Nathalie Kate O.

Portula

Oct. 11, 2017 4. In Contemplation of Death

 Transfer of property before death (to escape estate tax)
Composition of Gross Estate  Reservation of rights

Gross Estate xx
5. Passage under General Power of Appointment
Exclusions (xx)
 Property can be transferred back to decedent under GPA, but not under SPA
Deductions (xx)
Net Estate Taxable xx
5-20% %
 TRIP- already disposed of but taxed to decedent (an namatay)
Estate Tax xx
 Possession ≠ Ownership

Gross Estate xx Inter-Vivos

Exclusions (xx) (During the Transfer Tax
Deductions (xx) lifetime)
Donation (Free)
Net Estate xx
SSS (xx) Mortis-Causa
Estate Tax
Net Estate “Taxable” xx (Fact of death)

Gross Estate (D-TRIP-APIC)

1. Decedent’s Interest
Ordinary w/ RIP @
Personal Estate Tax
2. Transfer for Insufficient Consideration (see illustration) Property
 Example: Mr. V sold inventories costing P1,000,000 for 600,000. What is the Capital Transfer Tax
tax? Donor’s Tax (without RIP) TFIC w/o RIP @
 Assume: Mr. V sold house and lot (family home). Capital Gains Tax Ordinary Donor’s Tax
 Assume: Mr. V sold land and building costing P1,000,000 for P600,000 Real
because of his terminal condition. Estate Tax Property Income Tax
Capital
(CGT) @ 6%
3. Revocable Transfer
 Nathalie Kate O. Portula

Gross Estate (D-TRIP-APIC) Deductions

continuation (ELIT TV Family MASS)
 ELIT TV- ordinary
1. Amount under RA 4917 (pension)  Family MASS- special
 10 years in service
 50 years old 1. Expenses
 Once availed  Funeral Expenses- expense is recognized from death until interment
 Approved by BIR (lubong)
i. Actual
2. Proceeds of Life Insurance ii. P200,000 threshold Whichever is lowest
 Designation must be irrevocable iii. 5% of gross estate

3. Interest on Accruals  Not part of funeral expense:

 Including income o Shouldered expenses (given by family, friends, etc.)
o Post-interment costs
4. Claims against Insolvent Person o Not receipted
 Bad debts, except if debtor is insolvent (included in gross estate,
included in deductions)  Judicial Expense
 Payment to lawyer
 Without limit
 NOTE: Probate cost is NON-DEDUCTIBLE

2. Losses

3. Indebtedness
 CATE (claims against the estate)- payable
 CAIP (claims against insolvent person)- receivable
 NOTE: Do not include unpaid expenses/payable from funeral/medical
 Exception: CATE- unpaid funeral and medical expenses
 Nathalie Kate O. Portula

4. Taxes
 Estate tax is not deductible 10. Standard Deduction
 P1,000,000
5. Transfer for Public Use (TPU)  Need no substantiation

6. Vanishing Deduction 11. Share of the Surviving Spouse

 Formula:
7. Family Home
Gross Estate xx
 Single: FV or P1,000,000, whichever is lower
Ordinary Deductions (xx)
 Married: (FV of Family Home)/2 or P1,000,000, whichever is lower
Total xx
 Who can claim?
Divided by 2 /2
o Married individuals
Share of Surviving Spouse xx
o Head of the family
o *Single (not considered by some authors)
SPECIAL DEDUCTIONS
Example: 1. Family Home
a. Married
Single Married b. Single
FV P1,500,000 X P750,000
i. House (Exclusive)
P1,000,000 ✓ X
ii. Lot (Conjugal)/2
2. Medical
8. Medical Expense 3. RA 4917
 P500,000 4. Special Deductions
 1 year before death 5. SSS
 Unpaid medical expenses (X)
Example: Mr. A, married B, died 2017 with FH which is composed of:
9. Amount under RA 4917 (v. CAIP) 1. House (exclusive of A) 500,000/1
 10, 50, once 2. Lot 500,000/2
 Included as part of gross estate
 Included as part of deductions Q: FH deduction? 500 + 250 = 750,000
 Nathalie Kate O. Portula

VANISHING DEDUCTION
1. Ordinary Deduction
Initial Value xx Example:
Less: Paid Mortgage (xx)  A (who is still alive) transferred property to B.
Initial Basis xx  B (who is dead) transferred property to Anak.
Less: Prorated ELIT & TPU (xx)
Final Basis xx o A will pay Donor’s tax.
X 20-100% o B will pay Estate Tax.
Vanishing Deduction xx o Anak can claim vanishing deduction.

 Initial Value
o Transfer (date kun san-o gintransfer an property) MULTIPLIER DEDUCTION
o Death (date han kamatay)
Year 1 2 3 4 5
Example: Rate 100% 80% 60% 40% 20%
 1st decedent transferred property to 2nd decedent. 2nd decedent
transferred the same property to X.
o 1st decedent will pay estate tax.
o 2nd decedent will pay estate tax and avail vanishing deduction.
 X died and transferred the property to his son.
o X cannot avail vanishing deduction.
 Availing of vanishing tax is alternately done.

Elements of Vanishing Deductions: (5 P2INT)

1. 5-year rule
2. Present in the PH
3. Part of gross estate or gross gift of prior donor
4. Identifiable
5. No previous vanishing deduction (alternate rule)
 Nathalie Kate O. Portula

October 18, 2017 b. Corporation

i. DC
NIRT ii. RFC
1. Income iii. NRFC
2. Business
3. DST 2. Determine if taxpayer is a relative or stranger
4. Transfer (tax on PRIVILEGE to transfer the property) a. Relative
a. Estate i. Brother, sister, ascendants, descendants, (except spouse) or
b. Donor’s relative within 4th civil degree of consanguinity (by blood)
ii. 2-15%
DONATION (Free)
1. Mortis Causa (Fact of death) NOTE: for ESTATE, until 5th civil degree of consanguinity
 Estate tax (5-20%)
2. Inter-Vivos (During lifetime) b. Stranger
 Donor’s tax i. all within affinity, 5th civil degree of consanguinity and above
ii. 30%
(If problem is silent, donation is considered INTER-VIVOS)
NOTE
How to compute Donor’s Tax  If straight line, it is considered descendant or ascendant
1. Determine the type of taxpayers
a. Individual VOID DONATIONS
Taxable: Within Without 1. Donation between husband and wife
RC Yes Yes  To protect the modification of family regime
NRC Yes Yes o Absolute community of property (ACP)
RA Yes Yes o Conjugal property of gains (CPG)
NRA w/ reciprocity Yes No
NRA w/o reciprocity Yes No
2. Living together (even if unmarried) and married
 Nathalie Kate O. Portula

DOWRY
Deductions:
1. Child and parent
2. 10,000
3. Per marriage
4. Per child
5. Per parent

DONOR’S TAX
- 100,000 Exempt -
100,000 200,000 -0- 2%
200,000 500,000 2,000 4%
500,000 1,000,000 14,000 6%
1,000,000 3,000,000 44,000 8%
3,000,000 5,000,000 204,000 10%
5,000,000 10,000,000 404,000 12%
10,000,000 1,004,000 15%