RAFAEL ARSENIO S. DIZON, in his capacity as the Judicial Administrator of the Estate of the deceased JOSE P.

FERNANDEZ, Petitioner vs. COURT OF TAX APPEALS and COMMISSIONER OF INTERNAL REVENUE J. Nachura. 3rd Division Facts: On November 7, 1987, Jose P. Fernandez (Jose) died. Thereafter, a petition for the probate of his will was filed with Branch 51 of the Regional Trial Court (RTC) of Manila (probate court). The probate court then appointed retired Supreme Court Justice Arsenio P. Dizon (Justice Dizon) and petitioner, Atty. Rafael Arsenio P. Dizon (petitioner) as Special and Assistant Special Administrator, respectively, of the Estate of Jose (Estate). In a letter dated October 13, 1988, Justice Dizon informed respondent Commissioner of the Bureau of Internal Revenue (BIR) of the special proceedings for the Estate. After several extensions, on April 17, 1990, Atty. Gonzales wrote a letter addressed to the BIR Regional Director for San Pablo City and filed the estate tax return with the same BIR Regional Office, showing therein a NIL estate tax liability. A Certification stating that the taxes due on the transfer of real and personal properties of Jose had been fully paid and said properties may be transferred to his heirs was issued. Sometime in August 1990, Justice Dizon passed away. Thus, on October 22, 1990, the probate court appointed petitioner as the administrator of the Estate. Petitioner requested the probate court's authority to sell several properties forming part of the Estate, for the purpose of paying its creditors, namely: Equitable Banking Corporation, Banque de L'Indochine et. de Suez, Manila Banking Corporation and State Investment House, Inc. Petitioner manifested that Manila Bank, a major creditor of the Estate was not included, as it did not file a claim with the probate court since it had security over several real estate properties forming part of the Estate. However, on November 26, 1991, the Assistant Commissioner for Collection of the BIR, Themistocles Montalban, issued Estate Tax Assessment Notice demanding the payment of P66,973,985.40 as deficiency estate tax. The petition for review was denied by CTA. Nevertheless, the CTA did not fully adopt the assessment made by the BIR and it came up with its own computation of the deficiency estate tax. CA affirmed CTAs ruling. Issues: Whether the actual claims of the aforementioned creditors may be fully allowed as deductions from the gross estate of Jose despite the fact that the said claims were reduced or condoned through compromise agreements entered into by the Estate with its creditors. Held: Yes. Claims against the estate, as allowable deductions from the gross estate under Section 79 of the Tax Code, are basically a reproduction of the deductions allowed under Section 89 (a) (1) (C) and (E) of Commonwealth Act No. 466 (CA 466), otherwise known as the National Internal Revenue Code of 1939, and which was the first codification of Philippine tax laws. Philippine tax laws were, in turn, based on the federal tax laws of the United States. Thus, pursuant to established rules of statutory construction, the decisions of American courts construing the federal tax code are entitled to great weight in the interpretation of our own tax laws. It is noteworthy that even in the United States, there is some dispute as to whether the deductible amount for a claim against the estate is fixed as of the decedent's death which is the general rule, or the same should be adjusted to reflect post-death developments, such as where a settlement between the parties results in the reduction of the amount actually paid. On one hand, the U.S. court ruled that the appropriate deduction is the value that the claim had at the date of the decedent's death. Also, as held in Propstra v. U.S., where a lien claimed against the estate was certain and enforceable on the date of the decedent's death, the fact that the claimant subsequently settled for lesser amount did not preclude the estate from deducting the entire amount of the claim for estate tax purposes. These pronouncements essentially confirm the general principle that post-death

developments are not material in determining the amount of the deduction. The Propstra case applied the Ithaca Trust date-of-death valuation principle to enforceable claims against the estate. We express our agreement with the date-of-death valuation rule, made pursuant to the ruling of the U.S. Supreme Court in Ithaca Trust Co. v. United States. First. There is no law, nor do we discern any legislative intent in our tax laws, which disregards the date-of-death valuation principle and particularly provides that postdeath developments must be considered in determining the net value of the estate. It bears emphasis that tax burdens are not to be imposed, nor presumed to be imposed, beyond what the statute expressly and clearly imports, tax statutes being construed strictissimi juris against the government. Any doubt on whether a person, article or activity is taxable is generally resolved against taxation. Second. Such construction finds relevance and consistency in our Rules on Special Proceedings wherein the term "claims" required to be presented against a decedent's estate is generally construed to mean debts or demands of a pecuniary nature which could have been enforced against the deceased in his lifetime, or liability contracted by the deceased before his death. Therefore, the claims existing at the time of death are significant to, and should be made the basis of, the determination of allowable deductions. WHEREFORE, the instant Petition is GRANTED. Accordingly, the assailed Decision dated April 30, 1999 and the Resolution dated November 3, 1999 of the Court of Appeals in CA-G.R. S.P. No. 46947 are REVERSED and SET ASIDE. The Bureau of Internal Revenue's deficiency estate tax assessment against the Estate of Jose P. Fernandez is hereby NULLIFIED. No costs.

