The Marriage Series, Part 4: What the Absolute Community is Obligated to Pay For

According to Article 94 of the Family Code, during the couple’s marriage, the absolute community of property will answer for the following: 

(1) The support of the spouses and their common children; 

(2) All debts and obligations contracted during the marriage by the designated administrator spouse for the benefit of the community, or by both spouses, or by one spouse with the consent of the other; 

(3) Debts and obligations contracted by either spouse without the consent of the other to the extent that the family may have been benefited; 

(4) All taxes, liens, charges and expenses, including major or minor repairs, upon the community property; 

(5) All taxes and expenses for mere preservation made during marriage upon the separate property of either spouse used by the family; 

(6) Expenses to enable either spouse to commence or complete a professional or vocational course, or other activity for self-improvement; 

(7) Antenuptial debts of either spouse insofar as they have redounded to the benefit of the family, or in other words, debts incurred by either spouse before their marriage, which have benefited the family; 

(8) The value of what is donated or promised by both spouses in favor of their common legitimate children for the exclusive purpose of commencing or completing a professional or vocational course or other activity for self-improvement; 

(9) Antenuptial debts of either spouse other than those falling under paragraph (7), the support the support of illegitimate children of either spouse, and liabilities incurred by either spouse by reason of a crime or quasi-delict, in case of absence or insufficiency of the exclusive property  of the debtor-spouse, the payment of which shall be considered as advances to be deducted from the share of the debtor-spouse upon liquidation of the community; and 

(10) Expenses of litigation between the spouses unless the suit is found to be groundless.

The separate properties of each spouse will have to shoulder any unpaid balance if the community property is not enough to cover the above-mentioned liabilities, with the exception of the antenuptial debts of each spouse that did not benefit the family.

If the community property is insufficient to cover the foregoing liabilities, except those falling under paragraph 9, the spouses shall be solidarily liable for the unpaid balance with their separate properties.

The Marriage Series, Part 3: Absolute Community of Property

What is the regime of absolute community? How are the properties of the husband and the wife affected under this regime? Under the absolute community of property regime, all property owned by the spouses at the time of the celebration of the marriage, or acquired thereafter, will form part of the community property (Family Code of the Philippines, Article 91). This means that everything the couple owns at the time they get married, and everything that they will own after their marriage, will belong to both of them. 

Is there any property that will be excluded from the community property? Yes. Under the Family Code, the following properties are excluded form the community property:

 (1) Property acquired during the marriage by gratuitous title by either spouse, and the fruits as well as the income thereof, if any, unless it is expressly provided by the donor, testator or grantor that they will form part of the community property; 

(2) Property for personal and exclusive use of either spouse. However, jewelry shall form part of the community property; and 

(3) 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. 

In other words, property that a spouse receives by virtue of donation, succession, or any other form of gratuitous conveyance does not form part of the community property, and will remain the separate property of the spouse, unless the person who made the gratuitous conveyance expressly stated that the conveyance was for  both spouses, in which case, it will form part of the community property. Property that only one spouse can personally and exclusively use is also considered separate property. An example of such property would be clothing.

If one of the spouses is a widow or a widower, or was previously married and such marriage has been legally annulled, and has a child or children from the previous marriage, the property which that spouse acquired before the subsequent marriage, as well as any income that may be derived from the property, will form part of his or her separate property.

The Marriage Series, Part 2: Property Relations

What is property relations? Property relations is how a husband and a wife relate to each other with regard to their properties, which include money, jewelry and land among others.

According to the Family Code of the Philippines, the property relations between husband and wife will be governed in the following order: 

(1) By marriage settlements executed before the marriage; 

(2) By the provisions of the New Civil Code as amended by the Family Code; and 

(3) By the local customs.

Couples who are about to get married are encouraged to execute a marriage settlement. What is a marriage settlement? A marriage settlement is an agreement between the future husband and the future wife, which establishes their property relations during their marriage. 

The Family Code of the Philippines provides for four economic regimes which the couple may choose to govern their future marriage. These regimes are: 

(1) the regime of absolute community; 

(2) the conjugal partnership of gains; 

(3) complete separation of property; and 

(4) any other regime. 

