Tax Reform Act of 1997

TITLE III
ESTATE AND DONOR'S TAXES

CHAPTER I - ESTATE TAX

Section 84. Rates of Estate Tax. There shall be levied, assessed, collected and paid upon the
transfer of the net estate as determined in accordance with Sections 85 and 86 of every decedent,
whether resident or nonresident of the Philippines, a tax based on the value of such net estate, as
computed in accordance with the following schedule:

If the net estate is:

But Not The Tax shall Of the Excess

Over Plus
Over be Over

P 200,000 Exempt
P 200,000 550,000 0 5% P 200,000
500,000 2,000,000 P 15,000 8% 500,000

2,000,000 5,000,000 135,000 11% 2,000,000

5,000,000 10,000,000 465,000 15% 5,000,000

10,000,000 And Over 1,215,000 20% 10,000,000

Section 85. Gross Estate. - the value of the gross estate of the decedent shall be determined by
including the value at the time of his death of all property, real or personal, tangible or intangible,
wherever situated: Provided, however, that in the case of a nonresident decedent who at the time of
his death was not a citizen of the Philippines, only that part of the entire gross estate which is
situated in the Philippines shall be included in his taxable estate.

(A) Decedent's Interest. - To the extent of the interest therein of the decedent at the time of
his death;

(B) Transfer in Contemplation of Death. - To the extent of any interest therein of which the
decedent has at any time made a transfer, by trust or otherwise, in contemplation of or
intended to take effect in possession or enjoyment at or after death, or of which he has at
any time made a transfer, by trust or otherwise, under which he has retained for his life or for
any period which does not in fact end before his death (1) the possession or enjoyment of, or
the right to the income from the property, or (2) the right, either alone or in conjunction with
any person, to designate the person who shall possess or enjoy the property or the income
therefrom; except in case of a bonafide sale for an adequate and full consideration in money
or money's worth.

(C) Revocable Transfer. -

(1) To the extent of any interest therein, of which the decedent has at any time made
a transfer (except in case of a bona fide sale for an adequate and full consideration
 in money or money's worth) by trust or otherwise, where the enjoyment thereof was
subject at the date of his death to any change through the exercise of a power (in
whatever capacity exerciseable) by the decedent alone or by the decedent in
conjunction with any other person (without regard to when or from what source the
decedent acquired such power), t o alter, amend, revoke, or terminate, or where any
such power is relinquished in contemplation of the decedent's death.

(2) For the purpose of this Subsection, the power to alter, amend or revoke shall be
considered to exist on the date of the decedent's death even though the exercise of
the power is subject to a precedent giving of notice or even though the alteration,
amendment or revocation takes effect only on the expiration of a stated period after
the exercise of the power, whether or not on or before the date of the decedent's
death notice has been given or the power has been exercised. In such cases, proper
adjustment shall be made representing the interests which would have been
excluded from the power if the decedent had lived, and for such purpose if the notice
has not been given or the power has not been exercised on or before the date of his

death, such notice shall be considered to have been given, or the power exercised,
on the date of his death.

(D) Property Passing Under General Power of Appointment. - To the extent of any property
passing under a general power of appointment exercised by the decedent: (1) by will, or (2)
by deed executed in contemplation of, or intended to take effect in possession or enjoyment
at, or after his death, or (3) by deed under which he has retained for his life or any period not
ascertainable without reference to his death or for any period which does not in fact end
before his death (a) the possession or enjoyment of, or the right to the income from, the
property, or (b) the right, either alone or in conjunction with any person, to designate the
persons who shall possess or enjoy the property or the income therefrom; except in case of
a bona fide sale for an adequate and full consideration in money or money's worth.

(E) Proceeds of Life Insurance. - To the extent of the amount receivable by the estate of the
deceased, his executor, or administrator, as insurance under policies taken out by the
decedent upon his own life, irrespective of whether or not the insured retained the power of
revocation, or to the extent of the amount receivable by any beneficiary designated in the
policy of insurance, except when it is expressly stipulated that the designation of the
beneficiary is irrevocable.

(F) Prior Interests. - Except as otherwise specifically provided therein, Subsections (B), (C)
and (E) of this Section shall apply to the transfers, trusts, estates, interests, rights, powers
and relinquishment of powers, as severally enumerated and described therein, whether
made, created, arising, existing, exercised or relinquished before or after the effectivity of this
Code.

(G) Transfers of Insufficient Consideration. - If any one of the transfers, trusts, interests,
rights or powers enumerated and described in Subsections (B), (C) and (D) of this Section is
made, created, exercised or relinquished for a consideration in money or money's worth, but
is not a bona fide sale for an adequate and full consideration in money or money's worth,
there shall be included in the gross estate only the excess of the fair market value, at the
time of death, of the property otherwise to be included on account of such transaction, over
the value of the consideration received therefor by the decedent.
 (H) Capital of the Surviving Spouse. - The capital of the surviving spouse of a decedent shall
not, for the purpose of this Chapter, be deemed a part of his or her gross estate.