THIRD DIVISION COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. COURT OF APPEALS, COURT OF TAX APPEALS and JOSEFINA P. PAJONAR, as Administratrix of the Estate of Pedro P. Pajonar, respondents. RESOLUTION GONZAGA-REYES, J.: Facts: Pedro Pajonar, a member of the Philippine Scout, Bataan Contingent, during the second World War, was a part of the infamous Death March by reason of which he suffered shock and became insane. His sister Josefina Pajonar became the guardian over his person, while his property was placed under the guardianship of the Philippine National Bank (PNB) by the Regional Trial Court of Dumaguete City, Branch 31, in Special Proceedings No. 1254. He died on January 10, 1988. He was survived by his two brothers Isidro P. Pajonar and Gregorio Pajonar, his sister Josefina Pajonar, nephews Concordio Jandog and Mario Jandog and niece Conchita Jandog. On May 11, 1988, the PNB filed an accounting of the decedent's property under guardianship valued at P3,037,672.09 in Special Proceedings No. 1254. However, the PNB did not file an estate tax return, instead it advised Pedro Pajonar's heirs to execute an extrajudicial settlement and to pay the taxes on his estate. On April 5, 1988, pursuant to the assessment by the Bureau of Internal Revenue (BIR), the estate of Pedro Pajonar paid taxes in the amount of P2,557. On May 19, 1988, Josefina Pajonar filed a petition with the Regional Trial Court of Dumaguete City for the issuance in her favor of letters of administration of the estate of her brother. The case was docketed as Special Proceedings No. 2399. On July 18, 1988, the trial court appointed Josefina Pajonar as the regular administratrix of Pedro Pajonar's estate. On December 19, 1988, pursuant to a second assessment by the BIR for deficiency estate tax, the estate of Pedro Pajonar paid estate tax in the amount of P1,527,790.98. Josefina Pajonar, in her capacity as administratrix and heir of Pedro Pajonar's estate, filed a protest on January 11, 1989 with the BIR praying that the estate tax payment in the amount of P1,527,790.98, or at least some portion of it, be returned to the heirs. However, on August 15, 1989, without waiting for her protest to be resolved by the BIR, Josefina Pajonar filed a petition for review with the Court of Tax Appeals (CTA), praying for the refund of P1,527,790.98, or in the alternative, P840,202.06, as erroneously paid estate tax. The CTA ordered the Commissioner of Internal Revenue to refund Josefina Pajonar the amount of P252,585.59, representing erroneously paid estate tax for the year 1988. Among the deductions from the gross estate allowed by the CTA

