ESTATE TAX

Definitions

Succession – a mode of acquisition by virtue of which, the property, right and

obligations to the extent of the value of the inheritance, of a person are transmitted
through his death to another or others either by will or by operation of law.

Will – an act whereby a person is permitted with the formalities prescribed by law, to
control to a certain degree the disposition of his estate, to take effect after his death.

Decedent - The person whose property is transmitted through succession, whether or

not he left a will.

Heir – The person called to succession, either by the provision of a will or by operation
of law.

Estate – totality of the property, rights and obligations of a person, which are not
extinguished by his death.

Testamentary Succession – Succession which results from the designation of an heir,

made in a will executed in the form prescribed by law.

Legal or intestate succession – Transmission of properties where there is no will, or if

there is a will, the same is void or nobody succeeds in the will.

Mixed Succession – Transmission of properties which is effected partly by will and

partly by operation of law.

Legatee – An heir to a particular personal property given by virtue of a will.

Devisee – An heir to a particular real property given by virtue of a will.

Executor – is a person nominated by the testator to carry out the directions and requests
in his will and to dispose of his property according to his testamentary provisions after
his death.

Administrator – is a person appointed by the court, on accordance with the governing

statute, to administer and settle intestate estate and such testate estate as no executor
designated by the testator.

Legitime – part of the testators property which he cannot dispose of because the law
has reserved it for certain heirs who are therefore, called compulsory heirs.

Holographic Will – an entirely written, dated and signed by the testator.

PROPERTY REGIME

Absolute Community of Property Conjugal Partnership of gains

From August 3, 1988 onwards Before August 3, 1988

Inclusions: Inclusions:

1. All the property owned by the 1. the proceeds, products, fruits and
spouse at the time of the celebration income from their separate properties;
of the marriage.
 2. Those acquired during the 2. those acquired by either or both
marriage. spouses through their efforts or by
chance.

Exclusions or Exclusive Property: Exclusions or Exclusive Property:

1. Property acquired during the 1) Property acquired during the

marriage by gratuitous title by
either spouse, the fruits and the
income thereof, unless it is
expressly provided by the donor,
testator or grantor that they shall
form part of the community
property;
2. Property for personal or exclusive
use of either spouse. However,
jewelry shall form part of the
community property;
3. Property acquired before the
marriage by either spouse who has
legitimate descendants by a former
marriage, and the fruits as well as
the income, if any, of such property.
marriage by gratuitous title (by
donation and by testate/intestate
succession) by either spouse, and the
fruits as well as the income thereof, if
any, unless it is expressly provided by
the donor, testator or grantor that they
shall form part of the community
property;
(2) Property for personal and
exclusive use of either spouse.
However, jewelry shall form part of
the community property;
(3) Property acquired before the
marriage by either spouse who has
legitimate descendants by a former
marriage, and the fruits as well as the
income, if any, of such property.

What are the charges and obligations of What are the charges upon and
the absolute community? obligations of the conjugal partnership?

The absolute community of property shall The conjugal partnership shall be liable
be liable for: for:

(1) The support of the spouses, their
common children, and legitimate children
of either spouse; however, the support of
illegitimate children shall be governed by
the provisions of the Family Code on
Support;
(1) The support of the spouse, their
common children, and the legitimate
children of either spouse; however, the
support of illegitimate children shall be
governed by the provisions of the Family
Code on Support;

(2) All debts and obligations contracted (2) All debts and obligations contracted
during the marriage by the designated during the marriage by the designated
administrator-spouse for the benefit of the administrator-spouse for the benefit of the
community, or by both spouses, or by one conjugal partnership of gains, or by both
spouse with the consent of the other; spouses or by one of them with the
consent of the other;
(3) Debts and obligations contracted by
either spouse without the consent of the (3) Debts and obligations contracted by
other to the extent that the family may either spouse without the consent of the
have been benefited; other to the extent that the family may
have benefited;
(4) All taxes, liens, charges and expenses,
including major or minor repairs, upon the (4) All taxes, liens, charges, and expenses,
community property; including major or minor repairs upon the
conjugal partnership property;
(5) All taxes and expenses for mere
(5) All taxes and expenses for mere
preservation made during marriage upon preservation made during the marriage
the separate property of either spouse upon the separate property of either
used by the family; spouse;

