Gross estate - Lecture notes 1 PDF

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GROSS ESTATE Succession is a mode of acquisition by virtue of which: (a) Properties, (b) Rights, and (c) Obligations, to the extent of inheritance. are transmitted by the death of a person to another or others, by will (testamentary or voluntary succession) or by operation of law (intestate or invol...

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GROSS ESTATE 1. Succession is a mode of acquisition by virtue of which: (a) Properties, (b) Rights, and (c) Obligations, to the extent of inheritance. are transmitted by the death of a person to another or others, by will (testamentary or voluntary succession) or by operation of law (intestate or involuntary succession). 2. Which of the following may be the subject of succession? (a) Properties; (b) Rights; (c) Obligations; (d) All of the above. Answer: d Obligations may pass to the heirs, but only to the extent of the inheritance---in other words, only to the extent of the value of the properties and rights inherited. 3. Statement 1. The estate tax is imposed on the privilege of a person to transmit his properties upon his death. Statement 2. The inheritance tax is imposed on the privilege of a person to receive the properties of the person who died. (a) True, true; (b) False, false; (c) True, false; (d) False, true. (Modified/expanded/reformatted BAR examination question) Answer: a 4. Statement 1. The estate tax is a tax on property (a property tax); Statement 2. The estate tax is a tax on privilege (an excise tax). (a) True, true; (b) False, false; (c) True, false; (d) False, true. (Modified/expanded/reformatted BAR examination question) Answer: d 5. Statement 1. The estate tax is an excise tax on a person for transmitting his properties upon his death; Statement 2. The donor’s tax is an excise tax on a person for transmitting his properties effective while still alive. (a) True, true; (b) False, false; (c) True, false; (d) False, true. (Modified/expanded/reformatted BAR examination question) Answer: a 6. Statement 1. The estate tax accrues upon the death of the decedent-owner of the properties transmitted by succession; Statement 2. The estate tax should be paid by the executor or administrator, or the heir, before title to any registerable property may be registered in the name of the heir to whom it is given by succession. (a) True, true; (b) False, false; (c) True, false; (d) False, true. (Modified/expanded/reformatted BAR examination question) Answer: a 7. There are two kinds of decedents: (a) The resident or citizen of the Philippines; and (b) The non-resident, not citizen of the Philippines.

A decedent who was a citizen of the Philippines, residing in the Philippines at the time of his death, is decedent (a). A decedent who was a citizen of the Philippines, not residing in the Philippines at the time of his death is decedent (a). A decedent who was not a citizen of the Philippines, but residing in the Philippines at the time of his death is decedent (a). A decedent who was not a citizen of the Philippines, and not residing in the Philippines at the time of his death is decedent (b). 8. Properties in gross estate are real properties (e.g., land and building), tangible personal properties (e.g., car), and intangible personal properties (e.g., receivables). The gross estate of a decedent who was a citizen or resident (Decedent [a] ) shall include all properties regardless of location. The gross estate of a decedent who was not a citizen, and not a resident (Decedent [b] ) shall include only properties located in the Philippines. 9. By statutory provision, the following are intangible personal properties located in the Philippines, and shall be included in the gross estate: (a) Franchise which must be exercised in the Philippines; (b) Shares, obligations or bonds issued by a domestic corporation. (c) Shares, obligations or bonds issued by a foreign corporation eighty-five percent (85%) of the business of which is located in the Philippines. (d) Shares, obligations or bonds issued by a foreign corporation, if such shares, obligations or bonds have acquired a business situs in the Philippines; and (e) Shares or rights in any partnership, business or industry in the Philippines. The enumeration in the law is not exclusive, however. Any other intangible property (e.g., receivables) in the Philippines shall be included in the gross estate. 10. Although intangible personal properties in the Philippines shall be included in the gross estate of the decedent who was not a citizen or resident of the Philippines (Decedent [b]), such intangible personal properties shall not be included in the gross estate if the reciprocity clause in the estate tax law applies. Under the reciprocity clause, the intangible personal property in the Philippines shall not be included in the gross estate. (a) If the country of which the decedent was a citizen and (not or) resident at the time of his death either had no death tax at all, or, (b) If having a law imposing a death tax, totally exempts from that death tax the intangible personal properties located there belonging to a citizen of the Philippines not residing there. 11. The property, rights and obligations of a person which are not extinguished by his death and those which have been accrued thereto since the opening of succession: (a) Assets; (b) Capital; (c) Estate; (d) Income. Answer: c