were the amounts of P60,753 representing the notarial fee for the Extrajudicial Settlement and the amount of P50,000 as the attorney's fees in Special Proceedings No. 1254 for guardianship. On June 15, 1993, the Commissioner of Internal Revenue filed a motion for reconsideration of the CTA's May 6, 1993 decision asserting, among others, that the notarial fee for the Extrajudicial Settlement and the attorney's fees in the guardianship proceedings are not deductible expenses. On June 7, 1994, the CTA issued the assailed Resolution 8 ordering the Commissioner of Internal Revenue to refund Josefina Pajonar, as administratrix of the estate of Pedro Pajonar, the amount of P76,502.42 representing erroneously paid estate tax for the year 1988. Also, the CTA upheld the validity of the deduction of the notarial fee for the Extrajudicial Settlement and the attorney's fees in the guardianship proceedings. On July 5, 1994, the Commissioner of Internal Revenue filed with the Court of Appeals a petition for review of the CTA's May 6, 1993 Decision and its June 7, 1994 Resolution, questioning the validity of the abovementioned deductions. On December 21, 1995, the Court of Appeals denied the Commissioner's petition. Issue: Whether the notarial fee paid for the extrajudicial settlement in the amount of P60,753 and the attorney's fees in the guardianship proceedings in the amount of P50,000 may be allowed as deductions from the gross estate of decedent in order to arrive at the value of the net estate. Held: Yes. . Although the Tax Code specifies "judicial expenses of the testamentary or intestate proceedings," there is no reason why expenses incurred in the administration and settlement of an estate in extrajudicial proceedings should not be allowed. However, deduction is limited to such administration expenses as are actually and necessarily incurred in the collection of the assets of the estate, payment of the debts, and distribution of the remainder among those entitled thereto. Such expenses may include executor's or administrator's fees, attorney's fees, court fees and charges, appraiser's fees, clerk hire, costs of preserving and distributing the estate and storing or maintaining it, brokerage fees or commissions for selling or disposing of the estate, and the like. Deductible attorney's fees are those incurred by the executor or administrator in the settlement of the estate or in defending or prosecuting claims against or due the estate. It is clear then that the extrajudicial settlement was for the purpose of payment of taxes and the distribution of the estate to the heirs. The execution of the extrajudicial settlement necessitated the notarization of the same. Hence the Contract of Legal Services of March 28, 1988 entered into between respondent Josefina Pajonar and counsel was presented in evidence for the purpose of showing that the amount of P60,753.00 was for the notarization of the Extrajudicial Settlement. It follows then that the notarial fee of P60,753.00 was incurred primarily to settle the estate of the deceased Pedro Pajonar. Said amount should then be considered an administration expenses actually and necessarily incurred in the collection of the assets of the estate, payment of debts and distribution of the remainder among those entitled thereto. Thus, the notarial fee of P60,753 incurred for the Extrajudicial Settlement should be allowed as a deduction from the gross estate. Attorney's fees, on the other hand, in order to be deductible from the gross estate must be essential to the settlement of the estate. The amount of P50,000.00 was incurred as attorney's fees in the guardianship proceedings. Petitioner contends that said amount are not expenses of the testamentary or intestate proceedings as the guardianship proceeding was instituted during the lifetime of the decedent when there was yet no estate to be settled. Again, this contention must fail. The guardianship proceeding in this case was necessary for the distribution of the property of the deceased. The PNB was appointed guardian over the assets of the deceased, and that necessarily the assets of the deceased formed part of his gross estate. The deductions from the gross estate permitted under section 79 of the Tax Code basically reproduced the deductions allowed under Commonwealth Act No.

466 (CA 466), otherwise known as the National Internal Revenue Code of 1939, 16 and which was the first codification of Philippine tax laws. Section 89 (a) (1) (B) of CA 466 also provided for the deduction of the "judicial expenses of the testamentary or intestate proceedings" for purposes of determining the value of the net estate. Philippine tax laws were, in turn, based on the federal tax laws of the United States. In accord with established rules of statutory construction, the decisions of American courts construing the federal tax code are entitled to great weight in the interpretation of our own tax laws. Judicial expenses are expenses of administration. Administration expenses, as an allowable deduction from the gross estate of the decedent for purposes of arriving at the value of the net estate, have been construed by the federal and state courts of the United States to include all expenses "essential to the collection of the assets, payment of debts or the distribution of the property to the persons entitled to it." In other words, the expenses must be essential to the proper settlement of the estate. Expenditures incurred for the individual benefit of the heirs, devisees or legatees are not deductible. This distinction has been carried over to our jurisdiction. Thus, in Lorenzo v. Posadas 22 the Court construed the phrase "judicial expenses of the testamentary or intestate proceedings" as not including the compensation paid to a trustee of the decedent's estate when it appeared that such trustee was appointed for the purpose of managing the decedent's real estate for the benefit of the testamentary heir. In another case, the Court disallowed the premiums paid on the bond filed by the administrator as an expense of administration since the giving of a bond is in the nature of a qualification for the office, and not necessary in the settlement of the estate. Neither may attorney's fees incident to litigation incurred by the heirs in asserting their respective rights be claimed as a deduction from the gross estate. Coming to the case at bar, the notarial fee paid for the extrajudicial settlement is clearly a deductible expense since such settlement effected a distribution of Pedro Pajonar's estate to his lawful heirs. Similarly, the attorney's fees paid to PNB for acting as the guardian of Pedro Pajonar's property during his lifetime should also be considered as a deductible administration expense. PNB provided a detailed accounting of decedent's property and gave advice as to the proper settlement of the latter's estate, acts which contributed towards the collection of decedent's assets and the subsequent settlement of the estate.

SECOND DIVISION G.R. No. 120880 June 5, 1997 FERDINAND R. MARCOS II, petitioner, vs. COURT OF APPEALS, THE COMMISSIONER OF THE BUREAU OF INTERNAL REVENUE and HERMINIA D. DE GUZMAN, respondents.

