ESTATE TAX

BANTOLO, JAVIER, MUSNI

 WHAT IS ESTATE TAX?

Estate tax is the tax on the right to transmit

property at death and on certain transfers which
are made by the statute the equivalent of
testamentary dispositions (Alexander’s Federal Tax
Handbook [1956], p. 561.), and is measured by the
value of the property at the time of death.
(De Leon, 2009)
 WHAT IS TRANSFER TAX?

The transfer of private property may either be

gratuitous or onerous.
Transfer taxes are imposed upon the gratuitous
disposition of private properties. Taxes of this general
character are predicated on the passing of property as
distinguished from those imposed on property as such
because of its ownership and possession.
 2 KINDS OF TRANSFER TAX

1. Death Taxes or Duties – levied on the gratuitous transfers of

property upon one’s death.
• Estate Tax – the right to transmit property.
• Inheritance Tax – the right to receive property by succession.
NOTE: The existence of one in any particular case necessarily
presupposes the corollary existence of the other.
2. Gift Taxes – imposed on the gratuitous transfer of property
during one’s lifetime (ex: donor’s and donee’s gift taxes).
 HISTORY OF DEATH TAX IN THE
PHILIPPINES
• Act No. 2601 (took effect on July 1, 1916)
• Revised Administrative Code (Sec. 1536, et. seq.)
• Commonwealth Act No. 466 or the National
Internal Revenue Code (took effect on July 1,
1939)
NOTE: By virtue of Presidential Decree No. 69
(Nov. 24, 1972), both the estate and inheritance
taxes have been integrated into an estate tax.
 WHY WAS INHERITANCE TAX
REPEALED?

1. Difficulties of valuation of heir’s shares and collection of inheritance

tax obviated by single imposition of estate tax. – The persons who
will take and the amount they will receive may remain
uncertain for many years after the decedent’s death.
2. Schedule of estate tax rates simpler and more easily administered.
– The estate tax is not laid upon the property but upon the
transfer of the entire net estate.
 WHAT IS THE OBJECT OF
ESTATE TAX?

The object of estate tax is to tax the

shifting of economic benefits and
enjoyment of property from the dead to
the living.
 WHY IS ESTATE TAX JUSTIFIED?

1. Benefit-received theory. – The government renders service in the distribution of

the estate of the decedent.
2. Privilege theory or State partnership theory. – The state is considered as a
“passive and silent partner” in the accumulation of property through its
protection rendered.
3. Ability to pay theory. – Inheritance is in the nature of unearned wealth which
places assets in the hands of the heirs, thereby creating an ability to pay the
tax and contribute to governmental income.
4. Redistribution of wealth theory. – The receipt of inheritance is a contributing
factor to the inequalities in wealth and incomes. This, the evils of inheritance in
its original form must be mitigated.
 WHO IS THE TAXPAYER?

1. Predecessor.
2. Successor.
3. No personal incidence.
WHAT IS THE BASIS OF THE STATE’S
POWER TO IMPOSE INCOME TAX?

The power to tax estates and inheritances is

based on the general discretionary taxing
power of a State legislature to select the
subjects of taxation and this power extends
to al the usual objects within its sovereignty.
 WHAT IS THE SCOPE OF THE STATE’S
POWER TO IMPOSE INCOME TAX?

It extends to the creation, exercise,

acquisition, or relinquishment of any
power or legal privilege or right which is
incident to the ownership of property,
whenever any of these is occasioned by
death.
 WHAT IS THE GENERATING
SOURCE OF THIS TAXING POWER?

It accrues as of the death of the decedent by

operation of law. No manual transfer of the property to
the heirs is required, but the course and direction of the
property are under the control of the probate court (in
case of testamentary disposition) and the actual transfer
is not effected until its recipients are determined and
title is lodged in them. (85 C.J.S. 990)
 OBLIGATION TO PAY TAX

It does not follow that the obligation to

pay tax arises from the same date as the
execution and delivery of the deed to
the heir. The time for payment is clearly
fixed by law.
WHICH LAW IS APPLICABLE?

It is well-settled that estate taxation is

governed by the statute in force at the
time of the death of the decedent.
RATES OF ESTATE TAX

(SECTION 84, NIRC)

 NIRC VS. TRAIN

NIRC TRAIN
Sec. 84. Rates of Estate Tax. – There shall be levied, Sec. 22. Section 84 of the NIRC, as amended, is hereby
assessed, collected, and paid upon the transfer of the further amended to read as follows:
net estate as determined in accordance with Sections
“Sec. 84. Rate of Estate Tax. – There shall be
85 and 86 of every decedent, whether resident or
levied, assessed, collected and paid upon the transfer of
nonresident of the Philippines, a tax based on the value
the net estate as determined in accordance with
of such net estate, as computed in accordance with the
Sections 85 and 86 of every decedent, whether resident
following schedule:
or nonresident of the Philippines, a tax at the rate of six
If the net estate is: percent (6%) based on the value of such net estate.”
But Not The Tax Of the
Over Plus Over
Over Shall Be Excess

