Estate Taxation (Problems and Solutions) PDF

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Here some frequently asked questions about Estate Taxation under TRAIN Law....

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Villanueva, Rich Ann BSA 3-1

MODULE 2 ESTATE TAXATION Lesson 1 1) What are the allowable deductions for Estate Tax Purposes? Enumerate the requisites for its deductibility. (For resident and non-resident alien)  Allowed Deductions for Estate Tax Purposes includes; Ordinary deductions (expenses, losses, indebtedness, taxes, property transfer for public purposes, vanishing deductions, amount received by heirs from decedent’s employer), Special deductions (medical expenses, family home, standard deduction) and; Share of spouse in the net conjugal estate.  For Resident Citizen, Non-resident Citizen and Resident Alien, allowed deductions from gross estate shall be related to properties both in Philippines and Abroad . While for Non-resident alien, the allowed deductions, except special deductions, from gross estate are properties in the Philippines only. 2) What will be used as basis in the valuation of property? (real, personal and stocks)  The properties comprising the gross estate shall be valued based on their fair market value as of the time of decedent’s death. If the property is a real property, the appraised value thereof as of the time of death shall be whichever is the higher of the fair market value as determined by the Commissioner, or the fair market value as shown in the schedule of values fixed by the provincial and city assessors. In the case of shares of stocks, the fair market value shall depend on whether the shares are listed or unlisted in the stock exchanges. 3) What are excluded from gross estate?  There are three groups of properties or property transfer which are expressly exclude/exempted from the declaration of the decedent’s gross estate: I. Exemptions from Estate Tax under NIRC 1) Merger of usufruct in the owner of the naked title 2) Transmission or delivery of inheritance or legacy by fiduciary heir or legatee to the fidei-commissary heir 3) All bequest, devises, legacies or property transfer to social welfare, cultural, charitable institutions, no part of net income of which insures to the benefit of any individual provided that no

II.

more than 30% of said property shall be used by such institutions for administrative purposes. 4) The transmission from first heir, legatee or done in favor of another beneficiary, in accordance with the desire / will of the predecessor. Exemptions from Estate tax Under Special Laws 1) GSIS proceeds/ benefits by reason of deaths 2) Accruals from SSS by reason of death 3) Benefits from US veterans Administration (RA 360) 4) War damage payments 5) Retirement benefits from RA 4917 6) Proceeds of life insurance where the third party beneficiary is irrevocably appointed 7) Proceeds of life insurance under a group insurance taken by employer (not taken out upon his life).

III.

Exclusions from Gross Estate under NIRC 1) Capital asset or exclusive asset of surviving spouse 2) Properties abroad in case of non-resident alien decedent. 3) Intangible personal property in the Philippines in case of nonresident alien decedent with reciprocity clause.

4) When and where should the executor file and pay the Estate tax return? Can the heirs withdraw the cash from bank by a decedent even without filing the estate tax return to BIR? Explain.  The Estate Tax Return (BIR Form 1801) shall be filed within one (1) year from the decedent's death. The return shall be filed with any Authorized Agent Bank (AAB) of the Revenue District Office (RDO) having jurisdiction over the place of domicile of the decedent at the time of his death. If the decedent has no legal residence in the Philippines, the return shall be filed with the Office of the Commissioner (RDO No. 39, South Quezon City).  5) Enumerate and explain the amendments in the Tax Code related to Estate taxation by TRAIN law or RA 10963? 

Lesson 2 The following data are available for a decedent in 2019: Conjugal estate- Phil 1,500,000 Exclusive estate-Phil 1,900,000 Spouse’s exclusive property 1,000,000 Conjugal ordinary deductions-Phil 700,000 Decedent’s ordinary deductions-Phil 300,000

Compute the estate tax due of the decedent in 2019. Conjugal estate- Phil

1 500 000

Exclusive estate- Phil

1 900 000

Gross Estate

3,400,000

Less: Conjugal Ordinary deductions

700 000

Decedent’s Ordinary deductions

300 000

Share of Spouse in Net Conjugal Estate

*400 000

Total Allowed Deductions

1,400,000

Taxable Net Estate

2,000,000

Estate Tax Due

120,000

**Share of Spouse in Net Conjugal Estate Computation Conjugal Estate-Phil Less: Conjugal Ordinary Deduction-Phil Net Conjugal Estate - Phil Equity of Spouse Share of Spouse in Net Conjugal Estate- Phil

