Death, Real Estate, and Estate Tax

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The topic of death is usually taboo on ordinary days except the start of November when we remember our dead on All Saints’ and All Souls’ Day, or when we are jolted by the death of a close friend or relative. We must accept, though, that we will all die – it is just a matter of time.

When a person dies, his or her loved ones are usually overwhelmed with emotions and are usually unable to function properly immediately after the death. I know this from experience. But, there are certain things that need to be done and someone’s got to do them. Someone has to arrange for the embalming, the wake, the casket, the interment or cremation, the burial plot (incidentally, there are a lot of foreclosed memorial lots) and the gravestone, among others.

And of course, someone has to take care of the estate tax.Estate tax, the death tax

Before I start with my discussion, I urge you to read the following first, for better understanding of the subject:

  1. Overview on Estate Tax
  2. Sections 84 to 97 of the 1997 Philippine Tax Code
  3. Revenue Regulations 2-03 (Estate Tax and Donor’s Tax Regulations)
  4. Estate Tax Return (BIR Form No. 1801, front and back pages)

We will use the terms “decedent” or “deceased person” to refer to the person who died.

What is Estate Tax?

Estate tax is imposed on the transfer of the net estate, which is the difference between the gross estate (as defined under Section 85 of the Tax Code) and allowable deductions (under Section 86) of the decedent. Estate tax rates are graduated and depend on the net estate amount.

Net Estate = Gross Estate – Deductions

Real property may not be transferred from the decedent to his or her heirs without the filing of the estate tax return and payment of the estate tax. Non-payment of estate tax is common and this brings about many problems when the properties need to be transferred to the names of buyers.

What to do when someone has died

Estate tax-wise, these are the things that need to be done:

  1. File a Notice of Death with the Bureau of Internal Revenue within two months after the date of death. This is applicable when the gross value of the estate exceeds P20,000.00. This should be filed by the executor or administrator of the estate, or any of the legal heirs. It shall be filed with the RDO where the decedent was domiciled at the time of his death. There is no specific format.
  2. Get a Tax Identification Number (TIN) for the Estate of the deceased person by using BIR Form No. 1901.  Use this TIN when filing the Estate Tax Return (BIR Form No. 1801).
  3. Prepare the list of assets and liabilities of the decedent. Get the fair market values of the properties at the time of death.
  4. Prepare the supporting documents for the assets and liabilities, as well as the deductions you are going to take. You will need these for the estate tax computation and as attachments to the Estate Tax Return.
    1. Certified true copy of the Death Certificate
    2. Notice of Death duly received by the BIR, if gross estate exceeds P20,000 for deaths occurring on or after Jan. 1, 1998; or if the gross estate exceeds P3,000 for deaths occurring prior to January 1, 1998
    3. Any of the following:
      • Deed of Extra-Judicial Settlement of the Estate, if the estate is settled extra judicially (sample forms may be found here and here).
      • Court Orders/Decision, if the estate is settled judicially;
      • Affidavit of Self-Adjudication (sample here) and Sworn Declaration of all properties of the Estate
      • A certified true copy of the schedule of partition of the estate and the order of the court approving the same, if applicable.
    4. Certified true copy(ies) of the Transfer/Original/Condominium Certificate of Title(s) of real property(ies) (front and back pages), if applicable
    5. Certified true copy of the latest Tax Declaration of real properties at the time of death, if applicable
    6. “Certificate of No Improvement” issued by the Assessor’s Office declared properties have no declared improvement or Sworn Declaration/Affidavit of No Improvement by at least one (1) of the transferees
    7. Certificate of Deposit/Investment/Indebtedness owned by the decedent and the surviving spouse, if applicable
    8. Photocopy of Certificate of Registration of vehicles and other proofs showing the correct value of the same, if applicable
    9. Photo copy of certificate of stocks, if applicable
    10. Proof of valuation of shares of stocks at the time of death, if applicable
      • For listed stocks – newspaper clippings or certification from the Stock Exchange
      • For unlisted stocks – latest audited Financial Statement of issuing corporation with computation of book value per share
    11. Proof of valuation of other types of personal property, if applicable
    12. Proof of claimed tax credit, if applicable
    13. CPA Statement on the itemized assets of the decedent, itemized deductions from gross estate and the amount due if the gross value of the estate exceeds two million pesos, if applicable
    14. Certification of Barangay Captain for claimed Family Home
    15. Duly notarized Promissory Note for “Claims against the Estate” arising from Contract of Loan
    16. Accounting of the proceeds of loan contracted within three (3) years prior to death of the decedent
    17. Proof of the claimed “Property Previously Taxed”
    18. Proof of claimed “Transfer for Public Use”
    19. Copy of Tax Debit Memo used as payment, if applicable
  5. Compute the net estate and estate tax.
  6. File the Estate Tax Return and pay the estate taxes.
  7. Follow the procedure for transferring real properties to the name of the heirs (this will be discussed in a separate post).
  8. Follow the procedure for cancellation of the TIN of the decedent as discussed in Section 12 of Revenue Regulations No. 7-2012. Use BIR Form No. 1905 for the cancellation of TIN.