(CPA Exam)

12. Which of the following is not subject to estate tax? (a) A succession to the property of a decedent who left no last will and testament; (b) A donation mortis causa;

(c) A donation inter vivos; (d) A transfer during the lifetime for less than full and adequate consideration. Answer: c A donation mortis causa takes effect upon death, and the rules on succession apply. A donation inter vivos takes effect during the lifetime of the transferor, and are not coverd by the rules on succession, but by a separate set of rules on donation. A transfer for less than full and adequate consideration has a unique place in the estate tax law and the value t include in the gross estate is the excess of the fair market value at the time of death over the consideration received. 13. Which of the following statement is wrong? (a) The gross estate of a non-resident citizen would include all properties regardless of location; (b) The gross estate of a non-resident, not citizen of the Philippines would include intangible properties in the Philippines; (c) The gross estate of a resident, not citizen of the Philippines would include all properties regardless of location; (d) The gross estate of a non-resident citizen of the Philippines would include only properties in the Philippines. Answer: d 14. The personal properties of a non-resident, not citizen of the Philippines, would not be included in the gross estate if: (a) The intangible personal property is in the Philippines; (b) The intangible personal property is in the Philippines and the reciprocity clause of the estate tax law applies; (c) The tangible personal property is in the Philippines; (d) The personal property is shares of stock of a domestic corporation 90% of whose business is in the Philippines. Answer: b 15. Mr. A, a resident citizen, died on the United States leaving the following properties: Real properties in the United States; Family home in the Philippines; Office condominium in the Philippines; Shares of stock of a domestic corporation; Cash in bank; and Personal belongings. Without any obligation. Statement 1. His gross estate shall include all the properties; Statement 2. His gross estate shall include only the properties in the Philippines. (a) True, true; (b) False, false; (c) True, false; (d) False, true. (Modified/expanded/reformatted BAR examination question) Answer: a (For a citizen of the Philippines, his gross estate will include all properties regardless of location.) 16. Mr. V, a subject of a foreign country, residing in the Philippines, died with the following properties: Shares of stock of a domestic corporation; Condominium unit in Metro Manila; House and lot in his home country. Statement 1. His gross estate shall include all the properties; Statement 2. His gross estate shall include only the properties in the Philippines.

(a) True, true; (b) False, false; (c) True, false; (d) False, true. (Modified/expanded/reformatted BAR examination question) Answer: a (For a resident of the Philippines, his gross estate will include all properties regardless of location.) 17. Mr. W, an American residing in Taipeh, died leaving the following properties: Real property in the United States; A resort in Italy; Shares of stock in a Taipeh corporation with business in Taipeh only; Shares of stock of a Taipeh corporation, operating in, and with office at the Philippines; Time deposit with a Philippine Bank; Philippine Treasury bills; Lease contract on his real property in the United States, leased to the Philippine consulate. Statement 1. His gross estate shall include all the properties; Statement 2. His gross estate shall include only the properties in the Philippines. (a) True, true; (b) False, false; (c) True, false; (d) False, true. (Modified/expanded/reformatted BAR examination question) Answer: d (which means that the gross estate shall not include the real property in the United States, the resort in Italy, the shares of stock of a Taipeh corporation with business in Taipeh only and the lease contract. The shares of stock of the Taipeh corporation, operating in and with office as, the Philippines is property located in the Philippines because it is shares of stock of a foreign corporation that had acquired a business situs in the Philippines.) 18. Mr. D owned one hundred hectares of agricultural land. The government took nine hundred ninety-five hectares under the Agrarian Reform Act, with payment for it not yet received. Mr. D died. What value shall be included in his gross estate? (a) One hundred hectares of agricultural land; (b) Five hectares of agricultural land plus the amount receivable from the Government on the appropriation of ninety-five hectares; (c) Five hectares of agricultural land; (d) None. (Modified/expanded/reformatted BAR examination question) Answer: b 19. Value to include in the gross estate. (a) Mortgaged property shall be included in the gross estate at its fair market value, undiminished by the mortgage. (b) Receivables from persons who are insolvent shall be in the gross estate at the full amounts and not just amounts realizable. (c) Proceeds of life insurance taken out by the decedent on his own life shall be included in the gross estate if the beneficiary designated is his estate, executor or administrator, whether or not the designation is revocable, or if the beneficiary designated is a third person and the designation of beneficiary is revocable. It the life insurance was taken out not by the decedent himself, the proceeds shall not be included in the gross estate. On other insurance contracts the proceeds shall be included in the gross estate if already receivables at the time of death, because they are intangible personal properties owned at the time of death, but if not yet receivable at the time of death, shall not be included in the gross estate. (d) The estate shall be valued at fair market values of the properties at the time of death. In the case of real property, the value shall be the value as shown in the schedule of values fixed by the Provincial and City Assessors, or the fair market value as determined by the Commissioner of Internal Revenue, (zonal value) whichever is higher.

