es Chapter pe Gross Estate The first estate tax law in the Philippines is embodied in ‘Act 2601 which took effect on July 1, 1916. It imposes graduated estate tax rates computed on net inventoried property left by a decedent. It was subsequently amended by the Revised ‘Administrative Code of the Philippines imposing upon “every transmission by virtue of inheritance, devise, bequest, gift mortis, causa, or advance in anticipation of inheritance, devise or bequest.” Since then, several laws were introduced to amending ‘Act 2601 RA 8424 also known as “Tax Reform Act” or the National Internal Revenue Code (NIRC) Effective Jan.1, 1998 further restructured the tax base and rates of both estate and donor's taxes in addition to allowing the deduction of medical expenses from the gross estate. Bulk of the estate tax law aside from determining the tax base and rates which are found in NIRC are ‘embodied in the Civil Code and Family Code of the Philippines. The recent amendment to Estate Tax law was introduced by RA 10963, or the “Tax Reform for Acceleration and Inclusion (TRAIN) Act” which took effect on January 1, 2018. It substantially amended the estate tax law by getting rid of ‘the use of graduated tax rate and changed it to a single rate of 6% of the net taxable estate as well as revising the thresholds for Standard Deduction, Family Home and other amendments such as repealing funeral expenses, judicial expenses and medical expenses. 33Gross Estate .x - Definition and Nature ines, Estate Tax is a tax imposed on the privilege that eesonis ghon entrolling to certain extent, the disposition of his 2 peraty to take effect upon death. As discussed in Chapter 1, it is an ere fax imposed on the act of passing the ownership of property at the time of death and not on the value of the property or right. On this basis, ttjate tax should not be construed as a direct tax on the property of the Secedent although the tax is based thereon. Since estate tax accrues as tof the State to tax the privilege to transmit the the time death, the rig Gstato vests instantly upon death. The accrual of the tax is distinct from the obligation to pay the same. Estate Ta Justification for the Imposition of Estate Tax 1, Benefit-Received Theory The law considers the service rendered by the government in the distribution of the estate of the decedent, either by law or in accordance with his wishes. For the performance of these services ‘and other benefits that accrue to the estate and the heirs, the State collects the tax. 2. Privilege or State Partnership Theory Under this theory, inheritance is not a right but a privilege granted by the State and legatees have been acquired only with the protection of the State. Consequently, the State as @ passive silent partner in the accumulation of property has the right to collect the share which is properly due t 3. Ability to Pay Theory Receipt of inheritance which is inthe nature of an unearned wealth or windfall, are place assets into the hands of the heirs and beneficiaries. This creates an ability to pay the tax and thus contributes to government income. 4, Redistribution of Wealth Theory The receipt of inheritance is a contributing factor to the inequalities, in wealth and incomes. The imposition of estate tax reduces the property received by the successor, thus helping to promote equitable distribution of wealth in society. The tax base is the value of the property and the progressive scheme of taxation is precisely motivated by the desire to mitigate the evils of inheritance in the present form. 34Gross Estat Classi ation of Decedents and Composition of Gross Estate For estate taxation purposes, decedents are classified into three (3); citizens, resident aliens and nonresident aliens. Section 85 of the Tax Code provides that the value of the gross estate of the decedent should be determined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated; Provided, however, that in the case of a nonresident decedent who at the time of his 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 taxable estate. The composition of the estate may be summarized as follows: DECEDENT GROSS ESTATE = Giizen 41) Property (Real or Personal) wherever situated + Resident alien 2) Intangible personal property wherever situated Nonresident alien Real property situated in the Philippines | 2) Tangible personal propery stuated in the Philippines | 3) Intangible personal property wth situs inthe Philippines, unless excluded on the basis of reciprocity RECIPROCITY CLAUSE (Section 104 of the Tax Code, as amended) The Tax Code excludes “intangible” personal property with situs in the Philippines from the gross estate of a non-resident alien decedent if there is reciprocity. There is reciprocity it: = The decedent at the time of his death was a resident citizen of 2 foreign country which at the time of his death did not impose an estate tax of any character in respect of intangible personal property of citizens of the Philippines not residing in that foreign country; or = The laws of the foreign country of which the decedent was a resident citizen at the time of his death allow a similar exemption from estate taxes of every character, in respect of intangible personal property owned by citizens of the Philippines not residing in that foreign country. 35Gross Estate Intangible Asset The term “intangible asset” was not defined in the Tax Code, nonetheless, Accounting Standards defines intangible asset as an “identifiable nonmonetary asset without physical substance”. They derive their value from intellectual or legal rights, and from the value they add to the other assets. As a rule, the situs of intangible personal property is the domicile of the owner, also known as “mobilia sequntur personam’. However, such rule is not applicable if the intangible property has situs elsewhere or where the intangible property has acquired a business situs in another Jurisdiction because the principle of “mobilia sequntur personam" is only Used for convenience. It must yield to the actual situs of such property. The situs of Franchise, for instance, should not be based on the dor of the owner but the place where such franchise is exercised. INTANGIBLE ASSETS WITH SITUS “WITHIN” THE PHILIPPINES Section 104 of the Tax Code enumerates the following intangible personal property with situs in the Philippines, for estate tax purposes: 1. Franchise which must be exercised in the Philippines. 2. Shares, obligations or bonds issued by any corporation or sociedad anonima organized or constituted in the Philippines in accordance with its laws. 3.- Shares, obligations or bonds issued by any foreign corporation, ‘85% of the business of which is located in the Philippines. 4, Shares, obligations, or bonds issued by any foreign corporation if such shares, obligations or bonds have acquired a business situs in the Philippines. 5. Shares or rights in any partnership, business or industry established in the Philippines. ;ANGIBLE AND INTANGIBLE PROPERTY. PROPERTY siTus * Real Property and Location of the property Tangible personal property = Shares, franchise, Where the intangible is exercised regardless of copyright, andthe ke where the corresponding certificate is stored = Receivables Residence ofthe debtor bank Location of the deposit Bank de 36[ ILLUSTRATION Peas To ee Anonresident alien decedent left the following estate House and Lot - Hongkong, inherited before mariage 15,000,000 | Car, acquired during marriage in Cebu 1,500,000 Shares of stocks issued by a foreign corporation, 20% ofits operation isin the Philippines 250,000 Bank deposit with PNB branch in New York, New York representing income earned during marriage 500,000 ‘Shares of stocks issued by PLOT group of companies, a ‘500,000 corporation organized under Philippine laws | 5-year, 12% promissory note, recelved 2 years ago, during mattiage. The debtor is a resident of Q.. 500,000 | Case A: Assume there is no reciprocity, what isthe correct value ofthe gross estate? ‘Answer: P2,620,000 Solution: Car, acquired during marrage in Cebus 1,500,000 Shares of stocks ~ PLOT 500,000 S-year, 10% Promissory Note 500,000 Interest income (P500,000 x 12% x 2) 120,000 Gross Estate 2,620,000 The shares of stock issued by a foreign corporation (20% of its operations isin the Philippines) is considered situated outside of the Philippines. Under the tax code, a nonresident alien decedent i taxable only for properties situated inthe Philippines. Same rule applies to the House and Lot as well asthe bank deposit in New York, USA. = Interest income eamed before or at the time of death shall likewise form part of the decedent's gross estate. Case B: Assume there is reciprocity, what isthe correct value ofthe gross estate? Answer: P1,500,000 Only the ca in Cebu acquired during marriage shal be inuded in the decedents gross estat. Intangible properties with situs within the Philippines ‘are excluded in the determination of ars estate if there is reciproct 37| WLUSTRATIONZ: shown below, determine the following: From Prope : | 3 vinta ernt te propery is included in the decedent's gross estate. Composition of Gross Estate Giizen [__ NRA or With Without” no. | paRTICULARS SITUS | Resident | Reciprocity Reciprociy | Parcel of Land — Makat x Parcel of Land — Bal, Indonesia [3 | House and Lot (Family Home) - Taguig Rest House — Batangas aoe Rest House Palawan ears Rest House — Malaysia i CarsPhiippines ee Cars Abroad BP! Depost-Phopine branch BPI Deposi-U.S. branch ‘ABN Ameo Bank (Foreign bank) = Philippine Branch 2 | ABN Amro Bank (Foreign bank) ~London Branch 13 | Receivabies-debior fom Philippines “4_| Reoeivables-debtor ftom Canada 15 | Shares a socks of domestic corporations. The cetfcates are stored inthe Philippines 16 Shares of stacks of domestic corporalions The oerifcates are stored abroad ‘T| Shares of stocks of foreign corporations. ‘The certticates are stored in the Philippines 18 | Shares of stocks of foreign corporations, The certificates are stored abroad 19 | Shares of stocks of foreign corporations, 80% ofits operations isin the Philippines 20 | Shares of stocks of foreign corporations, 80% of ts operations isin the Philippines 21 | Shares of stocks of foreign corporations hich acquired business situs in the [__| Philippines 2 | Patents and copyrights exereised inthe Phiippines 23 | Patents and copyrights exeGROSS ESTATE tom | Citizen NRA or with Without No. | PARTICULARS SITUS | Resident Reciprocity _ Reciorocity 1 Paroel of Land = Makati Within | Indude | Include | Include 2 | Patcel of Land — Bal, Indonesia Wio | Incude | Excude | Exclude 3___ House and Lot Family Home) Taguig | Within | Include | Incude | Include _4__RestHouse Batangas Within | incude | Incude | include 5] Rest House Palawan Within | indiwie | incude | Include fl Rest Houss— Malaya | Wio | Indude | Exclude | Exclude | CarsPhilippines Within | Include | Include | Include 8 | Cars Abroad | Wio | include | Exclude [Exclude 9 BPI Deposi-Philippine branch | Within | include | Exclude | Include 10_| BPI Deposi-U.S. branch ~[ Woo | include | Exclude | Exclude i AGN An Bark (Feeign Bar — ~ | Within | nclude | Exclude Include ilippine Branch | a ce 2 BN Ao Bank (Foreign ban = London | Wo | include | ~ Exclude Exclude 13. | Receivables-debtors from Philippines | Wiin | ndude | Exdude ”Indude | 14 Receivabies-debiors from Canada Wo | indude | Excde [Exclude 15 | Shares of stock of domestic corporations. | Within | Inoude | Exclude | Include ‘The certificates are stored in the | |__| Philppines _ 1 ee ee Staes of scck of domestic coportors. Win | die Bxaide tnd | ____ The cerficates are stored abroad oh eli ee a 17 Shares of stock of foreign corporations, | Wo | Indude | Excude | Exclude The certfeates are stored inthe | | | Phiippines welt th eee 18 | Shares of stock offoreign corporations. | Wio | Indude | Excude | Excude The ceficates are stored abroad | ae 49. Shares of stock of foreign corporations, | Within | include | Exclude Include 90% ofits operations is in the Philippines | seas a | eka 20. | Shates of stock of foreign corporations, | Wo | Indude | Excude | Exclude 80% ofits operations is in the Philippines | i ea 21. | Shares of stocks of foreign corporations | Within Include | Exclude ‘Include hich acquired business situs inthe Philippines = 2 | ieee +29. Patnts and copyrights exercised nthe Thee | Bechde | Tree Prhippines | 23. | Patents and cog 39 Exclude | Exciude1096: R 12-2018) Valuation of Gross Estate (as amended by RA1 ) ised at its fair marke decedent shall be apprai i + ne Tmt ect hs nan ter corresponding estate tax takes effect upon death, it only be fair t, appraise the estate at its fair mar et value at the time of the decedent's don Speccally, the fellowing rules shall apply in determining the valuation of jy, estate 1. In General Fair Market Value at the time of death value between: 2. Real Property Tmo temined bythe Commissioner; and < FMVas shown in the schedule of values fixed by the provincial and city assessors (also known ag assessed value or FMV for real estate tax pa the CIR sting real property values, the CIR is authorized to dy ‘competent aporises, both fom te pvale and public sectors, determine he gy market vahe of real properties located In each zone oF area. I ther is ay improvement, the vale of improvement is the construction cost per bulging permit or the fair market value per latest tax dectaration, 3. Personal Property * Fai market value at the time of death 4, Shares of stock * Unlisted common share: Book value per share of the issuing corporation (Appraisal surplus shall not be considered, as well as the assigned amount to preference shares, if any). * Unlisted Preference share: Par value per share * Listed shares: FMV shall be the arithmetic mean between the highest and lowest quotation at a date nearest the date of death if none is available on the date of death itself (RR 2-2003/ RR 12-2018) 5. Units of = The bid price nearest the date of death published participation in in any newspaper or publication for general any association, circulation. recreation or amusement club (ie.,golf, polo, similar clubs) 6. Right tousufruct, = use or habitation, and annuity In accordance with the latest Basic Standard Mortality Table taking into account the probable life of the beneficiary, to be approved by the Secretary of Finance upon recommendation of the Insurance Commissioner (Section 88(A)-NIRC|. 