Gross Estate

Gross estate is the value at the time of death of all property, real or personal, tangible or intangible, wherever situated.  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 value of the properties shall be based on their fair market value (FMV) as of the time of death.

If the property is a real property, the FMV shall be the higher between the BIR zonal valuation and FMV per tax declaration (I paraphrased this).

Please also note that also included in the computation of the gross estate are interest or share in a property, transfers in contemplation of death, and revocable transfers.

The proceeds of life insurance are included in the gross estate unless the beneficiary is designated as irrevocable).

Deductions from gross estate

  1. Expenses, Losses, Indebtedness, and Taxes (ELIT)

a. Funeral expenses – Lowest among:

    • Actual funeral expenses;
    • 5% of the gross estate; and
    • P200,000.00.

b. Judicial expenses of the testamentary and intestate proceedings

c. Claims against the estate

    • At the time the indebtedness was incurred, the instrument was duly notarized; and
    • If the loan was contracted within three (3) years before the death of the decedent, the administrator or executor shall submit a statement showing the disposition of the proceeds of the loan

d. Claims of the deceased against insolvent persons

e. Unpaid mortgages, etc.

  1. Property Previously Taxed (Vanishing deduction)
  2. Transfers for Public Use
    • The amount of all bequests, legacies, devises or transfers to or for the use of the Government of the Republic of the Philippines, or any political subdivision thereof, for exclusively public purposes.
  1. Family Home
    • Fair Market Value of the Family Home or P1 million, whichever is lower.
    • As a condition for the exemption or deduction, said family home must have been the decedent’s family home as certified by the barangay captain of the locality.
  1. Standard Deduction – P1 million (no substantiation needed)
  1. Medical Expenses
    • Medical expenses incurred by the decedent within one (1) year prior to his death which shall be duly substantiated with receipts
    • Maximum: P500,000.00
  1. Amount received by heirs under RA 4917 (retirement benefits of employees of private firms)
  2. Share in the Conjugal Property

The net share of the surviving spouse in the conjugal partnership property as diminished by the obligations properly chargeable to such property

What are the Estate Tax rates?

The estate tax rates depend on the date of death. For those who died on January 1, 1998 and onwards, the following are the estate tax rates based on the net estate:

OverBut not overThe tax shall bePlusOf the excess over
0200,000Exempt
200,000500,00005%200,000
500,0002,000,00015,0008%500,000
2,000,0005,000,000135,00011%2,000,000
5,000,00010,000,000465,00015%5,000,000
10,000,000And Over1,215,00020%10,000,000

 

ADVERTISEMENT

If the decedent died between July 28, 1992 to December 31, 1997, the following are the applicable estate tax rates based on the net estate amount:

Over

But not Over

The Tax
Shall be

Plus

Of the Excess Over

P 200,00.00

0%

P200,000.00

500,000.00

5%

P 200,000.00

500,000.00

2,000,000.00

P 15,000.00

8%

500,000.00

2,000,000.00

5,000,000.00

135,000.00

12%

2,000,000.00

5,000,000.00

10,000,000.00

495,000.00

21%

5,000,000.00

10,000,000.00

1,545,000.00

35%

10,000,000.00

If the decedent died between January 1, 1973 and July 27, 1992, the following are the applicable estate tax rates based on the net estate amount:

Over

But not Over

The Tax
Shall be

Plus

Of the Excess Over

P 10,00.00

Exempt

P 10,000.00

50,000.00

3%

P 10,000.00

50,000.00

75,000.00

P 1,200.00

4%

50,000.00

750,000.00

100,000.00

2,200.00

5%

75,000.00

100,000.00

150,000.00

3,450.00

10%

100,000.00

150,000.00

200,000.00

8,450.00

15%

150,000.00

200,000.00

300,000.00

15,950.00

20%

200,000.00

300,000.00

400,000.00

35,950.00

25%

300,000.00

400,000.00

500,000.00

60,950.00

30%

400,000.00

500,000.00

625,000.00

90,950.00

35%

500,000.00

625,000.00

750,000.00

134,700.00

40%

625,000.00

750,000.00

875,000.00

184,700.00

45%

750,000.00

875,000.00

1,000,000.00

240,950.00

50%

875,000.00

1,000,000.00

2,000,000.00

303,450.00

53%

1,000,000.00

2,000,000.00

3,000,000.00

833,450.00

56%

2,000,000.00

3,000,000.00

1,393,450.00

60%

3,000,000.00

 

