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Chapter 2

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Chapter 2

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Gross Estate

The first estate tax law in the Philippines is embodied in Act 2601 which
took effect on July 1, 1916. It imposes graduated estate tax rates computed on
net inventoried property left by a decedent. It was subsequently revised by the
Revised Administrative Code of the Philippines imposing upon "every
transmission by virtue of inheritance, devise, bequest, gift mortis causa , or
advance in anticipation of inheritance, devise or bequest." Since then. several
laws were introduced to amending Act 2601 .

RA 8424 also known as "Tax Reform Act" or the National Internal

Revenue Code (NIRC) Effective Jan.1, 1998 further restructured the tax base
and rates of both estate and donor's taxes in addition to allowing the deduction of
medical expenses from the gross estate. Bulk of the estate tax law (aside from
determining the tax base and rates which are found in NIRC are embodied in the
New Civil Code of the Philippines.

Estate Tax - Definition and Nature

In the Philippines, Estate Tax is a tax imposed on the privilege that

a person is given in controlling to a certain extent, the disposition of his
property to take effect upon death. As discussed in Chapter 1, it is an
excise tax imposed on the act of passing the ownership of property at the
time of death and not on the value of the property or right. On this basis,
estate tax should not be construed as a direct tax on the property of the
decedent although the tax is based thereon. Since estate tax accrues as
of the time death, the right of the State to tax the privilege to transmit the
estate vests instantly upon death. The accrual of the tax is distinct from
the obligation to pay the same.

32
..
Justification for the Impo sition °
f Estate Tax

1. Benefit-Received Theory . dered by the government in the

The law considers the service re~ edent, either by law or in
th
distribution of_ th~ es~ate of e eecerformance of these services
th
accordance with his wishes. For Pt te and the heirs, the State
th
and other benefits that accrue to e es a
collects the tax.

2. Privilege or State Part~ersh~p The~ry . ht b ta privilege granted

Under this theory, inheritance 1s not a ng u . otection
by the State and legatees have been acquired onl~ w,t~ th e pr .
of the State Consequently the State as a passtve stJent part~er ~n
the accumul~tion of property' has the rtght to collect the share whte h IS
properly due to it.

3. Ability to Pay Theory

Receipt of inheritance which ~s tn the nature of an un~arned
wealth or wtndfaM, are place assets into the hands of the hetrs and
beneficiar.es. This creates an abtt+ty to pay the tax and thus
contributes to government H1Come.

4. Redistribution of Wealth Theory

The receipt of inheritance rs a contr~utmg factor to the tnequaHties
in wealth and incomes. The tmposition of estate tax reduces the
property received by the successor, thus hetpKlQ to promote equitable
distribuUon of wealth in society. The tax base is the value of the
property and the progressi~e scheme of taxation is precisely
motivated by the desire to mitigate the evils of inher•tance in the
present form.

Classification _of Taxpayers and Composition of Gross Estate

Section 85 of the Tax Code states that the vah.Je of the gross
estate of the decedent should be determtned by including the vaJue at the
time of his death of all pmperty, .real or personal, tangible or intangible,
wherever situated; Provided, however, that tn the ~ase 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.

33 .
-
The composition of the estate tax may be summarized as follows:

TABLE 2-1: Com osition of Gross Estate based on citizenshi and residenc
Decedent Gross Estate
• Citizen 1
1) Property (Real or Personal) wherever situated
• Resident alien J 2) Intangible personal property wherever situated

• Nonresident alien 1) Real property situated in the Philippines

2) Tangible personal property situated in the Philippines
3) Intangible personal property with situs in the Philippines,
unless excluded on the basis of reci rocit .

RECIPROCITY CLAUSE

The tax code excludes "intangible" personal property with situs in the
Philippines from the gross estate of a non-resident alien decedent if there
is reciprocity. There ,is reciprocity if:
• The decedent at the time of his dec;tth was a resident citizen of a
foreign country which at the time of his death did not impose an
estate tax of any character in respect of intangible personal
property of citizens of the Philippines not residing in that foreign
country; or
• The laws of the foreign country of which the decedent was a
resident citizen at the time of his death allow a similar exemption
from estate taxes of every character, in respect of intangible
personal property owned by citizens of the Philippines not residing
in that foreign country.

Intangible Asset
The term "intangible asset" _was not defined in the Tax Code,
nonetheless, Accounting Standards defines intangible asset as an
"identifiable non monetary asset without physical substance". They derive
their value from intellectual or legal rights, and from the value they add to
the other assets.

As a rule, the situs of intangible personal property is the domicile

of the owner'. also known as "mobi/ia sequntur personam". Ho\'.'Jever, such
rule is not applicable if the intangible proP.erty has situs elsewhere or
where the intangible property has acquired a business situs in another
jurisdiction because the principle of "mobilia sequntur personam" is only
used for convenience. It must yield to the actual situs of such property.
The situs of Franchise, for instance, should not be based on the domicile
of the owner but the place where such franchise is exercised.

34
r
INTANGIBLE ASSETS WITH SITUS "WITHIN'' THE PHILIPPINES

Section 104 of the Tax Code enumerates the following intangible personal
property with situs in the Philippines, for estate tax purposes:

1. Franchise which must be exercised in the Philippines.

2. Shares, obligations or bonds issued by _any corp.9rat_ ion ~r
sociedad anonima organized or constituted in the Philippines in
accordance with its laws.
3. Shares, obligations or bonds issued by any foreign corporation,
85%1 of the business of which is located in the Philippines.
4. Shares, obligations, or bonds issued by any foreign corporation if
such shares, obligations or bonds have acquired a business situs
in the Philippines.
5. Shares or rights in any partnership, business or industry
established in the Philippines.