TORRES, JR., J.: Facts: Petitioner Ferdinand R. Marcos II, the eldest son of the decedent, questions the actuations of the respondent Commissioner of Internal Revenue in assessing, and collecting through the summary remedy of Levy on Real Properties, estate and income tax delinquencies upon the estate and properties of his father, despite the pendency of the proceedings on probate of the will of the late president. Petitioner had filed with the respondent Court of Appeals a Petition for Certiorari and Prohibition with an application for writ of preliminary injunction and/or temporary restraining order on June 28, 1993, seeking to: I. Annul and set aside the Notices of Levy on real property dated February 22, 1993 and May 20, 1993, issued by respondent Commissioner of Internal Revenue; II. Annul and set aside the Notices of Sale dated May 26, 1993; III. Enjoin the Head Revenue Executive Assistant Director II (Collection Service), from proceeding with the Auction of the real properties covered by Notices of Sale. The Court of Appeals ruled that the deficiency assessments for estate and income tax made upon the petitioner and the estate of the deceased President Marcos have already become final and unappealable, and may thus be enforced by the summary remedy of levying upon the properties of the late President, as was done by the respondent Commissioner of Internal Revenue. Hence the instant petition. Petitioner submits that the probate court is not precluded from denying a request by the government for the immediate payment of taxes, and should order the payment of the same only within the period fixed by the probate court for the payment of all the debts of the decedent. On the other hand, it is argued by the BIR, that the state's authority to collect internal revenue taxes is paramount. Thus, the pendency of probate proceedings over the estate of the deceased does not preclude the assessment and collection, through summary remedies, of estate taxes over the same. According to the respondent, claims for payment of estate and income taxes due and assessed after the death of the decedent need not be presented in the form of a claim against the estate. These can and should be paid immediately. The probate court is not the government agency to decide whether an estate is liable for payment of estate of income taxes. Well-settled is the rule that the probate court is a court with special and limited jurisdiction. Issue: WON the Bureau of Internal Revenue has the authority to collect by the summary remedy of levying upon, and sale of real properties of the decedent, estate tax deficiencies, without the cognition and authority of the court sitting in probate over the supposed will of the deceased. Held: Yes. Strictly speaking, the assessment of an inheritance tax does not directly involve the administration of a decedent's estate, although it may be viewed as an incident to the complete settlement of an estate, and, under some statutes, it is made the duty of the probate court to make the amount of the inheritance tax a part of the final decree of distribution of the estate. It is not against the property of decedent, nor is it a claim against the estate as such, but it is against the interest or property right which the heir, legatee, devisee, etc., has in the property formerly held by decedent. Further, under some statutes, it has been held that it is not a suit or controversy between the parties, nor is it an adversary proceeding between the state and the person who owes the tax on the inheritance. However, under other statutes it has been held that the hearing and determination of the cash value of the assets and the determination of the tax are adversary proceedings. The proceeding has been held to be necessarily a proceeding in rem. Taxes assessed against the estate of a deceased person, after administration is opened, need not be submitted to the committee on claims in the ordinary course of administration. In the exercise of its control over the administrator, the court may direct the payment of such taxes upon motion showing that the taxes have been assessed against the estate. Such liberal treatment of internal revenue taxes in the probate proceedings extends so far, even to allowing the enforcement of tax obligations against the heirs of the decedent, even after distribution of the estate's properties. Claims for taxes, whether assessed before or after the death of the

deceased, can be collected from the heirs even after the distribution of the properties of the decedent. They are exempted from the application of the statute of non-claims. The heirs shall be liable therefor, in proportion to their share in the inheritance. From the foregoing, it is discernible that the approval of the court, sitting in probate, or as a settlement tribunal over the deceased is not a mandatory requirement in the collection of estate taxes. It cannot therefore be argued that the Tax Bureau erred in proceeding with the levying and sale of the properties allegedly owned by the late President, on the ground that it was required to seek first the probate court's sanction. There is nothing in the Tax Code, and in the pertinent remedial laws that implies the necessity of the probate or estate settlement court's approval of the state's claim for estate taxes, before the same can be enforced and collected. On the contrary, under Section 87 of the NIRC, it is the probate or settlement court which is bidden not to authorize the executor or judicial administrator of the decedent's estate to deliver any distributive share to any party interested in the estate, unless it is shown a Certification by the Commissioner of Internal Revenue that the estate taxes have been paid. This provision disproves the petitioner's contention that it is the probate court which approves the assessment and collection of the estate tax. If there is any issue as to the validity of the BIR's decision to assess the estate taxes, this should have been pursued through the proper administrative and judicial avenues provided for by law. Section 229 of the NIRC tells us how: Sec. 229. Protesting of assessment. When the Commissioner of Internal Revenue or his duly authorized representative finds that proper taxes should be assessed, he shall first notify the taxpayer of his findings. Within a period to be prescribed by implementing regulations, the taxpayer shall be required to respond to said notice. If the taxpayer fails to respond, the Commissioner shall issue an assessment based on his findings. Such assessment may be protested administratively by filing a request for reconsideration or reinvestigation in such form and manner as may be prescribed by implementing regulations within (30) days from receipt of the assessment; otherwise, the assessment shall become final and unappealable. If the protest is denied in whole or in part, the individual, association or corporation adversely affected by the decision on the protest may appeal to the Court of Tax Appeals within thirty (30) days from receipt of said decision; otherwise, the decision shall become final, executory and demandable. (As inserted by P.D. 1773) Apart from failing to file the required estate tax return within the time required for the filing of the same, petitioner, and the other heirs never questioned the assessments served upon them, allowing the same to lapse into finality, and prompting the BIR to collect the said taxes by levying upon the properties left by President Marcos. Issue of Prescription: Petitioner specifically points out that applying Memorandum Circular No. 38-68, implementing Sections 318 and 324 of the old tax code (Republic Act 5203), the BIR's Notices of Levy on the Marcos properties, were issued beyond the allowed period, and are therefore null and void. Notices of Levy were issued only on 22 February 1993 and 20 May 1993 when at least seventeen (17) months had already lapsed from the last service of tax assessment on 12 September 1991. As no notices of distraint of personal property were first issued by respondents, the latter should have complied with Revenue Memorandum Circular No. 38-68 and issued these Notices of Levy not earlier than three (3) months nor later than six (6) months from 12 September 1991. In accordance with the Circular, respondents only had until 12 March 1992 (the last day of the sixth month) within which to issue these Notices of Levy. The Notices of Levy, having been issued beyond the period allowed by law, are thus void and of no effect.

