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GROSS ESTATE
Gross estate includes the value, at the time of death of the estate owner, of all
property, real or personal, tangible or intangible, wherever situated.
The following are includible in the computation for the taxable gross estate:
1. Interest in any Property Whenever a person has interest in any
property, the value of such interest at the time of his death shall form part
of his gross estate. The term interest broadly defined denotes a right to
have the advantage accruing from anything; any right in the nature of
property, but less than title.
2. Transfers in Contemplation of Death - Any interest of estate owner in
a property that is transferred at any time, by trust or otherwise, in
contemplation of death, shall be includible in the computation of the gross
estate.
This means that properties transferred with the thought of impending
death and its consequent tax implications on the property as the primary
considerations would have the effect of the transferred properties being
included in the determination of the gross estate and, thus, subject to
estate tax. Note that, unlike in previous tax laws, there is no longer a
three-year presumption that says that any transfer made within three
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years from the date of transfer to the date of death shall be deemed to
have been made in contemplation of death.
Thus, any transfer can be considered as one motivated by the thought of
death regardless of when death actually occurs if circumstances point to
such conclusion, such as: the age of the decedent at the time the transfers
were made; the health of the estate owner at the time of transfer,
especially where he was aware of his terminal illness; the length of time
between the dates of transfer and death, where the shorter the interval,
the more suggestive of the transfer being done in contemplation of death;
and the amount of property transferred in proportion to the amount of
property retained.
But the Tax Code provides and exception, in case of bona fide sale for an
adequate and full consideration in money or moneys worth. Therefore, the
value of the properties transferred shall not be included in the
computation of the gross estate of the decedent-estate owner.
3. Transfers with Retention of Certain Rights Transfers that contain
conditions that retain in the transferor significant ownership rights are
includible in the determination of the gross estate of the decedenttransferor. Significant powers are retained when the transferee is
incapable of freely enjoying or disposing of his interest in the transferred
property until the transferors death.
When the transfer does not completely convey possession and enjoyment
of a property to the transferee, such transfer is disregarded for purposes of
determining the gross estate of the decedent estate owner.
But the exception in case of bona fide sale for an adequate and full
consideration in money or moneys worth also applies here.
4. Revocable Transfers Any transfer where the enjoyment of such
transferred property is subject to any change (to alter, amend, revoke or
terminate) at the date of death of the transferor is includible in the gross
estate.
Just like in transfers with conditions, there is no complete and absolute
transfer here because the transferor still has the power to alter, amend,
revoke or terminate the transfer at the time of his death. When such
power is retained, the transferor is still effectively exercising significant
ownership rights over the property, which justifies the inclusion of the
latter in the determination of the gross estate.
5. Transfers under General Power of Appointment A power of
appointment refers to a right to designate the person or persons who shall
enjoy or posses certain property. In this instance, although the person
who is given this right is not the owner of the property, he nonetheless is
granted the authority to appoint any person he wishes, including himself,
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to enjoy or possess said property and have full dominion over the same as
though he owned it, by virtue of a general power of appointment. The tax
code basically says that, for purposes of estate taxation, the power to
dispose of property by the exercise of a power of appointment by will or by
deed in certain cases is the equivalent of ownership, hence, properties
passing under such power are includible in the gross estate.
6. Transfer for Insufficient Consideration If a transfer is for a
consideration in money or moneys worth, and such is not a bona fide sale
for an adequate or full consideration, the difference between the fair
market value and the value of consideration received by the transferor
shall be included in the determination of gross estate. This is obviously
intended to plug the loophole of under pricing the property in a sale to
facilitate transfers.
7. Proceeds of Life Insurance Life insurance proceeds are to be included
in the gross estate except when the designation of the beneficiary is
irrevocable.
ALLOWABLE DEDUCTIONS
Allowable deductions from the gross estate in arriving at the taxable net estate
includes:
1. Expenses, Losses, Indebtedness, and Taxes
a. Funeral Expenses whichever is lower between the actual
expenses or an amount equivalent to 5% of the gross estate,
provided that in no case shall the deduction exceed P 200,000.
b. Judicial Expenses includes executors or administrators
renumeration, lawyers and accountant fees, and other fees and
expenses in relation to the preservation of the estate. However, this
does not include cost of litigations due to conflicts in estate
settlement.
c. Claims against the Estate these are unpaid indebtedness of the
estate owner. However, for an indebtedness to be recognized as a
deductible, there has to be a debt instrument duly notarized at the
time the indebtedness was incurred. Also, if the loan was contracted
within three (3) years before the death of the estate owner, the
administrators or executor is required to submit a statement
showing the disposition of the proceeds of the loan.
d. Claim against insolvent persons Unpaid claims of the estate
owner against persons who are insolvent are deductible provided
that the value of the estate owners interest in the claim is included
in the value of the gross estate.
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2. The estate tax return must be filed and paid within six (6) months from
the date of death of the estate owner. However, payment of tax can be
extended, but only upon petition by the heirs and subsequent findings
and favorable ruling by the bureau that the deadline would impose
undue hardship upon the estate or any of the heirs. However, such
extension cannot exceed 2 years for extra judicial settlement cases and
5 years for cases involving settlement by the courts.
3. Failure to file or pay on time or filing the return with a person of office
other than those authorized will result in a surcharge of 25 %. The
surcharge may run to as high as 50% in case of willful neglect to file
the return or when a false or fraudulent return is filed.
4. For as long as the estate tax becomes due and remains unpaid, an
additional penalty of 20% annually shall be imposed on the unpaid tax
liability.
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