Taxation 2 │INTRODUCTION TRANSFER TAXES and ESTATE TAX

FLABERT VILLASENCIO, CPANotre Dame of Dadiangas University

Learning objectives

1.Define a transfer tax2.Differentiate an estate tax to

a donor’s tax3.Discuss the nature and

concept of succession

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Transfer of Property

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Onerous Onerous TransferTransferOnerous Onerous TransferTransfer

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Gratuitous Transfer

Gratuitous Transfer

Transfer of Property

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Onerous Onerous TransferTransferOnerous Onerous TransferTransfer

Casual TransferCasual TransferNormal Course of Normal Course of businessbusiness

Vat or Percentag

e and Excise Tax

Capital Gain Tax

Transfer of Property

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Gratuitous Transfer

Gratuitous Transfer

Gift/ DonationDeath

Estate Tax

Donor’s Tax

Transfer of Property

Difference of Estate and Donor’s Tax

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Estate Tax

Donor’s Tax

o Impose on privilege to transmit property upon death

o rate of tax is HIGHER

o Allowed to extend filing and paying

o Exemption per tax is P200,000

o Impose on privilege to transmit property during lifetime

o rate of tax is LOWER

o No extension for filing and paying

o Exemption per tax is P100,000

Introduction to Estate Tax

ESTATE TAXTheories Justifying the Imposition of

Estate Tax

▪Benefit Received theoryothe state renders services in the distribution of the decedent’s estate

▪Privilege theoryoState Partnership theoryoCollects the share in the accumulation of profit▪Redistribution of Wealth TheoryoResults in equitable distribution of wealth

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Introduction to Estate Tax

ESTATE TAX▪Tax on the RIGHT of the deceased person to transmit his ESTATE to his lawful heirs and beneficiaries at the TIME OF DEATH▪Levied on Net Estate▪Not on the Property Transferred

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Taxation 2 │INTRODUCTION TRANSFER TAXES and ESTATE TAX

FLABERT VILLASENCIO, CPANotre Dame of Dadiangas University

Succession and Will

SUCCESSION- a mode of acquisition by virtue of which the property, rights and obligation to the extent of the value of the inheritance, of a person are transmitted through his death to another or others either by will or by operation of law.

WILL- an act whereby a person is permitted with the formalities prescribed by law, to control to a certain degree the disposition of his estate, to take effect after his death.

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Element of Succession

Decedent- the person whose property is transmitted through succession, whether or not he left a will.

Heir- The person called to the succession either by the provision of a will or by operation of law.Estate- Refers to all the property, rights and obligations of a person which are not extinguished by his death.

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Illustration:Rosario died leaving a five

hectare coconut land to his son, Honesto.

Identify the elements of succession.

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Element of Succession

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Element of Succession

Kinds of Succession

Testamentary- made in a will executed in the form prescribed by law.Intestate- no will or if there is, the same is void or nobody will succeed.Mixed- Partly by will and partly by law.

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Kinds of Successors

Legatee- An heir to a particular personal property given by virtue of a will.Devisee- An heir to a particular real property given by virtue of a will.

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Classification of Successors

PRIMARY COMPULSORY

HEIRS

SECONDARY COMPULSORY

HEIRS

1. Legitimate children and their legitimate descendants

4. Legitimate parents and legitimate ascendants. (In default of No.1)

2. Surviving spouse (legitimate)

3. Illegitimate children and their descendants (legit. and illegit.)

5. Illegitimate parents (No other ascendants, in default of 2 and 3)

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Persons Authorized to Manage Estate

1.Executor- person appointed by a testator to carry out the directions and requests of his will and the disposal of his property.

2.Administrator- person appointed by the court to administer his property.

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Summary Diagram

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SUCCESSION

Testamentary

Mixed Intestate

Legatee

Devisee

Executor

Administrator

Kinds of Successi

on

Kinds of Successor

s

Authorized to Manage

Definition:An act whereby a person is

permitted with the formalities prescribed by law, to control to a certain degree the disposition of his estate, to take effect after his death.

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Will

Not Allowed to Make a WilloBelow 18 years oldoIncapacitatedoTwo or more persons who make a will jointlyNot Allowed to Witness to a WilloAny person not domiciled in the PhilippinesoThose convicted of falsification of a document, perjury or false testimony

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Disqualify to Make and Witness to a Will

Holographic Will

▪A will that is kept secret▪Must be:oWritten, dated and signed by the hand of the testatoroMaybe made inside or outside the PhilippinesoNeed not to be witnessedoNot subject to formalities

Codicil- a supplement or addition to a will

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