BAM 208: BUSINESS TAX & ACC 123: ENHANCEMENT SUBJECT

CHAPTER 2: TRANSFERS, SUCCESSION AND ESTATE TAX

I. TRANSFER
TYPES OF TRANSFERS
Gratuitous transfer – there is no consideration or free, meaning “donation” (for transfer)
Onerous Transfer – there is consideration or not free, often called “sales, barter or exchange” (for business)
TRANSFER TAX
Transfer tax are taxes imposed on one’s right to make casual and gratuitous transfer (donation). Two types of donations:
a.Donation inter-vivos – during the lifetime of the donor and the donee (donor’s tax).
b.Donation mortis causa – upon death of the donor (estate tax).
NATURE OF TRANSFER TAX
Transfer tax is the privilege of the transferor to gratuitously transfer property or rights which takes effect at transfer
mortis causa (date of death) or transfer inter-vivos (lifetime). The amount of transfer tax is based on net estate or net
gifts, it shall not be construed as a property tax. Transfer tax is classified as excise tax or privilege tax imposed on the act
of passing the ownership of property and not on the value of the property or right.
SALE OF PROPERTY
There is a sale of property when a person (seller) transfers the ownership of an object to another (buyer), who in
exchange, pays a consideration (selling price; often in terms of money). Sale (as a mode of transferring property) is not
subject to transfer tax but could be subject to other kinds of taxes like income tax, value added tax (VAT), excise tax, and
other business tax.
DONATION OF PROPERTY
Donation is when a person transfers a property to another for free. Donation is an act of liberally whereby a person
gratuitously disposes of a thing or right in favor of another who accepts it. The one who gives the property is called the
donor. The recipient is referred to as the donee.
The transfer of property takes effect during the lifetime of the donor and the right to transfer property is subject to
donor’s tax.

II. SUCCESSION
Succession is a mode of transfer/acquisition by virtue of which the property, rights, and obligation to the extent of
the value of the inheritance of a person (heir) are transmitted through his death to another or others either by his will or
by operation of law (Article 774 NCC). The inheritance includes all the property rights and obligations of a person which
are not extinguish by his death (Article 776 NCC).
Modes of Acquiring Property: occupation, intellectual creation, law, donation, tradition, contract, prescription, and
succession.
NATURE OF SUCCESSION
The subject matter of a transfer tax and succession is the privilege of the transferor to gratuitously transfer or succeed
property or rights which take effect at the date of death of the decedent. If the decedent has an obligation to pay, the
amount will be paid only to the extent of what was inherited by the heirs.
KINDS OF SUCCESSION
1. Testamentary succession (Estate succession) – by will or last will and testament; a type of succession that results
from the designation of an heir, made in a will executed in the form prescribed by law
2. Intestate Succession (Legal succession) – no last will and testament or when void, thus by law; a type of succession
which is affected by operation of law (based on the provision of the civil code regarding succession) since the decedent
did not execute a will or the testament executed is void.
3. Mixed Succession – partly by will and partly by operation of law. Some of the estate will be transferred in accordance
with the duly executed will while some will be distributed by operations 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 or his estate, to take effect after his death.
o Notarial will is one which is executed in accordance with the formalities prescribed by law.
o Holographic will is entirely written, dated, and signed by the hand of the testator himself.
o Codicil 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.
ELEMENTS OF SUCCESSION (REQUISITES)
1. Decedent is the person whose property is transmitted through succession whether or not he left a will. If he left a will,
he is called a testator.
o Executor is a person designated in the last will and testament to carry out the provisions of the decedent’s will. He
also performs a fiduciary duty such as taking care of the decedent’s estate prior to final disposition to the heirs
 o Administrator is a person appointed by the court and performs the same duty, in lieu of an executor, if the latter
refused to accept the appointment, failed to qualify under the law or the last will and testament did not appoint one.
2. Estate (Inheritance) 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. Properties left by the decedent.
3. Heirs (Successors) is a person who is called to the succession either the provision of will or by operation of law. One
who receives the estate.
o Devisee (devise) a real property given through will.
o Legatees (legacy) a personal property given through will.
TYPES OF HEIRS
1. Compulsory or forced heirs are those who succeed by force of law to some portion of the inheritance, in an amount
predetermined by law known as the legitimate. They succeed whether the testator likes it or not. They cannot be deprived
by the testator of their legitime except by disinheritance properly effected.
o Legitime – portion of the estate that is reserved by law specifically to compulsory heirs, regardless of whether or not a
last will testament was prepared.
o Note: 100% of estate is possible as long as mentioned in the last will and testament.
o Types of Compulsory Heirs
Primary Compulsory Secondary Compulsory
A. Legitimate children and descendants A. Legitimate parents and ascendents
B. Surviving spouse B. Illegitimate parents (no other descendants)
C. Illegitimate children and descendants
Note: brothers and sisters are neither compulsory heirs nor strangers. They may be voluntary heirs.
2. Voluntary heirs are those instituted by the testator in his will to succeed to the inheritance of the portion thereof which
the testator can freely dispose. Portion left after the deducting the portion of the legitime.
o Free portion – as provided in the last will and testament. In the absence of a will, this portion of the estate shall be
distributed to “intestate heirs” based in the order of priority.
3. Legal or intestate heirs are those who succeed to the estate of the decedent by operation of law (decedent died without
a valid will or his estate was not entirely disposed of by will).