If the decedent died between September 15, 1950 to December 31, 1972, the following are the applicable estate tax rates based on the net estate amount:

From

To

ESTATE

INHERITANCE

5,000.00

0

5,000.00

Exempt

Exempt

7,000.00

5,000.00

12,000.00

1.0%

2&

18,000.00

12,000.00

30,000.00

2.0%

4%

20,000.00

30,000.00

50,000.00

2.5%

6%

30,000.00

50,000.00

70,000.00

3.0%

8%

Sample computations

Please refer to BIR Revenue Regulations No. 2-2003 for sample computations.

When is an Estate Tax return required to be filed?

  • When the gross value of the estate exceeds P200,000 (though exempt from tax); or
  • Regardless of the gross value of the estate, where the said estate consists of registered or registrable property such as real property, motor vehicle, shares of stock, or other similar property for which a clearance from the BIR is required as a condition precedent for the transfer or ownership thereof in the name of the transferee

When to file and pay

  • Within six (6) months from the decedent’s death;
  • Unless an extension of time is requested in cases where the payment of the tax will result in undue hardship on the heirs
    • Not to exceed 5 years  in case the estate is settled through the courts;
    • Not to exceed 2 years in case the estate is settled extrajudicially.

Penalties for late payment

The penalties shall include 25% surcharge and 20% interest per year (Under Secs. 248 and 249, respectively). If fraud is involved, the surcharge shall be 50%. You may also pay compromise penalties in lieu of imprisonment (click on the link for the schedule of compromise penalties).

BIR Form to be used

  • —BIR Form No. 1801 (Estate Tax Return)

Where to file

  • The Authorized Agent Bank (AAB), Revenue District Officer (RDO) or duly authorized Treasurer of the city or municipality where the decedent was domiciled at the time of his death; or
  • If there be no legal residence in the Philippines, with the Office of the Commissioner.

How to Get A BIR Certificate Authorizing Registration (CAR)

The Registry of Deeds will not allow you to transfer the title of real properties of a deceased person if there is no BIR CAR. Please make sure that you have the documents as enumerated in the Checklist of Documentary Requirements (CDR) for Estate Tax, which can be found in Annex A-6 and A-6.1 of Revenue Memorandum Order (RMO) No. 15-03 (see pages 7 to 9).

To help you determine the computation for the estate tax due, you may refer to the ONETT (One-Time Transaction) Computation Sheet, in Annex B-3 (pages 16 and 17) also of RMO No. 15-03. Please also check the sample computations in BIR RR No. 2-2003 and BIR Form No. 1801.

~~~

Thank you for reading and I hope this helps you. Should you have questions, please read the estate tax-related documents I mentioned in my post, just follow the links provided. Estate tax planning and donor’s tax will be tackled in a separate post.

~~~

To our success and financial freedom!

Cherry Vi M. Saldua-Castillo

Real Estate Broker, Lawyer, and CPA
PRC Real Estate Broker License No. 3187
PRC CPA License No. 0102054
Roll of Attorneys No. 55239

Text by Jay Castillo and Cherry Castillo. Copyright © 2012 All rights reserved.

Full disclosure: Nothing to disclose.

Image courtesy of: vichie81 / FreeDigitalPhotos

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About Cherry Castillo

is a Real Estate Broker (PRC Real Estate Broker License No. 3187), Lawyer (Roll of Attorneys No. 55239), and CPA (PRC CPA License No. 0102054). She is the 2013 Internal Education Head of REBAP-LMP

  • kate

    good day please let us know the best possible way to settle this.
    FMV of land based on tax dec. 78,000, selling price 80,000, it was sold last year of Feb. not knowing that we need to pay BIR taxes, when we go to BIR they computed our CGT and DST based on the BIR zonal value of 1500/sqm. incl. charges the total amt of taxes is more than 110,000 pesos. do you think it’s fair that we have to pay taxes more than the amt. of land ssold? please help and advice what to do. thank u and Godbless

  • judgee

    asking for a sample computation of estate tax of both single and married decedent

  • Karla

    Hi Ms. Cherry,

    I have 3 other siblings and our father died when I was 5.. during that time my mom paid off our mortgage and the title was transferred to her name. However, she passed away in 2002 and we only learned about estate taxes etc recently.