Section 86. Computation of Net Estate. - For the purpose of the tax imposed in this Chapter, the
value of the net estate shall be determined:

(A) Deductions Allowed to the Estate of Citizen or a Resident. - In the case of a citizen or
resident of the Philippines, by deducting from the value of the gross estate -

(1) Expenses, Losses, Indebtedness, and taxes. - Such amounts -

(a) For actual funeral expenses or in an amount equal to five percent (5%) of
the gross estate, whichever is lower, but in no case to exceed Two hundred
thousand pesos (P200,000);

(b) For judicial expenses of the testamentary or intestate proceedings;

(c) For claims against the estate: Provided, That at the time the indebtedness
was incurred the debt instrument was duly notarized and, if the loan was
contracted within three (3) years before the death of the decedent, the
administrator or executor shall submit a statement showing the disposition of
the proceeds of the loan;

(d) For claims of the deceased against insolvent persons where the value of
decedent's interest therein is included in the value of the gross estate; and

(e) For unpaid mortgages upon, or any indebtedness in respect to, property
where the value of decedent's interest therein, undiminished by such
mortgage or indebtedness, is included in the value of the gross estate, but
not including any income tax upon income received after the death of the
decedent, or property taxes not accrued before his death, or any estate tax.
The deduction herein allowed in the case of claims against the estate, unpaid
mortgages or any indebtedness shall, when founded upon a promise or
agreement, be limited to the extent that they were contracted bona fide and
for an adequate and full consideration in money or money's worth. There
shall also be deducted losses incurred during the settlement of the estate
arising from fires, storms, shipwreck, or other casualties, or from robbery,
theft or embezzlement, when such losses are not compensated for by
insurance or otherwise, and if at the time of the filing of the return such
losses have not been claimed as a deduction for the income tax purposes in
an income tax return, and provided that such losses were incurred not later
than the last day for the payment of the estate tax as prescribed in
Subsection (A) of Section 91.

(2) Property Previously Taxed. - An amount equal to the value specified below of any
property forming a part of the gross estate situated in the Philippines of any person
who died within five (5) years prior to the death of the decedent, or transferred to the
decedent by gift within five (5) years prior to his death, where such property can be
identified as having been received by the decedent from the donor by gift, or from
such prior decedent by gift, bequest, devise or inheritance, or which can be identified
as having been acquired in exchange for property so received:
 One hundred percent (100%) of the value, if the prior decedent died within
one (1) year prior to the death of the decedent, or if the property was
transferred to him by gift within the same period prior to his death;

Eighty percent (80%) of the value, if the prior decedent died more than one
(1) year but not more than two (2) years prior to the death of the decedent, or
if the property was transferred to him by gift within the same period prior to
his death;

Sixty percent (60%) of the value, if the prior decedent died more than two (2)
years but not more than three (3) years prior to the death of the decedent, or
if the property was transferred to him by gift within the same period prior to
his death;

Forty percent (40%) of the value, if the prior decedent died more than three
(3) years but not more than four (4) years prior to the death of the decedent,
or if the property was transferred to him by gift within the same period prior to
his death;

Twenty percent (20%) of the value, if the prior decedent died more than four
(4) years but not more than five (5) years prior to the death of the decedent,
or if the property was transferred to him by gift within the same period prior to
his death;

These deductions shall be allowed only where a donor's tax or estate tax
imposed under this Title was finally determined and paid by or on behalf of
such donor, or the estate of such prior decedent, as the case may be, and
only in the amount finally determined as the value of such property in
determining the value of the gift, or the gross estate of such prior decedent,
and only to the extent that the value of such property is included in the
decedent's gross estate, and only if in determining the value of the estate of
the prior decedent, no deduction was allowable under paragraph (2) in
respect of the property or properties given in exchange therefor. Where a
deduction was allowed of any mortgage or other lien in determining the
donor's tax, or the estate tax of the prior decedent, which was paid in whole
or in part prior to the decedent's death, then the deduction allowable under
said Subsection shall be reduced by the amount so paid. Such deduction
allowable shall be reduced by an amount which bears the same ratio to the
amounts allowed as deductions under paragraphs (1) and (3) of this
Subsection as the amount otherwise deductible under said paragraph (2)
bears to the value of the decedent's estate. Where the property referred to
consists of two or more items, the aggregate value of such items shall be
used for the purpose of computing the deduction.

(3) Transfers for Public Use. - The amount of all the bequests, legacies, devises or
transfers to or for the use of the Government of the Republic of the Philippines, or
any political subdivision thereof, for exclusively public purposes.

(4) The Family Home. - An amount equivalent to the current fair market value of the
decedent's family home: Provided, however, That if the said current fair market value
exceeds One million pesos (P1,000,000), the excess shall be subject to estate tax.
As a sine qua non condition for the exemption or deduction, said family home must
 have been the decedent's family home as certified by the barangay captain of the
locality.

(5) Standard Deduction. - An amount equivalent to One million pesos (P1,000,000).

(6) Medical Expenses. - Medical Expenses incurred by the decedent within one (1)
year prior to his death which shall be duly substantiated with receipts: Provided, That
in no case shall the deductible medical expenses exceed Five Hundred Thousand
Pesos (P500,000).

(7) Amount Received by Heirs Under Republic Act No. 4917. - Any amount received
by the heirs from the decedent - employee as a consequence of the death of the
decedent-employee in accordance with Republic Act No. 4917: Provided, That such
amount is included in the gross estate of the decedent.