40Gross Estate ILLUSTRATION Determine the correct amount to be inclu folowing independent ce © B® included inthe gross estate ofthe decedent nthe | Case A: eae ousht a tnd ew car with a cash price of P3,000,000. He bought the car on i « following terms: down payment of P500,000 and annual instalment z P7000 for four years. On his way home, he run over an approaching trck and} + Answer: P3,000,000 Case B: eeeapel an ‘a P2,000,000 loan to his best friend two years before his death st per annum evidenced sm oy nie 2d by ante. Both he principal and interes are Answer: P2,400,000. Principal amount pls interest of 10% for 2 years Case C: | ‘The decedent devised to his son a 1,000 square meter ot in Global City, Taguig with the folowing valuation: Fair value as determined by city assessors 20,000sq.m. Zonal value as determined by the CIR 17,000,000, FV determined by independent assessors 18,500,000 | Answer: P20,000,000 (1,000 sq.m x P20,000) The higher between the far vale as determined by city assessors andthe zonal value as determined by the Commissioner of intemal Revenue (CIR) Case D: Decedent owns 100,000 ordinary shares of Alpha Company at the time of his death. At that time, Alphas outstanding shares were 1,000,000 with P10 par value and Retained Earnings amounting to P5,000,000. The shares are not traded inthe stock exchange. “Answer: P1,500,000 Book value per share of Alpha Company mulled by the number of shares held by the decedent atthe time of death P1OM + 5M. 000,000 shares” X 100,000 shares, Case E: ‘A decedent left 10,000 Pinoy Telecom shares. The shares were traded in the local stock ‘exchange. At the time of death, the following were available: Highest quotation 800 per share Lowest quotation 200 per share Book value 350 per share )00sh. x ((800+200)/2) aGross Estate EXEMPTIONS AND EXCLUSIONS FROM THE GROSS ESTATE The following shall be excluded from the gross estate of a decedent A. Exclusions under Sections 85 and 104 of the Tax Code 1 Exclusive property of the surviving spouse (Sec. 85(H)]. The gross estate in case of married decedents, is composed of: + Exclusive properties of the decedent; and + Common properties of the decedent and the surviving spouse Exclusive properties of the surviving spouse should be excluded in the gross estate because these Properties are not owned by the decedent upon his death. For estate tax purposes, exclusive properties of the husband are known as “capital” while exclusive properties of the wife are known as “paraphernal Properties (Article 135 of the Civil Code). Whether such property is exclusive or common will depend on the type of property felations or marriage settlement of the husband and wife Marriage settlements are discussed in Chapter 4 of this book. Property outside the Philippines of a non-resident alien decedent (Sec. 85 and 104), The Tax Code provides that for nonresident alien decedents, only his properties situated or with situs within the Philippines shall be included in his gross estate. Consequently, properties outside of the Philippines are excluded in determining the gross estate of a nonresident alien decedent. Intangible personal property in the Philippines of a non-resident alien under the Reciprocity Law. Section 104 of the Tax Code expressly provides that “intangible” personal property in the Philippines of a nonresident alien decedent shall be excluded from the gross estate if there is reciprocity 42Gross Estate B. Exclusions under Secti ‘ction 87 of the Tax Code “i The rerger of usufruct in the owner of the naked ttle foeeremision OF delivery of the inheritance or legacy by the fideiconmet, 28° known as the 1 heir) or legatee to the 3, 12lcommisary (also known as the 2™ heir) : he lransmission from the first heir, legatee or donee in favor of Predecosee eciary, in accordance with the desite of the Predecessor (also known as “Transfer under Special Power of Appointment’), 4. All bequest devises, legacies or transfers to social welfare, cultural and charitable institutions, no part of the net income of which inures to the benefit of any individual: Provided, however, that not more than thirty percent (30%) of the said bequest, devises, legacies or transfers shall be used by such institutions for administration purposes, The government agency which is empowered to determine the exemption is the BIR. To enable it to exercise such power, the Value of transfer to social welfare, cultural and charitable institutions should be included in the gross estate. An equal amount, however, may be taken up as a deduction. THE MERGER OF USUFRUCT IN THE OWNER OF THE NAKED TITLE The decedent in this particular case (known as donee-decedent or current decedent) only received from the prior decedent (donor-decedent or prior decedent) usufruct over the latter's property. Usufruct pertains only to the right or privilege to enjoy the use and advantages of another's property. Thus, the current decedent is not considered the owner of the property. Consequently upon his death, the usufruct will be merged to the ‘owner of the naked title, the intended beneficiary of the property. ILLUSTRATION 4: In the last will and testament of Mr. Yumao, he assigned the usuffuct of one of his parcels of land to his son (Juan) while his grandson (Pedro) was named the owner of the naked tile. Upon the death of Mr. Yumao, the parcel of land should be included in his gross estate. However, upon the death of Jvan the current decedent), the parcel of land should be “excluded” in his gross estate because he is not the intended owner/beneficiary ofthe land but his son, Pedro. Upon Juan's death, there will be merger of usufruct in the owner of the naked title (Pedro). Meaning, Pedro will be entitied to both the usufruct and ownership ofthe naked tite upon Juan’s death. 43Gross Estate “Merger of usufruct in the owner of the naked title | Po + Te intended owner ofthe lang (naked tle) + The usutuct willbe merged to his naked tie upon Juan's exh + usuructuary but rot the intended ‘owner of he land +E upon death since sbjectto | 1 Sut toe T ae TRANSMISSION FROM THE FIRST HEIR, LEGATEE OR DONEE IN FAVOR OF ANOTHER BENEFICIARY (Also known as 2nd Heit), IN ACCORDANCE WITH THE DESIRE OF THE PREDECESSOR (Also known as Transfer under Special Power of Appointment) ILLUSTRATION 5: {nthe fast will and testament of Mr. Yurmao, he devised a parcel of land to Juan but wih condiion that such property should be given to Pedro upon Jan's death, Thus, the parcel of land is intended to be inherited by Pedro, not Juan, Juan is acing only 28 a trustee or fiduciary untl such time that the property is transfered to Pedro. Upon Juan's death, the parcel of land shouldbe “excluded” in his gross estate simply because he isnot the owner ofthe property In the illustration provided, Juan only received the parcel of land under a Special Power of Appointment (SPA) from Mr. Yumao, the prior decedent/predecessor or also known as the donor of the power or donor-decedent. Thus, Juan is known as the donee-of the power or donee-decedent or current decedent. ‘Special Power of Appointment exists when the donee-decedent (Juan) can appoint only from a restricted or designated class of persons other than himself. In the problem above, Juan is restricted to transfer such property only to Pedro, in accordance with the desire of the Predecessor (Prior Decedent or Donor-Decedent). Property transferred under a special power of appointment should be excluded from the gross estate of the donee of the power because the donee- decedent only holds the property in trust. 44Gress Estate * The parcel of land * The intended Peer isnotintended for beneficiary of Me rete Juan Yumao i * Acting only as ems trustee/fiduclary rote of Pedro 4 tinge * Subject to Estate Tax Een Not Subjectte * + in GE upon death Estate Tax * Subj to Estate Tax TRANSMISSION OR DELIVERY OF THE INHERITANCE OR LEGACY BY THE FIDUCIARY HEIR/LEGATEE (Also known as the ‘1st heir) TO THE FIDEICOMMISARY (Also known as the 2nd heir) ILLUSTRATION 6: Using the same information in the immediately preceding illustration (llustration No. 5) and assuming further that Juan is the father of Pedro. Since Juan is the father of Pedro and both were alive at the time of the testators death (Mr. Yumao), the substitution or transfer from Juan to Pedro is known as fdeicommissary substitution. Upon the death of Mr. Yumao, the parce! of land should be included in his gross estate. However, upon the death of Juan, the parcel of land should be “excluded” in his gross estate because Juan is acting only asthe trustee of Pedro. Fideicommisary transfer of property is in substance, the same with transfer of property received under Special Power of Appointment (SPA), except that the relationship ofthe ‘st heir and the 2nd heir should not be more than one (1) degree ‘apart (Refer to llustratin #7 of Chapter 1 for the determination of degree of relationship). Elements of a fideicommissary substitution: + The substitution must not go beyond one degree from the heir originally instituted (ie. father to son. : «© The fiduciar(rst hei) and the fdeicommissary(second heir) must be both living atte time ofthe testator’s death. 45Gross Estate C. Exclusions under Special Laws 4. Proceeds of life insurance and benefits received by members of the GSIS (RA728). ‘Accruals and benefits received by members from the SSS by reason of death (RA1792). 3, Amounts received ‘from Philippines and United States ‘governments for war damages (RA227), 4, Amounts received from United States Veterans Administration. Payments from the Philippines of US government to the legal heirs, of deceased of World War Il Veterans and deceased civilian for supplies/services furnished to the US and Philippine Army (RA136). 6. Retirement benefits of officialslemployees of a private firm (RA4917). 7. Personal Equity and Retirement Account (PERA) assets of the. decedent-contributor (Sec. 14, RA 9505 — Personal Equity and Retirement Account Act of 2008). 