    What is the best step to take so that the title can be transferred to my siblings and I? I’m a bit worried because we may have to pay penalties since it has been more than 10 years.

  • Anabelle

    Dear Atty. Cherry,

    I found this site very informative and useful. I have learned about real property taxes and estate taxes.
    I have a few questions thou and I need your advice. My father sold a part his property but it wasn’t transferred yet to the buyer.
    My sister is the one paying for its tax every year. Is it possible for us to buy back the proprty even if the buyer refused to sell it back. Do we need to seek legal aid to help us settle this issue. Does my sister has a right to contest what my father did as she’s the one paying taxes fof the property?
    Looking forward for your much appreciated advice.
    Anabelle

  • Joan Ramirez

    May I seek advise po. We bought a property kasi name to the 3 of us (My aunt, Me & my wife) then while processing it, My aunt died ng wala pa yung title, but we were able to pay taxes/fees sa BIR. When we go to the city hall, we ask on how to make it na huwag na lumabas ang name ng aunt namin, they told us to do an extra-judicial with Sale signed by the siblings (as her heirs) plus other requirements, so we did it. pero pagbalik po doon, iba na naman ang sinasabi nila. Disregard po nila ang extra judicial na pina notaryo namin, dahil dapat daw naka name muna sa aming tatlo and TITLE bago nag extra-judicial (but that was what they told us). Bakit iba-iba po ang statement nila, dami na naming nasasayang na pera dahil iba-iba ang instructions nila.

  • Kim

    If the decedent died in 1987, are the applicable compromise penalties also those prevailing at the time of death? Or will it be the most recent?

  • Patrick Ramon N. de Castro

    Goodmorning Sirs/ Ma’am,
    I just have 2 simple but important questions that I really need answers for and they are the following:

    1. When processing the initial inheritance/estate/real estate taxes, upon application for this with the B. I. R., is the newspaper publication of the inheritance for a sole heir a requirement before payment of the taxes can be made or required at all at the. B. I. R.?

    2. How long does it usually or approximately take for the B. I. R. to process the computation and approval for payment of such taxes and the certificate or reciept released thereafter for example, the estate inherited by a “sole heir”, if all requirements are complete for simply altogether the following estate:

    A. Lots
    B. A house and the Lot where it stands
    C. Certificates of stocks for a company such as San Miguel Corporation.

    As I understand the. Register of Deeds and a surety bonding company to be the next institutions where the other processes and requirements would be finalized and the new titles and certificates bearing the heir’s name be released.

    Hoping for your prompt reply. God Bless.

    .

  • Brian

    Question lang ma’am

    My mom died last december 2008. hindi ko pa napapa transfer yung land title sa name ko hanggang ngayon due to financial reasons narin. magkano kaya magiging penalty nito? its a house and lot na maliit lang naman Lot is around 80sqm. house is probably 35sqm single. I do not know kung magkano compute ng penalty nito..

    • Joy Carey

      Hi Atty Cherry,
      Thank for your very informative article. Would you be able to help with my query please – my father died here in Australia in 2008. He had dual citizenship (Australia allows this). We have a family home in the Philippines with my brother living in it at the time of my father’s death. For purposes of calculating the estate tax deduction, can my mother claim it as the family home please? Will my mother be penalized for not filing for the estate tax return since 2008 please? How will the penalty be calculated please and what could happen if she is unable to pay please? She is only on a pension and for financial reasons she wants to sell the family home. I would really appreciate hearing from you soon.
      Regards,
      Joy & Denis Carey

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  • Carolin R. Domingo-Joaquin

    Hello Atty. Cherry,
    Is payment of estate tax allowed even without partition of the estate first among the heirs? Moreover, is filing of Affidavit of Self-Adjudication and Sworn Declaration of all properties of the Estate allowed and applicable even if there are 4 heirs and not just one? Thank you.

    • http://www.foreclosurephilippines.com Cherry Castillo

      Hi Ma’am,

      I believe this is allowed. In the meantime, the heirs will be co-owners of the property. I think that the Affidavit of Self-Adjudication applies when there is only one heir. I have not yet seen an actual Sworn declaration of all properties of the estate but I think this may be executed by the administrator or executor. Kindly confirm with your lawyer.

      Best regards,
      Cherry

  • clearmind

    Dear Atty. Cherry,

    Its complicated and don’t know where claims of Bank Deposits fall under. Time is also of the essence – we just found out after 10 years there is money in the Bank. Is there a way I can inquire by calling you? I am from the province and don’t have a land line. But I can call you by Cell Globe#.
    Thank you and GOD BLESS you.