(B) Deductions Allowed to Nonresident Estates. - In the case of a nonresident not a citizen of
the Philippines, by deducting from the value of that part of his gross estate which at the time
of his death is situated in the Philippines:

(1) Expenses, Losses, Indebtedness and Taxes. - That proportion of the deductions
specified in paragraph (1) of Subsection (A) of this Section which the value of such
part bears to the value of his entire gross estate wherever situated;

(2) Property Previously Taxed. - An amount equal to the value specified below of any
property forming part of the gross estate situated in the Philippines of any person
who died within five (5) years prior to the death of the decedent, or transferred to the
decedent by gift within five (5) years prior to his death, where such property can be
identified as having been received by the decedent from the donor by gift, or from
such prior decedent by gift, bequest, devise or inheritance, or which can be identified
as having been acquired in exchange for property so received:

One hundred percent (100%) of the value if the prior decedent died within
one (1) year prior to the death of the decedent, or if the property was
transferred to him by gift, within the same period prior to his death;

Eighty percent (80%) of the value, if the prior decedent died more than one
(1) year but not more than two (2) years prior to the death of the decedent, or
if the property was transferred to him by gift within the same period prior to
his death;

Sixty percent (60%) of the value, if the prior decedent died more than two (2)
years but not more than three (3) years prior to the death of the decedent, or
if the property was transferred to him by gift within the same period prior to
his death;

Forty percent (40%) of the value, if the prior decedent died more than three
(3) years but not more than four (4) years prior to the death of the decedent,
or if the property was transferred to him by gift within the same period prior to
his death; and
 Twenty percent (20%) of the value, if the prior decedent died more than four
(4) years but not more than five (5) years prior to the death of the decedent,
or if the property was transferred to him by gift within the same period prior to
his death.

These deductions shall be allowed only where a donor's tax, or estate tax
imposed under this Title is finally determined and paid by or on behalf of such
donor, or the estate of such prior decedent, as the case may be, and only in
the amount finally determined as the value of such property in determining
the value of the gift, or the gross estate of such prior decedent, and only to
the extent that the value of such property is included in that part of the
decedent's gross estate which at the time of his death is situated in the
Philippines; and only if, in determining the value of the net estate of the prior
decedent, no deduction is allowable under paragraph (2) of Subsection (B) of
this Section, in respect of the property or properties given in exchange
therefore. Where a deduction was allowed of any mortgage or other lien in
determining the donor's tax, or the estate tax of the prior decedent, which
was paid in whole or in part prior to the decedent's death, then the deduction
allowable under said paragraph shall be reduced by the amount so paid.
Such deduction allowable shall be reduced by an amount which bears the
same ratio to the amounts allowed as deductions under paragraphs (1) and
(3) of this Subsection as the amount otherwise deductible under paragraph
(2) bears to the value of that part of the decedent's gross estate which at the
time of his death is situated in the Philippines. Where the property referred to
consists of two (2) or more items, the aggregate value of such items shall be
used for the purpose of computing the deduction.

(3) Transfers for Public Use. - The amount of all bequests, legacies, devises or
transfers to or for the use of the Government of the Republic of the Philippines or any
political subdivision thereof, for exclusively public purposes.

(C) Share in the Conjugal Property. - the net share of the surviving spouse in the conjugal
partnership property as diminished by the obligations properly chargeable to such property
shall, for the purpose of this Section, be deducted from the net estate of the decedent.

(D) Miscellaneous Provisions. - No deduction shall be allowed in the case of a nonresident

not a citizen of the Philippines, unless the executor, administrator, or anyone of the heirs, as
the case may be, includes in the return required to be filed under Section 90 the value at the
time of his death of that part of the gross estate of the nonresident not situated in the
Philippines.

(E) Tax Credit for Estate Taxes paid to a Foreign Country. -

(1) In General. - The tax imposed by this Title shall be credited with the amounts of
any estate tax imposed by the authority of a foreign country.

(2) Limitations on Credit. - The amount of the credit taken under this Section shall be
subject to each of the following limitations:

(a) The amount of the credit in respect to the tax paid to any country shall not
exceed the same proportion of the tax against which such credit is taken,
 which the decedent's net estate situated within such country taxable under
this Title bears to his entir net estate; and

(b) The total amount of the credit shall not exceed the same proportion of the
tax against which such credit is taken, which the decedent's net estate
situated outside the Philippines taxable under this Title bears to his entire net
estate.

Section 87. Exemption of Certain Acquisitions and Transmissions. - The following shall not be
taxed:

(A) The merger of usufruct in the owner of the naked title;

(B) The transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee
to the fideicommissary;

(C) The transmission from the first heir, legatee or donee in favor of another beneficiary, in
accordance with the desire of the predecessor; and

(D) All bequests, devises, legacies or transfers to social welfare, cultural and charitable
institutions, no part of the net income of which insures to the benefit of any individual:
Provided, however, That not more than thirty percent (30%) of the said bequests, devises,
legacies or transfers shall be used by such institutions for administration purposes.

Section 88. Determination of the Value of the Estate. -

(A) Usufruct. - To determine the value of the right of usufruct, use or habitation, as well as
that of annuity, there shall be taken into account the probable life of the beneficiary in
accordance with the latest Basic Standard Mortality Table, to be approved by the Secretary
of Finance, upon recommendation of the Insurance Commissioner.

(B) Properties. - The estate shall be appraised at its fair market value as of the time of death.
However, the appraised value of real property as of the time of death shall be, whichever is
higher of -

(1) The fair market value as determined by the Commissioner, or

(2) The fair market value as shown in the schedule of values fixed by the Provincial
and City Assessors.

Section 89. Notice of Death to be Filed. - In all cases of transfers subject to tax, or where, though
exempt from tax, the gross value of the estate exceeds Twenty thousand pesos (P20,000), the
executor, administrator or any of the legal heirs, as the case may be, within two (2) months after the
decedent's death, or within a like period after qualifying as such executor or administrator, shall give
a written notice thereof to the Commissioner.