(6) Expenses to enable either spouse to (6) Expenses to enable either spouse to
commence or complete a professional or commence or complete a professional,
vocational course, or other activity for self- vocational, or other activity for self-
improvement; improvement;

(7) Ante-nuptial debts (debts contracted (7) Ante-nuptial debts of either spouse
before the marriage) of either spouse insofar as they have redounded to the
insofar as they have redounded to the benefit of the family;
benefit of the family;
(8) The value of what is donated or
(8) The value of what is donated or promised by both spouses in favor of their
promised by both spouses in favor of their common legitimate children for the
common legitimate children for the exclusive purpose of commencing or
exclusive purpose of commencing or completing a professional or vocational
completing a professional or vocational course or other activity for self-
course or other activity for self- improvement; and
improvement;
(9) Expenses of litigation between the
(9) Ante-nuptial debts of either spouse spouses unless the suit is found to
other than those falling under No. 7 above, groundless.
the support of illegitimate children of
either spouse, and liabilities incurred by If the conjugal partnership is insufficient
either spouse by reason of a crime or a to cover the foregoing liabilities, the
quasi-delict, in case of absence or spouses shall be solidarily liable for the
insufficiency of the exclusive property of unpaid balance with their separate
the debtor-spouse, the payment of which properties.
shall be considered as advances to be
deducted from the share of the debtor-
spouse upon liquidation of the
community; and

(10) Expenses of litigation between the

spouses unless the suit is found to be
groundless.

If the community property is insufficient

to cover the foregoing liabilities, except
those falling under paragraph (9), the
spouses shall be solidarily liable for the
unpaid balance with their separate
properties.

What properties belong to the What properties belong to the conjugal

community property? partnership?

Consist of all the property owned by the (1) Those acquired by onerous title during
spouses at the time of the celebration of the marriage at the expense of the
the marriage or acquired thereafter. common fund, whether the acquisition be
for the partnership, or for only one of the
Property acquired during the marriage is spouses;
PRESUMED to belong to the community,
unless it is proved that it is one of those (2) Those obtained from the labor,
excluded therefrom. industry, work or profession of either or
 both of the spouses;

(3) The fruits, natural, industrial, or civil,

due or received during the marriage from
the common property, as well as the net
fruits from the exclusive property of each
spouse;

(4) The share of either spouse in the

hidden treasure which the law awards to
the finder or owner of the property where
the treasure is found;

(5) Those acquired through occupation

such as fishing or hunting;

(6) Livestock existing upon the dissolution

of the partnership in excess of the number
of each kind brought to the marriage by
either spouse; and

(7) Those which are acquired by chance,

such as winnings from gambling or
betting. However, losses therefrom shall
be borne exclusively by the loser-spouse.

ABSOLUTE COMMUNITY OF PROPERTY – from August 3, 1988 onwards

What is the system of absolute community?

This is one of the regimes or systems of property relations between the spouses and the
default system in the absence of a prenuptial agreement or when the agreed system is
null and void. This system commences at the precise moment that the marriage is
celebrated, and any stipulation for the commencement of the community regime at any
other time is void.

In a nutshell, the husband and the wife are considered as co-owners of all properties
they bring into the marriage (those that they owned before the marriage), as well as the
properties acquired during the marriage, except for certain properties express excluded
by law. The rules on co-ownership applies in all matters not provided under the Family
Code.

Can a spouse waive his/her share in the community property during marriage?

No. Except in case of judicial separation of property, any waiver of rights, shares and
effects of the absolute community of property during the marriage can be made.

If a spouse incurs gambling loses in a casino, can he/she charge the amount to the
community property?

No. Whatever may be lost during the marriage in any game of chance, betting,
sweepstakes, or any other kind of gambling, whether permitted or prohibited by law,
shall be borne by the loser and shall not be charged to the community but any winnings
therefrom shall form part of the community property.
CONJUGAL PARTNERSHIP OF GAINS

What is the conjugal partnership of gains?