TABLE 2-2: SITUS OF TANGIBLE AND INTANGIBLE PROPERTY

PROPERTY SITUS
• Real Property and Location of the property
Tangible personal property
• Shares, franchise, copyright, Where the intangible is exercised regardless
and the like. of where the corresponding certificate is
stored
• Receivables Residence of the debtor
• Bank deposits Location of the de osito bank

ILLUSTRATION 1:

A nonresident alien dec~dent left the following estat~:

House & Lot - Hongkong, inherited before marriage . , P15,000,000

...Car, acquired during marriage in Cebu 1,500,000
Shares of stocks issued by 9 foreign corporation, 20% of its
· operation is in the Philippines 250,000
Bank deposit with PNB branch in New York, New York
representing income earned during marriage 500,000
,, Shares of stocks issued by PLOT group of companies, a 500,000
corporation organized under Philippine laws
,,. 5-year, 12% promissory note, received 2 years ago,.during
marriage. The debtor is a resident of Q.C. 500,000

35
Case A: Assume there is no reciprocity, what is the correct value of the gross estate?
❖ Answer: P2,620,000

Solution:
Car, acquired during marriage in Cebu P1,500,000
Shares of stocks - PLOT 500,000
5-year, 10% Promissory Note 500,000
Interest income (PS00,000 x 12% x 2) 120,000
Gross Estate P2,620,000

■ The shares of stock issued by a foreign corporation (20% of its operations is in the
Philippines) is considered situated outside of the Philippines. Under the tax code, a
nonresident alien decedent is taxable only for properties situated in the Philippines. Same
rule applies to the House and Lot as well as the .bank deposit in New York, USA.

■ Interest income earned before or at the time of death shall likewise form part of the
decedent's gross estate.,

Case B: Assume therej ~ r!Cip_ro_cjty, what is the·correct value of the gross estate?
❖ Answer: P1,500,000
Only the car in Cebu acquired during marriage shall be included in the
decedent's gross estate. Intangible properties with situs within the Philippines
are excluded in the deterrnin_
ation of gross estate if there is reciprocity.

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ILLUSTRATION 2: . h following:
From the list of properties shown below, determine t e
1) Situs of the Property . . d. th decedent's gross estate.
2) Whether or not the property 1s include in e
Composition of Gross Estate
Citizen NRA ---
Item or With Without
SITUS Resident Reciprocity Reciprocify
No.
1
PARTICULARS
Parcel of Land Makati '-1 · '
'• --
2 Parcel of Land Bali, Indonesia ~ .,
3 House and Lot (Family Home) - Taguig
4 Rest House Batangas -
5 Rest House Palawan -
6 Rest House Malaysia -
7 Cars-Philippines -
8 Cars -Abroad
9 BPI Deposit-Philippine branch
10 BPI Deposit-U.S. branch
11 ABN Amro Bank Woreign bank) -
Philippine Branch
12 AB-NAmro Bank (Foreign bank) - London
Branch
13 Receivables-debtor from Philippines
14 Receivables-debtor from Canada
15 Shares of stocks of domestic corporations.
The certificates are stored in the
Philippines
16 Shares of stocks of domestic corporations.
The certificates are stored abroad
I

17 Shares.of stocks of foreign corporations.

The certificates are stored in the
Philippines
18 Shares of stocks of foreign corporations.
The certificates are stored abroad
19 Shares of stocks of foreign corporations,
90% of its operations is in the Philiooines
20 Shares of stocks of foreign corporations,
80% of its operations is in the Philippines
21 Share~ of stocks of foreign corporations
which acquired business situs in the
Philippines
22 Patents and copyrights exercised in the
' Philippines
23 Patents and copyrights exercised abroad

38
,........

19. Shares of stock ~f for~ig_n corpor~!io~s, 1 Within , . Include Exclude Include

90% of its o eratIons Is mthe Ph1h Jpmes__ , __ __ 1 __ _ _ _ _ __ _ ______
20. of
Shires stock of foreign corporations, W/o I Include Exclude Exclude
80% of its o erations is in the Phili ines - - - - • ____ _
21. Shares of stocks of foreign corporations Within Include Exclude Include
which acquired business situs in the
Phil!f>. ines_ . . __ _ - ---- - - - - - - -f

22. Patents and copyrights exercised mthe i Within Include Exclude Include
_Ph_!!i.E ine~ _ - . W/o -
23. Patents and cop ri hts exercised abroad Include Exclude Exclude.

39
amended under RA10963; RR ~2-2018)
Valuation of Gross Estate (as I of the corresponding estate tax
·since succession an? th e acc;u~e fair to appraise the estate al its
takes effect upon the deat~ , ,t shall ond~cedent's death . Specifically, the
fair market value at the ~,me of t~e. the correct valuation of the estate:
following rules shall apply m det_
erminkmgt Value at the time of death
1 In General : Fair Mar e .
2·. Real Property The higher valu~ bedtwb.ye~~~ commissioner and
■ FMV determine ' .
• FMV as shown in the schedule of values fixed
by the provincial and city assessors.

For purposes of prescn'b'mg re al property values ' the CIR is authorized to• divide
• h
the Philippine into different zones or areas and s~all, upon consu 1~at1on wit_
.
competent appraisers, both from the private and public sectors, determine the. fair
market value of real properties located in each zone or _area. If there ~s _an
improvement, the value of improvement is the c~nstruction cost per building
permit or the fair market value per latest tax declaration.

3. Personal ■ Fair market value at the time of death

Property

4. Shares of stock ■ Unlisted common share: Book value per share

of the issuing corporation (Appraisal surplus
shall not be considered, as well as the assigned
amount to preference shares, if any).
• Unlisted Preference share: Par value per share
■ Listed shares: FMV shall be the arithmetic
mean between the highest and lowest quotation
at a date nearest the date of death if none is
available on the date of death itself.
(RR 2-2003/ RR 12-2018)

· 5. Units of • The bid price nearest the date of death

participation in published in any newspaper or publication for
any association, general circulation.
recreation or
amusement club
(ie. ,golf, polo,
similar clubs)

6. Right to usufruct, ■ In accordance with the latest Basic Standard

use or habitation, Mortality Table taking into account the probable
and annuity life of the beneficiary, to be approved by the
Secretary of Finance upon recommendation of
the Insurance Commissioner [Section 88(A)-
NIRC].