III. ESTATE TAX

Estate tax is a tax imposed on the privilege that a person is given in controlling to a certain extent, the disposition of
his property to take effect upon date. It is an excise tax imposed on the act of passing the ownership of property at the time
of death and not on the value of the property or right.
Estate tax is the tax on the right to transmit property at death and on certain transfers which are made by the statute,
the equivalent of testamentary disposition and is measured by the value of the property.
PURPOSE OF ESTATE TAX
A. Benefit received theory – estate tax is paid on return for the services rendered by the state in the distribution of the
estate decedent and for the benefits that accrue to the estate and their heirs.
B. State partnership theory – the tax is considered the share of the state as a passive and silent partner in the
accumulation of property.
C. Ability to pay theory – the tax is based on the fact that the receipt of the inheritance creates an ability to pay and this
contribute to governmental income.
D. Redistribution of wealth theory – the tax is imposed to help reduce undue concentration of wealth in society to which
the receipt of inheritance is contributing factor.
NATURE OF ESTATE TAX
A. Personal tax (poll or capitation) is a fixed amount tax imposed on individuals, whether citizens or not, residing
within a specific territory, without regard to their property or occupation.
B. Property tax is a tax imposed on property, whether real or personal, in proportion either to its value, or in accordance
with some other reasonable method of apportionment.
C. Excise tax is one imposed upon the right of a person to perform an act, enjoy a right or privilege, or to engage in an
occupation. Imposed on sinful or luxurious products.
LAW THAT GOVERNS THE IMPOSITION OF ESTATE TAX
It is a well settled rule that estate taxation is governed by the statute in force at the time of death of the decedent. Upon
the death of the decedent, succession takes place and the right of the state to tax the privilege to transmit the estate vests
instantly upon death.
Because the properties, rights, and obligations of the decedent are deemed transmitted to their heirs or beneficiary at
the time of his death, the law existing and in force at the time shall govern the determination of the estate tax.
Modes of Acquiring Property: occupation, intellectual creation, law, donation, tradition, contract, prescription, and
succession.
NOTES:
1. Business taxes imposed on gross sales/gross receipt if more than 3M, subject to VAT. If it does not exceed 3M and is
not VAT registered, subject to other percentage taxes.
2. Documentary stamp tax imposed on the right transactions entered by the taxpayer needed by any government office.
3. Inter-vivos. Right of the donor to donate. The purpose is to prevent the escape of payment of estate tax through lifetime
transfer by will or through death of the donor.
4. Mortis causa. State protects the right of the individual on his property and supervised its transfer from one generation
to the next.
5. In succession, the crimes/liabilities (if the estate given is less than the liability) of the decedent cannot transfer to their
heirs.
6. If there are no heirs, the inheritance will go to the government.
7. Legitime 75% and free portion 25%
8. Order of intestate succession: legitimate children or descendants, legitimate parents or descendants, illegitimate children
or descendants, surviving spouse, brothers/sisters, other relatives, and state.

ILLUSTRATION SAMPLE:
1. Pedro suffered an unexpected heart attack causing his death on November 2, 2015. His estate composed of the
following:
Cash in Bank 1,000,000 Cars 1,000,000
Commercial Building 5,000,000 House and Lot 3,000,000
Juan is the only heir decedent. Pedro’s remains were cremated on Nov 8, 2015. The executor of Pedro’s estate filed the
estate tax return and paid the estate on Jan. 15, 2016. The properties left by the decedent were distributed on Feb. 14,
2016.
Answer the following:
A. When will the transfer of ownership from the decedent to the heir take effect? November 1, 2015 (rights to the
succession are transmitted from the moment of death of the decedent.)
B. When should the estate tax accrue? November 1, 2015 (the executor is allowed under the tax code to file and pay the
corresponding estate tax within 1 year from the date of death. However, the estate tax due accrues immediately at
the time of death.)
C. Assume that Pedro’s total outstanding liabilities as of the time of the death amounted to 12,000.000. How much of the
outstanding liabilities of the decedent should be assumed by Juan? 10,000,000 (limited only to the extent of the value
inherited.)

