Chapter 5

ESTATE TAX

ESTATE TAX Estate tax is imposed on the right to transfer property by death. It is levied on the decedent’s estate and not on the heir receiving the property.

The transfer of the net estate of every decedent, whether resident or nonresident of the Philippines, as determined in accordance with the Code, shall be subject to the estate tax.

Rates of Estate Tax

Below is a table showing the tax on each bracket and the cumulative total tax for the entire net estate, pursuant to the rates provided in the Code.

Rates of Estate Tax NET ESTATE ESTATE TAX EXCESS

OVER NOT OVER TAX OF PLUS %

OVER

-0- P 200,000 Exempt -0- -0-P 200,000 500,000 -0- 5% P 200,000

500,000 2,000,000 P 15,000 8% 500,0002,000,000 5,000,000 135,000 11% 2,000,0005,000,000 10,000,000 465,000 15% 5,000,000

10,000,000 and over 1,215,000 20% 10,000,000

Estate Tax of Citizen or Resident Alien

For estate tax purposes, the gross estate of citizens (a resident or nonresident) and resident aliens at the time of death shall include all the property of the decedent, real or

personal, tangible or intangible, wherever situated but excluding the exclusive property of the surviving spouse.

Likewise, all legal claims and allowable deductions against the estate shall reduce the amount of the estate to arrive at the net taxable estate.

Illustration

After being married for 10 years, Kino Lam, died as a resident citizen of the Philippines. He has the following properties and deductions:

Properties:

1. Residential house and lot (family home) P3,000,0002. Jewelry acquired by the decedent before marriage 500,0003. Vacation house in Tagaytay transferred to daughter in

contemplation of death acquired during marriage 5,000,0004. Investments in bonds (Foreign Corporation) 600,0005. Marketable securities (Domestic Corporation) 400,0006. Farm, inherited from his father three years ago (value when inherited by the decedent, P2,500,000) 2,800,0007. Income from farm 800,0008. Commercial building inherited by the wife during marriage 10,000,0009. Rent income from commercial building 3,000,00010. Property brought to marriage by his wife 6,000,000

Deductions claimed:

1. Actual funeral expenses P 180,0002. Judicial expenses 900,0003. Medical expenses 1,500,0004. Unpaid mortgage on inherited farm

(unpaid mortgage when inherited was P700,000 200,0005. Claims against common property 8,000,0006. Claims against insolvent person 800,000

Required: Compute the net estate and estate tax assuming that the couple is under (a) Conjugal partnership of gains, and (b) Absolute community of property.

Conjugal Partnership: The net estate and estate tax are:

Computation of net estate

Conjugal Exclusive1. Residential house and lot P 3,000,0002. Jewelry P 500,0003. Vacation house 5,000,0004. Investment in bonds 600,0005. Marketable securities 400,0006. Farm P 2,800,0007. Income from farm 800,0008. Rent income 3,000,0009. Claims against insolvent 800,000 . Gross estate P13,600,000 P 3,300,000Ordinary deductions Funeral expenses, actual ( 180,000) Judicial expenses ( 900,000) Unpaid mortgage (farm) ( 200,000) Claims against common property ( 8,000,000) Claims against insolvent ( 800,000) Vanishing deductions . ( 484,261)Estate before share of surviving spouse P 3,720,000 P 2,615,739Share of surviving spouse (P3,720,000/2) ( 1,860,000)Share to the decedent’s exclusive ( 1,860,000) 1,860,000Estate before special deductions P 4,475,739 Standard deduction ( 1,000,000) Family home ( 1,000,000) Medical expenses. limit ( 500,000)Net estate P 1,975,739

Computation of estate tax

Tax on first P500,000 P 15,000Excess (P1,475,739 x 8%) 118,059Estate tax P 133,059

Supporting computation of vanishing deduction:

Lesser value P 2,500,000Less: Mortgage paid 500,000Initial basis P 2,000,000Less: Proportionate deduction (P10,080,000 x P2,000,000/P16,900,000) 1,192,899Final Basis P 807,101Level of vanishing 60%Vanishing deduction P 484,261

Absolute Community of Properties: The net estate and estate tax are:

Computation of net estate Communal Exclusive

1. Residential house and lot P 3,000,0002. Jewelry P 500,0003. Vacation house 5,000,0004. Investment in bonds 600,0005. Marketable securities 400,0006. Farm P 2,800,0007. Income from farm 800,0008. Property of wife brought to marriage 6,000,0009. Claims against insolvent 800,000 . Gross estate P16,300,000 P 3,600,000Ordinary deductions Funeral expenses, actual ( 180,000) Judicial expenses ( 900,000) Unpaid mortgage (farm) ( 200,000) Claims against common property ( 8,000,000) Claims against insolvent ( 800,000) Vanishing deductions . ( 484,261)Estate before share of surviving spouse P 6,420,000 P 2,807,839Share of surviving spouse (P6,420,000/2) ( 3,210,000)Share to the decedent’s exclusive ( 3,210,000) 3,210,000Estate before special deductions P 6,017,839 Standard deduction ( 1,000,000) Family home ( 1,000,000) Medical expenses. limit ( 500,000)Net estate P 3,517,839

Note: Property brought into marriage by the spouse shall be a community property.

Computation of estate tax

Tax on first P2,000,000 P 15,000Excess (P1,517,839 x 11%) 166,962Estate tax P 301,962

Computation of vanishing deduction:

Lesser value P 2,500,000Less: Mortgage paid 500,000Initial basis P 2,000,000Less: Proportionate deduction (P10,080,000 x P2,000,000/P19,900,000) 1,013,065Final Basis P 986,935Multiplied by level of vanishing 60%Vanishing deduction P 592,161

Estate Tax of Nonresident Alien

For estate tax computation, only the properties of a nonresident decedent situated in the Philippines are subject to Philippine estate tax. The deduction allowed shall be applied proportionately in relation to the Philippine gross esate.

The determination of the gross estate of nonresident alien will depend whether there is reciprocity or not. If there is reciprocity, intangible assets are excluded for estate tax purposes.

Illustration

Assume that a married and nonresident alien decedent, Mr. Brad Pit, left the following estate under conjugal partnership of gains:

House and lot – France (family home) P6,000,000Franchise in Manila 2,000,000Shares of stock – France 1,000,000Car – Baguio City 1,000,000Shares of stocks – Nestle Corporation, Manila Inherited from his father during his marriage four years ago at a market value of P400,000) 600,000

Claimed deductions 600,000Medical expenses 300,000Judicial expenses 200,000Actual funeral expenses

With Reciprocity

Car, Baguio City P1,000,000ELIT (Funeral, P50,000 + Judicial, P300,000) X (P1,000,000/P8,000,000) ( 43,750)Net estate P 956,250Share of surviving spouse (P958,333 x 50%) 478,125Net taxable estate P 478,125

Estate tax First P200,000 P - 0 -

Excess (P279,167 x 5%) 13,906 Estate tax P 13,906

Note:

1. No vanishing deduction is considered because the property inherited within 5 years gap is not included in the gross estate because of reciprocity. The entire gross estate for allocation of ELIT does not include those which are exempted by reciprocity.

2. Under the principle of reciprocity, intangible assets are not included in the gross estate. Real and tangible personal assets are to be included only if situated in the Philippines.

3. No standard deduction is allowed for a nonresident alien.

TAX ON CREDIT FOR ESTATE TAX PAID TO A FOREIGN COUNTRY

The amount of estate taxes paid to a foreign country could be claimed as credit against estate tax in the Philippines, if such taxes pertain to properties which are included in the gross estate for Philippine estate tax computation.

Generally, there is an application of tax credit if the estate of a citizen or resident decedent paid estate taxes for properties located outside the Philippines. As a rule, tax credit shall be subjected to limitation computed based on the given formula as follows:

Tax credit limit

1. Only one foreign country is involved.

Net estate in foreign country PhilippineTax credit = Entire net estate x estate tax

= The actual estate tax paid to foreign country, whichever is lower

2. Two or more foreign countries are involved. The allowable tax credit is the limit A or B, or the actual estate tax paid to foreign country, whichever is lower. The formula to compute the tax credit limits are as follows:

Limit A: Per foreign country

Net estate per foreign countryEntire net estate x Philippine estate tax

Limit B: By total

Net estate all foreign countriesEntire net estate x Philippine estate tax

Illustration – 1

Mr. Philip Cano, a resident of Baguio city, died leaving the following properties:

Location of propertyNet of allowable

deductionsEstate tax paid foreign country

Philippines P1,000,000 United States 2,000,000 P135,000 Australia 3,000,000 365,000 Total P6,000,000 P500,000