What if the couple chooses not to execute a marriage settlement? What regime will govern? According to the Family Code, in the absence of marriage settlements, or when the regime agreed upon is void, the system of absolute community of property as established in the Family Code will govern.

If you want a marriage settlement made or have questions regarding marriage settlements, please contact us at (032)268-0537 to schedule an appointment. Thank you!

The Marriage Series

Getting married? With June a little over a month away, many couples are now well into their wedding preparations. Unfortunately, however, a significant percentage of those couples are clueless about the realities they have to face after the wedding ceremony.  We have decided to publish a series to help couples prepare for their future married life.

The Marriage Series, Part 1 : Talking About Future Property Relations

There are some couples who are planning to get married, yet probably haven’t discussed their finances with their significant others. Have they incurred any debt? Who will pay for the debt once they are married? Who will pay for the utility bills, the rent or the mortgage, the future children’s tuition fees? Will the future stay-at-home wife get a monthly allowance? Will the future spouse with the less stable source of income be required to share in the household expenses? These are just few of the questions that many newly-married couples ask themselves, and which couples who plan to get married should ask themselves and each other before they get married.  We highly encourage couples who want to get married to take the time and talk about their finances and their properties, and how it would affect their property relations during their marriage, in order to prevent problems later on in their marriage.

If you need help planning out your property relations, please contact us at (032)268-0537 to schedule an appointment. 

BUYING REAL PROPERTY AND GETTING IT REGISTERED UNDER YOUR NAME

By the contract of sale one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefore a price certain in money or its equivalent. (Article 1458, Civil Code)

One of the most common methods of acquiring real property, is through the contract of sale. Unfortunately, most people seem to think that the mere act of  possessing a copy of the Deed of Absolute Sale is sufficient to cement their claim of ownership over the property that they had purchased. In reality, while the Deed of Absolute Sale may be ample proof that one has purchased the property from the seller, what if the seller sold the property to another person a second time? Or what if the seller had previously sold the property to someone else? In such cases, the best evidence of ownership over the property would have to be the Certificate of Title. 

In purchasing real property, the most prudent buyer would always require the seller to produce a copy of the Original Certificate of Title (OCT) or Transfer Certificate of Title (TCT), as well as the Tax Declaration which covers the property. A quick look at the OCT or TCT would show whether the property is under mortgage, is the subject of pending litigation, or contains other encumbrances which would not make it a good purchase. The Tax Declaration would not only show the fair market value of the property, but is likewise a good indicator of whether or not the seller had been religiously paying his/her real property taxes every year. To take things a step further, one may secure a tax clearance from the City or Provincial Assessor’s Office to actually determine whether or not real property taxes had been paid.

Once the parties have agreed to execute a Deed of Absolute Sale over the property and have actually done so, the task of securing a Certificate Authorizing Registration (CAR) from the Bureau of Internal Revenue (BIR) is at hand. The CAR enables the buyer to have the OCT or the TCT registered under his/her name. While many balk at the idea of securing the CAR by themselves, the process is actually not an impossible one, to wit:

1. PAYMENT OF THE CAPITAL GAINS TAX & DOCUMENTARY STAMP TAX 

The Seller (or the Buyer, depending on the agreement between the parties) pays the Capital Gains Tax and the Documentary Stamp Tax with the BIR. This is done by filling up and submitting the Capital Gains Tax Return Form (BIR Form No. 1706) and the Documentary Stamp Tax Declaration/Return Form (BIR Form No. 2000-OT), in triplicate, together with the required attachments, to the BIR. 

The required attachments for BIR Form No. 1706 are:

1. A copy of the notarized Deed of Sale or Exchange.
2. A photocopy of the Transfer Certificate of Title (TCT), Original Certificate of Title, or Condominium Certificate of Title (CTT),
3. Certified True Copy of the latest Tax Declaration on the property and/or the improvements contained therein (e.g. house, building).
4. If the property subject of the sale does not contain any improvements, or does contain an improvement but the said improvement is in the name of another, a certification to that effect from the Assessor’s Office.

An Examiner at the BIR will determine how much Capital Gains Tax is due, which is six percent (6%) of the Gross Selling Price or the Fair Market Value of the property, whichever is higher. Payment of the Capital Gains Tax should be made within thirty (30) days following the sale, exchange or disposition of the property, at an Authorized Agent Bank (AAB), or directly to the Revenue Collection Officer or duly authorized City or Municipal Treasurer in the absence of an AAB.