2. Mrs. Mina Las died leaving the following properties:

1,000 square meters residential lot 1,000,000
Second hand car 200,000
Jewelry 300,000
In her last will and testament, Mrs. Las assigner her brother, Ric Lamo, to administer the distribution of her properties
upon her death, which should be disposed of as follows:
1. The residential lot to her only son, Mado
2. The car and the jewelry to Ric
In the above case, the following are the parties (elements) in succession:
Decedent: Mrs. Mina Las Successors: Mado Las and Ric Lamo
Testator: Mrs. Mina Las Compulsory Heir: Mado Las
Estate: Residential lot, car and jewelry Devisee: Mado Las
Executor: Ric Lamo Legatee: Ric Lamo

3. Supposing the following properties are listed as part of the estate of Dina Gising:
Under the assumption that Dina Gising is a (a) citizen or resident alien, and under assumption that she is a (b)
nonresident alien, her gross estate would be listed as follows:
Properties (a) citizen or resident (b) nonresident or alien
1. Farm in the Philippines Yes Yes
2. Jewelry in the Philippines Yes Yes
3. Bonds issued by Philippine Corporation Yes Yes
4. Bank deposit in the Philippines Yes Yes
5. Shares of stock in Philippine Corporation Yes Yes
6. Shares of stock in Foreign Corporation Yes No
7. Investment in partnership establish in the Philippines Yes Yes
 8. Copyright being exercised in the Philippines Yes Yes
9. Franchise being exercised in the Philippines Yes Yes
10. Car in USA Yes No
4. The estate of a decedent, Mr. Dido, has a fair value of 5,000,000 at the time of his death. He inherited this property
from his father 10 years ago when its fair value was 2,000,000. Determine the amount to be included in the gross estate.
5,000,000 (fair market value at the time of death).

5. Mr. Todas died leaving the following real properties in Baguio City:
The value of the real properties to be included in the gross estate is 32,000,000 (whichever the higher value reportable.)

6. Mr. Pahiga died leaving a car which he purchased for 1M, 5 years ago. At the time of his death, the car has a book value
of 500k but can be sold only for 400k. What is the value of the personal property to be included in the gross estate. 400k.

7. Mr. Tuso Segurista donated his apartment building to his friend, Mr. Antay Nalang. The deed of donation was executed
under the condition that while Mr. Segurista is still living, he retains the rights over the property and its income.
Upon his death, Mr. Segurista has a total intangible property amounting to 5,000,000. The fair market value of the
property donated was 9,000,000 and the related accrued rent income on or before his death amounted to 1,000,000. How
much is the amount applicable as part of the gross estate? 15,000,000 (5,000,000 + 9,000,000 + 1,000,000)

8. When the decedent died, he had existing collectibles from various debtors amounting to 500,000. A month after the
decedent’s death, Mr. Bala Subas, one of the debtors of the decedent, was proven and declared by the court insolvent and
the 100,000 claim against him could no longer be collected. How much should be included in the gross estate of the
decedent? 500,000 (but the claims against insolvent person shall be part of deductions against gross estate in the
determination of the net taxable estate.)

9. 10.
11. 12.

CHAPTER 03: GROSS ESTATE

Gross estate refers to all the property owned by the decedent at the time of death excluding the exclusive property of the
surviving spouse. Gross estate is equal to the total value of the estate considered by law for the purpose of determining
the net estate subject to estate tax. Gross estate shall include the value of any property of the decedent transferred during
life, whether the transfer at the time of death was subject to a reserved power to alter, amend, revoke or terminate. Gross
estate includes the properties, interest and taxable transfers.
COMPOSITION OF THE GROSS ESTATE
Gross estate shall consist of all properties, whether real or personal (tangible or intangible), exclusively owned or jointly
owned with his or her spouse (in case of married decedent), whether actually or deemed owned, depending on the
residence or citizenship)

