ Succession - 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
✓ Donation - an act of liberty whereby a person disposes gratuitously of a thing or right in favor of
another, who accepts it

BUSINESS AND TRANSFER TAXATION MIND MAP

TRANSACTION

BILATERAL TRANSFER COMPLEX TANSFER UNILATERAL TRANSFER

This involves the transmission Complex transfers are Unilateral transfers involve the
of property for a consideration. transfers for less than full and transmission of property by a
They are referred to as adequate consideration. These person without consideration.
onerous transactions or are sales made at prices which They are commonly referred to
exchanges. are significantly lower than the as, gratuitous transactions
fair value of the property sold. or simply, transfers.

Examples Transfer Tax Examples

Sale Fair Market Value Donation
Barter Less: Consideration Received Succession
Subject to Transfer Tax

Business Tax Consideration Received Transfer Tax

Value-Added Tax Less: Cost of Property Donor’s Tax
Other Percentage Taxes Subject to Business Tax Estate Tax

TRANSFER AND BUSINESS TAXATION | Succession and Transfer Tax

Mr. Kireina Otoko M. Manas, CPA
 FAR EASTERN UNIVERSITY
INSTITUTE OF ACCOUNTS BUSINESS AND FINANCE
Department of Accountancy

TRANSFER TAXATION MIND MAP

TRANSFER TAX

Transfer Tax is an ‘Excise Tax’.

• The subject matter of Transfer Tax is the privilege of the transferor to gratuitously transfer
property or rights which takes effect at the date of the transferor or during the lifetime of the
donor and donee.

Donation Inter Vivos Donation Mortis Causa

• Gratuitous transfer that take effect during • Gratuitous transfer that take effect at the
the lifetime of both the donor and donee. time of the death of the donor.
• Donation is the willful act of the donor to
transfer his rights/properties to the donee
for free.
• Donation to be valid needs to satisfy the
four essential elements;
• Capacity of the Donor;
• Donative Intent;
• Delivery of the Gift; and
• Acceptance of the Donee.

Donor’s Tax Estate Tax

SUCCESSION DEFINED
Article 774, Civil Code
✓ Succession is a mode of acquisition by virtue of which, the property, rights, and obligations to the
extent of the value of inheritance, of a person are transmitted through his death to another or others
either by his will or by operation of law.
Article 776, Civil Code
✓ The inheritance includes all the property, rights, and obligations of a person which are not
extinguished by his death.
Article 777, Civil Code
✓ The rights to the succession are transmitted from the moment of death of the decedent.
NOTE: This is notwithstanding the postponement of the actual possession or enjoyment of the
estate by the beneficiary (Section 3, RR 2-2003).

KINDS OF SUCCESSION (ARTICLE 778, CIVIL CODE)

Testamentary or Testate Succession
✓ A type of succession that results from the designation of an heir, made in a will executed in the
form prescribed by law.
Legal or Intestate Succession
✓ A type of succession which is effected by operations of law since the decedent did not execute a
will or if the last will and testament executed by him is void.
Mixed Succession

CAUSES OF LEGAL SUCCESSION OR INTESTACY

1. If a person dies without a will, or with a void will, or one which has subsequently lost its validity;
2. When the will does not institute an heir;
3. Partial institution of heir. Consequently, intestacy takes place as to the undisposed portion;
4. When the heir instituted is incapable of succeeding; and
5. Other causes such as:

TRANSFER AND BUSINESS TAXATION | Succession and Transfer Tax

Mr. Kireina Otoko M. Manas, CPA
 FAR EASTERN UNIVERSITY
INSTITUTE OF ACCOUNTS BUSINESS AND FINANCE
Department of Accountancy

o Non-fulfillment of the suspensive condition attached to the institution of heir. Suspensive

condition is a condition depending upon the happening of an uncertain event which must
be fulfilled before an obligation arises;
o Preterition (omission in the testator’s will of one, some or all of the compulsory heirs in
the direct line which has the effect of annulling the institution of heir);
o Fulfillment of “resolutory condition.” A resolutory condition refers to a condition whereby,
upon fulfillment terminates an already enforceable obligation;
o Expiration of term or period of institution;
o Non-compliance or impossibility of compliance with the will; and
o Repudiation of instituted heir.

ELEMENTS OF SUCCESSION
✓ Decedent is the person whose property is transmitted through succession, whether of not he left
a will. If he left a will, he is called Testator (Article 775, Civil Code).
✓ Executor is the person designated in the last will and testament to carry out the provisions of the
decedent’s will. He also performs the fiduciary duty (i.e., taking care of the decedent’s estate prior
to final disposition to heirs).
✓ Administrator is the person appointed by the court and performs the same duty, in lieu of the
executor, if;
o the executor refused to accept the appointment; and
o failed to qualify under the law or the last will and testament did not appoint one.
✓ Inheritance or Estate includes all the property, rights, and obligations of a person which are not
extinguished by death and all which have accrued thereto since the opening of succession.
NOTE: Rights which are purely personal and not transmissible for they are extinguished by death
(Article 776, Civil Code).
✓ Successor or Heir is a person who is called to the succession either by provision of a will or by
operation of law (Article 782, Civil Code).
o Devisees are persons to whom gifts of real property are given by virtue of a will; and
o Legatees are persons to whom gifts of personal property are given by virtue of will.