Section 90. Estate Tax Returns. -

(A) Requirements. - In all cases of transfers subject to the tax imposed herein, or where,
though exempt from tax, the gross value of the estate exceeds Two hundred thousand pesos
(P200,000), or regardless of the gross value of the estate, where the said estate consists of
 registered or registrable property such as real property, motor vehicle, shares of stock or
other similar property for which a clearance from the Bureau of Internal Revenue is required
as a condition precedent for the transfer of ownership thereof in the name of the transferee,
the executor, or the administrator, or any of the legal heirs, as the case may be, shall file a
return under oath in duplicate, setting forth:

(1) The value of the gross estate of the decedent at the time of his death, or in case
of a nonresident, not a citizen of the Philippines, of that part of his gross estate
situated in the Philippines;

(2) The deductions allowed from gross estate in determining the estate as defined in
Section 86; and

(3) Such part of such information as may at the time be ascertainable and such
supplemental data as may be necessary to establish the correct taxes.

Provided, however, That estate tax returns showing a gross value exceeding Two
million pesos (P2,000,000) shall be supported with a statement duly certified to by a
Certified Public Accountant containing the following:

(a) Itemized assets of the decedent with their corresponding gross value at
the time of his death, or in the case of a nonresident, not a citizen of the
Philippines, of that part of his gross estate situated in the Philippines;

(b) Itemized deductions from gross estate allowed in Section 86; and

(c) The amount of tax due whether paid or still due and outstanding.

(B) Time for filing. - For the purpose of determining the estate tax provided for in Section 84
of this Code, the estate tax return required under the preceding Subsection (A) shall be filed
within six (6) months from the decedent's death.

A certified copy of the schedule of partition and the order of the court approving the same
shall be furnished the Commissioner within thirty (30) after the promulgation of such order.

(C) Extension of Time. - The Commissioner shall have authority to grant, in meritorious
cases, a reasonable extension not exceeding thirty (30) days for filing the return.

(D) Place of Filing. - Except in cases where the Commissioner otherwise permits, the return
required under Subsection (A) shall be filed with an authorized agent bank, or Revenue
District Officer, Collection Officer, or duly authorized Treasurer of the city or municipality in
which the decedent was domiciled at the time of his death or if there be no legal residence in
the Philippines, with the Office of the Commissioner.

Section 91. Payment of Tax. -

(A) Time of Payment. - The estate tax imposed by Section 84 shall be paid at the time the
return is filed by the executor, administrator or the heirs.

(B) Extension of Time. - When the Commissioner finds that the payment on the due date of
the estate tax or of any part thereof would impose undue hardship upon the estate or any of
 the heirs, he 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. In such case, the amount in respect of which the extension is
granted shall be paid on or before the date of the expiration of the period of the extension,
and the running of the Statute of Limitations for assessment as provided in Section 203 of
this Code shall be suspended for the period of any such extension.

Where the taxes are assessed by reason of negligence, intentional disregard of rules and
regulations, or fraud on the part of the taxpayer, no extension will be granted by the
Commissioner.

If an extension is granted, the Commissioner may require the executor, or administrator, or

beneficiary, as the case may be, to furnish a bond in such amount, not exceeding double the
amount of the tax and with such sureties as the Commissioner deems necessary,
conditioned upon the payment of the said tax in accordance with the terms of the extension.

(C) Liability for Payment - The estate tax imposed by Section 84 shall be paid by the
executor or administrator before delivery to any beneficiary of his distributive share of the
estate. Such beneficiary shall to the extent of his distributive share of the estate, be
subsidiarily liable for the payment of such portion of the estate tax as his distributive share
bears to the value of the total net estate.

For the purpose of this Chapter, the term 'executor' or 'administrator' means the executor or
administrator of the decedent, or if there is no executor or administrator appointed, qualified,
and acting within the Philippines, then any person in actual or constructive possession of any
property of the decedent.

Section 92. Discharge of Executor or Administrator from Personal Liability. - If the executor or
administrator makes a written application to the Commissioner for determination of the amount of the
estate tax and discharge from personal liability therefore, the Commissioner (as soon as possible,
and in any event within one (1) year after the making of such application, or if the application is
made before the return is filed, then within one (1) year after the return is filed, but not after the
expiration of the period prescribed for the assessment of the tax in Section 203 shall not notify the
executor or administrator of the amount of the tax. The executor or administrator, upon payment of
the amount of which he is notified, shall be discharged from personal liability for any deficiency in the
tax thereafter found to be due and shall be entitled to a receipt or writing showing such discharge.

Section 93. Definition of Deficiency. - As used in this Chapter, the term 'deficiency' means:

(a) The amount by which the tax imposed by this Chapter exceeds the amount shown as the
tax by the executor, administrator or any of the heirs upon his return; but the amounts so
shown on the return shall first be increased by the amounts previously assessed (or
collected without assessment) as a deficiency and decreased by the amount previously
abated, refunded or otherwise repaid in respect of such tax; or

(b) If no amount is shown as the tax by the executor, administrator or any of the heirs upon
his return, or if no return is made by the executor, administrator, or any heir, then the amount
by which the tax exceeds the amounts previously assessed (or collected without
assessment) as a deficiency; but such amounts previously assessed or collected without
assessment shall first be decreased by the amounts previously abated, refunded or
otherwise repaid in respect of such tax.
Section 94. Payment before Delivery by Executor or Administrator. - No judge shall authorize the
executor or judicial administrator to deliver a distributive share to any party interested in the estate
unless a certification from the Commissioner that the estate tax has been paid is shown.