I. CITIZENSHIP OR RESIDENCE OF THE DECEDENT

CLASSIFICATION OF DECEDENT
Resident citizen – transfers of property or estate upon their death are taxed based on property within or without
Philippines
o Real property wherever situated
o Tangible and intangible personal property wherever situated
Non-resident citizen – transfers of property or estate are subject to estate tax on proportion in the Philippines only
o Real property situated in the Philippines
o Tangible personal property located in the Philippines
o Intangible personal property located in the Philippines, unless excluded on the basis of reciprocity
RECIPROCITY CLAUSE
Reciprocity (reciprocity agreement) -an agreement between 2 states that allows residents of one state to request
exemptions from tax withholding reciprocal. No tax shall be imposed in respect to intangible personal properties of a non-
resident alien situated in the Philippines.
o The decedent at the time of his death was a resident citizen of a foreign country which at the time of his death did not
impose an estate tax of any character in respect of intangible personal property of citizens of the Philippines not residing
on that foreign country.
o The law of the foreign country of which the decedent was a resident citizen at the time of his death allow a similar
exemption from estate taxes of every character, in respect of intangible personal property owned by citizenship of the
Philippines not residing in that foreign country.

II. PROPERTY RELATIONSHIP (IF THE DECEDENT IS MARRIED)

CIVIL STATUS OF THE DECEDENT
Single – exclusive property
Head of the family – exclusive property
Married – exclusive and conjugal properties
PROPERTY RELATIONSHIP (MARRIED SETTLEMENTS OF MARIED COUPLE)
When the decedent is married, the property relationship entered into by the spouses at the time of marriage (if there is any)
is important. In the Philippines, they may enter in the following property regimes:
1. Conjugal partnership of gains (relative community of properties) – classifies the properties owned by the spouses
during marital period. Gains and benefits are divided equally, unless otherwise agreed in the marriage settlements.
A. Conjugal properties need to consider:
o Those acquired by onerous title during the marriage at the expense of the common fund, whether for partnership, or
only one spouse.
o Those obtained from the labor, industry, work or profession of either of the spouses
o The fruits, natural, industrial, or civil due or received during the marriage from the exclusive property of each
spouse (including property acquired through gratuitous title.
B. Exclusive properties need to consider:
o Properties brought to the marriage as his or her own
o Properties acquired through gratuitous title during marriage
o That which acquired by right of redemption, by barter or exchange with property belonging to only one spouse
o That which is purchased with the exclusive money of either of the spouse
2. Absolute community of property – between the spouses shall commence at the precise moment of the marriage is
celebrated. Properties before marriage and those that they acquire. Under this settlement, properties of the spouses
include:
A. Community properties need to consider
o All the properties owned by the spouses at the time of marriage
o All properties acquired thereafter through onerous title
B. Exclusive properties need to consider:
o Property acquired during the marriage by gratuitous title by either spouse, and fruits as well as income thereof,
unless it is expressly provided by the donor, testator or grantor that they shall form part of the community property
o Property for personal and exclusive use of either spouse. However, jewelry shall form part of community property
o Property acquired before the marriage by either spouse who has legitimate descendants by a former marriage and the
fruits as well as the income, if any, of such property
3. Absolute separation of property – each spouse enjoys his/her own estate, without the need of consent of the other.
*Note: gross estate of the married decedent includes the conjugal or community property of the spouses at the time of his
death but it does not include exclusive property of the surviving spouse. The property relationship of the spouses guides
the determination of which property belongs to each of them exclusively or part of the common properties.
RULES ON CONJUGAL AND EXCLUSIVE DEDUCTIONS
Conjugal deductions – the share of the surviving spouse shall be removed as a deduction from the gross estate
Exclusive property deductions – the full value of the property shall be included in the gross estate and no share of
surviving spouse shall be deducted.

PROPERTIES DEEMED OWNED (TAXABLE TRANSFERS)