In the case of shares of stock listed and traded in a stock exchange, the fair market value shall be the arithmetic mean between the highest and lowest quotation of the stock on the valuation date, or the date nearest the valuation date. It the shares are unlisted, the value shall be the book value, if common shares, and the par value, if preferred shares. (e) An inventory of the gross estate shall be filed with the Bureau of Internal Revenue. When the gross estate exceeds two million pesos (P2,000,000), the estate tax return and inventory shall be accompanied by a certificate of a Certified Public Accountant, showing among others: registered or registerable property, motor vehicles, and shares of stock. 20. Proceeds of life insurance inludible in the taxable gross estate. (a) Insurance proceeds from SSS or GSIS; (b) Amount receivable by any beneficiary irrevocable, designate 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 employees. (CPAExam) Answer: c For proceeds to be includible in the gross estate of the insured, the policy should be taken out by the insured himself. Hence, since the life insurance in (d) was not taken by the insured himself, the proceeds shall not be included in his gross estate. 21. Which statement is correct? (a) Proceeds of accident insurance, paid by the insurance company directly to a revocably designated beneficiary is part of the gross estate of the decedent; (b) Proceeds receivable under life insurance taken out by the decedent on his own life with wife as revocable beneficiary, with a loan taken by the decedent on it, is includible in the gross estate at its value, net of the loan on it; (c) Proceeds of property insurance receivable when the decedent was still alive is part of the gross estate; (d) Proceeds of group insurance secured by the employer, when the revocable beneficiary is the wife, is part of the gross estate. Answer: c 22. Proceeds of a life insurance policy taken out by the decedent on his own life are includible in the gross estate if the beneficiary is: (a) The estate, whether the designation of is revocable or irrevocable; (b) The executor or administrator, whether the designation is revocable or irrevocable; (c) A third person and the designation is revocable; (d) A third person and the designation is irrevocable. Which is wrong? (Modified/expanded/reformatted BAR examination question) Answer: d 23. For death of a father in an airplane crash, the children received insurance proceeds of P350,000 by the insurer and airline. Statement1. The P350,000 shall be included in the gross estate because it was a receivable at the time of death. Statement 2. The P350,000 shall not be included in the gross estate because the life insurance was not taken out by the decedent himself on his own life. (a) True, true; (b) False, false; (c) True, false; (d) False, true. (Modified/expanded/reformatted BAR examination question) Answer: d 24. The widow, Mrs. A received P500,000 under a life insurance of her husband. Should the

proceeds of life insurance be included in the gross estate? (a) Yes, if the estate, executor or administrator of Mr. A was designated as revocable beneficiary; (b) Yes, if the estate was designated as irrevocable beneficiary; (c) Yes, if Mrs. A was designated as revocable beneficiary; (d) Yes, if it was Mrs. A who insured Mr. A, and her designation as beneficiary was irrevocable. Which statement is wrong? (Modified/expanded/reformatted BAR examination question) Answer: d (a), (b), and (c) assumes that the life insurance was taken out by the decedent on his own life. 25. Which statement is wrong? The gross estate shall be valued: (a) At its fair market value at the time of death; (b) At its fair market value at the time the return is due; (c) If real property, the zonal value, which may be higher than the fair market value; (d) In the case of shares of stock, at book value. Answer: b 26. Which statement is correct? Real property with a cost of P300,000 and a fair market value at the time of death of P1,000,000 but subject to a mortgage of P200,000: (a) Shall be in the net taxable estate at P800,000; (b) Shall be in the gross estate at the decedent’s equity of P800,000; (c) Shall be in the gross estate at P300,000; (d) Shall be in the gross estate at the owner’s equity of P100,000. Answer: a Gross estate Less: Mortgage thereon Net taxable estate

