TOPICS: 1, ESTATE TAX 2. GROSS STATE 3. NET STATE 4. DEDUCTIONS FROM GROSS STATE 5. EXCLUSIONS FROM GROSS STATE 6. EXEMPTIONS FROM GROSS STATE 1. ESTATE TAX CREDIT 8. ESTATE TAX SETTLEMENTESTATE TAX + Is an excise tax imposed on the privilege of transferring a property upon the death of the owner. + It is a tax on the right to transmit property at death and on certain transfers by the decedent during lifetime which are made by the law equivalent of testamentary disposition.NATURE OF ESTATE TAX = Itis a privilege or excise tax; = Itis not a property tax because their imposition does not rest upon general ownership but rather, they are imposed on the act of passing ownership of property; and + Itis different from inheritance tax Inheritance Tax ~ A tax imposed on the legal right or privilege to succeed to, receive or take property by or under a will, intestacy law, or deed, grant or gift becoming operative at or after death.PURPOSE OR OBJECT OF ESTATE TAX 1. To generate additional revenue for the government; 2. To reduce concentration of wealth; 3. To provide for equal distribution of wealth; 4. It is the most appropriate and effective method for taxing the privilege which the decedent enjoys in controlling the disposition at death of property accumulated during the lifetime of the decedent; and 5. Itis the only method of collecting the share which is properly due to the State as a partner in the accumulation of property which was made possible ‘on account of the protection given by the State.ACCRUAL OF ESTATE TAX + The estate tax accrues as of the death of the decedent. The accrual is distinct from the obligation to pay the tax, which is 1 year after the death of the decedent. LAW THAT GOVERNS THE IMPOSITION OF ESTATE TAX - Estate taxation is governed by the statute in force at the time of the death of the decedent.TIME AND TRANSFER OF PROPERTIES + The transfer of ownership takes place at the time of death, not at the time when the certificates of title to real property are transferred from the decedent to the transferee. The transfer does not also take place when the transferee takes physical possession of the personal property transferred by the decedent.THE STATE AS AN EXTRAORDINARY COMPULSORY HEIR OF DECEDENT + Upon the death of the decedent, succession takes place and the right of the State to tax the privilege to transmit the estate vests instantly upon death + Despite the transfer of properties and rights at the time of death, the executor or judicial administrator shall not deliver a distributive share to any party interested in the estate unless there is a certification from the Commissioner that estate tax has been paid is shown (NIRC, Sec. 94). The State is then considered as an “extraordinary heir of a decedent,” taking precedence over all legitimate heirs in the distribution of the decedent's assets.RATE OF ESTATE TAX « Whether resident or nonresident of the Philippines, a tax at the rate of six percent (6%) based on the value of net state is imposed. Before TRAIN After TRAIN Graduated rates of 5% to 20% on Fixed rate of 6% on net state net estateCLASSIFICATION OF DECEDENT FOR ESTATE TAX PURPOSES 1. Residents; and a. Resident Citizen (RC); and b. Resident Alien (RA). 2. Non-residents a. Non-resident Citizen (NRC) b. Non-resident Alien (NRA) (NIRC, Sec. 84).GROSS ESTATE + The value of all the property, real or personal, tangible or intangible, of the decedent (NIRC, Sec. 85), COMPOSITION OF THE GROSS ESTATE: 1. Ifthe decedent is a resident or citizen = All properties, real or personal, tangible or intangible, wherever situated 2. If the decedent is a non-resident alien -Only properties situated in the Philippines provided that, with respect to intangible personal property, its inclusion is subject to the rule of reciprocity provided for under Sec 104 of the NIRC (R.R. No. 12-2018, Sec. 4).INTANGIBLE PROPERTIES CONSIDERED SITUATED IN THE PHILIPPINES: 4. Franchise which must be exercised in the Philippines; 2. Shares, obligations or bonds issued by Corporations organized or constituted in the Philippines: 3. Shares, obligations or bonds issued by a foreign corporation 85% of the business of which located in the Philippines; 4. Shares, obligations or bonds issued by a foreign corporation if such shares, obligations or bonds have acquired a business situs in the Philippines; and 5. Shares, rights in any partnership, business or industry established in the Philippines.RULE OF RECIPROCITY The intangible personal property of decedent NRA, if: 4. With reciprocity ‘Shall not be included in the gross estate if: a. The decedent at the time of his death was a citizen and resident of a foreign country which at the time of his death did not impose a transfer tax of any character, in respect of intangible personal property of citizens of the Philippines not residing in that foreign country: orb. The laws of the foreign country which the decedent was a citizen and resident at the time of his death allow a similar exemption from transfer or death taxes of every character in respect of intangible personal property owned by citizens of the Philippines not residing in that foreign country (NIRC Sec. 104).VALUATION OF