Properties deemed owned might include those properties which may have been transferred by the decedent during his
lifetime but is considered by law as if the transfers took effect upon his death because the transmission partakes of
testamentary disposition.
1. Transfers in contemplation of death – transfer of property under the belief that he/she is about to die or has a terminal
illness. The thought of death, as distinguished from motives associate with life, must be the impelling cause of the
transfer. Some motives are to see the children enjoy the property while the donor is alive, to save on income taxes, to
make the children financially independent, to settle family disputes, and to relieve the donor of the burden of management
of property.
*Note: for estate tax purposes, the phrase “in contemplation of death” is different from the common general expectation
of death.
o Donation of mortis causa – donation which takes effect upon death of the donor. It partakes of the nature of a
testamentary disposition. It is an example of transfer in contemplation of death.
Characteristics of a donation of mortis causa:
A. There is no conveyance of title ownership to the donee or transferee. The transferor retains either the beneficial
ownership or the naked title to the property. He us is full control of the property during his lifetime.
B. The transfer is revocable by the donor at will during is lifetime. The revocability of the transfer is usually
provided through the reservation or retention of the power by the donor to dispose the property transferred.
C. Transfer shall be void if the donee dies first
2. Revocable transfers – the transfer is revocable where the enjoyment of the property transferred may be altered,
amended, revoked or terminated by the decedent. The revocability of the transfer is not affected by the failure of the
decedent to exercise the power to revoke during his lifetime or before his death.
3. Property passing under a general power of appointment – power of appointment is the right to designate the person
who will succeed to the property of a prior decedent. It may be a general power of appointment (exercised in favor of
anybody) or a limited/special power of appointment (exercised only in favor of a certain or designated person). General
power appointment will be included in the gross estate.
4. Transfers with retention or reservation of certain rights – rights over the income, possession or enjoyment of the
property transferred until death do not actually convey full ownership or dominion over the property transferred.
Transferor retains the beneficial ownership of the property. Only the naked title has been transferred.
5. Transfer for insufficient consideration – sale of property below market value
6. Proceeds of life insurance - under policies taken out by the decedent upon his life shall constitute part of the gross
estate of the decedent if the beneficiary is the estate of the decedent, his executor or administrator, or a third person (when
the designation of the beneficiary is revocable.
CLAIMS AGAINST INSOLVENT PERSONS
Decedent’s claims against insolvent person shall include in gross estate at the full amount of the claim. If uncollectible, it
will be recognized as deduction.
TRANSFER EXEMPT FROM ESTATE TAX
A. Merger of usufruct in the owner of the naked title
B. Transmission or delivery of the inheritance or legacy of the fiduciary heir or legatee to the fideicommissary
C. The transmission forms the first heir, legatee or donee in favor of another beneficiary, in accordance with the will of
the predecessor.
D. All the bequests, devices, legatees, or transfers to social welfare, cultural and charitable institutions no part of the net
income of which inures to the benefit of the individual: not more the 30%.
E. Proceeds of irrevocable life insurance policy payable to beneficiary other than the estate, executor or administrator
F. Property held in trust by the decedent
G. Separate properties of the surviving spouse of the decedent
H. Transfer by way of bona fide sales (complete transactions)
Fiduciary heir – person to whom the property or power is entrusted for the benefit of another person.
Fideicommissary – recipient of a fideicommissum
Fideicommissum – a request by a decedent that the heir or legatee to the estate convey a special part of the estate to
another person, or permits another person to enjoy such a part
Testator – person who died with a will and testament
The following are also not subject to estate tax:
o Amounts received for war damages
o Amounts received from the United States Veterans Administrations
o Benefits received from Government Service Insurance System (GSIS)
o Benefits received from Social Security System (SSS)
o Intangible personal properties from non-resident aliens
o Retirement benefits of employees of private firms approved by BIR
o Bank deposits withdrawn from the decedent account during the settlement of the estate
VALUATION OF PROPERTIES IN THE GROSS ESTATE
The gross estate shall be valued at its fair market value at the time of the decedent’s death.
o In case of real property, the value shall be the higher amount between the current and fair market value and zonal value
o In case of personal property, fair market value refers to the purchased price if the property is brand new. If it is second
hand, value will be times 3.
o In case of securities, fair market value depends whether the securities are traded (mean value between highest and
lowest quotation price), or not traded (book value and par value of the security).
o Right to usufruct (legal right to enjoy the benefits and profits of property belonging to another) use on habitation and
annuity.

NOTES:
1. Section 104 of the tax code - Intangible Personal Properties with Situs in the Philippines:
o Franchise which must be exercised in the Philippines
o Shares, obligations or bonds issued by any corporation or sociedad anonima organized and constituted in the
Philippines in accordance with its law
o Shares, obligations or bonds issued by any foreign corporation 85% of the business of which is located in the
Philippines
o Shares, obligations or bonds issued by any foreign corporation if such shares, obligations or bonds have acquired a
business situs in the Philippines
o Shares or rights in any partnership, business or industry established in the Philippines
2. SITUS OF TANGIBLE AND INTANGIBLE PROPERTIES
Property Situs
1. Real property and tangible personal property Location of the property
2. Shares, franchise, copyright, and the like Where the intangible is exercised
3. Receivable Residence of the debtor
4. Bank Deposit Location of the depository bank
3. Resident citizen, non-resident citizen, citizen alien – within and outside the Philippines.
4. Non-resident alien – within the Philippines only.