SC Ruling: The Notices of Levy upon real property were issued within the prescriptive period and in accordance with the provisions of the present Tax Code. The deficiency tax assessment, having already become final, executory, and demandable, the same can now be collected through the summary remedy of distraint or levy pursuant to Section 205 of the NIRC. Sec. 223. Exceptions as to a period of limitation of assessment and collection of taxes.(a) In the case of a false or fraudulent return with intent to evade tax or of a failure to file a return, the tax may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment, at any time within ten (10) years after the discovery of the falsity, fraud, or omission: Provided, That, in a fraud assessment which has become final and executory, the fact of fraud shall be judicially taken cognizance of in the civil or criminal action for the collection thereof. (c) Any internal revenue tax which has been assessed within the period of limitation above prescribed, may be collected by distraint or levy or by a proceeding in court within three years following the assessment of the tax. The omission to file an estate tax return, and the subsequent failure to contest or appeal the assessment made by the BIR is fatal to the petitioner's cause, as under the above-cited provision, in case of failure to file a return, the tax may be assessed at any time within ten years after the omission, and any tax so assessed may be collected by levy upon real property within three years following the assessment of the tax. Since the estate tax assessment had become final and unappealable by the petitioner's default as regards protesting the validity of the said assessment, there is now no reason why the BIR cannot continue with the collection of the said tax. Any objection against the assessment should have been pursued following the avenue paved in Section 229 of the NIRC on protests on assessments of internal revenue taxes. Petitioner further argues that "the numerous pending court cases questioning the late president's ownership or interests in several properties (both real and personal) make the total value of his estate, and the consequent estate tax due, incapable of exact pecuniary determination at this time. Thus, respondents' assessment of the estate tax and their issuance of the Notices of Levy and sale are premature and oppressive." Petitioner also expresses his reservation as to the propriety of the BIR's total assessment of P23,292,607,638.00, stating that this amount deviates from the findings of the Department of Justice's Panel of Prosecutors as per its resolution of 20 September 1991. SC: It is not the Department of Justice which is the government agency tasked to determine the amount of taxes due upon the subject estate, but the Bureau of Internal Revenue, whose determinations and assessments are presumed correct and made in good faith. The taxpayer has the duty of proving otherwise. In the absence of proof of any irregularities in the performance of official duties, an assessment will not be disturbed. Even an assessment based on estimates is prima facie valid and lawful where it does not appear to have been arrived at arbitrarily or capriciously. The burden of proof is upon the complaining party to show clearly that the assessment is erroneous. Failure to present proof of error in the assessment will justify the judicial affirmance of said assessment. In this instance, petitioner has not pointed out one single provision in the Memorandum of the Special Audit Team which gave rise to the questioned assessment, which bears a trace of falsity. Indeed, the petitioner's attack on the assessment bears mainly on the alleged improbable and unconscionable amount of the taxes charged. Petitioner argues that all the questioned Notices of Levy, however, must be nullified for having been issued without validly serving copies thereof to the petitioner. As a mandatory heir of the decedent, petitioner avers that he has an interest in the subject estate, and notices of levy upon its properties should have been served upon him. SC: In the case of notices of levy issued to satisfy the delinquent estate tax, the delinquent taxpayer is the Estate of the decedent, and not necessarily, and