8. Compensation paid to private and public health workers who have contracted COVID-19 in case of death, the said amount shall not be included as part of the gross estate of the decedent subject to state tax as provided under Republic Act No. 11494 or the "Bayanihan to Recover as One Act’. COMPOSITION OF THE GROSS ESTATE Generally, gross estate consists of all the property owned by a decedent or which the decedent had an interest at the time of death, such as: = Real property + Personal tangible property * _ Intangible personal property (shares of stocks, ¥ Shares of stock Bank deposit Dividends declared before his death but received after death, Parinership profit which have accrued before hs death Usutructuary 8 ght R88 46Decedent's Interest (Sec. 85(A)] he T: = can eee that Decedent's Interest to the extent of le included in the gross cates cedent at the time of death shall be Decedent Interest refers to the extent of equity or ownershi Participation of the decedent on any property physical existing and Present in the gross estate, whether or not in his possession, control or dominion. It also refer to the value of any interest in property owned or possessed by the decedent at the time of his death (interest having value or capable of being valued or transferred). Property NOT PHYSICALLY IN THE ESTATE but are stil subject to payment of estate tax. These properties have already been transferred during the lifetime of the decedent, however, such properties shall stil form part of his gross estate because the transfers were either intended to take effect ‘only upon his death or does not actually convey full ownership over the property transferred, a. Transfers in Contemplation of Death [Sec. 85(B)] The Tax Code, as amended, provides: 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 inended to fake effec in possession or enjoyment ator afer 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 wich does not in fact ‘end before his death (1) the possession or enjoyment of, or the night to the income from the property, or 2) the ight, ether alone orn conjunction with any person, 10 designate the person wo shal possess or enjoy the ‘or the income ena and full considera ‘therefrom; except in case of a bonafide sale for an ian in money or money's worth 47Gros Estate ‘A transfer in contemplation of death is a disposition of property prompted by thought of death. It is the thought of death, as a controlling motive which induces the disposition of the property. Included within this concept is donation mortis causa. The gross estate shall include the value of property transferred by the decadent during his lifetime in anticipation of his death (transfer in contemplation of death) such as: 1) Transfer of property in favor of another person, but the transfer was intended to take effect only upon the transferor's death. 2) Transfer by gift intended to take effect at death, or after death, or under which the donor reserved the income or the right to designate the persons who should enjoy the income. 3) Transfer with retention or reservation of certain rights. The decedent had transferred his property during his lifetime, but retained for himself beneficial enjoyment of the thing or the right to receive income from the same. Section 85 provides that there is no transfer in contemplation of death when the transfer of property is a bonafide sale for an adequate and full consideration in money or money's worth. b. Revocable Transfers [Sec. 85(C)] Itis a transfer where the terms of enjoyment of the property may be altered, amended, revoked or terminated by the decedent It is sufficient that the decedent had the power to revoke though he did not exercise the power. Section 85(C) of the Tax Code, as amended, provides: (1) To the extent of any interest therein, of which the decedent has a any time meds a transfer (except in case of a bonalide sale for an adequate and full consideration in money or money's worth) by tust or othenwise, where the enjoyment thereof was subject atthe date of his death to any change through the exorcise ofa power fn whatever capac exercisable) by the decedent alone or by the decedent in ‘coninction with any other person (without regard fo when or frm what source the decedent acquired such power), 10 ater, amend, revoke, or terminate, or where any such power Is relinquished in contemplation of the decedent's death, 48Gress Estate (2) For the purpose ofthis Subsection, the power fo ater, amend or revoke shall be considered to ex's! onthe date ofthe decedent’s feath even though the exercise ofthe power is subject to a precedent Siving of rotice or even though the alteration, amendment or revocation takes effect only on the expiration ofa stated period after the exercise of the power, whether or not on or before the date ofthe decedent's death notice has been given or the power hes been exercised. In such cases, proper adjustment shall be made ‘presenting the interests which would have been excluded from the power f the decedent had lved, and for such purpose if he notice has ‘not been given or the power has not been exercised on or before the date of his death, such notice shal be considered to have been given, ‘or the power exercised, onthe dat of his death. ILLUSTRATION 7: Case A A high ranking official realized that due to the nature of his illness, age and the pressure brought about by the various legal cases fled against him, death might not be that far. Hence, he gratuitously transferred most of his properties to his children while sil alive. Should the properties transferred be included in the gross estate of the decedent- transferor upon his death? = Answer: Yes The properties transfered shoutd be included inthe estate ofthe decedent bocause the | transfers were infonded to take effect ypon his death (donation morts causa, regardless ofthe date ofthe actual transfer tothe benefiais or his. Case B Renato, a natural philanthropist, gratuitously transfered a property to Cd worth 50,000,000 during his lifetime, What amount should be included in the gross estate of Renato upon his death? + Answer: PO. The transfor was no ntended fo take effect upon his death but coring his fete, thus, it Should be treated as a “donation iter-vvos rater than inheritance (donation merts- cause). The transfer is subject to donors tax instead of estate tx. Case C: 5 Due to an unstable medical condition, Pedro thought that it is only proper for him to {gratuitously transfer his properties to his love ones now instead of waiting for his death. ;dominium units to his children worth P200,000,000 while indergoing majot medical operation. At the time of Pedro's death, the fair matt valve of the frovertion transferred increased to P250,000,000. What amount should be included in the computation of Pedro's gross estate? He then transferred various cont 49Gress Estate % Angwer: P250,000,000. mm J intended to tke fect alte te of te | The transfer is @ donation montis caus pcodent's death Its te tought of death, as a controling mative which induces the ‘Feposion of he propery. The far marke va ofthe property at th da of he | ‘actual transfor shouldbe ignored. Case D Pedro transferred al his real properties worth 10,000,000 to Juan, in trust for Boy, Juan's legitimate minor son, Pedro reserved his right o terminate the transfer anytime Question t: ‘What amount should be included in Pro's gross estate upon his death? | Answer: P10,000,000. Question 2: ‘Assume Juan subsequent died a year after Pedro's death, what amount should be included in Juan's gross estate? Answer: PO The transfer is revocable cn the pat of the testator (Peto). A revocable transfer does hip over the propery transfered because I may be revoked ‘ot actually convey ounersh bythe testator (regardless of whether the right to revoke was exercised). Transfers under a General Power of Appointment [Sec. 85(0)] Power of appointment refers to the right to designate the person or persons who will succeed to the property of the prior decedent. The power of appointment may be “general” or special’. It is considered “general” when the power of appointment authorizes the donee of the power to appoint any person he pleases. The power may be exercised in favor of anybody including the donee-decedent. ‘The donee of a general power of appointment holds the appointed property with all the attributes of ownership thus, the appointed property shall form part of the gross estate of the donee (beneficiary) of the power upon his death. Special Power of Appointment (SPA) exists when the donee can appoint only from a restricted or designated class of persons other than himself. Property transferred under a special power of appointment should be excluded from the gross estate of the donee of the power because the donee-decedent only holds the property in trust. Refer also to Exclusions under Section 87 of the Tax Code as discussed in illustration #5, #8 Case B and Page 45.Gross Estate The power of RbPointment may be exercised by the donor- decedent through the follow : ets ing modes: b) By deed to take eff fect i t at or cherie dean iN possession or enjoyment at ©) By deed under whi ich he has retained for his life or any period not ascertai inable without reference to his death or {or any period which does not in fact end before his death, 2) The possession or enjoyment of, or the right to the income from the property. The right, either alone, or in conjunction with any person to Gesignate the persons who shall possess or enjoy the Property or the income therefrom, ILLUSTRATION 8 - GENERAL POWER OF APPOINTMENT (SPA\ In the last wil and testament of Mr. Yumao, he devised a parcel of land located in Batangas to Juan, with the power to appoint any person he pleases. Juan decded to transfer the property to Peco through his last wil and testament. \n ths ilustraton, Juan received the property under “General Power of Appointment (GPA). GPA exists when the power of appointment authorizes the donee ofthe power to ‘appoint any person he pleases. The power may be exercised in favor of anybody inducing the donee-decedent. The donee of a general power of appointment holds the appointed property wih all the attributes of ownership thus, the appointed property shall form part of the gross estate ofthe donee (beneficiary) ofthe power upon hs death Mr. Yumao —* Donor ofthe power = Predecessor / Donor-decedent Dones ofthe power of ts heir "Current decedent / Donos-decedent Parcel ofland —* Appointed property Juan mo benat + since tix" utlecioSubeetto sate iat he ‘+ +in GE upon 1 Subject to Est 5{ ILLUSTRATION 9: | Power of Appointment vay ‘orate opty to Nonito through his last will and testament. It includes a provision that Nono can wanser the property to anyone. Norito transfered the propery to Boomboom intended to take effect a the time of Nonito's death Question 1: What type of power of appointments ilustrated above? + Answer: General Power of appointment | The wil provides that Nonto may transfer the propery ‘to anyone" Therefore, the power may be exercised in favor of anybody intusng the donce-decedn) (Non). The power of appointment is “genera” when the poner of appointment ‘authorizes the donee of the power to appoint any person he pleases. Question 2: Should the property be included in the determination of Manny's gross estate? + Answer: Yes Question 3: ‘Should the propery be included in Nonito's gross estate? Answer: Yes The donee ofa genes! power of appointment hos the appointed propenty wth alte atibtes of ownership. Thus, the appoinied property shal frm pat ot ‘708s estate ofthe donee-decedent (Nano) upon his death. Case B. Special Power of Appointment ‘Manny donated property to Nonito through his last will and testament. It includes @ Provision that Nonito can transfer the property only to his son, Boomboom. Question 1: What type of ‘power of appointments illustrated above? % Answer: Special Power of Appointment Special power of appointment exists when the donee can appintcny tom a ‘restricted or designated class of persons other than himself. In the case ‘provided, no other person should inhent the Property left by Manny but Boomtoon. Question 2: Should the property be included in Manny's gross estate? “Answer: Yes Question 3: Should the propery be included in Nonito's gross estat? Answer: No The done of the power (Noni) ony holds the property in tut. Teint of Manny Ito ransfer the property to Boomboom nai to Non. Consequently. he roperty ransfered by Manny shouldbe excluded in Nonio's gross estate. —_| 52n [Sec. 85(G)] When a sale or transfer was made for a Fair Market Values (EMV): ‘FMV of the property atthe time of sale or transfer. This Is use to determine whether or not the consideration was full and adequate. if the consideration received is substantially the same with the fair market value at the time of transfer, such sale or transfer is considered a bona fide sale, hence, not subject to estate tax. * FMV of the property at the time of death. This is used to determine the amount to be included in the gross estate. If the consideration received is substantially lower or for less than full and adequate consideration compared to the fair market value at the time of sale or transfer, such sale or transfer was made for insufficient consideration. In such cases, the excess of the fair market value at the time of death over the consideration received at the time of sale or transfer should be included in the gross estate of the decedent, If there was no consideration received at the date of transfer and such transfer was made “in contemplation of death” (donation mortis causa), the fair market value of the property at the date of death, not at the date of transfer, should be included in the gross