5.
6. Transfer for insufficient consideration applicable rule for estate tax: Where property, other than a real property that
has been subjected to the final capital gains tax, is transferred for less than an adequate and full consideration in money or
money’s worth, then the amount by which the fair market value of the property at the time of the execution of the Contract
to Sell or execution of the Deed of Sale which is not preceded by a Contract to Sell exceeded the value of the agreed or
actual consideration or selling price shall be included in computing the amount of gross estate.

ILLUSTRATION SAMPLE:
EXCLUDED FROM GROSS ESTATE (CONTINUATION)
1. Capital or exclusive properties of the surviving spouses
2. NRA decedent – properties outside the Philippines
3. NRA decedent – intangible personal property when the rule of reciprocity applies
4. Merger of usufruct in the owners of the naked title.
5. Transmission or delivery of the inheritance or legacy of the fiduciary heir or legatee to the fideicommissary
6. Transmission from the first heir, legatee or donee in favor of another beneficiary, in accordance with the will of
predecessor (transfer under S.P Appointment)

OTHER ILLUSTRATION:
RULES IN DETERMINING THE PROPERTY OF RELATIONSHIP
1. Agreement on marriage settlement
2. If there was no prenuptial agreement, check of the marriage took place before August 3, 1988 (conjugal partnership on
gains/ relative community of property), or on/after August 8, 1988 (absolute community of property)
GENERAL ASSUMPTION
1. Property for personal and exclusive use of either the spouse shall be exclusive, however jewelry shall for part of the
communal property.
2. Property acquired in exchange of exclusive property shall be exclusive
3. Property acquired during marriage are presumed to be communal unless proven otherwise
4. salaries are considered conjugal or communal property.
SUMMARY:

CHAPTER 4: DEDUCTIONS TO GROSS ESTATE

DEDUCTIONS FROM THE GROSS ESTATE ALLOWED BY THE NATIONAL INTERNAL REVENUE
1. Ordinary deductions
A. Expenses, losses, indebtness, taxes (ELIT)
o Funeral expense
o Judicial expense of testamentary or intestate preceding
o Claims against estate
o Claims against insolvent person
o Unpaid mortgage or indebtedness on property (taxes/losses)
B. Transfer for public use (TPU) – donation mortis cause to charities, government, religions, and educational
institutions for public use.
C. Vanishing deductions – easing the harshness of double taxation of the same property
2. Special deductions
A. Family home
B. Standard deduction
C. Amount receivable by heirs under RA 4917
3. Share of surviving spouse (1/2 net conjugal estate before standard deductions)
NOTES:
1.Estate tax is an excise tax.
2.Devisees and legatees are persons to whom gifts of real or personal are respectively given by virtue of will.
3.Court is not authorized to take charge of the estate during intestate period.
4.Estate tax is a tax on the right to transfer property at death and on certain transfers which are made by law the
equivalent of testamentary disposition and is measured by the value of the property.
5.The taxpayer in estate taxation is the estate of the decedent as a juridical person.
6.The will of an alien residing abroad produces effect in the Philippines if made in conformity with the formalities
prescribed by law of the place in which he resides.
7.Under the law on legitime, if the only survivor is widow or widower, she or he shall be entitled to one half of the
hereditary estate of the deceased spouse, and the testator may freely dispose of the other half.
8.Transfer tax is imposed upon gratuitous transfer of property, of two kinds, estate tax and donor's tax, and classified as
national tax.
9.Disinheritance deprives an heir to inherit properties by the decedent through issuance of will.
10. In legal succession, even half-blood brothers and sisters may inherit.
11. Inheritance refers to 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.
12. Rights which are purely personal are not transmissible for they are extinguished by death.
13. Representation is a right created by fiction of law by virtue of which the representative is raised to the place and
degree of the person represented and acquires the rights which the latter would have if he were living or if he could
have inherited
14. If a compulsory heir dies ahead of the testator, his legitime goes to the child by representation.
15. Decedent – general term applied to a person whose property is transmitted through succession.
16. Legal or intestate succession does not take place when the heir instituted is capable of succeeding.
17. A person has limited right to make donations in his last will and testament.
18. Share in partnership’s profit earned immediately after the date of death is not included in the gross estate of decedent.
19. The object of estate tax is the right to transmit.
20. For a donation to be valid, acceptance of the donation must be made during the lifetime of the donor and donee.
NOTES (SOURCE: TEST YOURSELF 2 AND QUIZ IN ACC 123)
1.Exclusive property of the surviving spouse is not part of the gross estate of the decedent
2.A rule, the basis of valuation pf property in the gross estate is the fair market value prevailing at the time of decedent's
death. In the case of domestic shares of stock not traded thru stock exchange, the fair market values is Issuer's book
value.
3.Transfer for full or adequate consideration is subject to income tax.
4.Part of the estate left by A are preference shares of MERALCO. The shares are listed and traded in the Philippine Stock
Exchange. The preference shares will be valued using the arithmetic mean between the highest and lowest
quotation at the date nearest the date of death, if none is available on the date of death itself.
5.The will designate a part of free portion to a stranger is regarded as an intestate succession.
6.Shares of stock from foreign corporation, 15% operations abroad are not included in the gross estate of NRA
decedent.
7.The estate as a juridical entity is the taxpayer in estate tax.
8.The administrator or executor has the personal liability to pay estate tax.
9.Share in partnership's profit earned immediately after date of death is not included in the gross estate of citizen
decedent.
10. The object of estate tax is right to transmit.
ACP-Com CPG-Con ACP-ex CPG-ex
Properties owned by the spouses before the marriage ̷̷̷ ̷
Rental Income on a property acquired before marriage ̷ ̷
Property acquired during marriage ̷ ̷
Income on property described in #3 ̷ ̷
Property acquired by gift before marriage ̷ ̷
Income on property described in #5 ̷ ̷
Property inherited during marriage ̷ ̷
income on property described in #7 ̷ ̷
Property received as a gift during marriage where the donor ̷ ̷
expressly provides that the property is for the spouses
Income on property described in #9 ̷ ̷
Car purchased during marriage using funds derived from practice ̷ ̷
of profession
Property owned before marriage for personal and exclusive use ̷ ̷
of the decedent when he was still alive
Jewelry items inherited by the decedent during marriage ̷ ̷
Real property acquired during marriage with decedent's own ̷ ̷
income
Car inherited during marriage ̷ ̷
11. MR. X brought into the marriage an agricultural land worth 1,000,000. During the marriage, the agricultural land was
sold for 1,500,000 and was used to acquire a family home. The family home was valued at 1,800,000 at the death of
Mr. X. Under ACP, what amount should be included in the common properties? 1,800,000
12. On the belief that Bernard is about to die, he sold to his son a parcel of land valued at P6,000,000 for the same
amount. 6 months later, Bernard died of a car accident. At that time, the property had already a value of P7,000,000.
For Philippine estate tax purposes, the amount includible in the gross estate is 0
13. Daniel, Filipino married to Andrea, died in July 2021, leaving the following:
a.Real properties – conjugal, P2,500,000
b.Real property – exclusive (Daniel) 2,000,000
c.Real property – exclusive (Daniel) – (Lot where the family home stands) 3,000,000
d.Family home – conjugal 3,000,000
e.Allowable ordinary deductions – conjugal 800,000
Determine the gross estate. 10,500,000
14. Mr. Y, a bachelor, died leaving the following properties
Proceeds of group insurance P150,000