On the other hand, the amount of Documentary Stamp Tax due is Php15/Php1,000, or Fifteen Pesos for every One Thousand Pesos from the tax base (whichever is higher between the Gross Selling Price or the Fair Market Value of the property). Payment of the Documentary Stamp Tax should be made within five (5) days after the close of the month when the taxable document was made, signed, issued, accepted or transferred. To illustrate: If the property was sold on January 15, then the deadline for the payment of the Documentary Stamp Tax would be on February 5.

If one has somehow forgotten to pay the Capital Gains Tax and/or the Documentary Stamp Tax on or before their due dates, a surcharge, interest and compromise penalty will be imposed.

After filing the Capital Gains Tax Return and the Documentary Stamp Tax Return, with their required attachments and paying the taxes, surcharges, interests and compromise penalties, if any, with the AAB, one goes back the the BIR and shows proof of such filing and payment (the receipt or validated deposit slip issued by the AAB). The BIR then issues a claim slip and will advise you when to pick up your Certificate Authorizing Registration (CAR), which is usually in two weeks’ time.

Once you are able to claim your CAR, you can now take steps for the actual transfer of the property to your name.

II. TAX CLEARANCE

First, you must make sure that the real property tax on the property has been paid. You can do this by asking for a tax clearance from the Tax Clearance Section of the Real Property Tax Division at the City Treasurer’s Office. In order to secure a tax clearance, you need the following:

1. Letter request

2. Tax declaration number

3. Tax payment verification sheet (TPVS) print-out 

You can obtain the TPVS print-out at the Tax Clearance Section.

The Tax Clearance Section first verifies that payments of real property tax on the property have been made. If the person in charge determines that real property tax on the property has not been made for the current year, or any of the previous years, a bill for the tax due will be printed. You will then pay the bill, as well as the Certification Fee, at the Cashier. If payment of real property tax is up to date, all you need to do is pay for the Certification Fee at the Cashier. You then present the Official Receipt, together with the supporting documents to the verifier. Your tax clearance will then be released to you after a few minutes.

III. TRANSFER TAX

After claiming your tax clearance, you can now head on over to the Transfer Tax Division. You submit the Tax Clearance together with the CAR and its attachments to the person-in-charge. Transfer tax is then computed. You will have to pay for the computed tax at the cashier. After paying the transfer tax, you have to get a certified true copies of the Official Receipt that had just been issued to you. You will need this when you visit the Registry of Deeds to have the title of the property transferred to your name.

IV. REGISTRY OF DEEDS

After Transfer Tax has been paid, submit a Certified True Copy of the Official Receipt that had been issued to you for the Transfer Tax as well as the  CAR and other supporting documents attached to the same, to the person-in-charge at the Registry of Deeds. You can monitor the status of your title online at: http://www.lra.gov.ph/LOTS.htm, or you can visit the Registry of Deeds personally. You can claim your Transfer Certificate of Title (TCT) at the Registry of Deeds once it is ready.

V. TAX DECLARATION

After you receive your TCT, you can now have the property’s tax declaration transferred under your name. To do this, you have to submit a photocopy of the TCT, the CAR and its supporting attachments, and a Certified True Copy of the Official Receipt for the Transfer Tax. You can then claim the new Tax Declaration after a few days.

If the process of transferring title to real property does not appeal to you, you may engage the services of a law firm or an accounting firm to do the work for you. Just make sure that the firm that you hire has knowledgeable, honest and trustworthy employees.

Primer on Estate Tax

ESTATE TAX

What is Estate Tax?

ESTATE TAX is a tax levied, assessed collected, and paid upon the transfer of the net estate of a decedent. (Sec. 84, NIRC)

What is Gross Estate?

Gross Estate of a Philippine citizen consists of the value, at the time of the decedent's death, of all his property, real or personal, tangible or intangible, wherever situated.

In the case, however, of a foreigner who was not a resident of the Philippines, only his properties which are situated in the Philippines will be included in his taxable estate. (Sec. 85, NIRC) 

What does the Gross Estate consist of?