estate of the decedent. If there was no consideration received at the date of transfer and such transfer was not made "in contemplation of death’, such transfer shall be considered donation inter-vivos subject to donor's tax based on the fair market value of the property at the date the donation was made. Donors tax is discussed in Chapter 6. The above rules on insufficient consideration are summarized in Table 2-3 below: 53Gross Table 2-3: Rules on insufficient consideration Bonafide sale. Excluded from the 2 FM at the mb aeons decedent's goss estate time of transfer. Jderation < FMV at the mmm Insufficient consideration Sines Include in the gross estate the excess of FMV @ the time of death over the consideration received, Bonafide sale regardless of the Sale was made in the su ‘amount of consideration, ordinary course of trade No consideration received mammpe Either donation mors causa (subject to estate tax) or donation inter-vivos (subject to donor's tax ILLUSTRATION, CASEA On January 2021, Juan sold for P5,000,000 an apartment with carrying value of 3,500,000 to Pedro. At the time of sale, the property has a prevaling market price of P7,000,000. Juan died on June 2021. At the time of death, the prevailing fair market value of the property was P8,000,000. Question 1: What amount should be included in the gross estate ofthe decedent? “Answer: P3,000,000. ‘© The excess of the far value ofthe property at the time of death over the consideration received (P8,000,000 vs. P5,000,000). The canying value of the propery transfered is disregarded for purposes of determining whether | or not the transfer was made for an adequate and ful consideration, | Question 2; What amount should be included in the gross estate of the decedent assuming the fair market value of the property atthe time of death was P4,000,000? “Answer: PO. The fair market valve at the time of death was lower than the amount of consideration received. Hence, the PS,000,000 fs considered adequate and full consideration. Question 3: Assume that the property sold is classified as an ordinary asset and the sale or transfer was made in the ordinary course of trade or business, What amount should be included as part of the gross estate ofthe decedent? Answer: PO. The sale or transfer isa resul of a bona fide salem. [CASEB Ea _ On January 20; P5.s00 000 eae £4 fo 5.000.000 an aparrnent with carving value of (of P5,000,000. Juan died gn re Sa te Property has a prevaling make price matt value ofthe propery naa ania At the time of death, the prevailing fair Question 1: What a | ANS Wer Po SHould be included in the gross estate ofthe decedent? | If the consideration the time of transfer, ‘Subject estate tax. ‘ceived is substantially the same with the far market value at ‘Such sale or transters considered a banafide sale, hence, not Ouseton 2 i Jae an anstred the property without consideration, wat In is gross estate atthe time of | ? “+ Answer: P6000 000 eet | transfer is Considered transfer in contemplation of death. Thus the transfer | ould toke effect upon Juans death. The fir market value ofthe property a the time Juan's death shouldbe included in his gross estate. Question 3: Assume Juan transferred the property during his lifetime and the Corresponding donor's tax was paid, what amount should be included in his gross | estate atthe time of his death? Answer: PO. The ransforis subject to donors tax. not estate tx MISCELLANEOUS ITEMS a. Claims against insolvent persons (Sec. 85) For estate tax purposes, an insolvent is a person whose properties are not sufficient to satisfy, whether fully or partially, his debt(s). A judicial dectaration of insolvency is not required but the incapacity of the debtor fo pay his obligation should be proven. As a rule regardless of the amount the debtor is unable to pay, the full amount of the claim against the insolvent person should be included in the gross estate of the decedent. The portion of the claim which is not collectible should be allowed as a deduction from the gross estate | ILLUSTRATION 11: CASEA ‘ Juan died with an existing collectible of P5,000,000 against Pedro. Since Pedro is financially stable, Juan exerted all possible efforts to collect the amount during his, lifetime, however, Pedro failed settle the same before Juan's death Question 1: How much should be included inthe gross estate of Juan? “Answer: the entire amount of the claim, P5,000,000. ‘Question 2: How much is the deduction from the gross estate of Juan? | + _Answer: PO. Shang | 55Gross Estate Tie dettr rol an nscven person. The incapecy ofthe detor fo pay his) stor & nak an insolven person. The incepacty of ; Trt eventos dedi odes cae ones. the amount due from Pedto, he jestion 3: Assume that ater Juan failed to collect t , deseo just condone the claim. The condonation was gladly welcomed by Pedro. ‘Ayear later, Juan died. How much should be included inthe gross estate of Juan? ‘Answer: PO. » aes was conned by i pros eth. Ther, he condoan | shoul be cassie as donation inter-vios subject fo conor tax CASEB Juan died with an existing collectible of P5,000,000 against Pedro whose properties are not sufficient to satisfy his debts. Pedro's properties are valued at P6,000,000 while is iabiities amounted to P10,000,000. (Question 1: How much should be included in the gross estate of Juan? + Answer: The entire amount ofthe claim, P5,000,000, (Question 2: How much isthe deduction from the gross estate of Juan? + Answer: P2,000,000. Only the uncalectbe potion. Collectible potion = Debtor's assels/DebtorsLibilties x Claims Collectible = PaW/P10U x PSM = P3,000,000 Uncollectible= PSM - 3l4= P2,000,000 Question 3: Assume that P2M of Pedro's liabilties are unpaid taxes from the government, how much should be included as a deduction from the gross estate of | Juan? ‘Answer: P2,500,000. ‘Only the uncallectibe potion. Pedro's assets afer unpaid taxes = PBM-2M = Pay Pedro's labilies excluding unpaid taxes = PAM Collectible portion = Debtor's assetsDebtor’s Lables x Claims Collectible = PAWPBM x P5IA= P2,500,000 Uncollectible= PSM ~ 2.54 = P2.500,000, b. Proceeds of life insurance [Sec. 85(E)] Proceeds of life insurance taken out by the by the decedent on his own life should be included in the gross estate if the following requisites are present: 1. It must be an insurance on the life of the decedent; and 2. The beneficiary must be either of the following; © His estate or executor/administrator (revocable or not) o Any third person (other ‘than estate. or. administratorexecutor) provided that the designation is not irrevocable 56Gress Estate If the benefician 4.71028 not expressly say thatthe designation of the ay eds OF Mee then It is presumed to be revocable a insurance under a group insurance taken bj the employer are Not subject to estate = : : x ame hiippine Insurance Code presumes that the designation is not clocr or CvOcable in case the designation of the beneficiary : 1 Orgllent. Section 11 of the Insurance Code (RA 10607) panes that “the insured should have the right to change the eneficiary he designated in the policy, unless he has expressly Waived this right in said policy. Notwithstanding the foregoing, in the event the insured does not change beneficiary during his lifetime, the designation shall be deemed irrevocable.” TABLE 2-4 _ PROCEEDS OF LIFE INSURANCE (Taken out by the Decedent) Ber neficiary Designation Gross Estate Estate Revocable or Irrevocable Included Executor Revocable or Irrevocable Included ‘Administrator Revocable or trevocable Included 3 Party (ie. wife) Revocable Included (2 ary (wie Irevocable Excluded Exclude proceeds from SSS and GSIS as provided by aw, ILLUSTRATION 1: ee PE] Case A. A fe insurance worth P10,000,000 was taken out by Pedro upon his life. He designated his friend, Juan, as beneficiary. ‘Should the proceeds be included in the ‘gross estate of Pedro upon his death? ‘Answer: Yes The beneficiary was his ‘rend (other than the decedent's estate, executor or administrator. Since the designation is sien, i should be assumed that Juan's ‘designation as beneficiary isrevecable. As a ral, when the beneficiary isa third person and the designation is revocable, the amount of proceeds should form part of the decedent's gross estat. revocable designation of @ beneficiary is not presumed. To be excluded from the gross estate, Juan's designation should be Clearly stated as imevocable beneficiary. Case B: : ‘Assume the same data in case A, except that Juan's designation as beneficiary is irrevocable. Should the proceeds be included in the gross estate of Pedro upon his death? “Answer: No 87‘ate Gos E arene | kane the same data in case A, except thatthe beneficiary was han “The designation of the benefiany was nevocable. Should the proceeds | in the gross estate of Pedro upon his death? Answer: Yes svocabe benefclary should be ignored if the The dst ofthe ee as inscae enfin Shou Groen Fy ise esta, adnnt | _ anced ays bo rtd the rss eee of te decedent | _regarless ofthe benefciay’s designation. ESTATE TAX RATE ‘The transfer of the net estate of every decedent, whether resident or non-resident of the pines, as determined in accordance with the Tax Code, as amended, should be subject to the estate tax. Beginning January 1, 2018 or upon the effectivity of RA 10963, otherwise known as the “Tax Reform for Acceleration and Inclusion Act’ (TRAIN Law), the net estate of every decedent, whether resident or non-resident of the Philippines, shall be subject to an estate tax rate of six percent (6%). ‘The law that Governs the imposition of Estate Tax and Accrual of Estate Tax ‘As discussed in Chapter 1, it is a well settled rule that estate taxation is governed by the statute in force at the time of death of the decedent. The estate tax accrues as the date of death of the decedent and the accrual of the tax is distinct from the obligation to pay the same (RR 2.2003). Refer to Chapter 1 for additional discussions and ilustrations, Filing of Estate Tax Return and Payment of Estate Tax Due The Tax Code, as amended, provides that the estate tax shall be paid by the executor/administrator or any of the legal heirs at the time the return is filed (Pay as you file system). FILING and PAYMENT: * Primary responsibility to file and pay — Executor or administrator; * Secondary responsibilty to fle and pay — any of the heirs An estate tax retum shall be filed under oath in any of the following situation (RR 12-2018} 1. In-cases of transfer subject to Estate Tax; andMite transt fer of ownership thereof in the name of the transferee, the executor or the SI oo Administrator, or any of the legal heirs, as the case Estate tax returns showin; pesos (P5,000,000) shall certified following: a. Itemized assets of the decedent with their corresponding gross value at the time of his death, or in the case of Nonresident, not a citizen of the Philippines, of that part of his gross estate situated in the Philippines; b. Itemized deductions allowed from the gross estate under Section 86 of the Tax Code, as amended; cc. The amount of tax due, whether paid or still due and outstanding. 