exclusively, the petitioner as heir of the deceased. In the same vein, in the matter of income tax delinquency of the late president and his spouse, petitioner is not the taxpayer liable. Thus, it follows that service of notices of levy in satisfaction of these tax delinquencies upon the petitioner is not required by law, as under Section 213 of the NIRC, which pertinently states: xxx xxx xxx . . . Levy shall be effected by writing upon said certificate a description of the property upon which levy is made. At the same time, written notice of the levy shall be mailed to or served upon the Register of Deeds of the province or city where the property is located and upon the delinquent taxpayer, or if he be absent from the Philippines, to his agent or the manager of the business in respect to which the liability arose, or if there be none, to the occupant of the property in question. IN VIEW WHEREOF, the Court RESOLVED to DENY the present petition. The Decision of the Court of Appeals dated November 29, 1994 is hereby AFFIRMED in all respects.

SECOND DIVISION THE ESTATE OF HILARIO M. RUIZ, EDMOND RUIZ, Executor, petitioner, vs. THE COURT OF APPEALS (Former Special Sixth Division), MARIA PILAR RUIZ-MONTES, MARIA CATHRYN RUIZ, CANDICE ALBERTINE RUIZ, MARIA ANGELINE RUIZ and THE PRESIDING JUDGE OF THE REGIONAL TRIAL COURT OF PASIG, respondents. PUNO, J.: Facts: On June 27, 1987, Hilario M. Ruiz executed a holographic will naming as his heirs his only son, Edmond Ruiz, his adopted daughter, private respondent Maria Pilar Ruiz Montes, and his three granddaughters, private respondents Maria Cathryn, Candice Albertine and Maria Angeline, all children of Edmond Ruiz. The testator bequeathed to his heirs substantial cash, personal and real properties and named Edmond Ruiz executor of his estate.

On April 12, 1988, Hilario Ruiz died. Immediately thereafter, the cash component of his estate was distributed among Edmond Ruiz and private respondents in accordance with the decedent's will. For unbeknown reasons, Edmond, the named executor, did not take any action for the probate of his father's holographic will. On June 29, 1992, four years after the testator's death, it was private respondent Maria Pilar Ruiz Montes who filed, a petition for the probate and approval of Hilario Ruiz's will and for the issuance of letters testamentary to Edmond Ruiz. Edmond opposed the petition on the ground that the will was executed under undue influence. On November 2, 1992, one of the properties of the estate the house and lot at No. 2 Oliva Street, Valle Verde IV, Pasig which the testator bequeathed to Maria Cathryn, Candice Albertine and Maria Angeline was leased out by Edmond to third persons. On January 19, 1993, the probate court ordered Edmond to deposit with the Branch Clerk of Court the rental deposit and payments totalling P540,000.00 representing the one-year lease of the Valle Verde property. Edmond turned over the amount of P348,583.56, representing the balance of the rent after deducting P191,416.14 for repair and maintenance expenses on the estate. In March 1993, Edmond moved for the release of P50,000.00 to pay the real estate taxes on the real properties of the estate. The probate court approved the release of P7,722.00. On May 14, 1993, Edmond withdrew his opposition to the probate of the will. Consequently, the probate court, on May 18, 1993, admitted the will to probate and ordered the issuance of letters testamentary to Edmond conditioned upon the filing of a bond in the amount of P50,000.00. The letters testamentary were issued on June 23, 1993. On July 28, 1993, petitioner Testate Estate of Hilario Ruiz, with Edmond Ruiz as executor, filed an "Ex-Parte Motion for Release of Funds." It prayed for the release of the rent payments deposited with the Branch Clerk of Court. Respondent Montes opposed the motion and concurrently filed a "Motion for Release of Funds to Certain Heirs" and "Motion for Issuance of Certificate of Allowance of Probate Will." Montes prayed for the release of the said rent payments to Maria Cathryn, Candice Albertine and Maria Angeline and for the distribution of the testator's properties, specifically the Valle Verde property and the Blue Ridge apartments, in accordance with the provisions of the holographic will. On August 26, 1993, the probate court denied petitioner's motion for release of funds but granted respondent Montes' motion in view of petitioner's lack of opposition. It thus ordered the release of the rent payments to the decedent's three granddaughters. It further ordered the delivery of the titles to and possession of the properties bequeathed to the three granddaughters and respondent Montes upon the filing of a bond of P50,000.00. Petitioner moved for reconsideration alleging that he actually filed his opposition to respondent Montes's motion for release of rent payments which opposition the court failed to consider. Petitioner likewise reiterated his previous motion for release of funds. On November 23, 1993, petitioner, through counsel, manifested that he was withdrawing his motion for release of funds in view of the fact that the lease contract over the Valle Verde property had been renewed for another year. Despite petitioner's manifestation, the probate court, on December 22, 1993, ordered the release of the funds to Edmond but only "such amount as may be necessary to cover the expenses of administration and allowances for support" of the testator's three granddaughters subject to collation and deductible from their share in the inheritance. The court, however, held in abeyance the release of the titles to respondent Montes and the three granddaughters until the lapse of six months from the date of first publication of the notice to creditors. On appeal, CA affirmed probate courts decision, hence the instant petition. Issue: Whether the probate court, after admitting the will to probate but before payment of the estate's debts and obligations, has the authority: (1) to grant an allowance from the funds of the estate for the support of the testator's

