CHAPTER 3: GROSS ESTATE DETERMINATION & EVALUATION OF GROSS ESTATE -starting point in computing Philippine estate tax liability GROSS ESTATE -consists of all property owned by a decedent at the time of his death, including stocks, bonds, real estate, mortgages & any other property that technically belonged to him -it shall not include the exclusive properties of the surviving spouse -property is called gross estate because it is to be reduced by decedent’s debts (including taxes), funeral expenses, share of the surviving spouse & other permissible deductions to arrive at a net taxable estate.
DECEDENT CITIZENS & RESIDENT ALIENS -real & personal properties, wherever located, shall be included as part of the gross estate. NONRESIDENT ALIENS -only properties located in the Philippines that are to be transferred upon death are subject to estate tax. -share of stocks acquired from a domestic corporation are taxable in the Philippines. REAL PROPERTY -land, building or any structure or even equipment permanently attached to the land. TANGIBLE PERSONAL PROPERTY -property with physical form that could be seen or touched, such as car, jewelry and clothing.
INTANGIBLE PERSONAL PROPERTY -property that has no physical form, such as receivables, bonds and other securities. -located within the Philippines of a non-resident alien is subject to the rule of reciprocity. If there is reciprocity, it is not subject to estate tax in the Philippines. SITUS OF A PROPERTY -is the domicile or residence of the owner. DATE OF VALUATION -is the time of death because the transfer of properties from the dead to the living takes effect at the moment of death. RULES IN VALUING THE GROSS ESTATE 1.
In general, the GROSS ESTATE shall be valued at its FAIR MARKET VALUE at the time of the decedent’s death. 2. REAL PROPERTIES should be valued at the CURRENT FAIR MARKET VALUE as shown in the schedule of values fixed by the Provincial/City Assessors, or the fair market value as determined by the BIR Commissioner, whichever is higher. 3. PERSONAL PROPERTIES should be reported at the ACQUISITION COST for the RECENTLY acquired properties, or the CURRENT MARKET PRICE for the previously acquired properties. 4. Stocks, bonds and other securities a.
If listed in the local stock exchange – the value is the mean between the highest and lowest quoted selling price at the date nearest the date of death, if none is available on the date of death. b. If not listed in the local stock exchange 1. UNLISTED COMMON SHARES should be valued at BOOK VALUE at the date of death. 2. UNLISTED PREFERRED SHARES are valued at PAR VALUE. APPRAISAL SURPLUS & VALUE ASSIGNED TO PREFERRED SHARES -shall not be considered in determining the book value of the unlisted common shares. UNIDENTIFIABLE RIGHTS OR PROPERTIES TO BE ADDED IN THE GROSS ESTATE 1.
Taxable transfers (transfers during the lifetime of the decedent) a. Revocable transfers b. Transfers in contemplation of death c. Property passing under general power of appointment d. Transfers for insufficient consideration 2. Others: a. Decedent’s interest accrued at the date of death b. Proceeds of life insurance with revocable beneficiary c. Claims against insolvent person d. Amount received by heirs under RA 4917 REVOCABLE TRANSFER -a transfer of property with retention or reservation of rights over the property by the donor (decedent) while he still lives. TRANSFER IN CONTEMPLATION OF DEATH properties are not physically available in the estate at the time of death because the decedent transferred them during his lifetime in anticipation of his death. -the purpose of including this as part of the gross taxable estate is to prevent evasion from estate tax liability by the use of other forms of conveyances rather than by succession or transfer mortis causa. TRANSFERS ARE HELD TO BE IN CONTEMPLATION OF DEATH 1. Where a donation was made concurrently with the execution of a will 2. Where the donation was made due to the decedent’s age and/or the decedent’s known serious illness at the time of the gift 3.