40
ILLUSTRATION 3:
Determine the correct amount to be included in the gross estate of the decedent in the
following independent cases:
Case A:
r
Pedro bought a brand new car with a cash price of P3,000,000. He bought the car on
installment with the following terms: down payment of P500,000 and annual installment
o~ P700,000 for four years. On his way home, he run over an approaching truck and
died.
❖ Answer: P3,000,000

Case B:
The decedent granted a P2,000,000 loan to his best friend two years before his death
with a 10% interest per annum evidenced by a note. Both the principal and interest are
due after three years.
❖ Answer: P2,400,000. Principal amount plus interest of 10% for 2 years

Case C:
l The decedent devised to his son a 1,000 square meter lot in Global City, Taguig with the
\fl ,.o, following valuation:
Fair vatue as determined by city assessors P20,000/sq .m. ,.
Zonal value as determined by the QIR 17,000,000
FV determined by 1ndependent assessors 18,500,000

❖ Answer: P20,000,000 (1,000 sq.m x P20,000)

The higher between the fair value as determined by city assessors and the zonal
value as determined by the Commissioner of Intern~! Revenue (CIR)

Case D: •, i ~--

11 0' ,,'.. Decedent owns 100,000 ordinary shares of Alpha Company at the time of his death. At
that time, Alpha'so~tstanding _sh9res were 1,000,000 with P10 par value and Retained
Earnings amounting to PS,000,000. The shares are_no_t traded in the stock exchange.
❖ Answer: _ P1 ,500,000
Book value per share of Alpha Company multiplied by the number of shares held
by the decedent at the time of death •
P10M + 5M
1,000,000 shares X 100,000 shares

~eE .
.,-~f f~
1 A decedent left 10,000 Pin _y_ Telecom shares. The shares were tr,!d~d-ln the local stock
exchange. At the-time·of death, the following were available: .
· Highest quotation P800 per share
Lowest quotation P200 per share
Book value , P350 per share
❖ Answer: P5,000,000 10,000sh. x 800+200 /2

41
z ~i(I{/( l r; l
l

EXEMPTIONS AND EXCLUSIONS FROM THE GROSS ESTATE

A. Exclusions under Sections 85 and 86 of the Tax Code

1. -xcluslve property of the surviving spouse.

·t he gross estate in case of married decedents, is composed of:

• Exclusive properties of the decedent; and
• Common properties of the decedent and the surviving spouse

Exclusive properties of the surviving spouse should be

excluded in the gross estate because these properties are not
owned by the decedent upon his death.

For estate tax purposes, exclusive properties of the

husband are known as "capital" while exclusive properties of the
wife are known as "paraphernal" properties. Whether such
property is exclusive or common will depend on the type of
property relations of the husband and wife. Property relations are
discussed in Chapter 4.

·2': Property outside the Philippines of a non-resident alien decedent.

Section 85 of the Tax Code provides that for non.resident
alien decedents, only his properties situated or with situs within
the Philippines shall be included in his gross estate.
Consequently, properties outside of the Philippines are excluded
in determining gross estate.

3': ' Intangible personal property in the Philippines of a non-resident

alien under the Reciprocity Law.
The tax code excludes "intangible" personal property with' situs
in the Philippines from the gross estate of a non-resident alien
decedent if there is reciprocity.

B. Exclusions under Section 87 of the Tax Code

1. The merger of usufruct in the owner of the naked title.
2. The transmission or delivery of the inheritance or legacy by the
st
fiduciary heir (also known as the 1 heir) or legatee to the
nd
fideicommisary (also known as the 2 heir).
3. The transmission from the first heir, legatee or donee in favor of
another beneficiary, in accordance with the desire of the
predecessor (also known as "special" power of ~ppointment).
4. All bequest devises, legacies or transfers to soc,a_l welfare, cultural
and charitable institutions, no part of the net income of which
inures to the benefit of any individual; Provided, however, that not

42
►

more . than thi rty per ,en t (30%) of thc1 aid beque. t, d .,vi es,
legacies or tra n fe rs shall he u. ed by u .,h in titution for
administra tion purpose .

The governm ent agency w hich ie empowered to deterrninf-.; the

exemption is th e BI R. To enable it to exerci e . uch power, the
valu e of transfer to social welfa re, cu ltural and chari table
institution s should be included in the gro s e tatE,. An equal
amount, however, may be taken up as a deduction.

ILLUSTRATION 4:

Case A - Merger of usufruct in the owner of the naked title

In the last will and testament of Mr. Yumao, he assigned the usufruct of his
parcel of land to his son (Juan) while his grandson {Pedro) was named the
owner of the naked title.

Upon the death of Mr. Yumab, the parcel of land should be included in his gross
estate. However, upon the death of Juan, the parcel of land should be
"excluded" in his gross estate because he is not the intended owner/beneficiary
of the land but his son, Pedro. There will be merger of usufruct in the owner of
the naked title (Pedro) upon Juan's death. Meaning , Pedro will be entitled to
both the usufruct and ownership of the naked title upon Juan's death.

Case B - The transmission or delivery of the inheritance or legacy by the fiduciary

heir or legatee to the fideicommisary.

In the last will and testament of Mr. Yumao, he devised his parcel of land to his
son (Juan) but with a condition that ·such property should be given to his
grandson (Pedro) when the former dies. Thus, the parcel of land is intended to
be inherited by Pedro, not Juan (For purposes of convenience , disregard rules
on legitimes discussed in Chapter 1). Juan is acting only as a trustee or
fiduciary until such time that the property is transferred to Pedro. Since Juan is
the father o.f Pedro and both were alive at the time of the testator's death (Mr.
Yumao), the substitution or transfer from Juan to Pedro is known as
fideicommissary substitution. Upon the death of Mr. Yumao, the parcel of land
should be included in his gross estate. However, upon the death of Juan, the
parcel of land should be "excluded" in his gross estate because Juan is acting
only as a trustee of Pedro.