The net estate tax payable in the Philippines is computed as follows:

Tax on P5,000,000 P465,000Tax on excess (P1,000,000 x 15%) 150,000Total P615,000Less: Tax credit allowed for foreign countries* 442,000Net estate tax payable to the Philippines P172,500

Computations of tax credit limit

Limit A – Per country:U.S. (P2M/P6M) x P615,000) P205,000Actual estate tax paid in U.S., limit (lower) 135,000 P135,000

Australia (P3M/P6M) x P615,000), limit (lower) P307,500 307,500 Actual estate tax paid in Australia 365,000 . Limit A P442,500

Limit B – All foreign countries:Total net estate outside the Philippines (P5M/P6M) x P615,000 P512,500Total actual estate tax paid to foreign countries (P135,000 – P365,000) P500,000 Limit B P500,000

*Tax credit allowed, Limit A or limit B, whichever is lower P442,500

Illustration – 2

Mr. Lemon Tre, an American citizen, single and resident of Baguio City, died leaving the following properties:

Properties located in the Philippines P1,000,000Properties located in U.S. 500,000Deductions including standard deduction 1,200,000Estate tax paid to foreign country 10,000Philippine estate tax (P300,000 x 8%) 24,000

Computation of the Philippine Estate Tax:

Philippine Estate Tax (P300,000 x 8%) P 24,000Less: Tax Credit: Limit: (see Note 1) Actual tax paid P 8,000 Tax credit allowed – lower of limit and actual P10,000 8,000Net estate tax payable P 16,000

Notes:1. The limit on tax credit is computed as follows:

Tax credit = Net estate in foreign country* x PhilippineEntire net estate estate tax

= P100,000 x P24,000P300,000

= P8,000

2. The computation of net estate per country is as follows:

Philippines U. S. A. TotalGross estate P1,000,000 P 500,000 P1,500,000Less: Proportionate deductions:(P1,200,000 x P500,000/P1,500,000) ( 400,000) ( 400,000)(P1,200,000 x P1M/P1.5M) ( 800,000) . ( 800,000)Net estate P 200,000 P 100,000 P 300,000

Note: Deductions are allocated, because there is no means of identifying these expenses as to what portion pertains to properties located within the Philippines, and what portion is identified as deductions from estate located outside the Philippines.

Notice o Death

The notice of death is required if the

a. gross transfer is subject to estate tax, orb. gross estate exceeds P20,000.

The filing of notice of death shall be made within 2 months after the decedent’s death.

Filing and Payment of Estate Tax

The following rules shall be observed for the filing of estate tax return and payment of estate tax due.

1. For purposes of determining the estate tax, the estate tax return shall be filed within six (6) months from the decedent’s death.

2. In meritorious cases, a reasonable extension for filing the return, not exceeding 30 days shall be granted by the BIR Commissioner or any authorized Revenue Officer.

3. As a general rule, the executor, administrator or the heirs shall pay the estate tax imposed under the Code at the time the return is filed.

4. By reason of the undue hardship upon the estate or any of the heirs, the BIR Commissioner may extend the time for payment of such tax or any part thereof not to exceed five (5) years in case the estate is settled through

the courts, or two (2) years in case the estate is settled extrajudicially.

5. Where the request for extension is by reason of negligence, intentional disregard of rules and regulations, or fraud on the par to the taxpayer, the Commissioner will grant no extension.

6. Any amount paid after the statutory due date of the tax, but within the extension period shall be subject to interest but not to surcharge.

Payment of Estate Tax by Installment

In case the available cash of the estate is not sufficient to pay its total estate tax liability, the estate may be allowed to pay the tax by installment, provided that:

1. A clearance shall be released only with respect to the property the corresponding/computed tax on which has been paid.

2. Any amount paid after the statutory due date of the tax shall be imposed the corresponding applicable penalty thereto.

3. However, if the Commissioner or his duly authorized representative approves the payment of the tax after the due date, the imposable penalty thereon shall only be interest.

4. The Commissioner may enforce action against the estate after the due date of the estate tax provided that all the applicable laws and required procedures are followed/observed.

Liability for Payment of Estate Tax

Below are persons liable for the payment of estate tax.

1. The executor or administrator of an estate has the primary obligation but the heir or beneficiary has subsidiary liability to pay the estate tax.

The extent of the heir or beneficiary’s liability, however, shall in no case exceed the value of his share in the inheritance.

