Valuation of the Gross Estate

A topic report by Mark Justin Mooc

What is gross estate? It consists of all properties, real or personal, tangible or intangible, owned by the decedent at the time of
his death (Section 85, NIRC).

A property located in Spain is not included in the computation of the resident aliens gross estate if the law in force at
the time of his death so states. Not being included as part of the estate, it cannot be subject to taxation such as estate
tax and inheritance tax. More so, in the determination of the gross estate the law does not permit the inclusion of
property outside of the Philippines, then it is but just and reasonable that the indebtedness incurred by the decedent by
reason of said property or in the acquisition thereof should also be discounted from the gross estate (Intestado de Don
Valentin Descals v. Administrador de Rentas Internas, L-7253, March 26, 1956).

Valuation of the gross estate:

1.

2.

In general, the gross estate shall be valued at its fair market value at the time of the decedents death.
Even if the testator so stated in his will that all real estate shall only be given to the heir after 10 years being
placed under the executors management, the Court held that whatever may be the time when the actual
transmission of the inheritance takes place, succession takes place in any event at the moment of the
decedents death. Hence, a transmission by inheritance is taxable at the time of the predecessors death,
notwithstanding the postponement of the actual possession or enjoyment of the estate by the beneficiary,
and the tax is measured by the value of the property transmitted at the time regardless of its appreciation or
depreciation (Lorenzo v. Posadas, 064 Phil. 353).
Real properties are to be valued at the current market value as shown in the schedule of values fixed by the
Provincial/City Assessors or the fair market value as determined by the BIR Commissioner, whichever is higher.
Example:
Mr. Todas died leaving the following properties. Likewise presented below is the value of his gross estate.
Fair market value (in PhP)
Baguio City Assessors

3.
4.

BIR Commissioner

Reportable Gross Estate

House and lot

10,000,000.00

12,000,000.00

12,000,000.00

Subdivision lots

20,000,000.00

19,000,000.00

20,000,000.00

Total

30,000,000.00

31,000,000.00

32,000,000.00

Personal properties are to be reported at the acquisition cost for the recently-acquired properties, or the current market
price for the previously-acquired properties.
Stocks, bonds and other securities:
If listed in the local stock exchange, the value is the mean between the highest and lowest quoted selling
prices at the date nearest the date of death, if none is available on the date of death.
Example:
Mr. Tulog died leaving 10,000 commons shares investment acquired at P110,000.00 from San Pedro Corporation.
Below is the stockholders equity of San Pedro Corporation at the time of his death. Meanwhile, the liquidating
value of preferred shares is P220.00 per share.
Capital Stock:
Preferred, 60,000 shares at P 200.00

PhP 12,000,000.00

Common shares, 100,000 shares, par P 100.00

10,000,000.00

Reserves:
Additional paid-in capital (preferred shares)

1,000,000.00

Additional paid-in capital (common shares)

600,000.00

Retained Earnings
Total Stockholders equity

6,000,000.00
PhP 29,600,000.00

If listed in the local stock exchange assuming that each common share has an initial sale price of P140.00 and
closing sales price of P160.00 at the time of death.
Average selling price per share
(140 + 160)/2
x Number of common shares invested

PhP 150.00
10,000

Value of securities as part of gross estate

PhP 1,500,000.00

If not listed in the local stock exchange, the value of unlisted common shares is to be valued at book value at
the date of death. AS for unlisted preferred shares, they are to be valued at par value.

Example:
Same facts as above.
Total stockholders equity

PhP 29,600,000.00

Less: Liquidating value of preferred stock

(PhP 220 x 60,000 shares)
Total book value to common shares (a)
Outstanding common shares (b)
Book value per share (a/b)

13,200,000.00
PhP 16,400,000.00
100,000
PhP 164.00

x number of Mr. Tulogs investment in common shares

Value of securities as part of gross estate

10,000
PhP 1,640,000.00

Reciprocity clause: It is that provided for by Section 104 of the NIRC.

Is international personality in contemplation of Section 104 of the NIRC? In the case of Collector of Internal Revenue
v. De Lara, 102 Phil 813, it was specifically held by the Court that [considering] the State of California as a foreign
country in relation to Section 122 of the Tax Code (now Section 104 of the NIRC), it is its belief and hence hold, as did
the Tax Court, that the ancillary administrator is entitled to exemption from the inheritance tax on the intangible
personal property found in the Philippines. There can be no doubt that California as a state in the American Union
was lacking in the alleged requisite of international personality. Nonetheless, it was held to be a foreign country within
the meaning of Section 122 of the Tax Code. Even prior to the De Lara ruling, the Court did commit itself to the
doctrine that even a tiny principality, that of Liechtenstein, hardly an international personality in the traditional sense,
did fall under this exempt category (Collector of Internal Revenue v. Rueda, L-13250, October 29, 1971).

Capital of the Surviving Spouse: The capital of the surviving spouse of a decedent shall not be deemed a part of the gross
estate. This is not subject to estate tax because the properties that are objects of tax must be the capital of the decedent.

The property relations between husband and wife is governed in the following order:
1. Marriage settlement executed before marriage;
2. Regime of absolute community for marriages celebrated after August 3, 1988;
3. Conjugal partnership of gains for marriages prior to August 3, 1988;
4. Local customs

Exemptions from estate tax: It means exclusion from the gross estate. It refers to properties, rights or transfers that are
specifically declared by the law as free from the burden of estate tax.
1.

2.
3.
4.

5.

Section 87 of the NIRC;

The merger of usufruct in the owner of naked title;
Transmission or delivery of inheritance or legacy by the fiduciary heir or legatee to the fideicommissary;
Transmission from the first heir, legatee, or donee in favor of another beneficiary, in accordance with the
desire of the predecessor; and,
All bequests, devises, legacies or transfers to social welfare, cultural, and charitable institutions, no part of
the net income of which goes to the benefit of any individual; provided, however, that not more than 30% of
the said bequests, devises, legacies or transfers shall be used by such institutions for administration
purposes.
Bequests to be used actually, directly, and exclusively for educational purposes under Article XIV, Section 4(4) of the
1987 Constitution;
Exemptions under reciprocity clause;
Exemptions under special laws; and,
Capital of the surviving spouse under the NIRC;
If the net estate is PhP 200,000.00 or below under Section 84 of the NIRC;
Benefits received from SSS under PD 1161 as amended, or GSIS under PD 1146, as amended; and,
Benefits received from US Veterans Administration under RA 360 or war benefits from RA 227.
Death of an individual not subject to estate tax.
In case of a decedent registered with the BIR who has no properties subject to estate taxes, the heirs shall
request for cancellation of the decedents TIN by accomplishing the proper form;
The documentary requirements shall be submitted to the district office where the TIN of the decedent is
registered;
In addition to the above, an affidavit shall be submitted by the heirs stating that the decedent has no
properties subject to estate taxes; and,
The BIR district office shall notify the heirs, administrator or executor applying for cancellation of decedents
TIN of the status of the request within 10 days from complete submission of the requirements.