Chapter 3 Gross Estate b.

Revocable transfer – transfer by If general, part of gross estate

trust or where the decedent may If limited, not part of gross estate
 Estate tax revoke
In sum, (taxable transfers)
Purposes of estate tax Trust is a legal relationship created
when grantor – trustor transfers  Bona fide sale, adequate and full
1. Benefit received theory property to be managed by trustor for consideration in money or money’s worth
2. Privilege theory the benefit of beneficiary. – 0 to gross estate
3. Ability to pay theory  Consideration received was less than
4. Redistribution of wealth Proceeds of life insurance – adequate – FMV less value of property at
protection against natural risk such as the time of decedent’s death
Decedent’s estate – all property in which the death  No consideration – full amount FMV @
decedent owned a beneficial interest at the time of death
death Part of gross estate if the beneficiary
is: NRA – only properties located in the PH
Real property – certificate of title or tax declaration
of the property  Estate of the decedent, executor o Franchise
or administrator o S.O.B – any corp or sociedad anonima
By purchase, deed of absolute sale  3rd person other than the estate, in the PH
his executor or administrator and o S.O.B – any foreign corp 85% located in
Inherited, deed of extrajudicial settlement or court the designation of the beneficiary PH
decision is revocable o S.O.B – any foreign corp business situs
in PH
Donation, deed of donation Designation of beneficiary is revocable unless o S.O.B – partnership, business or
expressly stated that it is irrevocable industry in PH
Includes, any right to income accrued, but not yet Reciprocity rule – intangible personal
received as of the date of the decedent’s death. If irrevocable, it will not form part of the gross estate properties not included in gross estate if
E.g. interest, rent, royalties, salary and tax refunds.
c. Transfer under general power of o Decendent @ time of death is a resident
RC, NRC, RA appointment and citizen of one foreign country
1. Tangible personal property – seen and Power of appointment – right to Valuation of Gross Estate
touched, movable, can be transported designate the person/s who will
2. Intangible personal property – cannot be succeed to the property of a prior - Based on values of properties – rights,
seen and touched, no physical form. decedent intangibles, physical things – at the time of
3. Real or immovable property – land,
decedent’s death
building, or anything attached to soil with Donor of the power – creates the - Generally FMV
permanence power of appointment 1. Real property – FMV zonal value or
4. Taxable transfers – inter vivos but actually
FMV at schedule of values by
mortis causa in substance because they Donee of the power – given the right
provincial or city assessors whichever
will take effect upon death of to exercise the power
is HIGHER
transferor.
a. Transfer in contemplation of death Appointed property – subject of the
FMV on latest tax declaration
power
 Improvement - construction cost per NRA with reciprocity – tax exempt on Expenses
building permit intangible pp, not part of gross estate
 Funeral – death to burial
2. Shares NRA without reciprocity – intangible except up keep, after burial
pp taxed, part of gross estate and expenses defrayed by
Unlisted – common [ book value ], relatives and friends
preferred [ par value ] Exemptions from estate tax a. Mourning apparel – spouse
and unmarried children
Listed – mean high and low at date 1. Merger of usufruct in the owner of b. Wake expenses, food and
nearest date of death or date of death naked title drinks
itself 2. Transmission or delivery of the c. Telecom expenses to inform
inheritance or legacy to fiduciary relatives
3. Right to usufruct, use or habitation, heir or legatee to the d. Cost of burial except upkeep
annuity – probable life of beneficiary fideicommissary e. Interment or cremation fees
at latest basic standard mortality table 3. Transmission from the first heir, f. Other expenses for rites and
legatee or donee in favor of ceremonies
SITUS another beneficiary in  Actual expenses duly
accordance to the will of the supported
Real property – place it is situated predecessor  5% of gross estate
4. All bequest, devises, legacies or  200,000 limit whichever
Tangible personal – place it is actually transfers to social welfare, is lowest
located at the time of death cultural, charitable institutions not  Judicial – incurred during
more than 30% will be used for settlement of estate not
Intangible personal – domicile or admin purposes beyond 6 months, duly
residence of decedent supported
Under special laws
A/R – residence of debtor
a. Inventory taking
1. Benefits from GSIS or SSS b. Administration
Bank deposit – location of depository bank 2. PH or US government pension for c. Payment of debts
damages during the was d. Distribution among heirs
Copyright, trademark, patent and franchise 3. Benefits from US veterans admin
– place it is used or exercised 4. Bequest, legacies or donations mortis Losses
causa to social welfare, cultural,
An intangible p.p. of an NRA decedent charitable institutions a. Casualty losses no insurance no
may be subject to estate tax more than 5. Bequest for educational purposes compensation. In case of partial
once
compensation, not compensated
portion deductible
Type Within Without
b. Not been claimed as deduction for
Resident Citizen yes yes Chapter 4 Deductions from Gross income tax
Non resident Citizen yes yes Estate c. Incurred within 6 months after death
Resident Alien yes yes
RC, NRC, RA Decedents allowed the ff
Non resident Alien yes no deductions:
Indebtedness – no limit
1. ELIT
1. Claims against the estate – with proof
of indebtedness
The decedent died without paying his
debt out of contract, tort or
operation of law
Property previously taxed or vanishing
deduction – allowed to lessen the impact of
successive taxation of the same property.
Inheritance/donation
Requisites

Requisites 1. Within 5 years apart

a. Obligation at the time of
decedent’s death except
expenses incident to his death
b. In good faith and for adequate
and full consideration
c. Valid in law and enforceable in
court
d. Not been previously condoned by
creditor or action to collect from
decedent not been prescribed
2. Have formed part of gross estate situated
in the Philippines of prior decedent or
taxable gift of donor
3. Identified as same property
4. Estate tax on prior transmission have
already been determined and paid
5. No vanishing deduction was allowed to
prior estate

2. Claims against insolvent persons –

decedent dies unable to collect from
debtor because of insolvency

 Uncollectible part deductible, full

amount part of gross estate

3. Unpaid mortgages – decedent leaves

property encumbered by mortgage

FMV of property must be included in

gross estate in full, deductible to the
extent of full consideration

4. Taxes – unpaid and accrued at the

time of death, no limit except

 Income tax upon income after

death
 Property taxes not accrued
before death
 Estate tax due from transmission
of his estate