grandchildren; (2) to order the release of the titles to certain heirs; and (3) to grant possession of all properties of the estate to the executor of the will. Held: 1) The grandchildren are not entitled to provisional support from the funds of the decedent's estate. The law clearly limits the allowance to "widow and children" and does not extend it to the deceased's grandchildren, regardless of their minority or incapacity. It was error, therefore, for the appellate court to sustain the probate court's order granting an allowance to the grandchildren of the testator pending settlement of his estate. 2) The probate court erred when they ordered the release of the titles of the bequeathed properties to private respondents six months after the date of first publication of notice to creditors. An order releasing titles to properties of the estate amounts to an advance distribution of the estate which is allowed only under the following conditions: Sec. 2. Advance distribution in special proceedings. Nothwithstanding a pending controversy or appeal in proceedings to settle the estate of a decedent, the court may, in its discretion and upon such terms as it may deem proper and just, permit that such part of the estate as may not be affected by the controversy or appeal be distributed among the heirs or legatees, upon compliance with the conditions set forth in Rule 90 of these Rules. And Rule 90 provides that: Sec. 1. When order for distribution of residue made. When the debts, funeral charges, and expenses of administration the allowance to the widow, and inheritance tax if any, chargeable to the estate in accordance with law, have been paid, the court, on the application of the executor or administrator, or of a person interested in the estate, and after hearing upon notice shall assign the residue of the estate to the persons entitled to the same In settlement of estate proceedings, the distribution of the estate properties can only be made: (1) after all the debts, funeral charges, expenses of administration, allowance to the widow, and estate tax have been paid; or (2) before payment of said obligations only if the distributees or any of them gives a bond in a sum fixed by the court conditioned upon the payment of said obligations within such time as the court directs, or when provision is made to meet those obligations. In the case at bar, the probate court ordered the release of the titles to the Valle Verde property and the Blue Ridge apartments to the private respondents after the lapse of six months from the date of first publication of the notice to creditors. The questioned order speaks of "notice" to creditors, not payment of debts and obligations. Hilario Ruiz allegedly left no debts when he died but the taxes on his estate had not hitherto been paid, much less ascertained. The estate tax is one of those obligations that must be paid before distribution of the estate. If not yet paid, the rule requires that the distributees post a bond or make such provisions as to meet the said tax obligation in proportion to their respective shares in the inheritance. Notably, at the time the order was issued the properties of the estate had not yet been inventoried and appraised. It was also too early in the day for the probate court to order the release of the titles six months after admitting the will to probate. The probate of a will is conclusive as to its due execution and extrinsic validity and settles only the question of whether the testator, being of sound mind, freely executed it in accordance with the formalities prescribed by law. Questions as to the intrinsic validity and efficacy of the provisions of the will, the legality of any devise or legacy may be raised even after the will has been authenticated. 3) Petitioner cannot correctly claim that the assailed order deprived him of his right to take possession of all the real and personal properties of the estate. The right of an executor or administrator to the possession and management of the real and personal properties of the deceased is not absolute and can only be exercised "so long as it is necessary for the payment of the debts and expenses of

administration," Section 3 of Rule 84 of the Revised Rules of Court explicitly provides: Sec. 3. Executor or administrator to retain whole estate to pay debts, and to administer estate not willed. An executor or administrator shall have the right to the possession and management of the real as well as the personal estate of the deceased so long as it is necessary for the payment of the debts and expenses for administration. Petitioner must be reminded that his right of ownership over the properties of his father is merely inchoate as long as the estate has not been fully settled and partitioned. 30 As executor, he is a mere trustee of his father's estate. He cannot unilaterally assign to himself and possess all his parents' properties and the fruits thereof without first submitting an inventory and appraisal of all real and personal properties of the deceased, rendering a true account of his administration, the expenses of administration, the amount of the obligations and estate tax, all of which are subject to a determination by the court as to their veracity, propriety and justness.