Section 95. Duties of Certain Officers and Debtors. - Registers of Deeds shall not register in the
Registry of Property any document transferring real property or real rights therein or any chattel
mortgage, by way of gifts inter vivos or mortis causa, legacy or inheritance, unless a certification
from the Commissioner that the tax fixed in this Title and actually due thereon had been paid is
show, and they shall immediately notify the Commissioner, Regional Director, Revenue District
Officer, or Revenue Collection Officer or Treasurer of the city or municipality where their offices are
located, of the non payment of the tax discovered by them. Any lawyer, notary public, or any
government officer who, by reason of his official duties, intervenes in the preparation or
acknowledgment of documents regarding partition or disposal of donation intervivos or mortis causa,
legacy or inheritance, shall have the duty of furnishing the Commissioner, Regional Director,
Revenue District Officer or Revenue Collection Officer of the place where he may have his principal
office, with copies of such documents and any information whatsoever which may facilitate the
collection of the aforementioned tax. Neither shall a debtor of the deceased pay his debts to the
heirs, legatee, executor or administrator of his creditor, unless the certification of the Commissioner
that the tax fixed in this Chapter had been paid is shown; but he may pay the executor or judicial
administrator without said certification if the credit is included in the inventory of the estate of the
deceased.

Section 96. Restitution of Tax Upon Satisfaction of Outstanding Obligations. - If after the payment of
the estate tax, new obligations of the decedent shall appear, and the persons interested shall have
satisfied them by order of the court, they shall have a right to the restitution of the proportional part of
the tax paid.

Section 97. Payment of Tax Antecedent to the Transfer of Shares, Bonds or Rights. - There shall
not be transferred to any new owner in the books of any corporation, sociedad anonima, partnership,
business, or industry organized or established in the Philippines any share, obligation, bond or right
by way of gift inter vivos or mortis causa, legacy or inheritance, unless a certification from the
Commissioner that the taxes fixed in this Title and due thereon have been paid is shown.

If a bank has knowledge of the death of a person, who maintained a bank deposit account alone, or
jointly with another, it shall not allow any withdrawal from the said deposit account, unless the
Commissioner has certified that the taxes imposed thereon by this Title have been paid: Provided,
however, That the administrator of the estate or any one (1) of the heirs of the decedent may, upon
authorization by the Commissioner, withdraw an amount not exceeding Twenty thousand pesos
(P20,000) without the said certification. For this purpose, all withdrawal slips shall contain a
statement to the effect that all of the joint depositors are still living at the time of withdrawal by any
one of the joint depositors and such statement shall be under oath by the said depositors.

Revenue Regulations No 2-2003

RMO 15-2003

Imposition of the Law

Lorenzo v. Posadas

Facts: Thomas Hanley died, leaving a will and considerable amount of real and personal properties.
Hiswill provided that 10 years after his death, his nephew Matthew Hanley would become owner of his
properties. Plaintiff Lorenzo was appointed as trustee. During plaintiffs incumbency astrustee, the
defendant Collector of Internal Revenue, alleging that the estate left by thedeceased at the time of his
death consisted of realty and personalty, assessed against the estatean inheritance tax. The defendant
prayed that the trustee be ordered to pay the Government theinheritance tax together with the
penalties for delinquency in paying such tax. The trustee,plaintiff Loada, paid under protest and
however, he demanded that he be refunded for theamount paid. The defendant overruled plaintiffs
protest and refused to refund the amount.Issues:1. When does the inheritance accrue?2. Should the
inheritance be computed on the basis of the value of the estate at the time of thetestators death or on
its value 10 years later?Held:1. The tax is upon transmission or the transfer or devolution of property of
a decedent, madeeffective by his death. It is in reality an excise or privilege tax imposed on the right to
succeedto, receive, or take property by or under a will or the intestacy law, or deed, grant, or gift
tobecome operative at or after death. Thomas Hanley having died on May 27, 1922, theinheritance tax
accrued as of the date.2.

Based of the value of the estate at the time of the testators death

- If death is the generatingsource from which the power of the estate to impose inheritance taxes takes
its being and if,upon the death of the decedent, succession takes place and the right of the estate to tax
vestsinstantly, the tax should be measured by the value of the estate as it stood at the time of
thedecedent's death, regardless of any subsequent contingency value of any subsequent increaseor
decrease in value.A transmission by inheritance is taxable at the time of the predecessor's death,
notwithstandingthe postponement of the actual possession or enjoyment of the estate by the
beneficiary, andthe tax measured by the value of the property transmitted at that time regardless of
itsappreciation or depreciation.

G.R. No. 48122 October 29, 1948

A. W. BEAM, A. W. BEAM, Jr., and EUGENIA BEAM, the latter two assisted by their
guardian ad litem,
John W. Haussermann, plaintiffs-appellants,
vs.
A. L. YATCO, Collector of Internal Revenue of the Philippines, defendant-appellee.

Ross, Selph, Carrascoso and Janda for appellants.

Office of the Solicitor General Roman Ozaeta and Assistant Solicitor General Rafael Amparo for
appellee.