House and lot - 1,000,000
car, registered in his name - 400,000
Original investment in a business partnership -200,000
Mr. Y owns 50% interest in the profit of the business partnership with his boyfriend. The partnership had
undistributed profits of P100,000 at the time of Mr. Y's death. Compute the gross estate: 1,650,000
15. Mr. X died on June 3, 1987, but his estate had not paid tax since then. He had the following properties at the time of
death:
Proceeds of life insurance irrevocably designated to his son - 2,000,000
Properties for exclusive use of Mr. And Mrs. X -300,000
Properties inherited by Mrs. X on June 1, 1987-4,000,000
Properties from salaries of Mr. And Mrs. X -1,400,000
Properties accumulated since June 3, 1987-400,000
Common properties of the spouses used by the family since Mr. X's death -230,000
Compute the gross estate: 1,930,000
16. before marriage, Mr. and Mrs. Kim had salary savings respectively of P2,000,000 and P1,500,000. Mr. and Mrs. Kim
earned respectively P200,000and P180,000 income from these savings during marriage. Mr. and Mrs. Kim also earned
respectively P400,000 and P500,000 from their separate industries. Under CPG compute the following:
a. Exclusive property of Mr. Kim 2,000,000
b. Exclusive property of Mrs. Kim 1,500,000
 c. Common property of the spouses 1,280,000
d. Gross estate of Mr. Kim 3,280,000
17. Based on the information in #16, under ACP compute the following:
a. Exclusive property of Mr. Kim 0
b. Exclusive property of Mrs. Kim 0
c. Common property of the spouses 4,780,000
d. Gross estate of Mr. Kim 4,780,000
18. Mr. X, Filipino, died in Gaza leaving the following properties
House and Lot in Gaza, P1,000,000
Vacant Lot in Pangasinan, P2,000,000
Shares of stock in a domestic corp., 40% of the business is located in the Philippines, P100,000
Shares of stock in a foreign corp., 90% of the business is located in the Philippines, P200,000
Car in Manila, P500,000
How much is the gross estate? 3,800,000
19. Jin died on Feb 1, 2019 leaving a 1,000 sq. meter of parcel of land in Tondo, Manila, with the following valuations:
Assessed valued as determined by the city assessors, P15,000/sq. m.
Zonal value as determined by the CIR, P18,000,000
Fair market value as determined by independent appraisers, P20,000,000
What would be the value of the piece of land in the gross estate? 18,000,000
20. MR. X brought into the marriage an agricultural land worth 1,000,000. During the marriage, the agricultural land was
sold for 1,500,000 and was used to acquire a family home. The family home was valued at 1,800,000 at the death of
Mr. X. Under CPG, what amount should be included in the common properties? 800,000
21. Joseph died on March 1, 2018 leaving a parcel of land. The following data were available in connection with the
property.
Assessed valued, 3 months before death, P2,500,000
Fair market value at the time of filing estate tax return on Feb 28, 2021, P3,000,000
Zonal value, March 1, 2018, P2,000,000
The value will be 2,500,000
22. H married W on February 2, 1988. W died on February 14, 2014. On that date, the spouses had the following
properties:
Car donated to H on June 14, 2010 - 1,200,000
Investments- inherited by W on Feb 4, 1990 when its value was 2Million - 2,800,000
House and Lot-salaries of H and W - 4,000,000
Cash income of car - 400,000
Exclusive property of H 1,200,000
Exclusive property of W 2,000,000
W's gross estate 7,200,000
23. A decedent left 1,000 Jollibee shares. The shares were traded in the local stock exchange. At the time of death, the
following were available:
Fair market value, P300 per share
Mean between the highest and the lowest quotations, P250 per share
Book value, P175 per share
What was the value included in the decedent’s gross estate? 300,000
24. Mr. Julian Cruz procured a life insurance upon his own life. He designated his estate’s executor as an irrevocable
beneficiary. For estate tax purposes, the proceeds of life insurance are included in the gross estate of Mr. Julian
Cruz because when the executor of the estate is a beneficiary the proceeds are included in the gross estate
regardless of the designation.
25. Estate tax in revenue tax.
26. Mr. Rigoberto Collado, a citizen and resident of Puerto Rico, dies during the year. Puerto Rico does not impose
transfer taxes on properties of decedent not residing therein. He left the following properties among others:
Shares of stock, San Miguel Corporation, Manila
House and lot, Puerto Rico
Leasehold on a condominium unit, Philippines
Contract for public works, Philippines
The executor of his estate in Philippines asked you what properties are to be included in his Philippine gross estate.
What answer will you give him? Include contract for public works and leasehold on condominium unit only.
27. Donation inter vivos requires a public document while donation mortis causa may not require a public
document is not a distinction between donation inter vivos and donation mortis causa.
28. 500,000 is the allowable standard deduction for non-resident alien decedent.
29. It is a well-established rule that estate taxation is governed by the statute in force at the time of death of the decedent.
30. The estate tax accrues as of the death of the decedent and the accrual of the tax is distinct from the obligation to pay
the same.
31. Your client dies on July 14, 2018. You are appointed as administrator. You withdraw from his bank deposit P100,000
because the estate needs cash to settle some obligations. What is the consequence of your withdrawal from the
decedent’s bank deposit? Subject to final withholding tax of 6%.
32. Devise of real property in favor of St. Francis Church does not escape the estate tax.
33. Estate tax is an excise tax on the right of transmitting property at the time of death.
34. The purpose of estate tax is to tax the shifting of economic benefits and enjoyment of property from dead to the living.
35. For purposes of availing of a family home deduction to the extent allowable, a person may constitute only one family
home.
36. Estate tax is not a property tax.
37. Upon the death of the decedent, succession takes place and the right of the State to tax the privilege to transmit the
estate vests instantly upon death.
38. The law in force at the time of death of the decedent is controlling, notwithstanding postponement of the actual
possession or enjoyment of the property by the beneficiary.
40,400,000 None of the above.
40,250,000 40,350,000