SUCCESSION AND TRANSFER TAXES
Transfer taxes imposed upon the gratuitous disposition of
private properties or rights.
Gratuitous transfer or donation may take effect at:
1. The time of the death of donor (donation mortis
causa) such donation is subject to estate tax.
2. During the lifetime of both the donor and donee
(donation inter-vivos) such donation is subject to
donors tax.
Succession is a mode of acquisition by virtue of which,
property, rights and obligations not extinguished by death to
the extent of the value of the inheritance, of a person are
transmitted through his death to another, either by his will
or by the operations of law.
The right of succession are transmitted from the moment of
death of the decedent, notwithstanding the postponement
of actual possession or enjoyment of the estate of the
beneficiary.
Nature of Transfer Taxes
The subject matter of a transfer tax is the privilege of the
transferor to gratuitously transfer property, rights and
obligations (obligations are limited to the value of the
property and rights inherited) which takes effect at the
death of the decedent or the during the lifetime of the donor
and donee.
Transfer tax is classified as an excise tax that immediately
accrues at the time of death of the transferor, and paid six
(6) months from the date of death.
Kinds of Succession
Succession may be classified as:
1. Testamentary or testate succession succession that
results from the designation of an heir, made in a will in
the form prescribed by law.
2. Legal or intestate succession succession that is
effected by the operations of law since the decedent did
not execute a will or last will executed is void. It may be
caused:
a. If a person dies without a will, with a voided
will or a will which subsequently lost its
validity.
b. When a will does not institute an heir
c. Partial institution of heir. Consequently,
intestacy takes place as to the undisposed
portion
d. When the instituted heir is incapacitated
e. Other causes
3. Mixed Succession a succession that is partly effected
by will and operations of law.
Elements of Succession
1. Decedent general term applied to the person whose
property is transmitted through succession.
2. Executor person designated in the last will and
testament to carry out the provisions of the will.
3. Administrator person appointed by the court to
perform the same duty.
4. Inheritance (Estate) includes all property, rights and
obligations not extinguished by death
5. Successors An heir or successor is a person who is
called to the succession either of a will or an operation
of law.
a. Compulsory Heirs succeeds by force of
law to some portion of the inheritance. They
cannot be deprived of the legitime (75% of
the estate) except in effect of disinheritance.
i. Primary
ii. Secondary
iii. Concurring
b. Voluntary Heirs those instituted by the
testator in his will to succeed to the
inheritance of the free portion (25% of the
estate)
c. Legal or Intestate Heirs those who
succeeded by operations of law. The order of
intestate heirs is as follow:
i. Legitimate Descendants
ii. Legitimate Ascendants
iii. Illegitimate Descendants
iv. Surviving Spouse
v. Brother, Sisters, Nephews and
Neicee
vi. Other collateral relatives within the
5th degree
vii. State
Collateral Relatives
Consanguinity the relation of persons descending from
the same stock or common ancestors.
Lineal Consanguinity
Collateral Consanguinity
Will an act whereby a person is permitted, with the
formalities prescribed law, to control to a certain degree the
disposition of his estate to take effect after his death.
Kinds of Wills
1. Notarial one which executed in accordance with
the formalities prescribe by Art. 804 to 808 of the
NCC. Requisites are as follows
a. It must be in writing and executed in a
language known to the testator;
b. It must be subscribed at the end
thereof by the testator himself or by
the testators name written by some
other person in his presence and
express direction;
c. It must be attested and subscribed by
three or more witnesses in the
presence of testator.
2. Holographic Will is a written will which must be
entirely written dated and signed by the hand of
the testator himself.
Revocation of Will
1. By implications of law;
2. By some will, codicil, or other writing executed as
provided in case ofwills; or
3. By obliterating the will with the intention of
revoking it.
Institution of Heir an act by which a testator designates
in his will the person/s who are to succeed him in his
property and transmissible rights and obligations.
Disinheritance deprivation of compulsory heirs from their
right of the inheritance. REQUISITES are as follow:
1. Effected only through a valid will;
2. For cause expressly stated by law;
3. Cause must be stated in the will;
4. Cause must be certain and true;
5. Unconditional;
6. Total (there is no partial disinheritance);
7. The heir disinherited must be designated in such
manner that there can be no doubt as to his
identity.
Rights of Representation a right created by fiction of law
where the representatives is raised in place and degree of
 SUCCESSION AND TRANSFER TAXES