P200,000 Exempt

P200,000 500,000 0 5% P200,000

500,000 2,000,000 P15,000 8% 500,000

2,000,000 5,000,000 135,000 11% 2,000,000

5,000,000 10,000,000 465,000 15% 5,000,000

10,000,000 And Over 1,215,000 20% 10,000,000

GROSS ESTATE
(SECTION 85, NIRC)
 SEC. 85. GROSS ESTATE
A. Decedent’s Interest
B. Transfer in Contemplation of Death
C. Revocable Transfer
D. Property Passing Under General Power of Appointment
E. Proceeds of Life Insurance
F. Prior Interests
G. Transfers for Insufficient Consideration
H. Capital of the Surviving Spouse
 A. DECEDENT’S INTEREST

To the extent of the interest therein of the

decedent at the time of his death.
 B. TRANSFER IN
CONTEMPLATION OF DEATH

The thought of death is the controlling motive

which induces the disposition of the property for
the purpose of avoiding tax.
The law does not specify the number of years prior
to a decedent’s death within which a transfer can be
considered in contemplation of death.
 C. REVOCABLE TRANSFER

A.Included in the gross estate is the interest in property of which the

decedent has at any time made a transfer by trust or otherwise:
A. With reserved power to alter, etc.
- The enjoyment of the property was subject at the date of death to
change through exercise of power by the decedent, to alter, amend, revoke
or terminate
B. With such power relinquished
- Where such power would bring property into the taxable estate, is
relinquished in contemplation of the decedent’s death;
 C. REVOCABLE TRANSFER
A.Existence of power to alter, etc.
(1) The exercise of the power is subject to a precedent giving of
notice;
(2) The alteration, amendment, or revocation takes effect only on the
expiration of a stated period after the exercise of the power;
If notice has not been given or the power has not been exercised on
or before the date of the decedent’s death, such notice or the power shall
be considered to have been given or exercised on the date of his death.
 D. PROPERTY PASSING UNDER GENERAL
POWER OF APPOINTMENT

General Power of Appointment – A power of appointment is

general when it authorizes the donee of the power to appoint ANY
person he pleases, including himself, his spouse, his estate, his executor
or administrator, and his creditor, thus having as full dominion over the
property as though he owned it.
Special Power of Appointment – It is special when the donee can
appoint only among restricted or designated class of persons other
than himself.
 REQUISITES FOR TAXABILITY OF
PROPERTY

1. The existence of a general power of

appointment;
2. An exercise of such power by the
decedent by will or by deed in certain
cases; and
3. The passing of the property by virtue of
such exercise.
 E. PROCEEDS OF LIFE INSURANCE

A.When it becomes taxable:

(a)Beneficiary is estate of deceased
- Amount receivable by the estate of the deceased, his executor, or
administrator as insurance under policies taken out by the decedent upon
his own life, irrespective of whether or not the insured retained the power
of revocation;
(b)Beneficiary is other than the decedent
- The amount receivable by any beneficiary designated in the policy of
insurance except when it is expressly stipulated that the designation of the
beneficiary is irrevocable;
 E. PROCEEDS OF LIFE
INSURANCE

A.When it becomes not taxable:

(a)Accident insurance proceeds
(b)Proceeds of a group insurance policy taken
out by a company for its employees;
(c)Amount receivable by any beneficiary
irrevocably designated in the policy by the
insured;
 F. PRIOR INTERESTS

Except as otherwise specifically provided

therein, Subsections B, C, and E shall apply to
transfers, trusts, estates, interests, rights,
powers and relinquishment of powers,
whether made, created arising, existing,
exercised, or relinquished BEFORE OR
AFTER the effectivity of this Code.
 G. TRANSFERS FOR INSUFFICIENT
CONSIDERATION

If any one of the transfers, interests, rights, or powers

enumerated and described in Subsections, B, C, D of this
Section is made, created, exercised or relinquished for a
consideration in money or money’s worth, there
shall be included in the gross estate only the excess of
the fair market value, at the time of the death, of the
property otherwise to be included on account of such
transaction, over the value of the consideration received
therefor by the decedent.
 H. CAPITAL OF THE
SURVIVING SPOUSE

The capital of the surviving spouse shall not be

deemed a part of his or her gross estate.
TYPES OF MARRIAGE REGIMES

•Absolute community
•Conjugal partnership of gains
•Complete separation of
property
 REFERENCE

• De Leon, H. (2009). The Law on Transfer and Business Taxation. Manila,

Philippines: Rex Book Store.