Oftentimes referred to as the CPG, it is one of the property relations between the
spouses, under which the husband and wife place in a common fund the proceeds,
products, fruits and income from their separate properties and those acquired by either
or both spouses through their efforts or by chance, and, upon dissolution of the
marriage or of the partnership, the net gains or benefits obtained by either or both
spouses shall be divided equally between them, unless otherwise agreed in the
marriage settlements.

In other words, the following are placed in a common fund:

1. the proceeds, products, fruits and income from their separate properties; and
2. those acquired by either or both spouses through their efforts or by chance.

In what instances shall the regime of CPG apply?

It applies only when the future spouses agree to it in the marriage settlement, if any. It
also applies to conjugal partnerships of gains already established between spouses
before the effectivity of the Family Code, without prejudice to vested rights. This is the
default property relationship under the Civil Code, which was changed to that of
absolute community of property under the Family Code.

When does the CPG begin?

It begins at the precise moment when the marriage is celebrated, exactly like in absolute
community of property.

Can a spouse waive his/her share in the community property during marriage?

No. Except in case of judicial separation of property, any waiver of rights, shares and
effects of the absolute community of property during the marriage can be made.

Are the rules on ordinary partnership applicable to the conjugal partnership of

gains?

As a rule, yes, but only if not in what is expressly provided in the pertinent provisions
of the Family Code or by the spouses in their marriage settlements.

What is the significance of having an exclusive property?

The spouses retain the ownership, possession, administration and enjoyment of their
exclusive properties. A spouse may also mortgage, encumber, alienate or otherwise
dispose of his or her exclusive property, without the consent of the other spouse, and
appear alone in court to litigate with regard to the same.

Either spouse may, during the marriage, transfer the administration of his or her
exclusive property to the other by means of a public instrument, which shall be
recorded in the registry of property of the place the property is located. However, the
alienation of any exclusive property of a spouse administered by the other
automatically terminates the administration over such property and the proceeds of the
alienation shall be turned over to the owner-spouse.

What is the presumption regarding properties acquired during marriage?

All property acquired during the marriage, whether the acquisition appears to have
been made, contracted or registered in the name of one or both spouses, is presumed to
be conjugal unless the contrary is proved.

What is the rule in case of purchase by installment?

Property bought on installments paid partly from exclusive funds of either or both
spouses and partly from conjugal funds belongs to the buyer or buyers if full ownership
was vested before the marriage and to the conjugal partnership if such ownership was
vested during the marriage. In either case, any amount advanced by the partnership or
by either or both spouses shall be reimbursed by the owner or owners upon liquidation
of the partnership.

What is the rule in case a spouse has a credit payable to him over time?

Whenever an amount or credit payable within a period of time belongs to one of the
spouses, the sums which may be collected during the marriage in partial payments or
by installments on the principal shall be the exclusive property of the spouse. However,
interests falling due during the marriage on the principal shall belong to the conjugal
partnership.

What is the rule if improvements are made on that exclusive property using conjugal
funds or through the acts or efforts of either or both spouses?

The ownership of improvements, whether for utility or adornment, made on the

separate property of the spouses at the expense of the partnership or through the acts or
efforts of either or both spouses shall pertain to the conjugal partnership, or to the
original owner-spouse, subject to the following rules:

1. When the cost of the improvement made by the conjugal partnership and any
resulting increase in value are MORE than the value of the property at the time of the
improvement, the entire property of one of the spouses shall belong to the conjugal
partnership.

2. When the cost of the improvement made by the conjugal partnership and any
resulting increase in value are LESS than the value of the property at the time of the
improvement, the entire property shall remain with the owner-spouse.

3. In either case, the owner-spouse or the conjugal partnership, as the case may be, is
entitled to reimbursement for the value of the principal property or the improvement,
as the case may be.

4. It doesn’t matter if the improvements are for utility or adornment.

What are the rules concerning personal debts contracted before or during the
marriage?

1. As a rule, the payment of personal debts contracted by the husband or the wife before
or during the marriage shall not be charged to the conjugal partnership properties.

2. However, these debts shall be charged to the conjugal partnership properties insofar
as they redounded to the benefit of the family.

3. If the spouse has no exclusive property, it may be charged to the conjugal

partnership, subject to the provisions below.