the person represented, and acquires rights which the latter FMV in the schedule of
would have. values fixed by provincial
or city assessors.
Representations may rise either because of: Personal Property Unlisted common shares book
(Shares of Stock) value per share
1. Death Unlisted preference share par
2. Incapacity value per share
3. Disinheritance Listed shares arithmetic mean
between highest and lowest quotation
The law provides that representation is not available to: at date nearest death
Right of usufruct, In accordance with the latest Basic
1. Compulsory heirs: In case of repudiation habitat or annuity Standard Mortality Table
2. Voluntary Heirs
3. Voluntary Heirs, legatees and devisees who:
a. Predecease the testator; or Exemptions and Exclusion from the Gross Estate
b. Renounce the inheritance
A. Exclusions under Sec. 85 and 86 of the NIRC
Justification for the Imposition of Estate Tax 1. Exclusive property of the surviving spouse.

1. Benefit-Received Theory The Gross Estate is case of married decedents is

2. State Partnership Theory composed of:
3. Ability to Pay Theory
4. Redistribution of Wealth Theory Exclusive property of decedent
o Capital for husbands
Classification of Taxpayers and Composition of Gross o Paraphernal for wives
Estate Common property of decedent and
surviving spouse
Decedent Within Without 2. Property outside the Philippines of a non-
Citizen resident alien decedent
Resident Alien 3. Intangible personal property in the
Non-resident Philippines of a non-resident alien under
Alien reciprocity law.
B. Exclusions under Sec. 87 of the NIRC
Reciprocity Clause 1. Merger of the usufruct to the naked title
2. Delivery of legacy by the fiduciary heir or
The tax code excludes intangible personal property with legatee to the fideicommisary
situs in the Philippines from the gross estate of a non- 3. Transmission from 1st heir to another
resident alien if there is reciprocity. There is reciprocity beneficiary or Special power of
when: appointment
4. All bequest devises, legacies or transfer to
The decedent at the time of his death was a social, cultural and charitable institutions
resident citizen of a foreign country which at provided not more than 30% shall be used
the time of his death did not impose estate tax in for administration purposes.
respect of intangible assets to citizens of the
Philippines not residing thereat; Transfers to social, cultural and charitable
The laws of the foreign country of which the institutions shall be added to the gross estate to
decedent was a resident citizen that allows be taken up as a deduction.
similar exemptions to citizens of the Philippines C. Exclusions under Special Law
not residing thereat. 1. Proceeds of life insurance and benefits
received by members of GSIS
Intangible Assets PAS 38 defines Intangible Assets as 2. Benefits received by members from SSS by
identifiable non-monetary assets without physical reason of death
substance 3. Amounts received from PH and US govt for
A general rule for the situs of intangible assets is the war damages; WWII damages; and to the
domicile of the owner, also known as mobilia sequntur legal heirs of WWII veterans
personam. 4. Amounts received from US Veterans
Administration
Intangible assets that has situs within the Philippines under 5. Life insurance proceeds on life insurance
Section 104 of NIRC are: policy taken out by the decedent himself,
upon his own life, where the beneficiary is
1. Franchised exercised in the Philippines a third person and is irrevocable
2. Shares, obligations and bonds issued by domestic 6. Life insurance proceeds on group insurance
corporations policy, taken put by his employer on the
3. SOB of foreign corporations with 85% of employees life, whoever beneficiary
business within the Philippines maybe, whether revocable or not.
4. SOB of foreign corporations acquiring business
situs in the the Philippines Inclusion in the Gross Estate
5. Shares or rights in any partnership, business or
industry established in the Philippines A. Property owned by the decedent actually and
physically present in his estate at the time of his
Valuation of Gross Estate death.
B. Decedents Interest
General Real FMV at time of death is the higher C. Property not physically in the estate
Property between:
a. Transfer in contemplation of death
FMV determined by the
controlling motive of inducing disposition of
commissioner; or
property to avoid tax.
 SUCCESSION AND TRANSFER TAXES

b. Transfer with retention or reservation of

certain rights
c. Revocable transfers where terms of
enjoyment maybe altered, amended and
revoked by the decedent. It is sufficient that
the decedent had the power but did not
exercise it.
d. Transfer under general power of
appointment
e. Transfer for insufficient consideration
included at the FMV at the time of death
f. Claims against insolvent persons
g. Proceeds of Life Insurance
i.