P1,000,000 200,000 P 800,000

27. Mr. Q A provided in his last will and testament that the properties he would leave should not be sold or disposed of for a period of the years after his death, and that his property be given to Mr. Q after such period. The value of the properties increased from P2,000,000 at the time of death to P3,000,000 ten years after death. Which statement is correct? (a) The Commissioner of Internal Revenue shall assess the estate tax on a value of P1,000,000; (b) The Commissioner of Internal Revenue shall assess the estate tax on a value of P3,000,000. (Modified/expanded/reformatted BAR examination question) Answer: a 28. A taxpayer who inherited properties could not pay the estate tax on the original due date. He asked for extension of time as he had to sell some properties to have cash with which to pay the estate tax. The Bureau of Internal Revenue agreed to the petition for extension, provided that the valuation of the gross estate e as at the last day of the period of extension. Was the position of the Bureau of Internal Revenue correct? (a) No, because the estate should be valued at its fair market value at the time of death, regardless of when the estate tax may be collected; (b) Yes, because the Bureau of Internal Revenue had to wait for the last day of the extension period before it could proceed to collect. (Modified/expanded/reformatted BAR examination question) Answer: a 29. In the last will and testament, a decedent provided that the properties he leaves should not

be sold or disposed of for ten years following his death. He had real estate in his gross estate as follows: At the time of death – zonal value of P500,000 At the end of ten years after his death: Fair market value – P2,500,000; Declared value in the estate tax return – P1,5000,000 Zonal value – P3,000,000. What value shall be used for purposes of estate tax? (a) P3,000,000 (b) P1,500,000 (c) P2,500,000 (d) P500,000. (Modified/expanded/reformatted BAR examination question) Answer: d 30. Mr. D owned one hundred hectares of agricultural land. The Government took nine hundred ninety-five hectares under the Agrarian Reform Act, with payment for it not yet received. Mr. D died. What value shall be included in his gross estate? (a) One hundred hectares of agricultural land; (b) Five hectares of agricultural land plus the amount receivable from the Government on the appropriation of ninety-five hectares; (c) Five hectares of agricultural land; (d) None. (Modified/expanded/reformatted BAR examination question) Answer: b 31. The gross estate shall include properties not physically in the estate, if such properties were transferred by the decedent during his lifetime by way of: (a) Transfer in contemplation of death; or (b) Revocable transfer; or (c) Transfer under general power of appointment. A transfer in contemplation of death is a transfer motivated by the thought of death, although death may not be imminent. In law, this is called donation mortis causa. A revocable transfer is a transfer where the transferor, during his lifetime, could change the terms of possession or enjoyment by the transferee, or even take back the property. (See Plate 13) A transfer under a general power of appointment is illustrated thus: Mr. A transferred property to Mr. B, Mr. A saying that Mr. B can give such property to whomsoever Mr. B pleases. Mr. B transferred the property to Mr. C, so that the property was not anymore with Mr. B at the time of his death. The value of the property shall be included in the gross estate of Mr. B. Where the transfer of property was under a limited power of appointment, no value shall be included in the gross estate. A transfer under a limited power of appointment is illustrated thus: Mr. D transferred property to Mr. E, Mr. D saying that should Mr. E transfer the property, the transfer should be only in favor of Mr. F. Mr. E transferred the property to Mr. F, so that the property was not anymore with Mr. F at the time of his death. The value of the property shall not be included in the gross estate of Mr. F. In any of the transfers (a), (b) and (c), if the transfer was in the nature of a bona fide sale with full and adequate consideration, no value shall be included in the gross estate. But if the consideration was not full and adequate, the value to include in the gross estate shall be the excess of the fair market value at the time of death over the consideration received. 32. Statement 1. A donation inter vivos is subject to estate tax; Statement 2. A donation mortis causa is subject to estate tax.

(a) True, true; (b) False, f...