Gross Estate PDF

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Summary

GROSS ESTATEEstate Tax  Tax on the right of the deceased person to transmit his/ her estate to his/ her lawful heirs and beneficiaries at the time of death and on certain transfers which are made by law as equivalent to testamentary disposition.  NOT a tax on property nor on the transferor or tran...

Description

GROSS ESTATE Estate Tax  Tax on the right of the deceased person to transmit his/ her estate to his/ her lawful heirs and beneficiaries at the time of death and on certain transfers which are made by law as equivalent to testamentary disposition.  NOT a tax on property nor on the transferor or transferee. It is an excise tax and its object is to tax the shifting of economic benefits. DATE OF ACCRUAL VERSUS DATE OF PAYMENT  Accrual of the estate tax as of the date of the death of the decedent is distinct from the obligation to pay the same. Special Rules on Intangible Properties (WITH SITUS IN THE PHILIPPINES) 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, rights in any partnership business or industry established in the Philippines. Classification of Decedent RESIDENT & NONNON-RESIDENT RESIDENT CITIZEN, ALIEN DECEDENT RESIDENT ALIEN DECEDENT 1. Real property 1. Real property situated in the wherever Philippines. situated 2. Personal property 2. Personal a. Tangible property property wherever situated in the situated Philippines. a. Tangible, and b. Intangible b. Intangible property with a situs in the Philippines unless exempted on the basis of reciprocity.

Items of Gross Estate: 1. Decedent’s interest 2. Transfer in Contemplation of Death

3. Revocable Transfer 4. Property Passing Under General Power of Appointment 5. Proceeds of Life Insurance 6. Prior Interests 7. Transfers for Insufficient Consideration 1. DECEDENT’S INTEREST To the extent of the interest in property of the decedent at the time of his death  In property owned or possessed; the law contemplates any interest or right in the nature of property, but less than title having value or capable of being valued, transferred by the decedent at his death (e.g. dividend before death but paid after death; partnership profits) DEPOSIT ACCOUNT OF DECEDENT In general, included in the gross estate including interest paid only after death. Exception: amounts withdrawn subjected to 6% final withholding tax ► excluded from gross estate 2. TRANSFER IN CONTEMPLATION OF DEATH Transfers impelled by the thought of an impending death (i.e., the motivating factor controlling motive is the thought of death), without regard of the state of health of the transferor 

Transfers involving retention or reservation of certain rights. Exception: bona fide sale for an adequate and full consideration in money or money’s worth

3. REVOCABLE TRANSFER A transfer whereby the terms of enjoyment of the property may be altered, amended, revoked or terminated by the decedent alone or in conjunction with any other person, or where any such power is relinquished in the contemplation of the decedent’s death. It is enough that the decedent had the power to alter, amend or revoke though he did not exercise such power.

4. PROPERTY PASSING UNDER GENERAL POWER OF APPOINTMENT What is a General Power of Appointment?  Power to designate, without restrictions, the persons who shall receive, succeed to, possess or enjoy the property or its income received from the estate of a prior decedent. 5. PROCEEDS FROM LIFE INSURANCE PROCEEDS OF LIFE INSURANCE From Insurance company with the estate administrator as beneficiary From Insurance Company with wife as beneficiary From SSS or GSIS with wife as beneficiary From group insurance with son as beneficiary

Designation of beneficiary Irrevocabl Revocable e

Taxable

Taxable

Taxable

Not Taxable

Not Taxable

Not Taxable

Not Taxable

Not Taxable

6. PRIOR INTERESTS All transfers, trusts, estates, interests, rights, powers and relinquishment of powers made, created, arising, existing, exercised or relinquished before or after the effectivity of the NIRC. 7. TRANSFERS FOR INSUFFICIENT CONSIDERATION Amount includible in the gross estate is the excess of the FMV at the time of death over the value of consideration received. Fictitious sale  If the purported absolute sale inter vivos by decedent is shown to be fictitious, then the total value of the property transferred is subject to inclusion in the taxable estate.

