ESTATE TAXATION – PT. 2 – J. LOPEZ
VALUATION OF GROSS ESTATE
ESTATE TAX – Is the tax imposed on the act of gratuitous transmission of
the estate of the decedent to his/her heirs.
Estate is composed of the properties, rights and obligations of the
decedent not extinguished by death. Furthermore, the heirs should not be
liable to debts of the former exceeding the latter’s share of
inheritance.
As a general rule, the gross estate shall be valued at FAIR MARKET VALUE
at the moment of death.
SITUS OF GROSS ESTATE
Deceased
Residents &
Citizens
Tangible
TAXABLE
properties
located within
the Philippines
Intangible
TAXABLE
personal
properties
located in the
Philippines
*Subject to reciprocity clause
Non-resident
aliens engaged
in trade
TAXABLE
Non-resident
aliens not
engaged
TAXABLE
TAXABLE
MAY NOT TAXABLE*
VALUATION
ESTATE
Real properties
Personal properties
Shares of stocks
VALUATION
Fair market value at
the time of death
Fair market value at
the time of death
Unlisted common
shares: Book value per
share
Unlisted preference
share: Par value
Listed shares: Average
quotation price at
time of death
TAX RATE: 6% of the net estate
EXCLUSIONS TO GROSS ESTATE
1. Exclusive properties of the surviving spouse
2. Merger of usufruct in the owner of the naked title
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ESTATE TAXATION – PT. 2 – J. LOPEZ
3. Transmission or delivery of the inheritance or legacy by the
fiduciary or legatee to the fideicommisary
4. Transmission from the first heir, legatee or donee in favor of
another beneficiary
5. All bequests, devises, legacies or transfers to social welfare,
cultural and charitable institutions
Note: No.s 2,3 and 4 takes an analogous view of trust relationships
where the first heir, legatee or donee does not acquire ownership of the
properties and only serves as a trustee in favor of the intended
beneficiary. In that case;
a. The properties shall be included in the estate of the decedent
b. The properties transferred to the first heir, legatee or donee
shall be excluded to his estate
6. Proceeds of life insurance received by members of GSIS
7. Accruals and benefits received by members of SSS by reason of death
8. Life insurance proceeds on life insurance policy taken out by
himself, upon his own life, where the beneficiary is a third person and
is IRREVOCABLY designated.
Note: If the problem is silent as to designation, assume it is
RECOVABLE.
9. Life insurance proceeds on group insurance taken out by his employer
upon the life of the employee where whoever is the beneficiary whether
the latter is revocably or irrevocably designated.
10. Transfers by way of bona fide sales
11. Properties held in trust by the decedent
12. Acquisitions and/or transfer expressly declared as not taxable
INCLUSIONS TO GROSS ESTATE
1. Property owned actually and physically present in his estate at the
time of death
2. Decedent’s interest if any
3. Transfers in contemplation of death
4. Transfer with retention or reservation of certain rights
5. Recovable transfers
6. Transfers under general appointment
7. Transfers for insufficient consideration
8. Claims against insolvent person
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ESTATE TAXATION – PT. 2 – J. LOPEZ
9. Proceeds of life insurance
Notes:
a. No. 2 pertains to accrued dividends, interests and share in
partnership’s profits
b. No. 3 takes a view where the transfer already happened during the
lifetime of the donor (donation inter-vivos) but is really intended
to take effect upon the death of the decedent (donation mortis
causa). However, if such was really the intention, the transfer is
not subject to estate tax but rather to donor’s tax.
c. No.s 4 & 5 happens when ownership was not transferred to another,
hence, the owner or the decedent shall include to his/her estate.
d. No. 6 pertains to transfer by way of appointment. When there is a
general power of appointment, the transferee, appointee or the
assignee acquires all the ownership attributes, therefore, the same
shall include in his estate the properties where he has complete
dominion. The other type is the special power of appointment. The
latter is the opposite of the former.
e. No. 7 may be construed into different categories. Therefore, the
following steps shall be taken.
1. Check whether the transfer is a bona fide sale, if it is, then
property is not anymore owned by the decedent/transferor,
otherwise proceed to the next step
2. Check whether the FMV of property transferred is substantially
higher than the consideration at the date of transfer. If such
was the case, there is a transfer for insufficient
consideration. Therefore, the excess of FMV of property over
the consideration shall be included as part of his gross
estate.
3. If from the above step the FMV of property was equal to or
lower than the consideration, there is an adequate
consideration and therefore it is deemed as a bona fide sale
transaction.
f. No. 8 happens when the decedent has a claim against an insolvent
person. A person is said to be insolvent when his liabilities
exceeds his assets. Therefore the following rules shall be
observed:
a. The collectible portion shall be part of the gross estate.
b. The uncollectible portion is a deduction to gross estate.
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