ESTATE TAX Flashcards
What is Estate Tax?
Estate tax is a tax imposed on the privilege that a person is given in controlling to a certain extent, the disposition of his property to take effect upon death It is an excise/privilege tax imposed on the act of passing the ownership of property at the time of death.
When does the State have the right to tax the privilege to transmit the estate?
Upon death of the decedent.
When should Estate Tax returns be filed?
Before TRAIN: 6 months after death
TRAIN onwards: 1 YEAR FROM DATE OF DEATH.
Who is the taxpayer of estate tax?
The “ESTATE OF THE DECEDENT” as a juridical person, represented by the administrator, executor or legal heirs.
Who has the personal obligation to file and pay the applicable estate tax?
Primarily liable: ADMINISTRATOR OR EXECUTOR
Secondarily liable: Any of the heirs
What law is to be applied in determining the estate tax?
The laws/statute in force at the time of the date of death of decedent.
Under MERITORIOUS CASES, filing of estate tax may be extended for a period of?
NOT MORE THAN 30 DAYS. It shall be filed with the RDO where the estate tax is to be paid and must be approved by the CIR or his duly authorized representative.
What is Succession?
Succession is 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.
What are the types of succession?
- Testamentary - That which results from the designation of an heir made in a will executed in the form prescribed by law.
- Legal/Intestate - That which is effected by operation of law or transmission of properties where:
a. There is no will
b. If there is a will, the same is void or has lost its
validity - Mixed - That which is effected partly by a will and by operation of law.
What is a will?
Will is an act whereby the person is permitted to control to a certain degree the disposition of his estate, to take effect after his death.
What are the kinds of will?
- Notarial/Ordinary/Attested - one which is executed in accordance with the formalities prescribed. It is created for the testator by a 3rd party(lawyer) and:
a. Follows proper form
b. SIGNED AND DATED IN FRONT OF 3 OR MORE WITNESSES
c. ACKNOWLEDGED BY THE PRESENCE OF A NOTARY PUBLIC - Holographic Will - is a written will which must be ENTIRELY WRITTEN, DATED AND SIGNED BY THE HAND OF THE TESTATOR HIMSELF, without the necessity of any witness.
What is a codicil?
It is a supplement or addition to a will, made after the execution of a will and annexed to be taken as part thereof.
T or F
A holographic will requires witnesses upon its execution.
False. Holographic will does not need formalities because many people can recognize the testator’s handwriting and can be verified by a penmanship expert.
What are the elements of succession?
Succession has 3 elements:
- Decedent
- Heir
- Estate
What are the parts of the decedent’s estate?
- Legitime - that which could not be disposed of freely because the law has reserved it for the COMPULSORY HEIRS
- Free portion - that part of the estate which the testator could dispose of freely through written will irrespective of his relationship to the recipient.
What are the kinds of heirs?
- Compulsory heirs - inherits with or without a will
A. Primary Compulsory heirs
a. Legitimate children and descendants
b. Illegitimate children
c. Widow
B. Secondary Compulsory heirs
a. Legitimate parents and ascendants, IN DEFAULT
OF LEGITIMATE CHILDREN AND DESCENDANTS - Voluntary heirs - inherits only if they are IN THE WILL
- Intestate heirs - When there is intestate succession
Explain the order of distribution in an intestate succession.
The compulsory heirs are entitled to their LEGITIME.
The FREE PORTION is distributed as follows in the order of priority):
1. Legitimate children
2. Legitimate parents
3. Illegitimate children
4. Spouse
5. Brothers or Sisters
6. Relatives by consanguinity up to the 5th civil degree
7. State
Can a decedent disinherit an heir?
Yes, on certain grounds.
Can an heir repudiate his share in an inheritance?
Yes.
What is a legatee?
Legatee is a person whom gifts of PERSONAL PROPERTY is given by virtue of a will.
What is a devisee?
Devisee is a person whom gifts of REAL PROPERTY is given by virtue of a will.
What is the difference between and administrator and executor?
Administrator - appointed by the COURTS to manage the estate.
Executor - NAMED BY THE DECEDENT to carry out the provisions of the will.
What is Gross Estate?
Gross Estate consists of all properties and interests in properties of the decedent at the time of his death as well as properties transferred during his lifetime(only in form), but in substance was only transferred at the time of death.