A. Decedent's interest at the time of his death. (Sec. 85, par. (A), NIRC)

B. Transfers made in contemplation of death - This refers to transfers (such as sales, donations, assignments) made by the decedent, by trust or otherwise, in contemplation of or with the intention of taking effect after his death. 

This also includes transfers, by trust or otherwise, of (1) the possession or enjoyment of, or the right to the income from the property; or (2) the right, either alone or in conjunction with any person, to designate the person who shall possess or enjoy the property or the income therefrom, which, the decedent may have retained for himself during his lifetime, or any period which does not end before his death.

However, a genuine sale made for an adequate and full consideration in money or money's worth, made during the lifetime of the decedent, does not form part of his Gross Estate. (Sec. 85, par. (B), NIRC)

C. Revocable transfers - This refers to transfers made by the decedent, by trust or otherwise, which would be subject to change (via alteration, amendment, revocation or termination) at the date of his death, through the exercise of a power by the decedent alone or in conjunction with any other person. (Sec. 85, par. (C), NIRC)

D. Property passing under general power of appointment - The general power of appointment may be exercised (1) by virtue of a will; (2) by deed executed by the decedent in contemplation of, or the enjoyment or possession of which is intended to take effect on or after his death; or (3) by deed executed by the decedent under which he has retained for his lifetime or a period not ascertainable without reference to his death or does not end before his death either the possession or enjoyment of, or the right to the income from the property; or the right, either alone or in conjunction with any person to designate the persons who shall possess or enjoy the property or the income therefrom. (Sec. 85, par. (D), NIRC)

E. Proceeds of life insurance - This refers to the amount of insurance which the decedent's estate, executor, administrator or designated beneficiary would receive, under an insurance policy taken by the decedent upon his own life. 

However, proceeds of life insurance do not form part of the decedent's Gross Estate where his beneficiary had been designated as irrevocable. (Sec. 85, par. (E), NIRC)

F. Transfers for insufficient consideration - This refers to transfers in contemplation of death, revocable transfers and property passing under general power of appointment, where such transfers, trusts, interests, rights or powers were made, created, exercised or relinquished for a consideration in money or money's worth, which is not, however, deemed a bona fide sale. The excess of the fair market value of the property, at the time of the decedent's death, over the value of the consideration received by the decedent shall be included in the decedent's Gross Estate. (Sec. 85, par. (G), NIRC)

How is the Value of the Estate determined?

(A) USUFRUCT

To determine the value of the right of usufruct, use or habitation, as well as that of annuity, there shall be taken into account the probable life of the beneficiary in accordance with the latest Basic Standard Mortality Table, to be approved by the Secretary of Finance, upon recommendation of the Insurance Commission.

(B) PROPERTIES

The estate shall be appraised at its fair market value as of the time of death. However, the appraised value of real property as of the time of death shall be, whichever is the higher of --

(1) The fair market value as determined by the Commissioner, or

(2) The fair market value as shown in the schedule of values fixed by the Provincial and City Assessors. (Sec. 88, NIRC)

How is the Net Estate determined?

The value of the Net Estate is determined by deducting the following from the value of the Gross Estate:

1. Deductions allowed to the estate of a citizen or a resident, or deductions allowed to nonresident estates.
2. Transfers for public use.
3. Share in the conjugal property. (Sec. 86, NIRC)

What deductions are allowed to the estate of a citizen or a resident?

1. Expenses, Losses, Indebtedness, and Taxes (Sec. 86, par. (A) (1), NIRC)

(a) Funeral expenses - the amount of which shall be the lower amount between the actual funeral expenses incurred or five percent (5%) of the Gross Estate, and shall, in no case exceed Two Hundred Thousand Pesos (Php200,000.00). 

(b) Judicial expenses for testamentary or intestate proceedings.

(c) Claims against the estate - In order to qualify as a deduction, claims against the estate have to be evidenced by a duly notarized debt instrument, dated at the time the indebtedness was incurred. If the loan was incurred within three (3) years prior to the death of the decedent, the administrator or executor must submit a statement showing how the proceeds of the loan were disposed.

(d) Claims of the deceased against insolvent persons, where the value of the decedent's interest therein is included in the value of the Gross Estate.