9 gross value exceeding five milion ra be supported with a statement duly 'y a Certified Public Accountant containing the TIME for FILING the Estate Tax Return Section 90(B) of the Tax Code, as amended, provides that the estate tax return is required to be filed within one (1) year from the decedent's death. The court approving the project of partition shall furnish the Commissioner with certified copy thereof and its order within thirty days (30) after promulgation of such order. The period allowed to file the estate tax return ‘shall be distinguished from the ‘accrual’ date of the estate tax due. The accrual of the estate tax is distinct from the obligation to pay the same [(RR 2-2003); (Lorenzo vs. Posadas, 64 Phil. 353))._ As discussed in page 1, the estate tax due “accrues” immediately at the time of death. The one-year time of filing is the allowable period of filing the return without incurring surcharge/penalty and interest. EXTENSION of Time to File the Estate Tax Return ff the Tax Code, “the Commissioner or any he NIRC shall have ‘Officer authorized by him pursuant to exceeding niny (30) days fr fling the return’. The application forthe Under Sec. 90(C) of 59Gross Extute extension of time to file the estate tax return must be filed with the Revenue District Office (RDO) where the estate is required to secure its Taxpayer Identification Number (TIN) and file the tax returns of the estate, which RDO, likewise, has jurisdiction over the estate tax return required to be filed by any party as a result of the distribution of the assets and liabilities of the decedent. TIME for PAYMENT of the Estate Tax As a general rule, the estate tax imposed under the Tax Code shall be paid at the time the return is filed (Pay as File system) by the executor, administrator, or the heir(s). Consequently, the estate tax due may be paid within the one-year period allowed to file the estate tax return. EXTENSION OF TIME TO PAY ESTATE TAX When the Commissioner finds that the payment of the estate tax or of any part thereof would impose undue hardship upon the estate or any of the heirs, he may extend the time for payment of such tax or any part thereof not to exceed five (5) years in case the estate is settled through the courts (Judicial Settlement), or two (2) years in case the estate is settled extrajudicially (extrajudicial settlement). In such case, the amount in respect of which the extension is granted shall be paid on or before the date of the expiration of the period of the extension, and the running of the statute of limitations for deficiency assessment shall be suspended for the period of any such extension. The application for extension of time to file the retum and ‘extension of time to pay estate tax shall be filed with the Revenue District Officer (RDO) where the estate is required to secure its TIN and file the estate tax return. This application shall be approved by the Commissioner or his duly authorized representative. Where the request for extension is by reason of negligence, intentional disregard of rules and regulations, or fraud on the part of the taxpayer, no extension will be granted by the Commissioner. If an extension is granted, the Commissioner or his duly authorized representative may require the executor, or administrator, or beneficiary, as the case may be, fo fumish a bond in such amount, ot exceeding double the amount of the tax and with such sureties as the Commissioner deems necessary, conditioned upon the payment of the said tax in accordance with the terms of the extension. 60Payment of Estate Tax Gross Estate by installment and partial disposition of estate (RR 12-2018 as amended by RR 8-2019) estate tax due, the estate through the following opti conditions: 2 In case of insufficiency of cash for the immediate payment of the total may be allowed to pay the estate tax due ions, including corresponding terms and Cash Installment a) The cash installments shall be made within two (2) years from the date of the filing of the estate tax return, using the payment form (BIR Form 0605) or a payment form dedicated for this transaction for succeeding installment payments after fing the first (1*) Payment through the estate tax return. b) The estate tax return shall be filed within one (1) year from the date of the decedent’s death; ©) The frequency (i.e., monthly, quarterly, semi-annually, annually) deadline and the amount of each installment shall be indicated in the estate tax return, subject to the approval by the BIR; 4) In case of lapse of two (2) years without the payment of entire tax due, the remaining balance thereof shall be due and demandable subject to applicable penalties and interest reckoned from the prescribed deadline for fling the return and payment of estate tax; and €) No civil penalties or interest may be imposed on the estates permitted to pay the estate tax due by installment. Nothing in this ‘subsection, however, prevents the Commissioner from executing enforcement action against the estate tax due of the estate tax provided that all the applicable laws and required procedures are followed/observed. Partial disposition of estate and application of its proceeds to the estate tax due a) The disposition, for purposes of this option, shall refer to the conveyance of property, whether real, personal or intangible property, with the equivalent cash consideration; b) The estate tax return shall be filed within one (1) year from the date of the decedent's death; c) The written request for the partial disposition of estate shall be approve by the BIR. The written request shall be filed, together with a notarized undertaking that the proceeds thereof shall be exclusively used for the payment of the total estate tax due; 61estate tax return. Revenue his death and shall file tt or Revenue Collection Officer having juris Gross Estate d) The computed estate tax due shall be allocated in proportion to the value of each property. @) The estate shall pay to the BIR the proportionate estate t the property intended to be disposed of; f) An vrouronic Certificate Authorizing Registration (eCAR) shall be feued upon presentation of the proof of payment of the proportionate estate tax due of the property intended to be Gisposed. Accordingly, eCARs shall be issued as many as there are properties to be disposed fo cover the total estate tax due, net of the proportionate estate tax(es) previously paid under this option; and g) In case of failure to pay the total proceeds of the said disposition, immediately due and demandable penalties and interest reckoned from i filing the return and payment of the estate 13%, without prejudice of iitholaing the issuance of eCARs on the renal properties wil the payment of the remaining balance of the estate tax due, including the penalties and interest. REQUEST FOR EXTENSION OF TIME, INSTALLMEN’ PARTIAL DISPOSITION OF ESTATE tax due of estate tax due out from the the estate tax due shall be ‘subject to the applicable ihe prescribed deadline for IT PAYMENT AND Request for extension to file the return, extension to pay the estate tax and payment by installment shall be filed with the Revenue District Giicer (RDO) where the estate is required to secure its TIN and file the This request shall be approved by the Commissioner or his duly authorized representative. PLACE OF FILING THE RETURN .cedent, the administrator or executor shall register the estate of the decedent and secure @ new TIN therefor from the District Office where the decedent was domiciled at the time of fhe estate tax return and pay the corresponding (AAB), Revenue District Officer diction on the place where the death, whichever is applicable In case of a resident de estate tax with the Accredited Agent Bank decedent was domiciled at the time of his following prevailing collection rules and regulations. PLACE OF FILING THE RETURN In case of a non-resident decedent, whether non-resident citizen or non-resident alien, with executor or administrator in the Philippines, the 62Goss Estate estate tax retum shall be filed with and the TIN for the estate shall be secured from the Revenue District Office where such executor or administrator is registered. Provided, however, that in case the executor oF administrator is not registered, the estate tax return shall be filed with and the TIN of the estate shall be secured from the Revenue District Office having jurisdiction over the executor or administrator's legal residence. Nonetheless, in case the non-resident decedent does not have an executor or administrator in the Philippines, the estate tax return shall be filed with and the TIN for the estate shall be secured from the Office of the Commissioner though RDO No. 39-South Quezon Cily The foregoing provision, not withstanding, the Commissioner of Intemal Revenue may continue to exercise his power to allow a different venue/place in the filing of tax returns. LIABILITY FOR THE PAYMENT OF ESTATE TAX The executor/administrator of an estate has the primary obligation to pay the estate tax but the heir or beneficiary has subsidiary liability for the Payment of that portion of the estate which his distributive share bears to the value of the total net estate. The extent of his liability, however, shall inno case exceed the value of his share in the inheritance. Where there is no executor or administrator appointed, qualified and acting within the Philippines, then any person in actual or constructive possession of any property of the decedent must file the retum. The Estate Tax imposed under the Tax Code shall be paid by the executor or administrator before the delivery of the distributive share in the inheritance to any heir or beneficiary. ‘Where there are two or more executors or administrators, all of them are severally liable for the payment of the tax. The estate tax clearance issued by the Commissioner or the Revenue District Officer (RDO) having jurisdiction over the estate, will serve as the authority to distribute the remaining/distributable properties/share in the inheritance to the heir or beneficiary. PAYMENT BY INSTALLMENT In case the available cash of the estate is insufficient to pay the estate tax due, payment by installment shall be allowed within two (2) years from the statutory date for its payment without civil penalty and interest, using the payment form (BIR Form 0605) or a payment form dedicated for this transaction for succeeding installment payments after filing the first (1*) payment through the estate tax return. 63Gres Estate Civil penalties and interest tax, but within tatutory due date of the {9% tat to interest but not (9 ‘surcharge. for fraudulent intent on the taxpayer. vieTraudulent intent on the int of tax from int paid after the st iod, shall be subj 0 false e, malice Any amou the extension peri Penalty of 25% if there is n Penalty of 50% if there is fals 7 the unpaid amou! taxpayer. Interest shall be computed °° aid a aw 12% UPO Heey computed until fully paid (20% prior to effectivity of the TRAIN Law). fer of Shares, Bonds or Payment of Tax Antecedent (0 the Trans! (Sec. 97, as amended) Rights ner in the books of to any new own isiness, oF industry jon, bond or jegacy of inheritance, ft the applicable tax There shall not be transferred any corporation, sociedad anonir, ‘organized or esta right by way of gift intervivos, mortis ae ea certification from the Commis! have been paid. person, who maintained tra bank has knowledge of the death of 3 intly with another, it shall allow any ‘a bank deposit account alone, or jol tithcrawal from the said deposit accour subject to @ final withholding tax eee percent (6%). For this purpose, al ‘withdrawal slips shall contain a of st ant to the effect that all ofthe joint deposiors 2°, still living at the seat withdrawal by any one of the Joint depositors and such statement shall be under oath by the said depositors. Under RA No. 10963 (TRAIN Law) In case the available cash of the estate is insufficient to pay the total estate tax due, payment by tre inant shal be allowed within two (2) years from the statutory date for its payment without civil penalty and interest. causa, joner thatRRL PROBLEMS P21. A decedent taxpayer died leaving the following: Family home (land and residential house) in the 8,000,000 Philippines Parcel of land with vacation house in Malaysia 5,000,000 Farm land in the Philippines, with a mortgage in favor of 3,000,000 the Philippine National Bank for P600,000 Shares of stock of a domestic corporation 2,000,000 Shares of stock of a foreign corporation, the entire 500,000 business of which is in the Philippines Receivable from a friend who has no property 300,000 whatsoever Receivables under the following insurance policies: «Life insurance policy, taken by the decedent on 200,000 his own life, with his estate as revocable beneficiary * Life insurance policy, taken by the decedent on 300,000 his own life, with his daughter as revocable beneficiary * Life insurance policy, taken by the decedent on 600,000 his own life, with his son as irrevocable beneficiary = Life insurance (group) taken by the employer of 150,000 the decedent, with the estate as revocable beneficiary REQUIRED: Determine the correct Gross Estate assuming the decedent was: 1. Aresident citizen 2, Resident alien 3. Non-resident alien with reciprocity 4. Non-resident alien without reciprocity 65Chapter Exercises — Estate Tae 4 € P2.2, Tha decedent devised to his four (4) children separate parcels of land with the following data: TO JUAN, 1,0 following valuation: = Assessed value P25,000/sq.m. «Zonal value as determined by the CIR. 18,000,000 1 FMV as determined by independent assessors 20,000,000 TO PEDRO, 1,000 square meter fot in Q.C. with the following valuation: yaaa pased value determined by Q.C., P15,000/sa.m 1 aeseivalue as determined by the CIR, 18,000,000 T envlak determined by independent assessors, 20,000,000 TO MARIA, 1,000 square meter lot in Makati with the following valuation’ = Assessed value determined by P15,000/sq.m. = FMVas determined by independent assessors, 20,000,000 100 square meter lot in Sampaloc, Manila with the determined by the City of Manila the City of Manila, REQUIRED: Determine the gross estate of the decedent P23. Pedro owns various share lifetime. At the time of his you by his administrator: 100,000 