2. Where there are two or more executers or administrators, all of them are severally liable for the payment of the estate tax.

3. The executor or administrator before the delivery of the distributive share in the inheritance to any heir or beneficiary shall pay the estate tax imposed under the Code.

Surcharges, Interest and Penalties

In the event of violation of the law, criminal penalties and civil liabilities (surcharges, advalorem penalties, and interest) are imposed.

Safeguards for the Payment of Estate Taxes

Aside from the provisions on interest, surcharges and penalties as effective safeguards to encourage the payment of estate tax, the following measures should be observed.

1. The executor or administrator should not distribute the estate until the taxes are paid;

2. The Register of Deeds shall not register any deed or instrument covering the decedent’s estate or any portion thereof until the taxes are shown to have been paid;

3. No corporation shall register in its books transfer of shares or bonds forming part of the decedent’s estate until the taxes are paid;

4. A debtor of the decedent cannot be required to pay debts to the heirs but may pay the debts to the executor or administrator; and

5. Every notary public who intervened as such in any instrument affecting the estate or part thereof must furnish copy of said instrument to the Commissioner of Internal Revenue.

The Registers of Deeds have two duties in Section 95 of the New Internal Revenue Code, namely:

1. Not to register any document covering portions of the estate where no taxes have been paid; and

2. To notify the BIR Commissioner of the non-payment of the taxes.

Lawyers, notaries, etc. must not only furnish the BIR Commissioner copies of the document but also such information which may facilitate the payment of the tax.

NET DISTRIBUTABLE ESTATE

The net distributable estate is the actual portion of the estate which shall be inherited by the heirs or beneficiaries. It is computed by considering the realizable value of the gross estate reduced by the amount of actual deductions which will diminish the estate.

Illustration

Don Mucho Dinero, a Filipino citizen, died on November 1, 2005. He got married eight years before his death. His wife, Dona Felicidad, two legitimate children and one acknowledged illegitimate child survived him.

Don Dinero left the following assets.

Residential house and lot (family home) P3,500,000Building apartment brought into marriage 10,000,000Income specifically identified from building apartment 3,000,000Bank deposit – Equitable Bank 5,000,000Agricultural land inherited by Don Dinero, 6 years ago 800,000Family car 550,000Other personal properties 1,000,000

Deductions claimed:Funeral expenses P 350,000Judicial expenses 600,000Claims against the estate of which P200,000 without proper documentation as prescribed by the law, but the heirs intended to pay to maintain the untarnished reputation of Don Dinero 800,000Claims against insolvent person 100,000Transfer for public use (part of agricultural land) 200,000Unpaid mortgage – agricultural land 300,000Medical expenses – incurred and paid six months ago (with official receipts) 800,000

Required: Compute the transfer of the net distributable estate of Don Dinero assuming that the he left a Will recognizing the legitimate and any of the remaining free portion thereof is to be given to the church.

Solutions:

The property relationship of Don and Dona Dinero shall be governed by the regime of absolute community property ownership because they got married after August 3, 1988. Hence, the computation would be:

1. Computation of net taxable estate:

Communal ExclusiveResidential house and lot P 3,500,000Building apartment 10,000,000Income of apartment 3,000,000Deposit in Equitable Bank 5,000,000Agricultural land P 800,000Family car 550,000Other personal properties 1,000,000Claim against insolvent person 100,000 .Total gross estate P23,150,000 P 800,000Ordinary deductions:ELIT: Funeral expenses – maximum ( 200,000) Judicial expenses ( 600,000) Claims against the estate ( 600,000) Claims against insolvent person ( 100,000) Unpaid mortgage ( 300,000)Exemption: Transfer for public use . ( 200,000)Estate after ordinary deductions P21,650,000 P 300,000Share of surviving spouse (50%) (10,825,000)To decedent’s exclusive property (10,825,000) 10,825,000Estate before special deductions P11,125,000Special deductions:Standard deduction ( 1,000,000)Family home – maximum ( 1,000,000)Medical expenses – maximum ( 500,000)Net taxable estate P8,625,000

Note: Unless otherwise stated that the property transferred for public use is a conjugal property and the transfer is with the consent of the surviving spouse, the property is generally presumed as exclusive property of the decedent. The reason for this is that a person cannot donate a property which does not exclusively belong to him.