Where the time between the making of a gift & the death of the donor was relatively close POWER OF APPOINTMENT -right to designate by will or deed the person or persons who are to receive certain properties from the estate of a prior decedent GENERAL POWER OF APPOINTMENT -decedent must have had a power exercisable in favour of himself, his estate, or creditors of his estate -property subject to the power shall be included in the gross estate POWER IS “SPECIAL” -not exercisable in favour of the decedent, his estate, his creditors, or creditors of his estate -excluded from the gross estate
DECEDENT’S INTEREST -commonly thought of as a person’s estate, the wealth that he would have possessed, enjoyed and disposed, had he lived. -value of any interest in property or right accrued in favour of the decedent on or before his death which have been received only after his death. -it must exist at the time of the decedent’s death to be included as part of the gross estate. LIFE INSURANCE -covers all description of insurance related to life, including death benefits & accident insurance. PROCEEDS OF LIFE INSURANCE POLICY 1. Exclude from the GE if the beneficiary is irrevocable 2.
Include in the GE is the beneficiary is: a. Revocable b. Decedent’s estate, his administrator/executor TRANSFERS FOR INSUFFICIENT CONSIDERATION Value to be included in the GE: 1. Transfer was in the nature of a bona fide sale for an adequate & full consideration in money or money’s worth – NO VALUE 2. Consideration received is < adequate & full consideration – excess of FV of the property at the time of the decedent’s death over the consideration received 3. No consideration received on the transfer (as in donation mortis causa) – FMV of the property at the time of the decedent’s death 4.
If transfer is not shown to have been made in contemplation of death/take effect upon the decedent’s demise – transfer is subject to Donor’s Tax CLAIMS AGAINST INSOLVENT PERSONS -refers to receivables left by the decedent but the court consequently found the related debtor insolvent -must be reported as part of the GE in the full amount of the receivable -should be reported as exclusive or conjugal property depending on whether the claim is derived from an exclusive or conjugal property AMOUNT RECEIVED BY HEIRS amount received by heirs from the decedent’s employer as a consequence of the death of the decedent-employer as a consequence of the death of the decedent-employee shall be included in the GE of the decedent EXEMPTIONS FROM ESTATE TAX -synonymous with the term “Exclusion from estate tax” -properties or rights or transfers that are specifically declared by the law as free from burden of estate tax USUFRUCT -legal right to use & enjoy the benefits & profits of something belonging to another TWO PERSONS INVOLVED IN THE USUFRUCT . USUFRUCTUARY – person who has the right of enjoying the use & the fruits of the property belonging to another. He can draw all the profit, utility and advantage which the usufruct property may produce, provided that he has to preserve or maintain the substance of the thing 2. OWNER OF THE NAKED TITLE – person who is vested the ownership, dominion, or title of property under the usufruct agreement. He has the right to enjoy the property as consistent with the enjoyment of the thing by the usufructuary.
However, he is not the absolute owner of the property *When the same person becomes a usufructuary & owner of the naked title, there is merger of the usufruct in the owner of the naked title, which makes him/her the absolute owner of the property. LEGACY -gift or bequest by will of personal property DEVISE -testamentary disposition of real estate LEGATEE -person to whom a legacy in a will is given FIDUCIARY HEIR -first heir of the property FIDEICOMMISSARY -second heir whose relationship to the fiduciary heir must be one degree of generation such that of a parent & a child FEDEICOMMISARY person designated who has the real or beneficial interest in an estate or fund, the title or administration of which is temporarily confided to another SECOND TRANSFER AS DESIRED BY THE PREDECESSOR -transmission of property from the first heir, legatee or done in favour of another beneficiary, in accordance with the desire of the predecessor CAPITAL OF SURVIVING SPOUSE -separate property of the surviving spouse EXCLUSIVE PROPERTY -identified & belonging exclusively to either of the spouse CONJUGAL PROPERTY -property belongs to both of the spouses HUSBAND’S CAPITAL -property owned by the husband WIFE’S PARAPHERNAL property owned by the wife PROPERTY RELATIONS BETWEEN SPOUSES 1. Marriage settlement 2. Regime of absolute community 3. Conjugal partnership of gains 4. Local customs *in the absence of any contract or marriage settlement executed before celebration of a marriage, either #1 or #2 shall govern the property ownership of the husband & wife CONJUGAL PARTNERSHIP OF GAINS -system of property relationship governing spouses is applicable if they are married before August 3, 1988 ABSOLUTE COMMUNITY OF PROPERTY System of property relationship governing the spouses is applicable if they are married on August 3, 1988 or thereafter