CLASSIFICATION OF SUCCESSOR OR HEIR

✓ COMPULSORY HEIRS
o Compulsory Heirs succeed by force of law to some portion of the inheritance, in an amount
predetermined by law, known as legitime.
o Compulsory Heirs cannot be deprived by the testator of their legitime except by
disinheritance properly effected.
o Kinds of Compulsory Heirs;
▪ Primary have precedence over and exclude other compulsory heirs;
Example/s: Legitimate children and their legitimate descendants
▪ Secondary succeeds only in the absence of the primary compulsory heirs; and
Example/s: Legitimate parents and ascendants
▪ Concurring succeed together with the primary of secondary compulsory heirs.
Example/s: Illegitimate children and their descendants whether legitimate or
illegitimate, and Surviving spouse
NOTE: Illegitimate parents may inherit only in default of legitimate children and
their legitimate descendants, and illegitimate children and their
descendants whether legitimate or illegitimate
✓ VOLUNTARY HEIRS
o Voluntary Heirs are those instituted by the testator in his last will to succeed to the
inheritance of the portion thereof of which the testator can freely dispose.
o Free portion refers to the portion or value left in the estate after deducting the legitime of
the compulsory heirs.
NOTE: The share of voluntary heirs is determined through the last will and testament.
✓ LEGAL OR INTESTATE HEIRS
o Legal or Intestate Heirs are those who succeeds to the estate of the decedent by operation
of law.
TRANSFER AND BUSINESS TAXATION | Succession and Transfer Tax
Mr. Kireina Otoko M. Manas, CPA
 FAR EASTERN UNIVERSITY
INSTITUTE OF ACCOUNTS BUSINESS AND FINANCE
Department of Accountancy

ORDER OF INTESTATE SUCCESSION

LEGITIME
✓ It is part of a testator’s property which he cannot dispose of because the law has reserved it for
certain heirs who are, therefore, called compulsory heirs (Article 886, Civil Code).
NOTE: The compulsory heirs cannot be deprived of their legitime by the testators except by
disinheritance properly effected.

FREE PORTION
✓ It is that portion of the estate which the testator can freely dispose of, and anyone may inherit from
this portion (e.g., compulsory heirs and voluntary heirs).
NOTE: Voluntary heirs may inherit only if mentioned in the will. In the absence of a provision in a
will, voluntary heirs will not inherit anything.
✓ In such cases, the free portion shall be disposed of to intestate heirs based in the order of priority:
1. Legitimate Children or Descendants;
2. Legitimate Parents or Ascendants;
3. Illegitimate Children or Descendants;
4. Surviving Spouse;
5. Brother and Sisters, Nephews, and Nieces;
6. Other Collateral Relatives within the 5th Degree; and
7. State or the Government.

COLLATERAL RELATIVES
CONSANGUINITY
✓ It is the relation of persons descending from the same stock or common ancestors. These persons
are known as blood relatives, and are said to be related by blood or consanguinity. It may be lineal
or collateral.
✓ TYPES OF CONSANGUINITY.
o Lineal Consanguinity
▪ Lineal Consanguinity, which may be descending or ascending, is that which
subsists between persons of whom one is descended in a direct line from the other.
o Collateral Consanguinity
▪ Collateral Consanguinity is that which subsists between persons who have the
same ancestors, but who not descend or ascend one from the other.

TRANSFER AND BUSINESS TAXATION | Succession and Transfer Tax

Mr. Kireina Otoko M. Manas, CPA
 FAR EASTERN UNIVERSITY
INSTITUTE OF ACCOUNTS BUSINESS AND FINANCE
Department of Accountancy

WILL
✓ A 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 (Article 783, Civil Code).
✓ It is a document whereby a person, called the testator, disposes of his or her properties or estate
to take effect upon his or her death.
✓ The making of will is a strictly personal act. Hence, it cannot be left in the whole or in part of the
discretion of a third person or accomplished through the instrumentality of an agent or attorney.
NOTE: The persons prohibited by law to make a will are those below 18 years old and those who
are not of sound mind at the time of its execution.

KINDS OF WILL
1. NOTARIAL, ORDINARY, OR ATTESTED WILL
o This is one which is executed in accordance with the formalities prescribed by Article 804
to Article 808 of the Civil Code.
o REQUISITES FOR A VALID NOTARIAL WILL
▪ It must be in writing and executed in a language or dialect known to the testator;
▪ It must be subscribed at the end thereof by the testator himself or by testator’s
name written by some other person in his presence and by his express direction;
and
▪ It must be attested and subscribed by three or more credible witnesses in the
presence of the testator and of one another.
▪ DISQUALIFIED WITNESSES (ARTICLE 821, CIVIL CODE)
• Any person not domiciled in the Philippines; and
• Any person who have been convicted of falsification of a
document, perjury, or false testimony.
2. HOLOGRAPHIC WILL
o It is a written will which must be entirely written, dated, and signed by the hand of the
testators himself.
o It subject to no other form and it may be made in or out of the Philippines and need not be
witnessed (Article 811, Civil Code).
NOTE: In case of any inspection, cancellation, erasure or alteration in a holographic will,
the testator must authenticate the same by his full signature.
o CODOCIL is a supplement or addition to a will, made after the execution of a will and
annexed to be taken as a part thereof, by which any disposition made in the original will is
explained, added to or altered.
NOTE: In order that a codicil may be effective, it shall be executed as in the case of a will
(Article 825 and Article 826, Civil Code).

MODES OF REVOKING A WILL

A will may be revoked by the testator at any time before his death any waiver or restriction of this right is
void (Article 828, Civil Code). The following are the modes of revoking a will;
✓ By implication of law;
✓ By some will, codicil, or other writing executed as provided in case of will; and
✓ By burning, tearing, cancelling, or obliterating the will with the intention of revoking it, by the testator
himself, or by some other person in his presence, and by his express direction.

-END OF MODULE 1-

TRANSFER AND BUSINESS TAXATION | Succession and Transfer Tax

Mr. Kireina Otoko M. Manas, CPA