By Arlyn Tan
Taxes are always incurred during accumulation, disposal and distribution of wealth. Even during death, the government collects its share before the assets are divided among the heirs. According to Benjamin Franklin, nothing is certain except death and taxes. When a person dies, the tax that is due to the government is called estate tax. The estate is defined as the total money, property owned by the person at death.
Whether the tax is small or big, the amount becomes a burden to the family members when its cash levels are low. Thus, financial advisors have always emphasized the importance of including tax as part of the expense in distributing the estate. The estate tax can be sourced from your personal savings, investments, or from life insurance proceeds. However, in some instances, the heirs are the ones who need to prepare for the tax expense. Communicating with the potential heirs on their possible responsibility to raise the 6% estate tax before they can acquire the asset is also imperative to maintain harmonious relationships, smooth transitions, and eliminate economic losses through additional interest expenses.
Knowledge of the law will help you manage your wealth while you are still alive. For in-depth understanding of estate tax law and a discussion of your personal case, consult an expert tax lawyer or accountant for advice.
Here is a quick overview of the estate tax highlights for the Citizen or Resident of the Philippines.
Tax Rate
Allowable Deductions
Payment of Tax
Requirements in Filing the Estate Tax
1. Tax Rate
The applicable rate will be based on the prevailing law at the time of the decedent’s death. The BIR website lists the estate tax percentages in tabular form in the different timelines.
In 2018, the Philippine Tax Code imposes an estate tax at the rate of six percent (6%) based on the net value of the estate whether the decedent (person who died) is a resident or a non-resident of the Philippines.
RA No. 8424 is applicable from January 1 1998 to December 31, 2017
RA No. 7499 is applicable from July 28, 1992 to December 31, 1997
Presidential Decree No,69 is applicable from January 1,1973 to July 27, 1992
RA 579 is applicable from September 15, 1950 to December 31, 1972.
Commonwealth Act No. 466 is applicable from July 1, 1939 to September 14,1950.
2. Allowable Deductions based on the 2018 Philippine Tax Code
Standard deduction of P5,000,000.00
Claims against the estate
Claims of the deceased against an insolvent person
Unpaid mortgages, taxes and casualty losses
Properties that are previously taxed
Transfers for Public Use
Family Home which is equivalent to its current fair market value. Any excess of 10M is subject to estate tax.
Amounts received by heirs under the Republic Act No. 4917. This includes the amount that is received by the decedent’s employer.
Net share of the surviving spouse in the conjugal partnership or community property.
2. Payment of Tax
The executor, administrator or any of the heirs can file for the estate tax.
Payments can be filed with authorized agent banks of the RDO having jurisdiction over the place of domicile of the decedent at the time of death.
The estate tax needs to be filed within one year from the decedent’s death
An extension of 30 days can be granted by the Commissioner if the payment would impose undue hardship upon the heirs.
An extension of 4 years is granted if the estate is settled through courts.
An extension of 2 years if granted if the estate is settled extrajudicially.
3. Filing the Estate Tax Returns: Guidelines and Instructions for BIR Form 1801 Estate Tax Return
Mandatory Requirements
1. Certified true Copy of the Death Certificate
2. TIN of the Decedent and Heirs
3. CPA Statement of on the Itemized Asset of the Decedent, itemized deductions
4. Certification of the Barangay Captain for the claimed Family Home.
5. Original Copy of the Following a) Affidavit of Self Adjudication b) Deed of Extrajudicial Settlement of Estate c) Court Order if settled judicially d) Sworn Declaration of all properties of the Estate
6. Proof of Payment, No Payment Return, Copy of the Acknowledgement Receipt of return filed through eBIR forms.
7. Duly notarized promissory note for claims against the estate arising from the Contract of the Loan.
For Real Properties
The valuation of the real property is based on the fair market value determined by the Commissioner of the value shown in the schedule of values fixed by the provincial and city assessors.
1. Certified True Copy of the Transfer / Original / Condominium Certificates of Title
2. Certified True Copy of the Tax Declaration of Real Properties at the time of Death
3. Certificate of No Improvement
4. Aggregate Property Land Holdings
For Personal Properties
1. Certificate of Stocks
2. Proof of Valuation of shares of stock
a) Shares of Stock that are not Listed :
b) Shares of Stock that are Listed
c) Club Shares
3. Certificate of Registration of Vehicles and the Correct Value
4. Original Copy of Certificate of Deposits, Investments owned by the decedent and surviving spouse
A sound financial plan would include scenario planning on asset management and distribution while living and upon death of a person. Estate Planning is the process where one makes the necessary arrangements so that the right people will receive the assets based on a person’s wishes.
More than the tax consideration, an estate plan eliminates family disputes and protects the beneficiaries. Do not wait for the court or the government to make the decisions on how assets should be divided. It is good enough that the state already had collected its share for the transfers and transactions. There is no better time than to plan now when your mind is still clear, and you are able to understand the implication of estate taxes on your wealth.
Arlyn Tan is a Strategic Wealth Consultant. She helps individuals and organizations on how to maximize the value of their money through risk, health & wealth management. Her mission lies in making sure that clients achieve 3 things. First, they reach their milestones on time with sufficient resources. Second, they protect them from the impact of economic losses secondary to unexpected events. The third and most important is that they enjoy meaningful and balanced lives.
LinkedIn/Twitter: Arlyn Tan
FB/IG: @pinnaclefinlitcoachph