PABLO LORENZO, as trustee of the estate of Thomas Hanley vs. JUAN POSADAS, JR., Collector of Internal Revenue Facts: On May 27, 1922, Thomas Hanley died. He left a will. The proceedings for its probate and the settlement and distribution of the estate begun on June 14, 1922. The will provides that: a. The money left shall be given to deceaseds nephew, Matthew b. The real estate shall be sold 10 years after death, which shall be handles by the executors and proceeds thereof shall be given to Matthew, which proceeds shall be used for the education of his brothers (Malachi Hanley) children and descendants. c. The other property may be disposed of in the way most advantageous by Matthew 10 years after deceaseds death. The CFI-Zamboanga considered it proper for the best interests of the estate to appoint a trustee to administer the real properties. Hence, Moore, one of the two executors named in the will was appointed as trustee. Moore took his oath of office and gave bond on March 10, 1924. He resigned on January 29, 1932 and so, Lorenzo replaced him. During Lorenzos incumbency, Posadas, assessed an inheritance tax, with penalties for delinquency, consisting of 1% interest from July 1, 1931, and a surcharge of 25% on the tax. Lorenzo paid the amount of P2,052.74 under protest. Lorenzo now claims for refund. The trial court dismissed the complaint. Hence the appeal. ISSUES: 1. When does the inheritance tax accrue and when it must be satisfied? 2. W/N the inheritance tax be based upon the value of the estate upon the death of the testator or upon the value of the estate at the expiration of the 10 years. 3. W/N the compensation of the trustee is a lawful deduction. 4. What tax law governs the case at bar? 5. Was there any delinquency? HELD: 1. The accrual of the inheritance tax is distinct from the obligation to pay the same. The property belongs to the heirs at the moment of the death of the ancestor as completely as if the ancestor had executed and delivered to them a deed for the same before his death. From the fact that Thomas Hanley died on May 27, 1922, it does not follow that the obligation to pay the tax arose as of that date. The time for the payment of inheritance tax is clearly fixed by section 1544 of the Revised

Administrative Code, as amended by Act No. 3031, in relation to Sec. 1544. Sec. 1544 provides that, the tax should be paid within six months subsequent to the death of the predecessor; but if judicial testamentary or intestate proceedings shall be instituted prior to the expiration of said period, the payment shall be made by the executor or administrator before delivering to each beneficiary his share. Therefore, the tax should have been paid before the delivery of the properties to Moore as trustee on March 10, 1924. 2. Death is the generating source from which the power of the state to impose inheritance taxes takes its being. Upon the death of the decedent, succession takes place and the right of the state to tax vests instantly, notwithstanding the postponement of the actual possession or enjoyment of the estate by the beneficiary. Hence, the tax should be measured by the value of the estate at the time of the decedents death regardless of any appreciation or depreciation. 3. No. The contention that the trustees compensation is a judicial expense is untenable. There is no law allowing the trustees compensation to be deducted in determining the net estate subject to inheritance tax. Furthermore, though a testamentary trust has been created, it does not appear that the testator intended that the duties of his executors and trustees should be separated. Judicial expenses are expenses of administration. However, the compensation of a trustee, earned not in the administration of the estate but in the management thereof, for the benefit of the legatees or devisees does not come properly within the class or reason for exempting administration expenses. Services rendered in that behalf have no reference to closing the estate for the purpose of a distribution thereof to those entitled to it and are not required or essential to the perfection of the rights of the heirs or legatees. 4. The law in force at the time of the death of testator, which is Sec. 1544 of Revised Administrative Code as amended by Act No. 3031. Act. No. 3606, which took effect on January 1, 1930 cannot be given retroactive effect, as there was no legislative intent to that effect. Posadas contention is untenable, when he said that the provisions of Act No. 3606 is favorable to the taxpayer, since (a) the surcharge of 25% is based on the tax only, instead of on both tax and interest provided for by Act 3031 and (b) the taxpayer is given 20 days from notice and demand to pay instead of 10 days in Act 3031. Tax laws generally are not penal laws. 5. Yes. The mere fact that the estate of the deceased was placed in trust did not remove it from the operation of our inheritance tax. The corresponding inheritance tax should have been paid on or before March 10, 1924 to escape the penalties of the law. This is because the delivery of the estate to the trustee is a delivery to the beneficiary. A trustee is an agent for the beneficiary. Hence the estate vested absolutely to the beneficiary. The Court reasoned that if it would be allowed that the payment of the tax be after 10 years, then the collection would then be left to the will of the private individual. This would be disastrous as taxes are essential to the very existence of the government.