43
\
-·.,.. - ---

C. Exclusions under Special Laws

1. Proceeds of life insurance and benefits received by e 1bers

the GSIS RA728).
Accruals and benefits received by members from the SSS b
reason of death RA 1792 .
3. Life Insurance proceeds on life insurance policy taken out by the
decedent himself, upon his own fife , where the beneficiary is a
third person and is irrevocably designated.
4 . Life insurance proceeds on Insurance policy (group insurance )
taken out by his employer on the employee's life, whoever the
beneficiary maybe, whether the designation as beneficiary is
revocable or irrevocable.
5. Amounts received from Philippines and United States
governments for war damages (RA227).
6. Payments from the Philippines of US government to the legal heirs
of deceased of World _ War II Veterans and deceased civilian for
supplies services furnished to the US and Philippine Army
{RA 36). . V Ad . . .
7. Am unts recei ed from United ~tates eterans mt is ration.
8. Transfer by way of bona fide sa es.

44
9. Properties held in trust by the decedent
10. Acquisition and/or transfer expressly declared as not taxable
11 . Personal Equity and Retirement Account (PERA) assets of the
decedent-contributor (Sec. 14, RA 9505 - Personal Equity .and
Retirement Account Act of 2008).

INCLUSIONS IN THE GROSS ESTATE

A. Property owned by the decedent ACTUALLY AND PHYSICALLY
PRESENT IN HIS ESTATE at the time of his death such as land,
buildings, shares of stock, vehicles, bank deposit, and the like.

B. Decedent's Interest - Refers to the extent of Example:

✓ Dividends declared
equity or ownership participation of the
before his death but
decedent on any property physically existing received after death.
and present in the gross estate, whether or . ✓ Partnership profit
not in his possession, control or dominion. It which have accrued
also refer to the value of any interest in before his death.
property owned or possessed by the decedent ✓ Usufructuary & rights
at the time of his death (interest having value
or capable of being valued or transferred).

C. Property NOT PHYSICALLY IN THE ESTATE (these have already

been transferred during the lifetime of the decedent but are still .
subject to payment of estate tax) such as:
I

1. Transfer in contemplation of death

A transfer in contemplation of deat~ is a disposition of property
prompted by thought of death. It is the thought of death, as a
controlling motive which induces the disposition of the property
for the purpose of ·avoiding the tax. Included within this
concept is donation mortis causa. Include in the gross estate
the value of property transferred by the decedent during his
lifetime in anticipation of his death such as·:
a. Transfer of property in favor of
another person, but th~ transfer was There is no transfer in
ir.itended to take effect only upon the contemplation of death
transferor's death. when the transfer of
b. Transfer by gift intended to take property is a bona fide
effect at death, or after death, or · sale. for an adequate
under which the donor reserved the and full consideration in
income or the right to designate the money or money's
persons who should enjoy . the worth.
income.

45
2 Transfer with retention or reservation of certain _righ~s . .
· The decedent had transferred his property dun~g his llfeti~e, but
retained for himself beneficial enjoyment of the thing or the nght to
receive income from the same.

3. Revocable Transfers
It is a transfer where the terms of enjoyment of the property m~y
be altered, amended, revoked or terminated by the decedent. . It 1s
sufficient that the decedent had the power to revoke though he did not
exercise the power.
Inclusions C.2 and C.3 above do not actually convey .full ownership over the
property transferred. Hence, still part of the gross estate of the transferor.

ILLUSTRATION 5:
Case A:
A high ranking official realized that due to the nature of her illness, age and the pressure
brought about by the various legal cases filed against her, death might not be that far.
Hence, she gratuitously transferred most of her properties to her children while still alive.
Should the properties transferred •be included in the gross estate of the decedent-
transferor upon her death?
■ Answer: Yes
The properties transferred should be included in the estate of the high ranking
official at the time of her death because such transfers were intended to take
effect upon her death (donation mortis causa) regardless of the date of the
actual transfer to the beneficiaries or heirs.

Case S:
Renato, a natural philanthropist, gratuitously transferred a property to CJ worth
PS0,000,000 during his lifetime. What amount should be included in the gross estate
of Renato upon his death?
❖ Answer: PO.
'.he_ transfer was not intended to take effect _upon his death but during his
lifetime. It should therefore be treated as a "donation inter-vivas" rather than
inheritance (donation mortis-causa). The transfer is subject to donor's tax
(Chapter 6).

CaseC:
Due to an unstable medical condition, Pedro thought that it is only proper for him to
gratuitously transfer his properties to his love ones now instead of waiting for his death.
tie then transferred various condominium units to his children worth P200,000,000 while
he was undergoing major medical operation. At the time of Pedro's death, the fair
market value of the properties transferred _increased to P250,000,000. What amount
should be included in the com utation of Pedro's ross estate?

46
►

❖ Answer: P250,000,000.
The transfer is a donation mortis causa intended to take effect at the time of the
decedent's death. The fair market value of the property at the date of the actual
transfer should be ignored.

·case D:
Pedro transferred all his real properties worth P10,000,000 to Juan, in trust for Boy,
Juan's legitimate minor son. Pedro reserved his right to terminate the transfer anytime.

Question 1:
What amount should be included in Pedro's gross estate upon his death?
❖ Answer: P10,000,000.

Question 2:
Assume Juan subsequently died a y~~r after Pedro's death, what amount should be
included in Juan's gross estate?
❖ Answer: PO
The transfer is revocable on the part of the testator (Pedro). A revocable
transfer does not actually convey ownership over the property transferred
because it may be revoked anytime by the testator (regardless of whether the
right to revoke was exercised or not).

4. Transfers under a general powe~ of appointment

Power of appointment refers to the right to designate the person or

persons who will succeed to the prope_rty of the prior decedent. The
power of appointment may be "g.enerar' or "s.p_ecial". The power of
appointment is .:. 'ge.neLal" when the power of appointment authorizes
the donee of the power to appoint any person he pleases. The power
may be exercised in favor of anybody including the donee-decedent.
The donee of a general power of appointment holds the appointed
property with all the attributes of ownership thus, the appointed
property shall form part of the gross estate of the do·nee (beneficiary)
of the pow~r upon his death. ·

. Special power of appointment exists when the donee can appoint

only from a restricted or - designated class of persoi:,s other than
himself. Property transferred under a special power of appointment
should be excluded from the gross estate of the donee of the power
because the donee-decedent only holds the property in trust. Refer ·
also to exclusion~ under Section 87 of the Tax Code as discussed in
illustration #4 Cases Band Caswell as in illustration #6 Case B .