What are the rules concerning fines and pecuniary indemnities imposed on each
spouse?
These cannot be charged to the partnership. However, the payment of personal debts
contracted by either spouse before the marriage, that of fines and indemnities imposed
upon them, as well as the support of illegitimate children of either spouse, may be
enforced against the partnership assets after the charges/obligations enumerated in
above have been covered, if the spouse who is bound should have no exclusive
property or if it should be insufficient; but at the time of the liquidation of the
partnership, such spouse shall be charged for what has been paid for the purpose
above-mentioned.

What is the rule in case of winnings or losses in gambling?

Any loss incurred by a spouse during the marriage in any game of chance or in betting,
sweepstakes, or any other kind of gambling whether permitted or prohibited by law,
shall be borne by that spouse, and shall not be charged to the conjugal partnership. Any
winnings, on the other hand, shall form part of the conjugal partnership property.

COMMON LAW MARRIAGE

The “live-in” relationship, also called “common-law marriage“. This is governed by

Article 147 of the Family Code, which reads:

Art. 147. When a man and a woman who are capacitated to marry each other, live exclusively
with each other as husband and wife without the benefit of marriage or under a void marriage,
their wages and salaries shall be owned by them in equal shares and the property
acquired by both of them through their work or industry shall be governed by the rules
on co-ownership.

In the absence of proof to the contrary, properties acquired while they lived together shall be
presumed to have been obtained by their joint efforts, work or industry, and shall be owned by
them in equal shares. For purposes of this Article, a party who did not participate in the
acquisition by the other party of any property shall be deemed to have contributed jointly in the
acquisition thereof if the former’s efforts consisted in the care and maintenance of the family and
of the household.

Neither party can encumber or dispose by acts inter vivos of his or her share in the property
acquired during cohabitation and owned in common, without the consent of the other, until after
the termination of their cohabitation.

When only one of the parties to a void marriage is in good faith, the share of the party in bad
faith in the co-ownership shall be forfeited in favor of their common children. In case of default of
or waiver by any or all of the common children or their descendants, each vacant share shall
belong to the respective surviving descendants. In the absence of descendants, such share shall
belong to the innocent party. In all cases, the forfeiture shall take place upon termination of the
cohabitation.

The Family Code (Art. 147) recognizes, and expressly governs the property relations in,
the relationship where a man and a woman live exclusively with each other just like a
husband and wife, but without the benefit of marriage (or when the marriage is void). It
is required, however, that both must be capacitated, or has no legal impediment, to
marry each other (for instance, couples under a “live-in” relationship will not be
covered under this provision if one or both has a prior existing marriage). In this
situation, property acquired by both spouses through their work and industry shall be
governed by the rules on equal co-ownership. Any property acquired during the union
is presumed to have been obtained through their joint efforts. As to the homemaker, or
the one who cared for and maintained the family household, he/she is still considered
to have jointly contributed to the acquisition of a property, even if he/she did not
directly participate in the property’s acquisition.
How about if one or both partners are not capacitated to marry, as when one (or both)
has an existing or prior marriage which has not been annulled/declared void? This is
covered under Art. 148 of the Family Code, which reads:

Art. 148. In cases of cohabitation not falling under the preceding Article, only the properties
acquired by both of the parties through their actual joint contribution of money, property, or
industry shall be owned by them in common in proportion to their respective
contributions. In the absence of proof to the contrary, their contributions and corresponding
shares are presumed to be equal. The same rule and presumption shall apply to joint deposits of
money and evidences of credit.

If one of the parties is validly married to another, his or her share in the co-ownership shall
accrue to the absolute community or conjugal partnership existing in such valid marriage. If the
party who acted in bad faith is not validly married to another, his or her shall be forfeited in the
manner provided in the last paragraph of the preceding Article.

The foregoing rules on forfeiture shall likewise apply even if both parties are in bad faith.

In other words, under Art. 148, only the properties acquired through their ACTUAL
JOINT contribution of money, property or industry shall be owned by them in common
(in proportion to their actual contributions). There is no presumption that properties
were acquired through the partners’ joint effort. Please also note that if one has a prior
marriage, his/her share shall be forfeited in favor of that previous marriage (as an
aside, the children under the second relationship shall be considered as illegitimate).