(e) Unpaid mortgages or any indebtedness on property, where the value of the decedent's interest therein (undiminished by the mortgage or indebtedness) is included in the value of his Gross Estate. Income tax on income received after the death of the decedent, or property taxes accrued after his death, or any estate tax is not included.

(f) Losses incurred during the settlement of the estate arising from fires, storms, shipwreck, or other casualties, or from robbery, theft or embezzlement. To qualify as a deduction, such losses must not be compensated for by insurance or otherwise; they must not have been claimed as a deduction for income tax purposes in an income tax return, at the time of the filing of the return; and such losses must be incurred not later than the last day for the payment of the estate tax.

2. Property Previously Taxed (Sec. 86, par. (A) (2), NIRC)

Where the property of any person, forming part of the gross estate and situated in the Philippines, has been received by the decedent by way of donation, or from a prior decedent by gift, bequest, devise or inheritance, or which can be identified as having been acquired in exchange for property, within five (5) years prior to the death of the decedent, or transferred to the decedent by gift within five (5) years prior to his death, an amount equal to the value specified below of such property, to wit:

a. One hundred percent (100%) of the value, if the prior decedent died within one (1) year prior to the death of the decedent, or if the property was transferred to him by gift within the same period prior to his death;

b. Eighty percent (80%) of the value, if the prior decedent died more than one (1) year but not more than two (2) years prior to the death of the decedent, or if the property was transferred to him by gift within the same period prior to his death;

c. Sixty percent (60%) of the value, if the prior decedent died more than two (2) years but not more than three (3) years prior to the death of the decedent, or if the property was transferred to him by gift within the same period prior to his death;

d. Forty percent (40%) of the value, if the prior decedent died more than  three (3) years but not more than four (4) years prior to the death of the decedent, or if the property was transferred to him by gift within the same period prior to his death; and,

e. Twenty percent (20%) of the value, if the prior decedent died more than four (4) years but not more than five (5) years prior to the death of the decedent, or if the property was transferred to him by gift within the same period prior to his death.

The foregoing deductions shall be allowed:

-Only where a donor's tax or estate tax was finally determined and paid by or on behalf of such donor, or the estate of such prior decedent, as the case may be;

-Only in the amount finally determined as the value of such property in determining the value of the gift, or the gross estate of such prior decedent; 

-Only to the extent that the value of such property is included in the decedent's gross estate; and,

-Only if, in determining the value of the estate of the prior decedent, no deduction was allowable for property previously taxed, in respect of the property or properties given in exchange therefor. 

Where a deduction was allowed of any mortgage or other lien in determining the donor's tax or the estate tax of the prior decedent, which was paid in whole or in part prior to the decedent's death, then the deduction allowable for Property Previously Taxed shall be reduced by the amount so paid.

Such deduction allowable shall be reduced by an amount which bears the same ratio to the amounts allowed as deductions for Expenses, Losses, Indebtedness, Taxes, and Transfers for Public Use, as the amount otherwise deductible as Property Previously Taxed bears to the value of the decedent's estate. Where the property consists of two or more items, the aggregate value of such items shall be used for the purpose of computing the deduction.

3. Transfers for Public Use (Sec. 86, par. (A) (3), NIRC)

The amount of all bequests, legacies, devises or transfers to or for the use of the Philippine Government, or any political subdivision thereof, for exclusively public purposes.

4. The Family Home (Sec. 86, par. (A) (4), NIRC)

An amount equivalent to the current fair market value of the decedent's family home, up to One Million Pesos (Php1,000,000.00). The excess of One Million Pesos (Php1,000,000.00) shall be subject to estate tax.

In order to avail of this deduction, the family home must have been the decedent's family home as certified by the barangay captain of the locality.

5. Standard Deduction (Sec. 86, par. (A) (5), NIRC)

An amount equivalent to One Million Pesos (Php1,000,000.00).

6. Medical Expenses (Sec. 86, par. (A) (6), NIRC)

Medical expenses, not exceeding Five Hundred Thousand Pesos (Php500,000.00), incurred by the decedent within one (1) year prior to his death, and substantiated with receipts.