What is meant by bequest?
It is the transfer of property through a last will and testament.
Who are prohibited by law from making a will?
- Those below 18 years old
- Those of unsound mind at the will’s execution
What are the components of Gross Estate?
a. Real property and other tangible personal property
b. Decedent’s interest and intangibles
c. Properties gratuitously transferred during lifetime but in substance, transferred upon death
What is meant by decedent’s interest?
It refers to the extent of equity or ownership participation of the decedent on any property physically existing and present in the GE, whether or not in his possession, control or dominion.
What are the intangible properties considered located in the Philippines?
- Franchises which must be EXERCISED IN THE PH
- Shares, obligations, bonds issued by any corporation/sociedad organized in the PH
- Shares, obligations, bonds issued by ANY FOREIGN CORPORATION AT LEAST EIGHTY-FIVE (85%) OF THE BUSINESS OF WHICH IS LOCATED IN THE PH
- Shares, obligations, bonds issued by any FOREIGN CORPORATION IF SUCH has ACQUIRED A BUSINESS SITUS IN THE PH.
- Shares or rights in partnerships/business/industry established in the PH
What are included in the transfers gratuitously transferred during lifetime but in substance, transferred upon death?
- Transfers in contemplation of death
- Transfer with retention or reservation of certain right
- Revocable Transfer
- Properties passing under GENERAL POWER OF APPOINTMENT
- Transfers for insufficient consideration
- Proceeds from life insurance
A. Whether revocable or not, the beneficiary is the
a. Estate
b. Executor or administrator
B. When the beneficiary is a 3rd person and the life
insurance is REVOCABLE ONLY.
What are the exemptions and exclusions from Gross Estate under Sec 85 & 86 of NIRC?
a. Capital or Exclusive property of the surviving spouse
b. Properties outside of PH of NRA decedent
c. Intangible personal property in the PH of a NRA decedent when RECIPROCITY APPLIES.
What are the exemptions and exclusions from Gross Estate under Sec 87 of NIRC?
A. Merger of the usufruct in the owner of the naked title
B. Transfers under the Special Power of Appointment
C. Bequests/devices/legacies/transfers to SOCIAL WELFARE/CULTURAL AND CHARITABLE INSTITUTIONS, provided that:
a. No part of the net income of said institutions shall inure to the benefit of any individual b. NOT MORE THAN 30% of such transfers shall be USED FOR ADMINISTRATION PURPOSES.
What are the exemptions and exclusions from Gross Estate under Special Laws?
a. Proceeds of life insurance benefits received by members of the GSIS
b. Benefits received by members from SSS BY REASON OF DEATH
c. Amounts received from PH and US govt for war damages and those from WW2
d. Amounts received from US Veterans Administration
e. Retirement benefits of officials/employees of a private firm
f. Proceeds of life insurance UNDER A GROUP INSURANCE TAKEN OUT BY EMPLOYER (not taken out upon his life)
g. Transfers by way of bona fide sales
h. Transfers of property to the National Govt or any of its political subdivisions
i. Personal Equity and Retirement Account assets of the decedent-contributor.
Explain the valuation of Gross Estate.
In general, properties are taken at Fair market value upon the date of death.
Personal Property - Fair Market Value
Real Property - higher between
a. Fair Market Value
b. Zonal Value
Shares of stock
a. Traded in LSE
a. Price at date of death
b. Mean between the highest and lowest quotations
nearest the date of death, if above is not available
b. Not traded in LSE -
a. Common shares - Book Value using Adjusted Net
Asset Method
b. Preference shares - Par Value
The separate or exclusive property of the husband is referred to as?
Husband’s Capital
The separate or exclusive property of the wife is referred to as?
Wife’s Paraphernal
Explain the Adjusted Net Asset Method.
Under the Adjusted Net Asset Method, all assets and liabilities of the investee corporation shall be adjusted to the fair market values. Value of real property shall be the highest of:
a. Zonal Value
b. Assessed Value
c. Market Value by and independent appraiser
Assets - Liabilities = Equity
Equity / number of shares outstanding = BVPS
BVPS x number of shares owned by decedent = value of the shares.
