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abella2.jpg (3502 bytes) GUIDELINES ON ESTATE AND DONOR'S TAX         (page 1)

Atty. Edwin R. Abella
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A. Concept and Nature:
Estate tax is a tax on the right of the deceased person to transmit his estate to his lawful heirs and beneficiaries. It is not a tax on property. Estate tax is held to be an excise tax imposed on the privilege of transmitting property upon the death of the owner. The estate tax is generated by death and accrues at the time of death. It is governed by the law in force at the time of death notwithstanding the postponement of the actual possession or enjoyment of the estate by the beneficiary.

B. Properties Includable In Gross Estate or Gross Gift:
1. Citizen or resident decedent or donor:
   a) Real or immovable property, wherever located.
   b) Personal property, tangible or intangible, wherever
      located.(PD1457, 6/11/78)
2. Non-resident alien:
   a) Real or immovable property located in the Philippines.
   b) Tangible personal property located in the Philippines.
   c) Intangible personal property with situs in the Philippines subject to         the rule of reciprocity exemption.
 

 

 

 

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C. Properties Considered Situated in the Philippines:
1. Franchise which must be exercised in the Philippines.
2. Shares, obligations or bonds issued by corporation or sociedad anonima organized or constituted in the Philippines.
3. Shares, obligations or bonds issued by a foreign corporation eighty- five per centum of the business of, which is located in the Philippines.
4. Shares, obligations or bonds issued by a foreign corporation if such shares, obligations or bonds have acquired a business situs in the Philippines.
5. Shares or rights in any partnership, business or industry established in the Philippines.

D. Composition of the Gross Estate:
1. Real and personal property, whether tangible or intangible or mixed.
2. Decedent's interest in property.
3. Proceeds of life insurance.
4. Taxable transfers.
5. Transfers for insufficient consideration.

E. Proceeds of Life Insurance:
1. Includable in gross estate:
    a) Revocable beneficiary.
    b) Appointed beneficiary is the estate, executor or administrator.
2. Not includable in gross estate:
    a) Received from the GSIS and SSS.

F. Taxable Transfers:
1. Transfer in contemplation of death (3-year presumption repealed by
    PD 1705, 8/1/80)
2. Transfer with retention or reservation of certain rights.
3. Revocable transfer.
4. Transfers of property under general power of appointment.
    a) Existence of general power of appointment held by the decedent.
    b) Exercise of such power by the decedent by will or by deed
        intended to take effect upon death.
    c) Passing of property by virtue of such death.
5. Transfers for insufficient consideration.
    a) Covers only the excess of the fair market value over the value
        of the consideration.
    b) Transfer was made in contemplation of death, otherwise will be
        subject to donors's tax,

G. Kinds of Property:
1. By Nature:
    a) Real or immovable property.
    b) Personal property, tangible or intangible.
2. By Ownership:
    a) Exclusive capital or paraphernal property.
    b) Conjugal or community property.

H. Valuation of Gross Estate or Gift:
1. Valuation date - Time of death or gift.
2. Basis of valuation:
    a) Real properties (land)
        1) Prior to August 31, 1969 - Comm. Act 466
        2) September 1, 1969 to August 13, 1974 -R.A. 611
        3) August 14, 1974 to November 24, 1976 - PD 539
        4) November 25, 1976 to December 31, 1985 - PD 1054
        5) January 1, 1986 - Present - PD 1994
   b) Improvements
        1) June 10, 1986 to February 4, 1988 - RAMO 3-86
        2) February 5, 1988 to February 18, 1991 - RAMO 1-88
        3) February 19, 1991 to 1994 - RAMO 2-91
        4) 1994-FMV per TD (Latest TD)
   c) Shares of stocks, obligations or bonds - RAMO 1-82
   d) Usufruct, annuities, use or habitation - Formula using
      American Tropical Experience Table. Beginning January 1, 1998,
      the valuation shall take into account the probable life of
      the beneficiary in accordance with the latest Basic Standard
       Mortality Table.
   e) Foreign currency and cash in bank - Peso value at exchange
       rate at the time of death.
   f) Other personal properties - Fair market value at the time of death.

I. Personal Properties:
1. Shares of stocks, bonds and securities.
2. Interest in partnerships, business or industry.
3. Cash on hand and in banks.
4. Machineries, transportation equipments, farm implements, tools,
    farm animals, etc.
5. Antiques, jewelry, silverware, paintings, etchings, engravings, books, 
    statues, vases, oriental rugs, collection of stamps and coins.
6. Household furnitures, fixtures, appliances and other personal effects.
7. Usufruct, annuities, use or habitation.
8. Mortgage notes, participation certificates, judgements, obligations
    and action which have for their object movables or demandable
    sums.
9. Goodwill, patents, and trademarks.

J. Exclusions and Exemption from the Gross Estate:
1. Exempted under Special Laws and Exemptions by Omission:
   a) GSIS proceeds/benefits
   b) Accruals from SSS
   c) Proceeds of life insurance where the beneficiary is irrevocably
       appointed.
   d) Proceeds of life insurance under a group insurance taken by the
      employer (Not taken out by the decedent upon his own life)
   e) WAR damage payments.
   f) USVA -RA 136.
   g) Properties held in trust by decedent.
   h) Transfer by way of bonafide sales.
   i) Transfer of property to the National Government or to any of
      its political subdivisions.
   j) Separate property of the surviving spouse.
2. Exempted under the Tax Code:
   a) Merger of usufruct in the owner of the naked title.
   b) Transmission or delivery of the inheritance or legacy by the
       fiduciary heir or legatee to the fideicommissary.
   c) Transmission from the first heir, legatee or donee in favor of
       another beneficiary in accordance with the desire of the
       predecessor.
   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
       that not more than 30% of which shall be used for administration
       purposes (PD 507, 1974)

K. Allowable Deductions:
1. Expenses, losses, indebtedness and taxes:
   a) Funeral expenses:
       1) CA 466 (July 1, 1939) - 5% of gross estate
       2) PD 69 (January 1, 1973) - 5% of gross estate but not exceeding
           P50,000.00
       3) RA 7499 (July 28, 1992)- 5% of gross estate but not exceeding              P100,000.00.
      4) RA 8424 (January 1, 1998)- 5% of gross estate but not  
          exceeding P200,000.00
   b) Judicial expenses.
   c) Claims against the estate
   d) Claims against insolvent persons
   e) Unpaid mortgages or indebtedness
   f) Unpaid taxes
   g) Losses
2. Transfer for public purposes
3. Vanishing deduction (Property previously taxed)
    Requisites:
    a) Present decedent must have died within five (5) years from the
        date of death of prior decedent or date of gift.
    b) The property with respect to which deduction is claimed must
        have formed part of the gross estate situated in the Philippines
        of the prior decedent or taxable gift of the donor.
   c) The property must be identified as the same property received
       from the prior decedent or donor or the one received in exchange
       therefore.
   d) The estate taxes on the gift must have been finally determined
       and paid.
   e) No vanishing deduction on the property was allowed to the prior
       estate.



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