7. Amount Received by Heirs Under Republic Act No. 4917 (Sec. 86, par. (A) (7), NIRC)

Any amount received by the heirs from the decedent's employer as a consequence of the death of the decedent-employee in accordance with Republic Act No. 4917 (An Act Providing That Retirement Benefits of Employees of Private Firms Shall Not Be Subject to Attachment, Levy, Execution, or Any Tax Whatsoever): Provided, That such amount is included in the gross estate of the decedent.

What deductions are allowed to the estate of a non-resident foreigner?

The following may be deducted from the value of that part of the gross estate of a non-resident foreigner, which at the time of his death is situated in the Philippines:

1. Expenses, Losses, Indebtedness and Taxes (Sec. 86, par. (B) (1), NIRC)

That proportion of the deductions allowed for citizens and residents (please refer to Sec. 86, par. (A) (1), NIRC), which the value of such part bears to the value of his entire gross estate, wherever situated.

2. Property Previously Taxed (Sec. 86, par. (B) (2), NIRC)

Where the property of any person, forming part of the gross estate and situated in the Philippines, has been received by the decedent by way of donation, or from a prior decedent by gift, bequest, devise or inheritance, or which can be identified as having been acquired in exchange for property, within five (5) years prior to the death of the decedent, or transferred to the decedent by gift within five (5) years prior to his death, an amount equal to the value specified below of such property, to wit:

a. One hundred percent (100%) of the value, if the prior decedent died within one (1) year prior to the death of the decedent, or if the property was transferred to him by gift within the same period prior to his death;

b. Eighty percent (80%) of the value, if the prior decedent died more than one (1) year but not more than two (2) years prior to the death of the decedent, or if the property was transferred to him by gift within the same period prior to his death;

c. Sixty percent (60%) of the value, if the prior decedent died more than two (2) years but not more than three (3) years prior to the death of the decedent, or if the property was transferred to him by gift within the same period prior to his death;

d. Forty percent (40%) of the value, if the prior decedent died more than  three (3) years but not more than four (4) years prior to the death of the decedent, or if the property was transferred to him by gift within the same period prior to his death; and,

e. Twenty percent (20%) of the value, if the prior decedent died more than four (4) years but not more than five (5) years prior to the death of the decedent, or if the property was transferred to him by gift within the same period prior to his death.

The foregoing deductions shall be allowed:

-Only where a donor's tax or estate tax was finally determined and paid by or on behalf of such donor, or the estate of such prior decedent, as the case may be;

-Only in the amount finally determined as the value of such property in determining the value of the gift, or the gross estate of such prior decedent; 

-Only to the extent that the value of such property is included in that part of the decedent's gross estate which at the time of his death is situated in the Philippines; and,

-Only if, in determining the value of the estate of the prior decedent, no deduction was allowable for property previously taxed, in respect of the property or properties given in exchange therefor.

  Where a deduction was allowed of any mortgage or other lien in determining the donor's tax or the estate tax of the prior decedent, which was paid in whole or in part prior to the decedent's death, then the deduction allowable for Property Previously Taxed shall be reduced by the amount so paid.

Such deduction allowable shall be reduced by an amount which bears the same ratio to the amounts allowed as deductions for Expenses, Losses, Indebtedness, Taxes, and Transfers for Public Use, as the amount otherwise deductible as Property Previously Taxed bears to the value of that part of the decedent's gross estate which at the time of his death is situated in the Philippines. Where the property referred to consists of two or more items, the aggregate value of such items shall be used for the purpose of computing the deduction.

3. Transfers for Public Use (Sec. 86, par. (B) (3), NIRC)

The amount of all bequests, legacies, devises or transfers to or for the use of the Philippine Government or any political subdivision thereof, for exclusively public purposes.

When shall deductions from the gross estate of a non-resident foreigner be permitted?

In the case of non-resident foreigners, deductions shall be allowed only if the executor, administrator, or any one of the heirs, as the case may be, includes in the Estate Tax Return the value, at the time of his death, of that part of the gross estate of the nonresident not situated in the Philippines. (Sec. 86, par. (D), NIRC)

May Estate Tax imposed in the Philippines be credited with Estate Tax paid to a foreign country?

Yes. Estate Tax imposed in the Philippines shall be credited with the amounts of any estate tax imposed by the authority of a foreign country. (Sec. 86, par. (E) (1), NIRC)

What are the limitations imposed in determining the amount of tax credit?