What is a best way to minimize estate tax exposure?
a. Invest money in corporation
b. Donate the properties to relatives before death
c. Understate gross estate and do not pay tax
d. Invest property in life insurance and make the designation of the beneficiary as irrevocable
d. Invest property in life insurance and make the designation of the beneficiary as irrevocable
For the share, obligation, or bond of a foreign corporation to be considered as an intangible property located in the PH, how many percent of the foreign corporations business must be conducted in the PH?
At least 85% of the foreign corporation’s business must be conducted in the PH.
How are stocks not traded in the LSE valued at for estate tax purposes?
Ordinary shares - at Book value using Adjusted Net Asset Method
Preference shares - at par value
Mr. Abdul owns 20% of the 1,000,000 outstanding shares of Boom Corporation, a closely-held corporation. Boom Corporation had a book value per share of 120 in its FS nearest to the date of Mr. Abdul. Boom Corporation had several assets which exceed their fair value by an aggregate amount of 14,000,000.
At what amount shall Mr. Abdul’s investment be reflected in his gross estate?
a. 26,800,000
b. 53,600,000
c. 120,000,000
d. 268,000,000
a. 26,800,000 using the ANAM method
For bequests/devices/legacies/transfers to SOCIAL WELFARE/CULTURAL AND CHARITABLE INSTITUTIONS, what conditions must be present in order to exempt such transfers from the gross estate?
a. No part of the net income of said institutions shall
inure to the benefit of any individual
b. NOT MORE THAN 30% of such transfers shall be
USED FOR ADMINISTRATION PURPOSES.
How shall the property relationship or marriage settlement of spouses be determined?
It shall be determined by the following order of priority:
- BASED ON AGREEMENT
a. Absolute Community of Property (ACOP)
b. Conjugal Partnership of Gains (CPOG)
c. Complete Separation - BY OPERATION OF LAW - in the absence of any agreement:
a. Marriages BEFORE AUG 3, 1988 - APPLY CPOG
b. Marriages ON OR AFTER AUG 3, 1988 - ACOP - BY CUSTOM OR TRADITION
Where there is no agreement as to the marriage settlement, what must be applied?
If there is no agreement:
a. Marriages BEFORE AUG 3, 1988 - APPLY CPOG
b. Marriages ON OR AFTER AUG 3, 1988 - ACOP
What is Conjugal Partnership of Gains?
Conjugal Partnership of Gains provides that all properties that accrue as fruit of their individual or joint labor or fruits of their properties during marriage will be common properties of the spouses.
EXCLUSIVE PROPERTIES:
a. Properties before marriage
a. Property acquired during marriage through gratuity, EXCEPT WHEN THE DONOR/TESTATOR EXPRESSLY PROVIDES THAT IT SHALL FORM PART OF THEIR COMMON PROPERTY.
c. Properties purchased with the EXCLUSIVE MONEY
d. Property for personal and exclusive use
“ALL FRUITS ARE COMMON”
What is Absolute Community of Property?
Absolute Community of Property provides that all present property owned by the spouses at the date of celebration of marriage shall become common properties of the spouses including future fruit of their separate or joint industry or fruits of their common properties.
EXCLUSIVE PROPERTIES:
a. Property acquired during marriage through gratuity and its fruits, EXCEPT WHEN THE DONOR/TESTATOR EXPRESSLY PROVIDES THAT IT SHALL FORM PART OF THEIR COMMON PROPERTY.
b. Property for personal and exclusive use
c. Properties brought into the marriage by either spouse with a descendant by a prior marriage
“FRUITS SHALL FOLLOW ITS SOURCE”
“JEWELRY UNDER ACOP SHALL BE CONSIDERED COMMON PROPERTY”
What is the treatment of donated jewelry?
AMPONGAN:
Under ACOP, if it is donated BEFORE MARRIAGE, it is considered common.
Under ACOP if it is donated DURING MARRIAGE, it is considered exclusive.
Tabag: Jewelry is COMMON PROPERTY, since ART 92 of Law on Property Relations states that: However, jewelry shall form part of the community property”
Banggawan: it is considered exclusive. Otherwise, it shall be common property.
Mr. Abdul bought stocks worth 2,000,000. He then married Christina under CPOG. After the marriage, he sold the stocks for 5,000,000. How shall the proceeds of 5,000,000 be treated?
The 2,000,000 shall be considered exclusive property of Mr. Abdul.
The 3,000,000 gain shall be considered fruits, and therefore is part of the common property.