2. Computation of estate tax:

For the first P500,000 P 465,000Excess (P3,625,000 x 15%) 543,750Estate tax due P1,008,750

3. Computation of net distributable estate:

Communal ExclusiveResidential house and lot P 3,500,000Building apartment 10,000,000Income of apartment 3,000,000Deposit in Equitable Bank 5,000,000Agricultural land P 800,000Family car 550,000Other personal properties 1,000,000Claim against insolvent person 100,000

.Total gross estate P23,150,000 P 800,000Ordinary deductions:ELIT: Funeral expenses – maximum ( 350,000) Judicial expenses ( 600,000) Claims against the estate ( 800,000) Claims against insolvent person ( 100,000) Unpaid mortgage . ( 300,000)Net estate before share of Surviving spouse 21,300,000 P 500,000Share of surviving spouse (P21,300,000 x 50%) (10,650,000)To decedent’s exclusive property (10,650,000) 10,650,000Total exclusive property P11,150,000Estate tax ( 1,008,750)Net distributable estate including transfer for public use P10,141,250

4. Distribution of the net distributable estate:

Following the assumptions given above, the computation of the share from the net distributable estate of each heir would be:

Legitimate: To illegitimate children (P10,141,250/2) P 5,070,625 To illegitimate child (P5,070,625/2) x ½ 1,267,656 To legally surviving spouse (P5,070,625/2) 2,535,313

Free portion To the government – based on Will 200,000 To church – based on Will 1,067,656Total P10,141,250

Chapter 5 – REVIEW QUESTIONS

1. What are estate taxes?

2. What amount of the net estate is exempt from estate tax?

3. What is the maximum estate tax rate?

4. Whose gross estates are allowed with tax credit for foreign estate tax paid?

5. What is the prescribed period for filing and payment of estate tax?

6. If allowed, what is the maximum extension for filing of estate tax return?

7. If allowed, what is the maximum extension for payment of the estate tax?

8. What are the liabilities of the executor and the heirs for the payment of estate tax?

9. What is the net distributable share?

10. What is the pre-requisite for the distribution of net distributable estate?

Chapter 5 PROBLEMS

Name: _______________________________ Score: ___________

Problem 5-1 True or False

Write True if the statement is correct or False if incorrect.

1. The first P500,000 of net taxable estate is tax exempt.2. The deduction allowed from the gross estate of a nonresident alien shall

be the proportionate amount of ELIT applied in relation to his Philippine gross estate over the entire gross estate.

3. Where the decedent is a nonresident alien, unidentifiable deductions shall be allocated proportionately with the gross estate located within and outside the Philippines.

4. The amount of estate taxes paid to foreign country could be claimed as credit against estate tax in the Philippines if such taxes paid to foreign countries pertain to properties which are included in the gross estate for Philippine estate tax.

5. The allowable estate tax credit is the lower of the limit set under the Tax Code or the actual estate tax paid to foreign country.

6. Notice of death shall be submitted to the BIR within two months from then date of death of then decedent.

7. The notice of death is designed to safeguard the payment of estate tax.8. A estate tax returns showing a gross estate value of P2,000,000 shall be

supported with a statement duly certified by a CPA.9. The BIR Commissioner shall have authority to grant, in meritorious cases,

a reasonable extension not exceeding sixty (60) days for filing the estate tax return.

10.The Register of Deeds shall not register any deed or instrument covering the decedent’s.

Problem 5-2 Multiple Choice (Theory)

Encircle the letter that contains the best answer.

1. Statement 1: Estate tax is a transfer tax. It is also an excise tax as to object of taxation.Statement 2: Estate tax is levied on the heir receiving the property and not on the decedent.a. Only statement 1 is correct.b. Only statement 2 is correct.c. Both statements are correct.d. Both statements are not correct.

2. Statement 1: Not all the net estate is subject to estate tax.Statement 2: The first P200,000 of the net estate is exempt from estate tax.a. Only statement 1 is correct.b. Only statement 2 is correct.c. Both statements are correct.d. Both statements are not correct.

3. Statement 1: The estate of nonresident alien is not taxable with Philippine estate tax if the properties are located outside the Philippines at date of death.Statement 2: The estate of nonresident alien is reduced by indentifiable expenses incurred within to arrive at the amount of net estate.a. Only statement 1 is correct.b. Only statement 2 is correct.c. Both statements are correct.d. Both statements are not correct.