The amount of the credit taken shall be subject to the following limitations:

(a) The amount of the credit in respect to the tax paid to any country shall not exceed the same proportion of the tax against which such credit is taken, which the decedent's taxable net estate situated within such country bears to his entire net estate; and

(b) The total amount of the credit shall not exceed the same proportion of the tax against which such credit is taken, which the decedent's taxable net estate situated outside the Philippines bears to his entire net estate. (Sec. 86, par. (E) (2), NIRC)

Are there any exemptions to the Estate Tax?

Yes. The following shall not be taxed:

(a) The merger of usufruct in the owner of the naked title;

(b) The transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to the fideicommissary;

(c) The transmission from the first heir, legatee or donee in favor of another beneficiary, in accordance with the desire of the predecessor; and

(d) All bequests, devises, legacies or transfers to social welfare, cultural and charitable institutions, no part of the net income of which inures to the benefit of any individual: Provided, however, That not more than thirty percent (30%) of the said bequests, devises, legacies or transfers shall be used by such institutions for administration purposes. (Sec. 87, NIRC)

In what cases shall the Notice of Death be filed? Who shall file the same? When shall the same be filed?

In all cases of transfers subject to tax, or where, though exempt from tax, the gross value of the estate exceeds twenty thousand pesos (Php20,000.00), the executor, administrator or any of the legal heirs, as the case may be, within two (2) months after the decedent's death, or within a like period after qualifying as such executor or administrator, shall give a written notice thereof to the Commissioner. (Sec. 89, NIRC)

When shall an Estate Tax Return be filed? What shall it contain?

In cases of transfers subject to the tax imposed herein, or where, though exempt from tax, the gross value of the estate exceeds Two Hundred Thousand Pesos (Php200,000.00), or regardless of the gross value of the estate, where the said estate consists of registered or registrable property such as real property, motor vehicle, shares of stock or other similar property for which a clearance from the Bureau of Internal Revenue is required as a condition precedent for the transfer of ownership thereof in the name of the transferee, the executor, or the administrator, or any of the legal heirs, as the case may be, shall file a return under oath in duplicate, setting forth:

(1) The value of the gross estate of the decedent at the time of his death, or in case of a nonresident, not a citizen of the Philippines, of that part of his gross estate situated in the Philippines;

(2) The deductions allowed from gross estate in determining the estate; and,

(3) Such part of such information as may at the time be ascertainable and such supplemental data as may be necessary to establish the correct taxes.

Estate Tax Returns showing a gross value exceeding Two Million Pesos (Php2,000,000.00) shall be supported with a statement duly certified to by a Certified Public Accountant containing the following:

(a) Itemized assets of the decedent with their corresponding gross value at the time of his death, or in the case of a nonresident, not a citizen of the Philippines, of that part of his gross estate situated in the the Philippines;

(b) Allowed itemized deductions from gross estate; and

(c) The amount of tax due whether paid or still due and outstanding. (Sec. 90, par. (A), NIRC)

When shall the Estate Tax Return be filed?

The Estate Tax Return shall be filed within six (6) months from the decedent's death. A certified true copy of the schedule of partition and the order of the court approving the same shall be furnished the Commissioner within thirty (30) days after the promulgation of such order. (Sec. 90, par. (B), NIRC)

In what instance shall an extension of time be granted for the filing of an Estate Tax Return?

A reasonable extension not exceeding thirty (30) days for the filing of the return shall be granted by the Commissioner for meritorious cases. (Sec. 90, par. (C), NIRC)

Where shall the Estate Tax Return be filed?

Except in cases where the Commissioner otherwise permits, the Estate Tax Return shall be filed with an authorized agent bank, or Revenue District Officer, Collection Officer, or duly authorized Treasurer of the city or municipality in which the decedent was domiciled at the time of his death or if there be no legal residence in the Philippines, with the Office of the Commissioner. (Sec. 90, par. (D), NIRC)

*This Primer has previously been published on http://www.ibrokermo.com/blogs/legalresources/archive/2012/10/25/primer-on-estate-tax.aspx with the consent of the Dico-Arias & Manlosa Law Firm.