(Article published in the Nov 26,2004 issue of TODAY, Business Section)
only for its sheer simplicity, the survivorship agreement stands out as an
ideal estate planning tool. A
survivorship agreement, in its bare essentials, is a contract whereby the
parties, usually only two, agree that (a) certain properties, usually
money in a bank account, are theirs in common and (b) upon the death of
either of them, the said properties shall belong to the surviving party.
it is a contract, not a donation nor a will, it is not subject to tedious
formalities. No need to
institute court proceedings, like probate, to make it effective.
Unless the property is real estate, there is no need to register.
All that is required is for the entity in possession of the
property to respect the agreement and treat the survivor as the absolute
owner effective the demise of the first to die.
1937, the Philippine Supreme Court has recognized the validity of
survivorship agreements. In
the early case of Macam v. Gatmaitan,
36 O.G. 2175, the Supreme Court considered
a survivorship agreement as an aleatory contract, valid under Section 1790
of the old Civil Code. It was
no more than an agreement whereby
the “parties reciprocally bind themselves to give or do something as an
equivalent for that which the other party is to give or do in case of the
occurrence of an event which is uncertain or will happen at an
indeterminable time.” Macam v. Gatmaitam involved a house of strong materials bought with
the money of Leonarda Macam and a Buick automobile and certain furnitures
which belonged to Juana Gatmaitan. When
Macam died, the house belonged to Gatmaitan.
1942, in Ana Rivera v. People’s
Bank and Trust Company (73 Phil 546), the Supreme Court, with Justice
Ozaeta as ponente, extended the
same blessings to what is popularly known as the “and/or” account with
a survivorship feature. In
that case, the parties opened a bank account and stipulated that the
moneys in the account, without consideration of their previous ownership,
shall be the property of both of them as joint tenants, payable to either
of them during their joint lives, and, upon the death of one, belong to
and be the sole property of the survivor.
Ozaeta rejected the argument that the arrangement was invalid because it
was in fact a donation mortis causa
which had to follow the requirements of a will.
He observed that such a contention is premised on the assumption
that only one of the parties owned the monies in the account.
Since the facts showed that both of them contributed to the
account, then notion of a gift, albeit mortis
causa, could not be pursued any further.
fifty years later, the Supreme Court strengthed the case for an
“and/or” account with a survivorship agreement.
The case of Vitug v. Court of Appeals (183 SCRA 755) involved the question of
whether the money of a couple
in an “and/or” account with survivorship stipulation is to form part
of the decedent’s estate for purposes of dividing his property among his
heirs or whether it belonged to the survivor and not part of the
include the account in the estate, the claimants argued that the agreement
was a donation either mortis causa
or inter vivos.
If the former, it was assailed as invalid because it did not follow
the formalities of a will; if the latter, it was claimed to be void, for
being between husband and wife.
Justice Ozaeta, ponente Justice Sarmiento, in maintained that stipulation of
survivorship in the “and/or account” the agreement was not a donation mortis causa because to be considered as a donation mortis
causa, the property must pertain
only to the giver, or testator. The
money in account was conjugal.
At the same time, the provision on survivorship could not be considered a donation inter vivos, because the vesting of full ownership in one of the parties was clearly intended, not to take effect during the parties’ lifetime, but instead to occur upon the other’s death. The “survivor-take-all” feature of the account, the Supreme Court observed., was “a mere obligation with a term, the term being death” that determined what was to be done upon its happening.
type of agreement, the Supreme Court reiterated, was permitted under
Article 2010 of the new Civil Code.
Vitug, the “and/or” account
with survivorship because a popular tool for the transfer of money from
the first to die to the survivor. It
seemed such a facile method of circumventing the rule in the Tax Code that
prohibited the withdrawal of a decedent’s money from the bank, until the
estate tax had been paid. The
argument seems flawless: since the funds, when the decedent died, by such
death became owned by the survivor and did not form part of the
decedent’s estate for inheritance purposes, then the money is not part
of the decedent’s taxable estate, i.e., not subject to the estate tax,
and therefore free from the no-withdrawal rule in the Tax Code.
not it did take long for water was be doused on the arrangement. A ruling
issued by the Bureau of Internal Revenue in the second quarter last year,
Rev. Ruling No. 010-2003, exposed the flaw of solving tax issues with
civil law concepts. The
Commissioner ruled that while the transfer is considered valid for civil
law purposes, it is nevertheless to be considered as a “transfer in
contemplation of death” for tax purposes and is subject to the estate
tax under Section 85(B) of the Tax Code.
logical consequence is that the funds in the “and/or” account with
survivorship, pursuant to Section 97, cannot be withdrawn by the survivor unless the Commissioner
has certified that the proper estate taxes have been paid thereon.
Only Php 20,000 may be withdrawn without such certification, but
still, only upon authorization by the Commissioner.
the ruling is reversed, by the Commissioner himself (which is unlikely) or
by the courts, an “and/or” account with survivorship stands in the
same footing, estate tax-wise, as an “and/or” account without a
If so, who would want to bother with it?