4. The rule of reciprocity as to whether the intangible property with situs within is to be included in the gross estate is applicable to the estate ifa. resident citizen.b. resident alien.c. nonresident citizen.d. nonresident alien.

5. The tax credit for the estate tax paid to foreign country is allowed to the estate of the following decedent, excepta. resident citizen.

b. resident alien.c. nonresident citizen.d. nonresident alien.

6. Statement 1: Notice of death to BIR is not required if the P100,000 gross estate is tax-exempt.Statement 2: The estate tax return must be filed within 60 days from date of death.a. Only statement 1 is correct.b. Only statement 2 is correct.c. Both statements are correct.d. Both statements are not correct.

7. Which of the following is not allowed with tax credit for payments of estate tax to foreign countries?a. A resident alienb. A nonresident citizenc. An alien who was a resident of his own country at date of deathd. An American residing in the Philippines at date of death

8. Which of the following statement is correct?a. Estate tax return is not required to be filed for real estate valued at less

than P200,000.b. No estate tax is required to be filed for gross estate which is valued at

P200,000.c. Estate tax return with gross estate of more than P2,000,000 shall be

certified by a CPA.d. The estate tax return is required to be filed within 6 months from the

decedent’s date.9. The Commissioner could extend the payment of estate tax when the date of

its payment imposes undue hardship upon the estate or any heirsa. Not to exceed five years, if settled through the courts.b. Not to exceed two years, if settled extra-judicially.c. Not to exceed one year, whether settled through the court or extra-

judicially.d. Only a and b.

10.For estate tax purposes, the estate tax return is filed with thea. Revenue District Office of BIR.b. Register of Deeds.

c. Provincial Assessor’s Office.d. Any of the above choices, whichever is nearer.

11.For estate tax purposes, which of the following cases wherein an estate tax return id required?a. Gross estate which is below P20,000b. Gross estate located in the Philippinesc. Gross estate that includes properties that are required to be registered

with the related government agenciesd. Tangible items in the gross estate

12.For estate tax purposes, in which of the following cases is the notice if death required?a. Gross estate which is more than P20,000b. Gross estate which includes personal propertyc. Gross estate which includes property located withind. Gross estate which include conjugal property

13.For estate tax purposes, the notice of death should be furnished to BIR withina. 6 months from date of death.b. 2 months from date of death.c. 6 years from date of death.d. 2 years from date of death.

14.A resident citizen died in November 1, 2005. When is the last day for filing of notice of death as required by the Tax Code?a. April 15, 2006b. November 30, 2005c. December 31, 2005d. Within 6 months from the date of death

Problem 5-3 Net Estate

The value of the conjugal estate of a resident citizen is P3,120,000 after funeral expense of P180,000. If no other expenses are presented to reduce the gross estate, how much is the amount of the net estate?a. P 560,000b. P 567,500c. P1,560,000d. P2,135,000

Problem 5-4 Net Estate

A citizen of the Philippines died with a gross estate of P3,000,000. The amount claimed as deductions amounted to P1,180,000 which include standard deduction and actual funeral expenses. How much is the net estate?a. P1,820,000b. P1,850,000c. P2,000,000d. P2,850,000

Problem 5-5 Net Estate

The estate of Fe Mann after deduction is 1,200,000. The actual funeral expense deducted was P150,000 and the other actual deductible expenses is P50,000. How much is the net estate of Fe Mann if she died as an alien and resident of the Philippines?a. P 90,000b. P1,000,000c. P1,090,000d. P1,200,000

Problem 5-6 Net Estate

The estate of the nonresident citizen decedent that are all located within the Philippines consist of the following:

Cash of P5,000,000, 20% of which is determined to be his exclusive capital.

His will designated P1,000,000 to be transferred in favor of the municipal government. The balance of the amount designated to his surviving wife.

How much would be the net taxable estate, if the actual funeral expense is P220,000?a. P3,800,000b. P2,380,000c. P1,900,000d. P 900,000

Problem 5-7 Net Estate

A nonresident citizen died leaving his only property to his surviving spouse. The real property is located in the Philippines

Which has a fair market value at the City Assessor’s schedule or value at the time of death at P1,500,000, while per BIR zonal assessment, it has P1,200,000 appraised value at that time. This was acquired through labor of husband and wife during the marriage at cost of P800,000. How much would be the net estate taxable in the Philippines if the total funeral and judicial expenses amounted to P60,000?a. P 220,000b. P 440,000c. P1,440,000d. P1,140,000

Problem 5-8 Net Estate

Information regarding the estate of Mr. Robert Asuncion are as follows:

Conjugal properties P3,400,000Exclusive properties 2,600,000Actual funeral expenses 450,000Judicial expenses 250,000Claims against exclusive properties 700,000Claims against conjugal properties 550,000

Assuming that Mr. Asuncion is survived by his wife, Mrs. Bencila Asuncion, his net estate isa. P2,100,000.b. P2,600,000.c. P3,100,000.d. P3,600,000.