47
be exercised by the donor -de ~ c1Jtit
The power of appointment may
through the following modes:
a) By will . ssion or enjoyment at or aft r hi,
b) By deed to take effect in posse
death. . retained for his life or any period not
c) By deed under which he has to his death or for any p noel
ascertainable without reference h' death
. d t · fact end before 1s ·
which oes no m . f or the right to the income frorn
d) The possession or en1oyment ' O

the pr~perty. . I r in conjunction with any person to

e) The nght, either a one, 0 ·oy the property
designate the persons who shall possess or enJ or
the income therefrom.

ILLUSTRATION 6:
Case .A: General Power of Appointment . ;
Manny donated property to Nonito through his last will and testa~ent. It includes a \
provision that Nonito can transfer the property to anyone. Nomto transferred the \
property to Boomboom intended to take effect at the time of Nonito's death. I
Question 1: I
What type of power of appointment is illustrated above?
❖ Answer: General Power of appointment
The "will" provides that Nonito may transfer the property "to anyone". \
Therefore, the power may be exercised in favor of anybody including the \
donee-decedent (Nonito). The power of appointment is "general" when
the power of appointment' authorizes the donee of the power to appoint
any person he pleases.

Question 2:
Should the property be included in the determination of Manny's gross estate?
❖ Answer: Yes

Question 3:
Should the property be included in Nonito's gross estate?
❖ Answer: Yes
The done~ of a gene_ral power of ap~intment holds the appointed
property with all the attributes of ownership. Thus, the appointed property
shall form part of the gross estate of the donee-decedent (Nonito) upon
his death.

Case B: Special Power of Appointment

Manny donated property to Nonito through his last will and testament. It includes a
provision that Nonito can transfer the property only to his son, Boomboom.
Question 1: What e of ower of a ointment is illustrated above?

48
p

❖ Answer: Special Power of appointment .

Special power of appointment exists when the donee can appoint only
from a restricted or designated class of persons other than himself. In the
case provided, no other person should inherit the property left by Manny
but Boornboom .

Question 2: Should the property be included in Manny's gross estate?

❖ Answer: Yes

Question 3: Should the property be included in Nonito's gross estate?

❖ Answer: No ·
The donee of the power (Nonito) only holds the property in trust. The
intention of Manny is to transfer the property to Boomboom not to Nonito.
Consequently, the property transferred by Manny should be excluded in
Nonito's gross estate.

5. Transfer for insufficient consideration

When a sale or transfer (other than a bona fide or valid sale) was
made for a price less than its fair market value at the time of sale or
transfer, the excess of the fair market value of the transferred property
at the time of death over the value of the consideration received
should be included in the gross estate. For this purpose, the following
fair matket values shall be used:

Fair Market Values: .

❖ FMV of the property at the time of sale or transfer.
This is use to determine whether or not the consideration was
full and adequate. If the co.nsideration received is substantially the
same with the fair market value at the time of transfer, such sale or
transfer is con:sidered a bona fide sale, hence, not subject to estate
tax.

❖ FMV of the property at the time of death.

This is used to determine the amount to be included in the
gross estate. If the consideration received is substantially lower or for
les-s than full and adequate consideration compared to the fair market
value at the time of sale or transfer, such sale or transfer was made
for insufficient consid~ration. In such cases, the excess of the fair
market value at the time of death over the consi.deration received at
the time of sale or transfer should be included in the gross estate of ·
the decedent.

49 .
EstatC}r, ( r~

·. ed at the date of transf e1

. rece1v d. th" (d l:;r
nsiderat1on Jation of ea onation
If tnere was n:s c~ade "in con:(ihe
property at_ the date o1
d such transfer w . market value Id be included in the gross
an ) the fair f r shOU · eceived t
mortis causa , ate of trans e ' consideration r ~ the
death not at the d t If there was no t made "in contemplat,on of
' h deceden · was no · · · b'
estate oft e such transfer . d donation inter-v1vos su Ject
date of transfer andf shall be cons1dere lue of the property at the
death", such trans ~r on the fair market v~ discussed in Chapter 6.
to donor's tax _base s made. Donor's ta~ is are summarized in Table
date the donation w~ fficient consideration
The above rules on insu .
2-3 below:
Table 2-3: Rules on insufficient consideration
Bona fide sale. Excluded from the
Consideration ~ FMV at th e t decedent's gross estate.
time of transfer.
Insufficient consideration.
• Include in the gross estate the
Consideration < FMV at the _ _.
time of transfer. excess of FMV @ the time of
death over the · consideration
received.

Sale was made in the Bona fide sale regardless of the

ordinary course of trade -••► amount of consideration.

No consideration received -••► Either donation mortis causa

(subject to estate tax) or donation
inter-vivas sub·ect to donor's tax .

ILLUSTRATION 7:
CASE A
In January 2015, Juan sold for P5,000,000 an apartment with carrying value of
P3,500,000 to Pedro. At the time of sale, the property has a prevailing market price
of P7,000,000. Juar\ died on June 2015. At the time of death, the prevailing fair
market value of the property was PB,000,000.

Question 1: What amount should be included in the gross estate of the decedent?
❖ Answer: P3,000,000.
■ The excess of the fair value of the property at the time of death over the
consideration received (PB,000,000 vs. P5,000,000). The carrying value of the
property transferred is disregarded for purposes of determining whether or not the
transfer was made for an adequate and full consideration.

50
►

. ---- -~ . --•·--. ---- •- ·-- ··-----··- -- -- -- ----,

Questi?n 2: What amount should be included in the gross estate of the decedent
assu~ing the fair market value of the property ?l_the time of death was P4,000,000?
••• Answer: PO.
The fair market value at the time of death was lower than the amount of consideration
received. Hence, the P5,000,000 is considered adequate and full consideration.