Exclusions from the Gross Estate ACQUISITIONS AND TRANSFERS EXPRESSLY DECLARED AS EXEMPT UNDER THE TAX CODE: 1. Merger of Usufruct in the Naked Title 2. Fideicomissary Substitution 3. Transmission from 1st heir to another beneficiary  Will of the testator 4. Bequests, devisees, legacies or transfer EXCLUSIONS FROM THE GROSS ESTATE UNDER SPECIAL LAWS: 1. Proceeds from life insurance where the beneficiary is other than estate, executor or administrator AND the designation is irrevocable. 2. SSS and GSIS death benefits 3. Retirement benefits received from private firms (RA 4917) 4. Properties held in trust by the decedent 5. Benefits received by beneficiaries residing in the Philippines under laws administered by the US Veterans Administration Separate or exclusive properties of the surviving spouse

date of death Property

Real property Shares of stocks:  Unlisted o Preferred o Common 

Listed

Right of usufruct, use or habitation and annuities

Units of participation in any association, recreation or amusement club (e.g. golf, polo, or similar clubs) Personal Property  Used property  



Newly purchased Pawned property

FOREX currencies

Valuation (RA 10963) Zonal Value or Assessed Value  Whichever is higher

ALLOWABLE DEDUCTIONS Deductions Allowed to Estate (RA 10963)

 Par value  Book value  FMV based on the arithmetic mean between the highest and lowest quotation at date nearest date of death, if DOD not available.  Probable life of the beneficiary in accordance with the latest Basic Standard Mortality Table (BSMT), approved by Secretary of Finance upon recommendation of the Insurance Commissioner.  Bid price nearest the date of death published in any newspaper or publication of general circulation.

 FV is secondhand value; or pawn value x 3  FV is purchase price  Grossed up pawn value by loan-to-appraisal value ratio of pawnshop e.g. Pawn value of item = 50,000 Loan to value ratio of pawnshop = 50% FMV = 50,000 / 50% = 100,000  Prevailing exchange rate at

Ordinary Deductions Items of Deductions

RC/ NRC/ RA Decedent

1. Claims, Losses, Indebtedne ss, Taxes (TILC)

Deductibl e

2. Transfer for Public Use 3. Property Previously Taxed (Vanishing Deduction)

Nonresident Alien Decedent Deductible (Pro-rata): Phil GE x World World GE TILC

Deductibl e

Deductible

Deductibl e

Deductible

RA 10963  

No deductions allowed for expenses related to funeral expenses and judicial expenses Claims: Applies to:  Claims against estate  Claims against insolvent persons

Special Deductions Items of Deductions 1. Family Home 2. Standard Deduction 3. Amount Received by Heirs under RA 4917

RC/ NRC/ RA Decedent Deductibl e Deductibl e

Nonresident Alien Decedent Not Deductible Deductible (RA 10963)

Deductibl e

Not Deductible

Items of Deductions

RC/ NRC/ RA Decedent

Nonresident Alien Decedent

1. Share of Surviving Spouse

Deductibl e

Deductible

Other Deductions

CLAIMS, LOSSES, INDEBTEDNESS AND TAXES (TILC)  Claims against the estate  Claims of the deceased against insolvent persons  Unpaid mortgages upon, or any indebtedness in respect to, property  Unpaid Taxes  Casualty Losses Claims against the Estate Debts or demands of a pecuniary nature which could have been enforced against the deceased in his lifetime and could have been reduced to simple money judgments. Requisites for Deductibility a. Personal obligation of the deceased existing at the time of his death b. Contracted in good faith c. Must be a valid debt or claim d. Must not have been condoned e. Duly substantiated with evidence Amount Deductible Reasonable certain in amount  Allowed for RC/ NRC/ RA  Allowed for NRA based on Pro-rata Deductions  Deducted from common or exclusive property...