Problem 5-9 Estate Tax

If the ne estate after the allowable deductions and allowances is P500,000, then the estate tax isa. P40,000b. P25,000c. P15,000d. P - 0 –

Problem 5-10 Net Estate and Estate Tax

The gross estate of nonresident alien, single, is P2,000,000 cash deposited in a bank in the Philippines. Funeral expense is P120,000. The net estate for Philippine estate tax computation is

Net estate Estate taxa. P 880,000 P 45,400b. P 990,000 P 47,000c. P1,900,000 P127,000d. P2,000,000 P135,000

Problem 5-11 Net Estate, Tax and Net Distributable Estate

Pedro Ocampo, married and resident of Quezon City, died on November 1, 2005: He left an estate consisting of the following:

Exclusive real estate P2,800,000Conjugal real estate – family home 1,600,000Conjugal personal property 800,000

During marriage, the couple borrowed P400,000 from PNB. The loan was secured by the exclusive real property. At the time of Pedro’s death there was a P300,000 unpaid balance of the mortgage payable.

Actual funeral expenses amounted to P245,000 and judicial expenses of P100,000.

1. How much is the net estate?a. P2,000,000b. P2,800,000c. P3,800,000d. P4,700,000

2. How much is the estate tax?a. P120,000b. P135,000c. P223,000d. P333,000

3. How much is the net distributable estate?a. P4,420,000b. P3,142,500c. P2,210,000d. P2,142,500

Problem 5-12 Estate Tax Credit

Which of the following is the correct tax credit against a P100,000 Philippine estate tax of a resident citizen’s estate?

Foreign Estateestate tax paid Within Without Tax credit

a. P10,000 P1M P4M P15,000b. P30,000 P2M P3M P25,000c. P65,000 P3M P2M P60,000d. P10,000 P2M P2M P 5,000

Problem 5-13 Estate Tax CreditWhat is the allowable estate tax credit for the estate of Mr. Richard Directo, a resident alien, with the following data:

Properties located in the Philippines P1,700,000Properties located in Laos 800,000Deductions including standard deduction 1,500,000Estate tax paid to Laos 20,000a. P17,600b. P20,000c. P37,400d. P55,000

Problem 5-14 Net Distributable EstateMr. Dee Kit died a Filipino citizen. Two months prior to his death, he was able to obtain a bank loan for P500,000. His house and lot were used as mortgage to secure the loan. The house and lot have a fair market value of P2,000,000 at date of Mr. Kit’s death. At date of his death, the loan has an unpaid balance of P480,000.

His cash balance in bank was P180,000 before payments of the following:

Funeral expenses P60,000Judicial expenses 20,000

Required: How much would be the net distributable estate to his heir?

Problem 5-15 Net Distributable Estate

Tom Ba died and was survived by his wife. The following are gathered regarding his estate:

Cash in bank P 400,000Promissory note signed by Tom (face value) 500,000Property, used as collateral for the promissory note 1,500,000Insurance proceeds received by wife

as irrevocable beneficiary 80,000Various receipts for the funeral expense 70,000

Required: Compute for the net distributable estate after tax if it is governed by conjugal regime of partnership.

Problem 5-16 Net Estate Distribution

Rolando Joseph Chua, a resident decedent, left the following assets and expenses. He is survived by his wife, Kristine Chua, and twelve dependent children.

Conjugal properties P1,000,000Exclusive properties – Rolando Joseph Chua 9,000,000Exclusive properties – Kristine Chua 2,000,000Funeral expenses 210,000Medical expenses 600,000Judicial expenses 200,000Claims against the estate 500,000

Required:1. How much is the net estate of Rolando Joseph Chua?2. How much is the inheritance of each heir?