PERFECTO, J.:

On July 17, 1937, plaintiffs filed a complaint praying that the amount of P343,298.72, paid by them
as inheritance tax, be refunded to them as follows: P40,480 to A. W. Beam, P151,409.36 to A. W.
Beam, Jr. and P151,409.36 to Eugenia Beam.
In March, 1938, the parties entered into a stipulation of facts from which the following can be
gathered:

That on or before April 26, 1937, the Collector of Internal Revenue declared and assessed the
following items of property of A. W. Beam and Lydia McKee Beam at the time of the death of the
latter on October 18, 1934, at P8,100,544.91:

15,000 shares of stock of Beam Investment Company, evidenced by Certificates Nos. 2, 15 and 25
issued to and in the name of Lydia McKee Beam;

88,163 shares of stock of Beam Investment Company, evidenced by Certificates Nos. 11, 23 and 24
issued to and in the name of A. W. Beam;

500 shares of stock of Benguet Consolidated Mining Company, evidenced by Certificate No. 3342
issued to and in the name of A. W. Beam;

2,080 shares of stock of Balatoc Mining Company, evidenced by Certificates Nos. 600, 614 and 809
issued to and in the name of A. W. Beam;

5,000 shares of stock of Beam Investment Company evidenced by Certificates Nos. 17 and 26
issued to and in the name of A. W. Beam, Junior; lawphil.net

Deposit of P2,933.18 in Manila Building and Loan Association in the name and to the credit of A. W.
Beam, Junior;

5,000 shares of stock of Beam Investment Company, evidenced by Certificates Nos. 19 and 27
issued to and in the name of Eugenia Beam;

Deposit of P2,933.18 in Manila Building and Loan Association in the name and to the credit of
Eugenia Beam.

One-half thereof, appraised at P4,050,272.46, was the estate to the deceased Lydia McKee Beam
located in the Philippines and transmitted to plaintiffs and to Syrena McKee and Rose P. McKee by
virtue of inheritance, devise, or bequest, gifts mortis causa or advance in anticipation of inheritance,
and the collector assessed and demanded inheritance taxes thereon as follows:

Heirs Share Tax

A. W. Beam P532,375.00 P40,480.00
A. W. Beam, Jr. 1,749,448.73 151,409.36
Eugenia Beam 1,749,448.73 151,409.36
Syrena McKee 10,000.00 200.00
Rose T. McKee 10,000.00 200.00

P4,050,272.46 P343,698.72

On April 26, 1937, plaintiffs, together with Syrena McKee and Rose T. McKee, both sister of Lydia
Mckee Beam, paid respectively the amounts assessed and demanded by the collector, aggregating
P343,698.72, under protest that was overruled by the collector on May 11, 1937.
A. W. Beam is of age but the other two plaintiffs are minors and are assisted by their guardian ad
litem, John W. Haussermann.

On her death in the State of California on October 8, 1934, Lydia McKee Beam left a last will and
testament which, after due and regular proceedings, was admitted to probate in the superior court of
the State of California for the County of Almeda.

Lydia McKee Beam was the wife of A. W. Beam from their marriage in 1913 until her death, and the
other two plaintiffs are the legitimate children of said marriage. Plaintiffs are, and since birth, have
been, and Lydia McKee Beam was, throughout of her life, citizens of the United States of America.
A. W. Beam was for many years, beginning from year 1902, a resident domiciled in the Philippines.

On April 18, 1934, A. W. Beam, with his wife Lydia and daughter Eugenia, left the Philippines for
California and arrived at San Francisco on May 9, 1934, and since such arrival neither said Lydia nor
any of the plaintiffs have been in the Philippines, except A. W. Beam who was in the Philippines from
December 20, 1936, to January 15, 1937.

At the time of the death of Lydia McKee Beam, she and plaintiffs owned separately and severally,
according to plaintiffs, and jointly with Lydia McKee Beam and A. W. Beam, according to defendant,
the following properties:

LYDIA MCKEE BEAM: 15,000 shares of stock of Beam Investment Company, evidenced by
Certificates Nos. 2, 15 and 25 issued to and in the name of Lydia McKee Beam;

A. W. BEAM: 88,163 shares of stock of Beam Investment Company, evidenced by

Certificates Nos. 11, 23 and 24 issued to and in the name of A. W. Beam; 500 shares of
stock of Benguet Consolidated Mining Company, evidenced by Certificate No. 3342 issued
to and in the name of A. W. Beam; 2,080 shares of stock of Balatoc Mining Company,
evidenced by Certificates Nos. 600, 614 and 809 issued to and in the name of A. W. Beam;

A. W. BEAM, JUNIOR: 5,000 shares of stock of Beam Investment Company evidenced by

Certificates Nos. 17 and 26 issued to and in the name of A. W. Beam, Junior; Deposit of
P2,933.18 in Manila Building and Loan Association in the name and to the credit of A. W.
Beam, Junior;

EUGENIA BEAM: 5,000 shares of stock of Beam Investment Company, evidenced by

Certificates Nos. 19 and 27 issued to and in the name of Eugenia Beam; Deposit of
P2,933.18 in Manila Building and Loan Association in the name and to the credit of Eugenia
Beam.

The Beam Investment Company, the Balatoc Mining Company and the Manila Building and Loan
Association are, and were at all times mentioned in the amended complaint, corporations organized
and existing under the laws of the Philippines. The Benguet Consolidated Mining Company is, and
was at all times mentioned in the amended complaint, a sociedad anonima organized and existing
under the laws of the Philippines.