1 500 000 700 000 800 000 50% 400,000

Lesson 3 In 2017, A, resident citizen, has the following taxable net estate before standard deduction (SD): Year 2019 Phil Canada USA Net Estate 6,000,000 3,000,000 1,000,000 Estate Tax Paid 12,000 82,000 35,000

Compute the Estate tax payable of A for 2017. Solutions: The estate tax payable of A is as follows: Taxable Net Estate – Phil before SD

6 000 000

Taxable Net Estate – Canada before SD

3 000 000

Taxable Net Estate – USA before SD

1 000 000

Taxable Net Estate- World

10 000 000

Less: Standard Deduction

1 000 000

Taxable Net Estate

9 000 000

Estate Tax Due (old tax code)

1 065 000

Less: Estate Tax Credit Philippine Tax Paid Foreign Tax Credit Estate Tax Payable

12 000 *117 000

**Foreign Tax Credit LIMIT A CANADA Limit 3M/10M*1 065 000 = 319 500 USA Limit 1M/10M* 1 065 000 = 106 500

936,000

Actual vs

Lower 82 000

Actual vs

Lower 35 000

LIMIT A

LIMIT B CANADA AND USA Limit 4M/10M*1 065 000 = 426 000 LIMIT B

82 000

35 000 117 000

vs

Allowed Estate Tax Credit for Foreign Estate Tax paid: LIMIT A (117 000) = LIMIT B (117 000)

Actual 117 000

Lower 117 000 117 000

117,000

Lesson 4 King, a Filipino, married to Risa in 2003, died on April 2016. The inventory of properties of the couple is as follows: a. Townhouse and lot in Manila acquired from conjugal funds of P 1,650,000 b. Farm lot in Laguna inherited by husband P 850,000 c. Land in Novaliches brought to the marriage by husband; P 450,000 d. Fishpond in Bulacan donated to wife in 2005; P 960,000 e. Time deposit in the name of husband and wife; P 120,000 f. Time deposit in the name of husband and his brother; P 65,000 g. Jewelry brought into marriage by wife; P 135,000 h. Proceeds of insurance, revocable, payable to wife; P 250,000 i. Proceeds of GSIS life insurance policy; P 150,000 j. Proceeds of private life insurance policy where the beneficiary is the sister and silent as to designation; P 300,000 k. Cash, representing rental income from fishpond in Bulacan; P 180,000 l. Employee benefits under RA 4917; P 500,000 Required: Compute the following: A. Under CPOG, determine the: a.1 Taxable gross estate of decedent and a.2 The exclusive property of wife. B. Under ACOP; determine the: b.1 Taxable gross estate of decedent and b.2 Exclusive property of wife. Computation: A. Regime of Conjugal Partnership of Gains CPOG) Townhouse and lot in Manila acquired from conjugal funds Time deposit in the name of husband and wife Jewelry brought into marriage by wife Proceeds of insurance, revocable, payable to wife Cash, representing rental income from fishpond in Bulacan Less: Employee Benefits Taxable Gross Estate of Decedent Fishpond in Bulacan donated to wife in 2005

1 650 000 120 000 135 000 250 000 180 000 500 000 (a.1) 1,835,000 960 000

Exclusive property of wife B. Regime of Absolute Community of Property Townhouse and lot in Manila acquired from conjugal funds Time deposit in the name of husband and wife Jewelry brought into marriage by wife Less: Employee Benefits Taxable Gross Estate of Decedent Fishpond in Bulacan donated to wife in 2005 Proceeds of insurance, revocable, payable to wife Cash, representing rental income from fishpond in Bulacan Exclusive property of wife

(a.2) 960,000

1 650 000 120 000 135 000 500 000 (b.1) 1,405,000 960 000 250 000 180 000 (b.2) 1,390,000

Lesson 5 1. Q1.0. RC, a resident citizen, died on November 2, 2018. When is the deadline for filing notice of death as required by tax code? January 2, 2019 Q1.1. RC, a resident citizen, died on November 2, 2018. When is the deadline for filing of estate tax return as required by tax code? November 2, 2019 2. Which of the following statements is not required to accompany the estate tax return? Itemized income and expenses of decent a. Itemized assets with corresponding value b. Itemized deductions from gross estate c. Estate tax due d. Itemized income and expenses of decent...