Question 3: Assume that the property sold is classified as an ordinary asset and the
sale or transfer was made in the ordinary course of trade or business. What amount
should be included as part of the gross estate of the decedent?
❖ Answer: PO. The sale or transfer is a result of a bona fide sale

CASE B
In January 2015, Juan sold for P5,000,000 an apartment with carrying value of
P3,500,000 to Pedro. At the time of sale, the property has a prevailing market price
of P5,000,000. Juan died on June 2015. At the time of death, the prevailing fair
market value of the property was P8,000,000.
Question 1: What amount should be included in the gross estate of the decedent?
❖ Answer: PO
If the consideration received is substantially the same with the fair market value at the
time of transfer, such sale or transfer is considered a bona fide sale, hence, not subject
to estate tax.

Question 2: Assume Juan transferred the property without consideration, what

amount should be included in his gross estate at the time of his death?
❖ Answer: PS,000,000
The transfer is considered transfer in contemplation of death. Thus the transfer should
take effect upon Juan's death. The fair market value of the property at the time Juan's
death should be included in his gross estate.

Question 3: Assume Juan transferred the property during his lifetime and the
corresponding donor's tax was paid, what amount should be included in his gross
estate at the time of his death?
❖ Answer: PO. The transfer is subject to donor's tax, not estate tax

6. Claims against insolvent persons

For estate tax purposes, an insolvent is a person whose
properties are not sufficient to satisfy, whether fully .or partially, his
debt(s). A judicial declaration of insolv~ncy is not required but the
incapacity of the debtor to pay his obligation should be proven. As a
rule regardless of the amount the debtor is unable to pay, the full
amount of the claim against the insolvent person should be included in
the gross estate of the decedent. The portion of the claim which is not
collectible should be allowed as a deduction from the gross estate.

51
Estate T~

ILLUSTRATION 8:
CASE~ . . . . f PS 000 00O against Pedro. Since Pedro is
Juan died with an existing collectible O . ' ff, rt to collect the amount during his
financially stable, Juan exerted all possible e O s , , death
lifetime, however, Pedro failed settle the sa~e before Jua~ ste of J~an?
Question 1: How much should be included in the g~oss es a ·
❖ Answer: the entire amount of the claim, PS,OOO,OOO·

Question 2: How much is the deduction from the gross estate of Ju~n?
❖ Answer: PO. . f h d bt t
The debtor is not an insolvent person. The incapacity o t e. e or o P~Y
his obligation should be proven before a deduction under this category 1s
allowed.

Question 3: Assume that after Juan failed to collect the amount due from Pedro, he
decided to just condone the claim. The condonation was gladly welcomed by Pedro.
Ayear later, Juan died. How much should be included in the gross estate of Juan?
❖ Answer: PO.
The claim was condoned by him prior to his death. Therefore, the condonation
should be classified as donation inter-vivos subject to donor's tax.

CASEB
Juan died with an existing collectible of PS,000,000 against Pedro whose properties
are not sufficient to satisfy his debts. Pedro's properties are valued at P6,000,000
while his liabilities amounted to P10,000,000.
Question 1: How much should be included in the gross estate of Juan?
❖ Answer: the entire amount of the claim, PS,000,000

Question 2: How much is the deduction from the gross estate of Juan?
❖ Answer: P2,000,000.
Only the uncollectible portion.
Collectible portion = Debtor's assets/Debtor's Liabilities x Claims
Collectible= P6M/P10M x P5M = P3,000,000
Uncollectible = P5M - 3M~ P2,000,000

Question 3: Assume that P2M of Pedro's liabilities are unpaid taxes from the
government, how n:1uch sh~uld be included as a deduction from the gross estate of
Juan?
❖ Answer: P2,500,000.
Only the uncollectible portion.
Pedro's assets after unpaid taxes =P6M-2M =P4M
Pedro's liabilities excluding unpaid taxes = PBM
Collectible portion =Debtor's assets/Debtor's Liabilities xClaims
Collectible = P4M/P8M x P5M =P2,500,000
Uncollectible =P5M - 2.5M =P2,500,000

52
7. Proceeds of life insurance

Proce~ds of life insurance taken out by the by the decedent on his

own /Jfe should be included in the gross estate if the following
requisites are present:
a. It must be an insurance on the life of the decedent
b. The b~neficiary must be either of the following;
• Hrs estate, his executor, his administrator (revocable or
not)
• Any third person provided that the designation is not
irrevocable

TABLE 2-4 PROCEEDS OF LIFE INSURANCE (Taken out by the Decedent) .

Beneficiary Designation Gross Estate
Estate Revocable or Irrevocable Included
Executor Revocable or Irrevocable Included
Administrator Revocable or Irrevocable Included
3rd Party (i.e. wife) Revocable Included
3rd Part i.e. wife Irrevocable Excluded
m Exclude proceeds from SSS/GSIS as provided by law.

The Philippine Insurance Code presumes that the designation of a

policy is revocable in case the designation of the beneficiary is not clear or
silent. Section 11 of the Insurance Code states that "the insured should
have the right to change the beneficiary he designated in the policy,
unless he has expressly waived this right in said policy."

ILLUSTRATION 9:

Case A:
A life insurance worth P10,000,000 was taken out by Pedro upon his life. He
designated his friend, Juan, as beneficiary. Should the proceeds be included in the
gross estate of Pedro upon his death?
❖ Answer: Yes
The beneficiary was his friend (other than the decedent's estate, executor or
administrator). Since the designation is silent, it should be assumed that Juan's
designation as beneficiary is revocable. As a rule, when the beneficiary is a third per~on
and the designation is revocable, the amount of proceeds should form part of the
decedent's gross estate. Irrevocable designation of a beneficiary is not presumed. To
be excluded from the gross estate, Juan's designation should be clearly stated as
irrevocable beneficiary.