    • http://www.foreclosurephilippines.com Cherry Castillo

      Dear clearmind,

      I hope everything works out. Let me know how it goes.

      Best regards,
      Cherry

      • clearmind

        Dear Atty Cherry,

        We had a bit of a headway on my mother’s (84yrs old) claim with the Bank. We provided them with all the requirements. But we hit a snag when the Legal Dept of the Bank questioned that the documents we presented did not a have a ” Junior ” appended ( am not sure if its the right term) in my uncle’s name. The Bank said it will be to our advantage if we can locate the certificate and passbook of my uncle who died 10 years ago, single and no child and whom we have not seen for the last 30yrs for the plain reason my uncle prefers to live alone. His ” Partner ” just notified us when he died. Tough luck!

        I lost the Cell# of Sir Jay and I think its not posted in his profile anymore.

        Any suggestion is much appreciated. Thanks (PS. we can’t afford a lawyer to represent us with the Bank)

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  • Greg Balberan

    Hi Cherry,
    My uncle, his wife, and 3 kids (all over 21 years old) are in the U.S. He bought a vacation house here (Cebu, Phils.) sometime in 2004. My uncle died in June this year (2012) and my aunt intends to sell the house as soon as possible.
    Q1. Since a Notice of Death wasn’t filed yet w/ the BIR, how much is the penalty if filed by Jan, 2013?
    Q2. Can my aunt (the surviving spouse) sell the property without the need for extra-judicial settlement involving her 3 children?
    Q3. Can this property qualify as “family dwelling” to avail of the deductions/exemptions in case of extra-judicial settlement?
    Thanks and Happy Holidays!

    • http://www.foreclosurephilippines.com Cherry Castillo

      Dear Sir greg,

      Sorry i missed this comment. 1. The penalty for the notice of death should be minimal, if any. 2. The surviving spouse and all her children can sell the property if all of them sign the documents and the estate tax has been paid. 3. Since they are all based in the US, don’t think the house can be considered as their family dwelling, also I understand it is only their vacation house. Hope this helps.

      Best regards,
      Cherry

  • Erwin

    Hi Atty Cherry,

    Just want to ask on how to treat the deductions which was incurred abroad. What I’m thinking is that it is still deductible as long as you have the necessary documents to prove it. We need to convert it in Php at the time of death right?

    Thanks and More Blessings!!!

    • http://www.foreclosurephilippines.com Cherry Castillo

      Hello Mr. Erwin,

      Yes, but convert at the time it was incurred (which is of course prior to death).

      Best regards,
      Cherry

  • http://www.lifeinsuranceph.com Willeus Acuna

    Cherry, thank you for this very informative article. Extending this topic a bit, you might want to write additional articles that deals with estates that have remained unpaid for so long:

    article #1. what if the property belongs to a grandfather who has passed away years back with no estate taxes paid so far and the property hasn’t been divided yet.

    article #2. what if proof of said property in #1 is the paid tax declarations (no torrens title yet), how is the estate tax handled?.

    Perhaps you can expound on that?

    Also, since we are talking about estate taxes, one specific action property owners can take to alleviate the pain of having their heirs pay estate taxes is to get a basic life insurance just for the purpose of covering estate taxes. If you have property worth P10M, assuming no deductions, the estate tax would be P1.215M. A suitable life insurance policy will give cash to the heirs that can then be used to pay off that estate tax. For more info on how this works, just give me a call at 0917-572-0001.

    • http://www.foreclosurephilippines.com Cherry Castillo

      Dear Sir,

      Thank you for your suggestions. My husband also told me to include penalties and examples so I will probably make a separate post since this post is too long already.

      Re: life insurance, I totally agree. In fact, I co-wrote an article on insurance with former BIR Commissioner Mr. Joel Tan-Torres who was a partner in SGV at that time – we were both part of the Family Wealth Planning Group. Here is the link to our article entitled, “To be sure, insure” published on Oct. 22, 2004 by the Philippine Daily Inquirer: http://www.accessmylibrary.com/coms2/summary_0286-14088959_ITM

      Best regards,

      Cherry

  • raul

    useful

    • http://www.foreclosurephilippines.com Cherry Castillo

      Thank you Raul. ~ Cherry

  • EDGARDO LEE

    thank you for a very clear discussion regarding estate tax procedures. I hope that you will include in your next discussion regarding, deaths prior to 1998 or those covered by inheritance tax. including the interpretation of the tax table for estate in a particular years.

    More Power

    • http://www.foreclosurephilippines.com Cherry Castillo

      Dear Sir Edgardo,

      You’re welcome Sir. The data can be found in the link I provided. Kindly give me some time too to update my post.

      Best regards,

      Cherry