ONETT - ESTATE Flashcards
What is estate tax?
ESTATE TAX is a tax on the RIGHT of the deceased person to transmit his/her estate to his/her lawful heirs and beneficiaries at the time of death and on certain transfers, which are made by law as equivalent to testamentary disposition.
**It is NOT a tax on property. **
It is an EXCISE TAX imposed on the privilege of transmitting property or rights upon the death of the owner.
What law governs estate tax?
Estate taxation is governed by the statute in force
at the time of death of the decedent notwithstanding the postponement of the actual possession or enjoyment of the estate by the beneficiary.
When does estate tax accrue?
The estate tax accrues as of the death of the decedent and the accrual of the tax is distinct from the obligation to pay the same.
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.
What is Gross Estate?
Gross Estate of the decedent shall be determined by including the value at the time of his death of all properties, real or personal, tangible or intangible, wherever situated.
Provided, however, that in the case of a non-resident decedent who at the time of his/her death was not a citizen of the Philippines, only that part of the entire gross estate which is situated in the Philippines shall be included in his/her taxable estate
(Section 85 of the Tax Code).
What comprises the gross estate of the decedent if he is a Filipino citizen/resident at the time of death?
Residents and/or citizens – all properties, real or personal, tangible or intangible, wherever situated.
What comprises the gross estate of the decedent if he is NOT a Filipino citizen/resident at the time of death?
Non-resident aliens – only properties, real or personal, tangible or intangible, situated only in the Philippines provided, that, with respect to intangible personal property, its inclusion in the gross estate is subject to the rule of reciprocity provided for under Section 104 of the Tax Code.
What are the intangible assets that are part of non-resident alien’s gross estate that could be excluded from estate tax due to the rules on reciprocity?
Intangible personal property with situs in the Philippines includes (F D F85 F BPI) :
- a. Franchise which must be exercised in the Philippines;
- b. Shares, obligations or bonds issued by corporations organized or constituted in the Philippines; (SHARES OF DOMESTIC CORPORATION)
- c. Shares, obligations or bonds issued by a foreign corporation 85% of the business of which is located in the Philippines; (SHARES OF FOREIGN CORPORATION 85% OF BUSINESS LOCATED IN PH)
- d. Shares, obligations or bonds issued by a foreign corporation if such shares, obligations or bonds have acquired a business situs in the Philippines (i.e. they are used in the furtherance of its business in the Philippines);
- e. Shares, rights in any partnership, business or industry established in the Philippines.
What are included in a decedent’s gross estate?
(DTR PPP TC)
* Decedent’s Interest
* Transfers in contemplation of death
* Revocable Transfers
* Property passing under General Power of Appointment
* Proceeds of Life Insurance
* Prior Interests
* Transfers for Insufficient Consideration
* Capital of the Surviving Spouse
What is decedent’s interest as part of the Gross Estate?
The decedent’s interest refers to the wealth or estate that the decedent would have had if he had lived.
It also refers to the value that is received after his death for his interest in properties or rights prior to his death, e.g., dividends, profit share in a partnership, interest on deposits or loans, rent earned prior to the decedent’s death, and other accumulated funds.
What are Transfers in Contemplation of Death as part of the Gross Estate?
To the extent of any interest therein of which the decedent has at any time made a transfer, by trust or otherwise, in contemplation of or intended to take effect in possession or enjoyment at or after death,
Or of which he has at any time made a transfer, by trust or otherwise, under which he has retained for his life or for any period which does not in fact end before his death the possession or enjoyment of, or the right to the income from the property or the right, either alone or in conjunction with any person, to designate the person who shall possess or enjoy the property or the income therefrom; except in case of a bona fide sale for an adequate and full consideration in money or money’s worth.
What are Revocable Transfers as part of the Gross Estate?
a. To the extent of any interest therein, of which the decedent has at any time made a transfer (except in case of a bona fide sale for an adequate and full consideration in money or money’s worth) by trust or otherwise, where the enjoyment thereof was subject at the date of his death to any change through the exercise of a power (in whatever capacity exercisable) by the decedent alone or by the decedent in conjunction with any other person (without regard to when or from what source the decedent acquired such power), to alter, amend, revoke, or terminate, or where any such power is relinquished in
contemplation of the decedent’s death.
b. For the this purpose, the power to alter, amend or revoke shall be considered to exist on the date of the decedent’s death even though the exercise of the power is subject to a precedent giving of notice or even though the alteration, amendment or revocation takes effect only on the expiration of a stated period after the exercise of the power, whether or not on or before the date of the decedent’s death notice has been given or the power has been exercised. In such cases, proper adjustment shall
be made representing the interests which would have been excluded from the power if the decedent had lived, and for such purpose if the notice has not been given or the power has not been exercised on or before the date of his death, such notice shall be considered to have been given, or the power exercised, on the date of death
What are Properties Passing Under General Power of Appointment as part of the Gross Estate?
To the extent of any property passing under a general power of appointment exercised by the decedent:
1. By will;
2. By deed executed in contemplation of, or intended to take effect in possession or enjoyment at, or after his death; or
3. By deed under which he has retained for his life or any period not ascertainable without reference to his death or for any period which does not in fact end before his death:
- The possession or enjoyment of, or the right to the
income from, the property; or - The right, either alone or in conjunction with any person, to designate the persons who shall possess or enjoy the property or the income therefrom; except in case of a bona fide sale for an adequate and full consideration in money or money’s worth.
What is proceeds of life insurance as part of the decedent’s gross estate?
To the extent of the 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, or to the extent of 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.
In summary, proceeds of life insurance shall form part of gross estate when:
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 law was passed to encourage the processing of unsettled estates by removing the penalties that had accumulated due to the failure to pay the estate tax on time?
Republic Act (RA) No. 11213, or the Tax Amnesty Act of 2018, further extended by RA 11569 and 11956 (AN ACT FURTHER AMENDING REPUBLIC ACT NO. 11213, OTHERWISE KNOWN AS THE “TAX AMNESTY ACT”)
Summarize RA 11213 as extended by RA 11956.
To encourage the processing of unsettled estates, Republic Act (RA) No. 11213, or the Tax Amnesty Act of 2018, was signed on Feb. 14, 2019, and was extended by RA 11956 which took effect on August 5, 2023. This gave estates of decedents who died on or before May 31, 2022, with or without assessments, whose estate taxes remained unpaid or have accrued as of May 31, 2022, the opportunity to settle their tax obligations without having to pay the penalties that had accumulated due to the failure to pay the estate tax on time. Aside from dispensing with the penalties and interest, the amnesty also imposed the 6% estate tax under the TRAIN Law at every stage of transfer of the property.