Problem 5-17 Inheritance of Each Heir

Mr. Bungongot, died intestate and was survived by his two children and wife. His estates are as follows:

Real estate with unpaid mortgage of P500,000, fairmarket value at the date of death P2,000,000

Personal property inherited one year agoFair market value at date of inheritance 500,000Fair market value of date of death 300,000

Mr. Bungongot is a Filipino citizen and all his children are at their legal age when he died. Expenses claimed as deductions from the gross estate are funeral expense of P150,000 and judicial expense of P5,000.

Required: Compute the inheritance of each heir.

Problem 5-18 Comprehensive Problem

At start of the year, the following are the properties of Don and Dona Posamin, both primary resides at New York, Quezon City.

House and lot, Baguio City P1,000,000House and lot, New York Quezon City 1,500,000Grocery store, Baclaran 300,000Inventory, at cost 700,000Farmland, Sison Pangasinan, inherited byDona Posamin on November 2 of the previous year 200,000

Don Posamin died on November 1 of the same year due to dehydration. The fair market values of the aforementioned properties do not change. The P300,000 woth of inventory which was sold for P450,000 from January 1 to October 31 of the same year of which collections were deposited intact in the bank until the date of death.

Expenses claimed by the heirs as deductions from the gross estate with proper documentations:

Funeral expenses P250,000Claims against insolvent persons 50,000Medical expenses unpaid 550,000Unpaid income taxes 20,000

Required: Compute for the following:1. Gross estate2. Ordinary deductions3. Special deductions4. Share of surviving spouse5. Net taxable estate6. Estate tax7. Net distributable estate

Problem 5-19 Comprehensive Problem

Mr. A (a Filipino), died on November 1, 2005 and survived by his wife and 3 children. The gross estate and related expenses are presented to you for estate tax purposes:

Gross estate: House and lot (family home) P3,000,000 Time deposit at principal amount, interest per year 12% (date of deposit, January 1, 2004) 2,000,000 Car 1,000,000 Farm (inherited by his wife, February 1, 2003 with fair

market value of P1,000,000) 1,500,000Expenses: Funeral 250,000 Judicial 50,000 Claims against insolvent person 100,000 Medical 600,000

Required:1. Gross estate2. Ordinary deductions3. Special deductions4. Net taxable estate5. Estate tax6. Net distributable estate7. Share of each heir (intestate distribution)

Problem 5-20 Estate Tax Credit and Estate Tax Payable

Mr. Taga Rito, a Japanese, single and resident of Benguet, died leaving the following properties with fair market values at the date of his death as follows:

Properties in foreign country A P1,200,000Properties in foreign country B 2,500,000Properties in the Philippines 5,000,000

Property A has unpaid mortgage of P200,000. Property B has unpaid taxes of P500,000. Forty percent of property C is assigned by virtue of a will to the Philippine Government. Total funeral and judicial expenses amounted to P200,000 and P50,000, respectively. Estate tax paid to foreign countries are P75,000 and P140,000 to countries A and B, respectively.

Required: Compute for:1. Estate tax credit.2. Estate tax payable.

Problem 5 – 21 Transfer Tax Still Due

Mr. Lahotna, a Filipino, died on November 1, 2005 and was survived by his wif. At the date of his death, he has P2,000,000 cash in bank, and 100,000 shares holding of PureSwift Corporation with a sales value of P100 per share at the date of death. On January 15, he made a gift of P3,000,000 (real property) to his wife. He is insure for P1,000,000 designating his estate as beneficiary. The premium was paid for his exclusive property.

The Last will and testament of Mr. Lagotna reveals that his shares of stock in PureSwift Corporation shall be contributed to the local government of Zamboanga City for the maintenance of public park, and the balance shall be given to his wife.

Mr. Lagotna’s executor filed and paid the following tax returns:

Donor’s tax for gift to his wife P204,000

Estate tax P 38,840

Required: Compute the transfer tax still due for the estate tax of Mr. Lagotna.

Problem 5 – 22 Surcharges, Interest and Penalties.

On January 1. 2001, Mr. Campo Santo died leaving a net taxable estate amounting to P8,000,000. The related estate tax was not pain in 2001 despite of the continuous demands for payment made by the BIR. On July 1, 2005, however, his surviving spouse would like to sell a portion of the estate, but since the estate tax was not paid, it was suggested by the BIR that the relates estate tax should first be paid before the sale.

Required: Compute the total amount to be paid assuming that Mrs. Campo Santo paid on July 1, 2005.