shares of Frozen Company's ordinary shares, not traded = Outstanding shares - 600,000 shares; P10 par = Retained Earnings - P3,000,000 400,000 shares of Divergent Company's ordinary shares, listed shares © Outstanding shares - 1,000,000 shares; P10 par + Retained eamings - P5,000,000 + Mean value of the shares in the stock exchange - P15 100,000 shares of Lenovo Company's ordinary shares, listed shares ‘Outstanding shares - 1,000,000 shares; P10 par + Retained earings - P5,000,000 + Mean value of the shares in the stock exchange - P12 15 of stock from different companies during his death, the following details were provided to REQUIRED: Determine the gross estate of PedroP2.4, For each of the following the property in the gross estate: 1 Chapter Evercises — Estate Tag independent cases, determine the value of A parcel of land inheri ited detedents father (ted from the father was aoquired by the for a cost of P250,000. Upon inheritance, Petes ion an ae was 200,000 as shown in the schedule of ’SSOr's office and P; the office ofthe BIR Commissioner. emanenee Property, acquired for P1 000,000, ws 000,000, was transferred in contemplation of death for @ consideration of P100,000. Fair le time of tre Scene ansfer, P1,500,000, while at the time A property, acquired at a cost of P1,000,000, was transferred in Contemplation of death for a consideration of P1,200,000. Fair market value at the time of transfer, P1,500,000, while at the time of death, 1,200,000. The decedent was about to present to his girlfriend a brand new car worth P5,000,000 cash. Installment price is valued at P6,000,000. on his way to meet his girlfriend, he met a car accident and died. On January 1, 2020, Pedro granted a loan worth P1,000,000 to Juan, due on January 1, 2022. The latter executed a promissory note with an annual interest of 10%. Pedro died on June 30, 2021. (MODIFIED) IDENTIFICATION: Exercise A (Inclusions and Exclusions) Determine whether the following is included or excluded from the gross estate. 1 Included __ Excluded Transfer with reservation of certain rights " Transfer for insufficient consideration Transfer for an adequate and full consideration in money's worth Transfer in contemplation of death Insurance proceeds from SSS and GSIS Proceeds of group insurance taken out by a company for its employees. 67Chapter Euercises 7. Transfer from the first heir to the second heir designated by the predecessor. 8. Donation to the national government re ts Merger of usufruct in the owner of the naked title Le institution 10. Legacy to a charitabl s did whose administrative expense’ not exceed 30% of the legacy cient Consideration) 5 Estate of the Transferor- Exercise B (insuffi tt to be included in the Gross Determine the amount Decedent from the following independent cases: Inclusion in the Particulars: Gross Estate (P) 1, FMVat the time of Transfer 5,000,000 = FMV at the time of Death * 6,000,000 Consideration received 5,000,000 Answer 2, FMVat the time of Transfer 5,000,000 FMV at the time of Death 6,000,000 Consideration received 6,000,000 3, FMVat the time of Transfer 5,000,000 FMV at the time of Death 6,000,000 Consideration received 7,000,000 4, FMVat the time of Transfer 5,000,000 FMV at the time of Death 6,000,000 Consideration received 2,000,000 ie 5, FMV at the time of Transfer 5,000,000 FMV at the time of Death 6,000,000 nil Consideration recei 68Chapter Exercises — Estate Tee / Exercise C (Proceeds of Life Insurance Premium) Determine the amount that should be included in the gross estate: Inclusion inthe Gross Estate (P) Particulars: The decedent took an insuran r tha decade insurance on his life fo The decedent took an insurance on his life for 20,000,000 and designated his estate as the revocable beneficiary, 3. The decedent took an insurance for his life for 5,000,000 and irrevocably designated the administrator of his estate as the beneficiary. 4, The decedent took an insurance on his life for 0,000,000 and designated his son as beneficiary, 5. The decedent took an insurance on his life for 110,000,000 and designated his son as irrevocable beneficiary. ‘TRUE OR FALSE 4 Estate tax is a tax imposed on the privilege that a person is given in the disposition of his property, either by will or by operations of law, to take effect upon death, Estate tax is an ad-valorem tax The accrual of the estate tax is distinct from the obligation to pay the same. Delivery and acceptance are essential elements of estate taxation, Under the “ability to pay theory’, the imposition of estate tax is justifiable because it reduces the property received by the successor, thus, helping to promote equitable distribution of wealth in society. ‘dless of situs, the tax code excludes intangible personal feet of a non-resident alien decedent in determining his taxable estate. ic Jue of the gross estate Section 85 of the Tax Code provides that the val of a nonresident alien should be determined by including the value at the time of his death, of all property, real or personal, tangible or intangible, wherever situated. rocity if the decedent at the time of his death was a Tesidentctzen of 2 foreign country which at the time of his death did hot impose an estate tax of any character in respect of tangible 69 eeeChapter Exercises yea personal property of citizens of the Philippines not residing in that foreign country. 9. For estate tax computatior fair market value at the date of dee ite is available al Jn, real estate, in general, shall Be valued at ath of the decedent. 1 date of death, and this is por assessors listings of valuos. then ross estate is the zonal value. ded to take effect at the time erty should be valued at the actual transfer. 40. If zonal value of a real estal higher than the fair market value the amount to be reported in the gr a are transfers inten’ ith. Hence, the prope rty at the date of the ronal government is an exempt transaction but Tusion of the property in the gross estate. 49. Juan devised in his will a piece of land: naked title to Pedro and deat et to Ana for as long as Ana lives, thereafter 'o Pedro. The teutsssion from Juan to Pedro and Ana is subject 'o estate tax but te merger of the usutruct and the naked title to Pedro upon the death of Ana is exempt, to his brother Bert who is Ron devised in his will real property Fon et ath the obligation fo preserve and transmit the property to ‘ay, son of Bert, when Jay becomes of age. The transmission from Bert to his son Jay is subject to estate tax. 45.When an estate, under administration, property, the annual income of the estate becomes pat gross estate. 11. Donation mortis caus of the decedent's deat fair market value of the prope! 42. Donation to the nati should still require inc! 14. has income-producing rt of the taxable under administration, has income-producing property ring the year is distributed to the heirs, the income art of their gross income for 16. When an estate, and its income dur so distributed is taxable to the heirs as pé the year. 17. special power of appointment authorizes the donee of the power to ‘appoint only from among a designated class or appoint oy ign yr group of persons other 18. The donee-decedent of a special power of ay ppointment only holds the property in trust, hence, the property shi trogen ust hgce property shall form part of the donee- he Tax Code as amended under RA10963 (TRAIN Li that the filing of estate tax return should be done inion ane 6 fom the decedent's death. ae 1 payment of estate tax could only be i of thirty (30) days from the date fa, ee extended up to the maximum 70Chapter Exercises ~ Extate Tee / MULTIPLE CHOICE Principles 1. An excise tax on transfers inter-vivos a. Donors tax c. Income tax b. Estate tax d. VAT 2. An excise on transfers mortis causa a. VAT ©. Income tax b. Estate tax d. Donor’s tax 3. Which among thie following statements is not correct? |. Estate taxation is governed by the statute in force at the time of death of the decedent |, Estate tax accrues as of the death of the decedent. II" ‘Succession takes place and the right of the State to tax the privilege to transmit the estate vests instantly upon death, a. lonly . Ilonly b. Monly d. None of the above 4. Estale tax is @ tax on the right of the deceased person to transmit his estate to his lawful heirs and beneficiaries. Hence, it is |. Atax on property. Il Anexcise tax a. Lonly ¢. Both | and Il b. Monly d. Neither I nor I 5. Estate tax is imposed upon the: a. Decedent b. Property or rights transferred cc. Right to transfer property upon death d. Privilege to receive inheritance 6. When will the transfer through succession be effective? Upon the signing of a written will Upon payment of estate tax. Upon death of the testator Upon registration in the register of deeds. aoge m1C Mapter ises — Estate Tap 7. Which of the following is not a characteristic of donation mortis causa? ‘a. The transfer to the donee is irrevocable while donor is alive. b. There is no conveyance of title or ownership to the doneee before the death of the donor. c. The transferor retains the full or naked ownership and control of the property while alive. 4d. The transfer should be void if the donor should survive the donee. 8. Mr. Wais thought that due to old ‘age, death may be imminent jalue of estate tax is high, he disposed his Knowing that the vé his rightful heirs prior to his death (transfer in properties to ‘ation of death). To prevent undue avoidance of tax, inter. contempl aos disposition in contemplation of death is subject to ‘a. Donor's tax cc. Income tax b. Estate tax d. Excise tax n of Taxpayers Classific state of a decedent shall be comprised of the following 'd interest therein at the time of his death, including ers and transfers for insufficient consideration, etc.: ‘sand citizens: All properties, real or personal or 9. The gross @ properties an revocable trans! 1. Resident intangible, wherever situated. IL. Nonresident aliens: Only properties situated in the Philippines, that, with respect to intangible personal property, its inclusion in the gross estate is not subject to the rule of reciprocity a. Lonly cc. Both | and Il b. llonly d. Neither | nor Il property of a non-resident, not citizen of the Philippines, gross estate if; perty is in the Philippines. the Philippines and the reciprocity 10. The personal ‘would not be included in the ‘a. The intangible personel proy b. The intangible property is in clause of the estate tax law applies. c. The tangible property is in the Philippines. 4 The personal property is shares of stocks of a domestic corporation 90% of whose business is in the Philippines. 11. Which of the following is subject to the rule of reciprocity? ‘a. Carin the Philippines owned by a non-resident alien decedent b. Investment in stock in a US Corporation owned by a non- resident alien decedent. 72Chapter Exercises — Estate Tae Taaeae € c a. in bonds in a U.S.-Corporation that has acquired allen SS Sts in the Philippines, and is owned by a resident 4. Shares owned by i 'y a non-resident alien in a partnership established in the Philippines. 12. The rule of reciprocity applies to: Non-resident alien Intangible personal propert decedent in the Philippines a Yes Yes b. No No c. Yes No d No Yes 13. Intangible Personal Property of Non-Resident Alien Decedent with Situs in the Philippines shall be Exempt from Taxation if: |. The decedent, at the time of his death was a resident citizen of a foreign country which at the time of his death did not impose an estate tax of any character in respect of intangible personal Property of citizens of the Philippines not residing in that foreign country. Il. The laws of the foreign country of which the decedent was a resident citizen at the time of his death allow a similar exemption from estate taxes of every character, in respect of intangible personal property owned by citizens of the Philippines not residing in that foreign country. a. lonly . Either lor i b. only d. Neither | nor it 14. One of the following is not an intangible personal property situated in the Philippines: l. Shares, obligations or bonds issued by any corporation or sociedad anonima organized and constituted in the Philippi in accordance with its laws. Il. Shares, obligations or bonds issued by any foreign corporation where 85% of its business is located in the Philippines. Ill. Shares, obligations or bonds issued by a foreign corporation if such shares, obligations or bonds have acquired business in the Philippines. IV. Shares or rights in any partnership, business or industry established outside the Philppines. a. Lonh . Illonly b. Il ony d. Vonly 73Chapter Evercises — Estate Tip “4 ‘ ¢ Situs of Estate 15. Which of the following rules on “situs” of property of a decedent correct? I As a general rule, the situs real property Is the place or country where itis situated. Il As a general rule, the situs of tangible personal property is the place or country where such is actually located at the time of the decedent's death The rule that situs of intangible personal property is the domicile or residence of the owner does not apply when the property has a situs elsewhere. Iv. The test of situs of property of a non-resident alien decedent is not important at all because only the transmissions of property located in the Philippines are subject to estate tax. a. Lonly . I, land ill only b. Land Il only d. 1,1, ll, and IV 16. Which is not a test of situs? ‘a. Residence of the debtor in case of accounts receivable. b. Place of storage in case of certificates of stocks. . Location of depository bank in case of bank deposit. d. Place of exercise in case of copyright. 