The above-listed properties were acquired in the Philippines during and within the period from the
marriage of A. W. Beam to Lydia McKee Beam in 1913 to April 18, 1934. A. W. Beam has been, and
was up to April 18, 1934, the Vice-President and Assistant General Manager of the Benguet
Consolidated Mining Company and a member of the Board of Directors of said company and of the
Balatoc Mining Company. He was also, and up to the present, is, the President of Beam Investment
Company.
Prior to his departure from the Philippines on April 18, 1934, with his wife and his daughter Eugenia,
A. W. Beam filed an application for a tax clearance certificate with the Bureau of Internal Revenue.

On September 30, 1940, the lower court rendered decision dismissing the complaint with costs
against the plaintiffs.

Plaintiffs appealed.

Appellants complain that the lower court dismissed the complaint on factual conclusions dealing with
points not at issue between the parties. They allege that the issue of fact, under the pleadings, was
between the appellants' contention that A. W. Beam and deceased wife were residents and citizens
of California on October 18, 1934, and appellee's contention that their Philippine residence and
domicile extended to October 18, 1934, and sometime later, and there was no issue as to whether or
not said A. W. Beam changed his residence and domicile in 1923 from the Philippines to California
and, therefore, the lower court erred in finding that appellant became a resident and citizen of
California in 1923.

Appellee alleges that it has been his original theory from the inception of the action that the plaintiffs
were and continued to be California citizens and that they are not entitled to recover on the ground
that according to California law the property acquired by A. W. Beam in one-half thereof belongs to
the deceased and passed by succession to her heirs subject to the inheritance tax, and said theory
is borne out by the following allegation of the amended answers filed on September 2, 1937:

That under the Inheritance Tax Law, the defendant demanded and collected from the
plaintiffs the sum of P343,698.72 alleged in the complaint, which had been assessed on the
amount of P4,050,272.46, value of the estate of said Lydia McKee, located and having
business situs in the Philippines, and transmitted to the plaintiffs by virtue of inheritance.
(Pages 15, 16, record on appeal; emphasis supplied.)

That the law of the State of California in effect at the time of the death of Lydia McKee Beam
provided that, upon the death of a wife, one-half of the community property shall go to the
surviving spouse, the other half being subject to the testamentary disposition of the
decedent, and that in the absence thereof, that half shall go to the surviving spouse by
inheritance.

The last paragraph reproduces only the penultimate paragraph of the original answer dated October
11, 1937.

The allegations necessarily include by implication the allegation of California citizenship so that the
California law may be invoked as the personal law of the deceased applicable to her personal
property in the Philippines in accordance with article 10 of the Civil Code.

The finding of the lower court is fully supported by the testimonies of A. W. Beam and John W.
Haussermann, wherein the first stated that in 1923 he bought a house in Oakland, California, and
used it as a residence until December, 1930, when he built another in Piedmont, California, which he
has used and occupied as a residence since then, and his children were in school in California and
Mrs. Beam wanted to be with them and made a home for them, and it was his intention to live in
California and from 1923 on, his family spent most of their time in California, where he himself used
to take long vacations, and that he never really intended to live permanently in the Philippines, while
Haussermann testified that A. W. Beam left the Philippines somewhere along 1923 and 1924 when
he established a home for his wife and children on Kenmore Avenue, Oakland, and he went there
frequently.
We are of opinion that, upon the pleadings and the evidence, the lower court did not err in finding
that A. W. Beam and wife became residents and citizens of California in 1923.

On the other hand, appellee maintains that, because the burden of proof is on the plaintiffs to
establish their right to recover, in view of the fact that they had failed to establish that right based on
their alleged Utah citizenship, the dismissal of the complaint is fully justified, and the defendant is
entitled to take advantage of the plaintiff's failure to present sufficient proof and of the evidence
adduced by themselves.

Plaintiff pleaded Utah citizenship to invoke the laws of the state which, it is alleged, is to the effect
that properties acquired by the spouses during marriage belong to them separately, and the Utah
citizenship was thus put in issue in view of the general denial of appellee and his special defense
predicated on the California law.

The evidence of the plaintiff on the Utah citizenship consists exclusively in the deposition of A. W.
Beam wherein he states that he was born in Nevada in 1878; he lived with his parents in Nevada
until 1883 and then in Utah until 1898, when he enlisted in the army; and that upon his discharge
from the army in San Francisco in 1889 he returned to, and stayed in, Utah, until he came to the
Philippines in 1902. As contended by appellee, the evidence does not sufficiently prove the Utah
citizenship claimed by said appellant. There is no evidence that he ever returned to Utah, or has any
interest in that estate, or that he ever intended to return there.

Where plaintiffs themselves show a state of facts upon which they should not recover, whether
defendant pleaded such fact as a defense or not, their claim should be dismissed. Evidence
introduced without objection becomes property of the case and all the parties are amenable to any
favorable or unfavorable effects resulting from the evidence.

Appellants complain that they were not given opportunity to present evidence regarding the fact
found by the lower court that plaintiff A. W. Beam became in 1923 a resident and citizen of California
has no merit, because plaintiffs had in fact the opportunity, and taken advantage of it, to present all
the facts which, according to them, would entitle them to recover and they cannot complain of their
failure to present more evidence than that appearing in the record. As a matter of fact, the evidence
upon which the lower court concluded that A. W. Beam became resident and citizen of California in
1923, consists in the testimony of A. W. Beam himself and his witness John W. Haussermann.