GROSS ESTATE 1. Property - The properties comprising the gross estate shall be valued based on their fair market value (FMV), as of the time of decedent's death. Real Property Whichever is higher between the FMV: a. As determined by the Commissioner (zonal value); or b. As shown in the schedule of values fixed by the Provincial and City Assessors.STREET NAME/ SUBDIVSON/ ConDoMNaUR puauvanst voy STARTING FR HALFWAY OF MDE PLAASTTO THE COR OF REALAVE "AML LOTS SOUTH OF MALVAR STB HALFWAY OF OAL AVENUE TALL LOTS SOUTH & WEST OF MALVAR STB ALONG ACCESS RO SEVEL SBD To SEVELSUBO STARTING FR HALFWAY OF EL PLAST BOTH 'SOES GONG NORTH UPTO COR OF RAL "STARTING FR THE COR OF LAUDO ST BOTH ‘SOES GOWsG NORTH UPTO HALFWAY OF EL STARTING FROM RALFWAY OF DEL PLARST & “RQAL AVE, BOTH SES GOING WORTH UP TO To STARTING FR TE COR OF A BORSFACIO ST BOTH ‘SOCS GOING NORTH WP To WALFWAY OF OL STANTON FA THE COROF ARBOLEDAST OTH [seach erry |Shares of Stocks The FMV shall depend on whether the shares are listed or unlisted in the stock exchange: a. If unlisted i, Common shares should be valued at book value at the date of death; li, Preferred shares are valued at par value. b. If listed - the FMV is the arithmetic mean between the highest and lowest quotation at a date nearest the date of death, if none available on the date of death itself.2. Participation in any association, recreation, or amusement club (such as golf, polo, or similar clubs) - fair market value of the unit participation shall be the arithmetic mean between the highest and the lowest quotation at a date nearest the date of death, if none is available on the date of death itself. 3. Right to Usufruct, Use or Habitation, and Annuity = The probable life of the beneficiary in accordance with the latest basic standard mortality table is to be taken into account, to be approved by the Secretary of Finance, upon recommendation of the Insurance Commissioner. 4, Improvement = The construction cost per building permit or the FMV per latest tax declaration.INCLUSIONS ON THE GROSS ESTATE: (ITR-GP-PIC) 1. Decedent's Interest at the time of his death; 2. Transfer in contemplation of death; 3. Revocable Transfer; 4. Property passing under General Power of Appointment; 5. Proceeds of life insurance; 6. Prior interest: 7. Transfer for Insufficient consideration; and 8. Capital of the Surviving spouse.DECEDENT'S INTEREST - To the extent of the interest therein of the decedent at the time of his death. It includes any interest having value or capable of being valued, transferred by the decedent at the time of his death. TRANSFERS IN CONTEMPLATION OF DEATH The transfer shall be considered in contemplation of decedent if the decedent has at any time made a transfer during his lifetime, under which he has retained for his life or for any period which does not in fact end before his death: 1. Possession or enjoyment of the property;2. Right to the income of the property, or 3. Right, either alone or in conjunction with any person, to designate person who shall possess or enjoy the said property or income therefrom. Circumstances taken into account: 1. Age and state of health of the decedent at the time of the gift, especially where, he was aware of a serious illness; 2. Length of time between the gift and the date of death. A short interval suggests the conclusion that the thought of death was in the decedent's mind, and a long interval suggests the opposite; and 3. Concurrent making of a will within a short time after the transfer.DEDUCTIONS FROM GROSS STATE DEDUCTIONS ALLOWED SUBSEQUENT AND PRIOR TO TRAIN LAW TRAIN Law Tax Reform Act (RANO. 10963) (SC-CUP-TraFAN) RANO.2424) ‘Standard Deduction (Php 5,000, 00) ‘Standard Deduction (Php 1,000.00) sex REMOVED sox Expenses, Losses, Indebtedness, Taxes, Puneral Expenses, and Judicial Expenses ‘aims against the estare ‘Claims against insolvent persons Unpaid mortgages, taxes, and casualty losses. | Unpaid morigages, taxes, and losses ‘Property previously taxed (Vanishing Deductions) ‘Transfers for public use Tamily Home (Php 10,000.00) Family Home (1,000,000) maxx REMOVED sox ‘Medical Expenses ‘Smount received by heirs under R.A No. 4917 Net share of the surviving spouseFormula for Computing Vanishing Deduction (VD): Step 1: Computation of initial basis: Value of the property subject to VD* xx Less: Any mortgage paid on that property xxx Initial basis “Value at the time of donation or death of the prior decedent, OR value at the time of death of the present decedent, whichever is lower. The deduction is based on the individual valuation of each property.APPLICABLE RATES: Period of time Between the Death of ‘% of the Value of the Property Allowed Prior Decedent or Time of Donation and as Deduction the Death of the Decedent ‘Within one year prior to the death of 100% decedent ‘More than 1 year but not more than two 80% years Period of the time Between the Death of % of the Value of the Property Allowed as Prior Decedent or Time of Donation and Deduction the Death of the Decedent ‘More than 2 years but not more than 3 60% years More than 3 years but not more than 4 40% years ‘More than 4 years but not more than 5 20% years More than 5 years 0%