17. One of the following is net an intangible personal property situated in the Philippines: a. Shares, obligations or bonds issued by any corporation or sociedad anonima organized or constituted in the Philippines in accordance with its law; b. Shares, obligations or bonds issued by any foreign corporation 85% of the business of which is located in the Philippines; c. Shares, obligations or bonds issued by any foreign corporation if such shares, obligations or bonds have acquired business situs in the Philippines; d. Shares, obligations or bonds issued by @ non-resident foreign corporation. 48. Which of the following statements is correct? ‘a. 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. b. Estate taxation is governed by the statute in force at the time the return is filed. c. Both ‘a’ and "b" d. Neither ‘a’ nor *b” 14Chapter Exercises — Estate Tag Jove « 19. Which of the fc Philippines?” NWN item is considered situated outside the a. Franchi pape the name of the decedent which is exercised in the b. Share of stock holdin, cl '9S Of decedent in a foreign corporation Whose business is 90% done in the Philippines ©. Bond certificate issued by a resident decedent wo” bY 2 domestic corporation owned by a non- 4. Foreign currency deposited in bank outside the Philippines 20, Pedro died on April 13, 2021, leaving the following properties: Common stocks of Sunchamp Corporation (2.080 shares) - listed in the Philippine Stock Exchange (highest - P40: lowest - P39) Common stocks of AgriNurture Corporation (1,500 shares) - not listed in the stock exchange. Cost - P50 per share: book value - P45 per share. Freferred stocks of Greenergy Inc. (3,000 shares) — not listed in the stock exchange. Cost - P70 per share; book value - P60 per share: ar value ~ P50 per share Car (cost - P600,000; book value. - P350,000; market value - 400,000) Real properties (zonal value - P120,000; assessed value - P72,000) The gross estate of Pedro is — a. P817,500 c. P824,000 b. P816,500 d, P846,500 Use the following data for the next two (2) questions 21. Following are properties in the gross estate with their fair market values: House and lot, family home in Quezon City 1,500,000 Bank deposit in the foreign branch of a domestic 500,000 bank Bank deposit in Makati branch of a foreign bank 300,000 Shares of stock issued by a domestic corporation 1,000,000 (certificate kept in Canada) Franchise exercised in Manila 800,000 Receivable, debtor from Mindanao 200,000 75Chatter Exercises — Estate Tag taster E If the decedent was non-resident alien and there is reciprocity, property excluded from gross estate is valued at a. 2,600,000 cc. P2,300,000 b, P2,600,000 d. P2,000,000 22, ithe decedent was non-resident alien and there is no reciprocity, the ross estate is valued at ore PA 300,000 c. P3,500,000 b. P3,800,000 d. P3,200,000 23. A Filipino decedent residing in Hawaii during his lifetime, left the following properties: House and lot, USA 10,000,000 Mansion, Philippines 50,000,000 Cars, Philippines 2,000,000 Shares of stock, Singapore 5,000,000 3,000,000 ‘Accounts receivable, USA The gross estate of the decedent is a. P70,000,000 cc. P65,000,000 b. P67,000,000 d. P62,000,000 Use the following data for the next two (2) questions The gross estate of a decedent included the following: Cost Fair value Land and building, Philippines P1,600,000 2,000,000 House and lot, UK 1,800,000 1,500,000 Personal properties, UK 7,000,000 600,000 House and lot, Philippines 4,000,000 3,500,000 Shares of stocks, UK corp. 200,000 Shares of stocks, domestic corp. 250,000 (certificate kept in UK) Shares of stocks, domestic corp. 100,000 (certificate kept in Phils.) Franchise exercised in the Phils. 200,000 Franchise exercised in UK 150,000 Receivables, debtor is from UK 50,000 . Receivables, debtor is from Phils. 50,000 24. If the decedent was a nonresident alien and his the country exempts a Filipino citizen from estate tax, how much of his subject to reciprocity? oo ae a. P1,000,000 c. P600,000 b. P800,000 d. P350,000 76Chapter Exercises — Estate Tat Pon ¢ 265.1f the decedent was a nonresident alien and assuming there is no reciprocity, how much is the gross estate? a. P10,700,000 ©. P6,100,000 b. 6,600,000 d. P5,850,000 Valuation of Estate 26. When the property is donated in contemplation of death, the basis of the tax shall be a. Fair market value at the time of donation 5. Fair market value in the hands of the donor before the time of the donation, ©. Fair market value at the time of death of the donor d. Cost when the property was acquired 27. As a tule, the basis of valuation of property in the gross estate is the fair market value Prevailing at the time of decedent's death. In the case of domestic shares of stock not traded thru the stock exchange, the fair market value is a. The value appearing in the schedule of fixed values from the assessor's office b. Net realizable value c. Acquisition cost d._ Issuer's book value. 28. Which of the following value is not used when valuing gross estate? a. Fair market value at the time of death; b. Fair market value at the time the estate return is fled; ¢. Zonal value when higher than the assessed value in case of real property; d. Book value in case of shares not traded in the stock exchange. 28, The following statements pertain to rules on valuing the estate left by a decedent. Select the incorrect statement |. Values in the gross estate are based on values at the time of the decedent's death because it is at this time that the heir legally succeeds to the inheritance. Il Receivable are appraised on the basis of the amount of the principal and interests due and unpaid at the time of death a. Jonly . Both | and I! b. Monly d. Neither | nor It 7Chester Exercises — Estate Toe decedent left a piece of land. The folowing data were available in 30. A dec ti he property. on eeaned aed ‘one (1) month before P2,500,000 Sonal 2,000,000 ue, time of death . cone vane time of fing estate tax return 3,000,000 tt would be the value of the piece of land in the gross estate? 33,000, 000 c. P2,000,000 b. 2,500,000 d. cannot be determined following data for the next four (4) que: A eecient ett 1000 XYZ Corporation common shares. The shares were rnot traded in the stock exchange. The following data were made available: Capital stock, XYZ Corporation 10,000,000 Retained earnings 2,000,000 Outstanding shares 100,000 31. What was the value included the decedent's gross estate? a. P100,000 c. P150,000 b. P120,000 d. PO 32, Assume that the shares were classified as preference shares, what was the value included the decedent's gross estate? a. P100,000 + & P150,000 b. P120,000 d. PO 33. Assume that the shares were traded in the stock exchange. Assume further that the average value at the time of death was P100 per share. What was the value included the decedent's gross estate? a. P100,000 c. P120,000 b. P110,000 d. P150,000 ‘34. Assume that the shares were traded in the stock exchange. However, the quoted price at the time of death was not determinable. Nonetheless, the highest and lowest quotations of the shares in the Market were P140 and P80, respectively, what was the value included the decedent's gross estate? a, P100,000 c. P120,000 b. P110,000 d. P150,000 35. Decedent died in 2018 leaving a will which directed all real estate owned by him not to be disposed or sold for a period of 2 years after his death, and ordered that the property be given to Juan Dela Cruz after 2 years. In 2018, the estate left by the decedent had a fair 78Chapter Exvercises — Estate Tag 4 ¢ f In 2020, the fair market value of the said ,000 and the BIR Commissioner assessed ‘on assessed value of P4,000,000 in 2018. amount of the gross estate? c. P4,500,000 d. P500,000 INCLUSIONS IN THE GROss ESTATE Decedent's Interest market value of P500,000, estate increased by P4,500, thereon estate tax based ‘What would be the correct, a. P5,000,000 b. P4,000,000 36. Decedent's Interest |. Refers to the extent of equity or ownership participation of the decedent on any property physically existing and present in the gross estate, whether in his possession, control or dominion. |. Refers to the value of any interest, having value or capable of being valued or transferred, in property owned or possessed by the decedent at the time of his death. a. lonly c. Both I and Il b. Honly d. Neither | nor I 37. Which of the following is not to be included in the gross estate of citizen decedent? @. Dividend income declared, but not yet actually received at date of death b. Share in partnership's profit earned immediately after date of death ¢. Rent income accrued before death but collected after death d. None of the above Transfer in Contemplation of Death 38. Transfer in contemplation of death 1. Refers to property formerly owned by the decedent but were no longer owned by him at the time of his death. Il Contemplates a situation where the transferor during his lifetime, transfers property in contemplation of or intended to take effect in possession or enjoyment at or after his death, Il. Includes situations where the transferor retains for life the possession or enjoyment, or the right to the income from the property, or the right to designate the person who shall possess or enjoy the property or the income therefrom. 79Cg er Evercises IV. At the time of the decedent's death, the decedent no longer ‘owned the property, but such property forms part of his gross estate for estate tax purposes. a. Land Il only ¢, Allof the above b. I, Hand itl only d. None of the above rstate Tie 39. Which among the following is correct? |. There may be properties which at the time of the decedent's death are not in the estate because they were transferred by him during his lifetime. I. The gross estate, for purposes of the estate tax, may exceed the actual value of his assets at the time of his death as it includes the value of transfers of property by him during his lifetime that partake of the nature of testamentary dispositions. a. only c. Both land Il b. Honly d. Neither | nor It 40. Transfers in contemplation of death have the following in common: |. They are ostensible transfers, usually with the purpose to evade the estate tax. Il They are extension of interests. lil. Ifthe transfers are in fact for a bona fide consideration, then they will not form part of the gross estate. a. land Il only c. All of the above b. Hand Ill only d. None of the above 41. The following are deemed transfers in contemplation of death, except ‘a. While still alive, the decedent donated property where the donation will take effect at the time of his death. b. The decedent transferred a property in the regular course of the business operation. c. The decedent donated a property with the condition that he/she will enjoy the fruits of such while he/she is still alive. d. The decedent transferred a property to take effect after his/her death 42. Transfers in contemplation of death: Consideration FMV upon FMV upon received transfer death 1,500,000 P1,500,000 2,000,000 Land Shares of stock 100,000 50,000 150,000 Vintage car 50,000 80,000 100,000 Painting 250,000 400,000 = 500,000 80c aslo Evercises — Estate lag The correct a. 120,008,» “stat® should be Brana rn Transfer with reservation of rights and revocable Transfers agreement ; 43 al oe iS pabeed te BY wil or an agreement under which title to lacaine. theratror 'o another for conservation or investment with the m and ultimately the corpus to be distributed in accordance with the directives governing lhetrumnant Of the creator as expressed in the a. Estate Borel ©. Fiduciary d. Beneficiary 4, All of the following statements are true, except a. Ina revocable transfer, the decedent during his lifetime may revoke, alter, amend, or terminate the terms of enjoyment or ‘ownership of the propery, b. A revocable transfer is always includible in the gross estate of the decedent-transferor. ¢. The power of the decedent-transferor to revoke terms may be exercised just once. 4. A revocable transfer shall be included in the gross estate of the decedent-transferor even though the power to revoke was not exercised, 45, A revocable transfer was made for a consideration of P100,000. Fair market values of the property at the time of transfers and at the time of death were P250,000 and P300,000, respectively. In the gross estate, the value of the property was a. P100,000 c. P200,000 b. P250,000 d. Exempt Transfer under general power of appointment 46. Which of the following statements regarding transfer under general power of appointment and transfer under special power of appointment is correct? 