53
f~ddic 7; (
I'

Case B: . t· b fi .
Assume the same data in case A, except that Juan's designa ion as ene 1c1ary is
irrevocable. Should the proceeds be included in the gross estate of Pedro upon his
-i
death?
❖ Answer: No

' Case C:
Assume the same data in case A, except that the beneficiary was Pedro's e_xecutor.
The designation of the beneficiary was irrevocable. Should the proceeds be included
in the gross estate of Pedro upon his death?
❖ Answer: Yes
The designation of the beneficiary as irrevocable beneficiary should be ignored if ~e
beneficiary is the estate, executor or administrator. In such a case, the proceeds of life
insurance should always be included in the gross estate of the decedent regardless of
the beneficia 's desi nation.

TAX RATE

The transfer of the net estate of every decedent, whether resident

or non-resident of the PhiHppmes, as determined in accordance with the
Tax Code, as amended, shouki be subject to the estate tax.

If the decedent died during or after the effectivity of RA 10963,

otherwise known as the "Tax Reform for Acceteratton and Inclusion Act"
(TRAIN Law), the net estate of every decedent, whether resident or non-
resident of the Philippines, shall be sub}ect to an estate tax rate of six
percent (6%).

The law that Governs the imposition of Estate Tax and Accrual of
Estate Tax

As discussed in Chapter 1, it is a well settled rule that estate

taxation is governed by the statute in force at the time of death of the
decedent. The estate tax accrues as the date of death of the decedent
and the accrual of the tax is distinct from the obligation to pay the same
(RR 2-2003). Refer ~o Chapter 1 for additional discussions and
iUustrations.

54
E,t-ai&7~
Filing of Estate Tax Return and Payment of Estate Tax Due

nd
U er the. ~ax Code, as amended, the estate tax shall be paid by
t~e executor/admin~strator or any of the legal heirs at the time the return is
filed ~Pay as you hie system). An estate tax return shall be filed under
oa th in any of th e following situation (RR 12-2018):
1· In cases of transfer subject to Estate Tax; and

2. Wh~re regardless of the gross value, the estate consists of

reg,~tered or registrable property such as real property, motor
veh,?l_e, share of stocks or other similar property for which a
Cert1f1cate Authorizing Registration from the Bureau of Internal
Revenue (BIR) 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.

Estate tax returns showing gross value exceeding five million

pesos (P5,000,000) 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
nonresident, not a citizen of the Philippines, of that part of
his gross estate situated in the Philippines;
b. Itemized deductions allowed from the gross estate under
Section 86 of the Tax Code, as amended;
c. The amount of tax due, whether paid or still due and
outstanding .

TIME for FILING the Estate Tax Return

The estate tax return is allowed to be filed one ( 1) year from the
date of death. The court approving the project of partition shall furnish
the Commissioner with certified copy thereof and its order within thirty
days (30) after promulgation of such order.

However, as discussed in Chapter 1, the estate tax due "accrues"

immediately at the time of death. It s~all _be noted that the accrual of
the estate tax is distinct from the obhgat1on to pay the same (RR 2-
2003); (Lorenzo vs. Posadas, 64 Phil. 35~)- The one-year ti~e of
filing is the allowable period of filing the return without
surcharges/penalties and interest.

55
r
. .. h Estate Tax Return
Extension of r,me to File t e
f th Tax Code ·(as amended; RR 10963-
Sec. 90(C) 0 ·ct e "the commissioner or any Revenu~
Under
RR 2-2003/RR 12-2018) ~rovi es, nt to the NIRC shall have the
Officer authorized .by hi~ ~ursuaases a reasonable extension . not
5
authorit~ to ~rant, in mentonf ~ ~he r~turn". The application for the
exceed_mg th1rt_y (30) d~ys for
th
1
~~;te tax return must be filed with the
extension ~f t1:71e to_ file e e where the estate is required to secure
Revenue D1stnct ~fflc~ (RDO) TIN) and file the tax returns of the
its Taxpayer Identification Numbe~ ( . d' t· over the estate tax return
. h RDO l'k 1 . has JUrlS IC 10n
estate, wh1c , ewtse, It f the distribution of th
required to be filed by any party as a resu O e
assets and liabilities of the decedent.

TIME for PAYMENT of the Estate Tax

As a general rule, the estate tax imposed under the Tax Code
shall be paid at the time the return is filed by the executor,
administrator, or the heir(s).

EXTENSION OF TIME TO PAY ESTATE TAX'

When the Commissioner finds that the payment 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 (Judicial Settlement), or two (2) years in
case the estate is settled extrajudicially (extrajudicial settlement). 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 deficiency
assessment shall be suspended for the period of any such extension.

The application for extension of time to file the return and

extension of time to pay estate tax shall be filed with the Revenue
District Officer (RDO) where the estate is required to secure its TIN
and file the estate tax return. This application shall be approved by the
Commissioner or his duly authorized representative.

Where the request for extension is 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.

56
. If an extension is granted, the Commissioner or his duly
au th onz~~ representative may require the executor, or administrator,
or benefici~ry, as the case may be, to furnish a bond in such amount,
not exceedmg double the amount of the tax and with such sureties as
the Com_missi~ner deems necessary, conditioned upon the payment
of the said tax in accordance with the terms of the extension.