Appellants contend that no evidence whatsoever has been adduced to prove the California law of
community property and that the trial court should not have taken into consideration the provision of
said law as quoted in the memorandum filed by the Solicitor General. Appellee alleges that there is
no dispute that California is a community property state, citing 31 C. J., 12 and the decision in Osorio
vs. Posadas (56 Phil., 748 and 756). Appellants themselves assert that, in the absence of proof as to
what the California law is, the presumption would militate against them, because when a foreign law
is pleaded and no evidence has been presented as to said law it is presumed that the same is the
law of the forum. (Yan Ka Lim vs. Collector of Customs, 30 Phil., 46; Lim vs. Collector of Internal
Revenue, 36 Phil., 472; Miciano vs. Brimo, 50 Phil., 876.)

Accordingly, the properties in question which have been acquired by A.W. Beam and wife during
their marriage, should be considered as community property and upon the death of the wife, the one
that belonged to her passed by succession to her heirs, in accordance with the provisions of articles
1401, 1407 and 1426 of the Civil Code, and therefore is subject to the inheritance tax collected by
appellee.
Appellants contended that A. W. Beam has not become a resident and citizen of California since
1923 and that the evidence points out that he changed his residence from the Philippines to
California between the time he left Manila for Piedmont on April 18, 1934, and the time of his wife's
death on October 18, 1934. Appellants point to the testimony of A. W. Beam that his departures
before 1934 were without intention of permanently abandoning his home in the Philippines, while
when he left on April 18, 1934, he had no intention of returning, for which reason he brought his car
and all his household belongings with him, and to the testimonies of Robert B. Dell, John W.
Haussermann, W. H. Taylor, W. H. Lawrence. These testimonies, all hearsay, except that A. W.
Beam himself, notwithstanding, cannot change the effect of A. W. Beam's testimony to the effect that
in 1923 he bought a house in Oakland, California, used it as a residence until December 1930, when
he built another house in Piedmont, California, which he used and occupied as a residence from that
time to the present, and that his children were in school in California and Mrs. Beam wanted to be
with them and make a home for them, and from 1923 on his family spent most of their time in
California. He also testified that "he never really intended permanently to live in the Philippines all my
life." Under the provisions of the fourteenth amendment to the Federal Constitution, "all persons born
or naturalized in the United States are subject to the jurisdiction thereof, are citizens of the United
States and of the state wherein they reside."

A. W. Beam became citizen of California in 1923 when he established therein a permanent

residence for him and his family.

One's personal presence at the new domicile is not necessary when the intent to change has
been manifested and carried out by sending his wife and family there. (19 C. J., 425.)

As correctly stated by appellee, even granting appellant's contention that the deceased became a
resident of California only in 1934, she was a citizen of that state at the time of her death and her
national law applicable to the case, in accordance with article 10 of the Civil Code, is the law of
California which, in the absence of contrary evidence, is to be presumed to be the same as the
Philippine law.

The question raised by appellants regarding the situs of the properties in question, has no merit in
view of the express provisions of section 1536 of the Revised Administrative Code, specifying
shares issued by any corporation or sociedad anonima organized in the Philippines among
properties subject to inheritance tax. The pronouncement of the lower court that the actual situs of
the shares in question is in the Philippines is fully supported by the evidence as, according to the
testimony of John W. Haussermann, the corresponding certificates of stock were in the Philippines
before and after the death of Mrs. Beam, the owners were represented by proxy at the stockholders'
meetings and their shares voted by their attorney in fact who had the power to collect dividends
corresponding to the share.

The questions raised by appellants that are premised on the Utah citizenship of A. W. Beam and his
deceased wife cannot be countenanced after we have concluded that the lower court declared
correctly that they became California citizens since 1923.

The lower court's decision is affirmed with costs against appellants.

Paras, Feria, Pablo, Bengzon, Briones and Tuason, JJ., concur.

Characteristics of Donation Mortis Causa

Del Rosario v. Ferrer

20 Sept 2010

FACTS:

Doctrine:

Irrevocability of the donation is the standard that identifies the donation as inter vivos. It is a quality
absolutely incompatible with the idea of conveyances mortis causa.

Spouses A and B executed a document entitled Donation Mortis Causa in favor of their 2 children C
and D, and their granddaughter E. The Deed of Donation stated that, it is our will that this donation
mortis causa shall be irreovocable and shall be respected by the surviving spouse. Although
denominated as a donation mortis causa, which in law is equivalent to a will, the deed has no
attestation clause and was witnessed only by two persons. Before the death of donor A, he executed a
deed of assignment of his rights and interest in the subject property to their daughter C. subsequently,
granddaughter E filed a petition for the probate of the deed of donation mortis causa in the RTC. C
opposed the petition, invoking As assignment of his rights to her. Decision was rendered by the RTC,
ordering the registration of the property in the name of the donees in equal shares. The court ruled that
the donation was one made inter vivos, thus the assignment of A of his rights was void. CA reversed the
decision of the RTC and ruled that the donation, being one given mortis causa, did not comply with the
requirements of a notarial will, rendering the same void.

ISSUE:

Whether or not the donation of spouses A and B to their children C and D and granddaughter E was a
donation mortis causa, as it was denominated, or in fact a donation inter vivos.

DECISION:

The fact that the document in question was denominated as a Donation mortis causa is not controlling
if a donation by its terms is inter vivos. Irrevocability of the donation is the standard that identifies the
donation as intervivos. It is a quality absolutely incompatible with the idea of conveyances mortis causa.

In the case at bar, donors A and B intended to make the donation irrevocable, as stated in the provisions
of the Deed. Thus, the donation was on reality inter vivos. Thus, given that the donation was indeed
inter vivos, As subsequent assignment of his rights and interests in the property to C is void.