5 f |. There are three persons involved under this rule; the transferor, the first transferee, and the second transferee. The first transferee is the decedent. 11. Ifauthorty is granted by the transferor to the first transferee to determine the person, who, upon the latter's death, would next aChapter Exercises 4 possess or enjoy the property transferred, his authority intment. ‘anates from a general power of appoi Ifthe transferor himself had determined beforehand who upon : t possess oF en) th of the first transferee, would nex! joy the ‘poperty, then the authorly of the. fst transferee tment. ted from a special power of appoint a. Vandtlonty c. Allof the above b. Mand Ill only 4. None of the above tate Tay ( 47. Which is wrong? a. A power of appointment is the right to designate the person or persons who shall succeed to the property of a prior decedent b. A special power of appointment authorized the donor of the Power to appoint only from among a designated class or group of persons including himsef. ©. The done-decedent of a special power of appointment only holds the property in trust, hence, the property shall not form Part of the done-decedent's gross estate. d. None of the above 48. Which of the following statements is not true? a. A general power of appointment authorizes the donee of the ower to appoint any person to possess or enjoy the property b. A general power of appointment makes the donee of the Power the owner of the property. ©. A power of appointment is not always general 4. The appointed property passing under a general power of appointment is not includible in the gross estate of the donee- decedent. 49. The power of appointment may be exercised by the donor-decedent through the following modes L Bywill |. By deed to take effect in possession or enjoyment at or after his death, lll. 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. a. lonly c. Land Il only b. Honly d. 1, Mand tt 82Chapter Exercises — Estate Tag yi f Transfer for Insufficient Consideration 50. Which of the following transfer is not included in the gross estate? a. Transfer with reservation of certain rights b. Transfer for insufficient consideration © Transfer for an adequate full consideration in money or money's worth 4. Transfer in contemplation of death 51. In determining whether the value of a property transferred onerously by a decedent during his lifetime should be included in his estate, ask yourself, was the consideration insufficient? If yes, then add the excess of the FMV at the time of death over the consideration received. | If no, then it was a bona fide sale, Exclude the property in determining the decedent's gross estate. a. lonly ©, Both | and it b. Monly d. Neither I nor I Proceeds of life insurance 82. Proceeds of life insurance includible in the taxable gross estate a. Insurance proceeds from SSS or GSIS b. Amount receivable by any beneficiary other than the estate, administrator or executor, irrevocably designated in the policy by the insured c. Amount receivable by any beneficiary designated in the insurance policy d. Proceeds of group insurance taken out by a company for its employees. 53, Amounts receivable by the estate of the deceased, his executor or administrator as an insurance under policy taken by the decedent upon his own life is: ‘a. Excluded from the gross estate b. Part of the gross estate whether the beneficiary is revocable or irrevocable. ‘ c. Part of the gross estate if the beneficiary is revocable. d._ Part of the gross estate if the beneficiary is irrevocable. 83Chapter Exercises ~ Estate Ta 4 ¢ i lowing is not included in the gross estate? 5: Oi pvocablo anefer wer he consiGeraion fro suet b. Revocable transfer where the power of revocation was not exercised c. Proceeds of life insurance where the beneficiary designated ig the estate and the designation is irrevocable 4. Proceeds of life insurance where the beneficiary designated is the mother and the designation is irrevocable. 55. Proceeds of life insurance where the beneficiary of the decedent is not his estate, executor or administrator is a. Part of gross income if the beneficiary is revocable . Part of gross income regardless of whether the beneficiary is revocable or irrevocable c. Not part of gross estate if the beneficiary is irrevocable d. Part of gross estate regardless of whether the beneficiary is revocable or irrevocable 58, Proceeds of life insurance to the extent of the amount receivable by the estate of the deceased, his executor or administrator under policies taken out by the decedent upon his own life shall be I, Part of the gross estate irrespective of whether the insured retained the power of revocation ll. Not part of the gross estate ifthe beneficiary is irrevocable IIL Part ofthe gross income ifthe designation of the beneficiary is revocable IV. Not part of the gross income imespective of whether the insured retained the power of revocation a. land Il c. land IV b. land Ill d. only! 57. Ms. Balo, spouse of the decedent who died in a bus accident (Harurot Transport), received 2,500,000 broken down as follows: 900,000 From Habambuhay Life Insurance Company. A life insurance taken out by the decedent designating his wife as revocable beneficiary. 1,200,000 From Walang Hangganan Life Insurance Company taken out by the decedent designating his wife as _imevocable beneficiary. 84Chapter 4 P400,000 From Harurot Transport Company (owner of the bus involved in the accident) where settlement was made outside court vercises — Estate Tae ¢ ¢ proceedings. The gross estate of the decedent shall include a. 900,000 . P2,100,000 b. P1,200,000 d. 2,500,000 Claims against insolvent persons 58. Which of the following is not true regarding a claim against insolvent persons? a. The decedent's claim is deductible in full because the debtor's liabilities exceed his remaining assets. b. The decedent's claim must be included in full in the gross estate. ¢. The decedent's claim which cannot be collected is deductible according to the ratio of the debtor's assets to his liabilities. d. Claim against insolvent person is a claim against person whose assets are not sufficient to pay his liabilities. 59. Which is correct? |. In a claim against insolvent person, the insolvency of the debtor must be proven and not merely alleged. |, It.could be that the amount to be included as part of the gross estate in a claim against insolvent person is less than the full amount owed a. | only c. Both | and II b. Honly 4. Neither | nor i 60. Which of the following is included in the income of the estate of a decedent? ‘a. Income received by the estate of a deceased person during the period of administration or settlement of the estate, b. Excess of selling price over the appraised value placed upon the property at the time of death, where the property was sold afier the settlement of the estate. cc. Appreciation in the value of property passed to the executor or administrator upon death of decedent. d. Delivery of property in kind to legatee or devise. 85Chapter f 61. One of the items in the gross estate of a decedent is a claim against an insolvent person amounting to P500,000. The insolvent debtor can still pay P100,000 out of the P500,000. vercises — Estate Tas How much will be included in and deducted from the gross estate? Gross estate Deduction a 100,000 100,000 b, 500,000 100,000 ©. 500,000 400,000 d. None None EXCLUSIONS FROM THE GROSS ESTATE 62. The following are transactions exempt from transfer tax except: ‘a, Transmission from the first heir or donee in favor of another beneficiary in accordance with the desire of the predecessor b. transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to the fideicommissary. c. The merger of usufruct in the owner of the naked title. d. All bequest, devices, legacies, or transfers to social welfare, cultural and charitable institutions 63. Which of the following exempt transmissions will stil require inclusion of the property in the gross estate? a. Merger of the usufruct in the owner the naked title; b. Legacy to a charitable institutions whose administrative ‘expenses did not exceed 30% of the legacy; Transfer from a first heir to a second heir designated by the decedent; d. Death benefits under the GSIS and GSIS. c 64. One of the following is included in the gross estate of a nonresident alien decedent: a. Wholly uncollectible claims against a debtor who absconded, debtor resides outside the Philippines. b. Partially collectible claims against an insolvent person who resides in Manila, the country of the nonresident alien decedent does not impose transfer taxes of any kind, Proceeds of life insurance of the decedent where the decedent's estate was designated as irrevocable beneficiary, the policy was procured in Manila d. Personal property situated in the Philippines donated by the decedent before he died to a son on account of the son's marriage. 86Chapter Exercises ~ Estule Tie taper Es ¢ 65. Which of the following is a transfer in contemplation of death? _ eae Nha has been fighting for his life since he was liagnosed to have a terminal illness. Accepting his fate, he ' co the assistance of Atty. Lho Yer, and made his will . Mr. Matibay celebrated his 101" birthday. Feeling that death 's not far, he transferred all his properties fo Pedro and Juan ©. Both “a” and “b” d. Neither “a” nor "b” 68. Which of the followin; 19 iS a transfer under special power of appointment? Eee o |. Earl transfers his property in trust for his son, Gabry and then in ‘trust for anybody whom Gabry may, by will, appoint or designate. Nl. Mr. Byahero frequently travels due to the nature of his Profession. He thinks that he is not spared from meeting accidents considering the rampant occurrence of accidents these days. He decided to execute his last will and testament appointing his properties to his children, I Georgia designated his special friend, E. Garcia as beneficiary of an insurance which he took upon his own life. a. lonly c. Allof the above b. Honly d. None of the above Administrative Provisions 67. Under which of the following situations an estate tax return is required to be filed under the TRAIN Law? ‘a. Transfers which are subject to estate tax. b. The estate consists of registered or registrable properties for which a clearance from the BIR is required as a condition precedent for the transfer of ownership. cc. Both “a” and “b” d. Neither “a” nor “ 68. Who shall file the estate tax return? ‘a. Executor, or administrator, or any of the legal heirs b. Creditors of the decedent c. Personal secretary of the decedent d. Debtors of the decedent 87Chapter Exercises ~ Estate Teg Tax Code shall b 69, Statement 1: The estate tax imposed under the le paid by the executor or administrator before the delivery of the distributive share in the inheritance to any heir or beneficiary. Statement 2: The executor or administrator of an estate has the primary obligation to pay the estate tax but the heir or beneficiary has subsidiary liability for paying that portion of the estate corresponding to his distributive share in the value of the total net estate. a. Statements 1 and 2 are false b. Statement 1 is true but statement 2 is false ¢. Statement 1 is false but statement 2 is true d. Statements 1 and 2 are true 70. Statement 1: The Commissioner or any of the Revenue Officer authorized by him pursuant to the tax code shall have the authority to grant, in meritorious cases, a reasonable extension not exceeding thirty (30) days for filing the return. Statement 2: The application for the extension of time to file the estate tax return must be filed with the RDO where the estate is required to secure its TIN and file tax return of the estate. Statements 1 and 2 are false Statement 1 is true but statement 2 is false Statement 1 is false but statement 2 is true Statements 1 and 2 are true gece 88