Payment of Estate Tax by installment and partial disposition of

estate (RR 12-2018 as amended by RR 8-2019) ·

In case of insufficiency of cash for the immediate payment of the total

estate tax due, the estate may be allowed to pay the estate tax due
throu_g_h the following options, including corresponding terms and
cond1t1ons: _

1. Cash Installment
a) The cash installments shall be made within two (2) years from the
date of the filing of the estate tax return, using the payment form
(BIR Form 0_ 605) or a payment form dedicated for this transaction
for succeeding installment payments after filing the first (1s t)
payment through the estate tax return.
b) The estate tax return shall be filed within one (1) year from the
date of the decedent's death;
c) The frequency (i.e., monthly, quarterly, semi-annually, annually)
deadline and the amount of each installment shall be indicated in ·
the estate tax return, subject to the approval by the BIR;
d) In case of lapse of two (2) years without the payment of entire tax
due, the remaining balance thereof shall be due and demandable
subject to applicable penalties and interest reckoned from the
prescribed deadline for filing the ret,,un and payment of estate tax;
and - ·
e) No civil penalties or interest may be imposed on the estates
permitted to pay the estate tax due by installment. Nothing in this
subsection, however, prevents the · Commissioner from executing
enforcement action against the estate tax due of the estate tax
provided that all the applicable laws and required procedures are
followed/observed. · ·

2. Partial disposition of estate and application of its proceeds to the

estate tax due .
a) The disposition, for purposes of this option, shall ref~r to _the
conveyance of . property, whether real, .personal or intangible
property,. with the equivalent cash consideration;

57
r / :_,~ d11 It rl ,
\ t'
b) The estate tax return shall be filed within one (1) year from the
date of the decedent's death; · . ..
c) The written request for the partial d1spos1t1on of es_ tate shall be
he written request shall be filed, together
approve by th e BIR · T h
with a notarized undertaking that the proceeds t ereof shall be
exclusively used for the payment of the total estate _tax due; .
d) The computed estate tax due shall be allocated in proportion to
the value of each property.
e) The estate shall pay to the BIR the proportionate estate tax due of
the property intended to be disposed of; . .
f) An electronic Certificate Authorizing Reg1strat1on (eCAR) shall be
issued upon presentation . of the proof of payment of the
proportionate estate tax due of the property intended to be
disposed. Accordingly, eCARs shall be issued as many as there
are properties to be disposed to cover the total estate tax due, net
of the proportionate estate tax(es) previously paid under this
option; and ·
g) In case of failure to pay the total estate tax due out from the
proceeds of the said disposition, the estate tax due ~hall be
immediately due and demandable subject to the applicable
penalties and interest reckoned from the prescribed deadline for
filing the return and payment of the estate tax, without prejudice of
withholding the issuance of eCARs on the remaining properties
until the payment of the remaining balance of the estate tax due
including the penalties and interest. '

REQUEST FOR EXTENSION OF TIME, INSTALLMENT PAYMENT AND

PARTIAL DISPOSITION OF ESTATE .

Request for extension to file the return , extension to pay the estate
tax and payment by installment-shall be filed with the Revenue District
Officer (RDO) where the estate is required to secute ·its TIN and file the
estate tax return. This request shall be approved by the Commissioner or
his duly authorized representative.

PLACE OF FILING THE RETURN and PAYMENT OF THE ESTATE TAX

In case of a resident decedent, the administrator or executor shall

register the estate of the decedent and secure a new TIN therefor from the
Revenue District Office where the decedent was domiciled at the time of
his death and shall file the estate tax return and pay the corresponding
estate tax with the Accredited Agent Bank (AAB), Revenue District Officer
or Revenue Collection Officer having jurisdiction on the place where the

58
►
..J

E~tttre-? ti{;
deced_ent was ??miciled at the time of his death , whichever is applicable
following prevailing collection rules and regulations .

·in case of a non-resident decedent whether non-resident citizen or

non-resident alien, with executor or ad~inistrator in the Philippines, the
estate tax return shall be filed with and the TIN tor the estate shall be
secured from the Revenue District Office where such executor or
administrator is registered. Provided, however that in case the executor
or administrator is not registered , the estate ta~ return shall be filed with
and the Tl N of the estate shall be secured from the ·Revenue District
Office having jurisdiction over the executor or administrator's legal
residence . Nonetheless, in case the non-resident decedent does not have
an executor or administrator in the Philippines, the estate tax return shall
be filed with and the TIN for the estate shall be secured from the Office of
the Commissioner though RDO No. 39-South Quezon City.

The foregoing provision, not withstanding , the Commissioner of

Internal Revenue may continue to exercise his power to allow a different
venue/place in the filing of tax returns.

LIABILITY FOR THE PAYMENT OF ESTATE TAX

The executor/administrator of an estate has the primary obligation to pay

the estate tax but the heir or beneficiary has subsidiary liability for the
payment of that portion of the estate which his distributive share bear~ to the
value of the total net estate. The extent of his liability, however, shall in no
case exceed the value of his share in the inheritance.

Where 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 must file the return. The
Estate Tax imposed under the-Tax Code shall be paid by the executor or
administrator before the delivery of the distributive share in the inheritance
to any heir or beneficiary.

Where there are two or more executors or administrators, all of them

are severally liable for the payment of the tax. The estate tax clearance
issued by the Commissioner or the Revenue District Officer (RDO) having
jurisdiction over the estate, will serve as the authority to distribute the
remaining/distributable prop.erties/share in the inheritance to the heir or
beneficiary.

59
Civil penoltlos and Interest .
Any mount paid after the statutory due date of the tax, but within
tt, xt n Ion p riod, shall be subject to interest_ but not to surcharge .
n lty of 20% If there is no false or fraudulent intent on. the taxpayer.
P n lty ot 0°;0 If there Is false, malice or fraudulent intent on the
taxpayEr. Int · r st shall be computed on the unpaid amount of tax from
th d le ,,ornpuled until fully paid (20% prior to TRAIN Law; 12% upon
· tf c\lvlty of th TRAIN Law).

Payment of Tax Antecedent to the Transfer of Shares, Bonds or

Rights (Sec. 97, as amended)

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-vlvos or mortis causa , legacy or inheritance,
unless a certification from the Commissioner that the applicable tax
have been paid.

If a bank has knowledge of the death of a person, who maintained

a bank deposit account alone, or jointly with another, it shall allow any
withdrawal from the said deposit account, subject to a final withholding tax
of six percent (6% ). 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.

Under RA No: 10963 (TRAIN Law) In case the available cash of

the estate is insufficient to pay the total · estate tax due j payment by
installment shall be allowed within two (2) years from the, statutory date for
Its payment without civil penalty and interest.

60
►

PROBLEMS

P2.1.
A decedent taxpayer died leaving the following:
Family home (land and residential house) in the P-8,000,000
Philippines
Parcel of land with vacation house in Malaysia 5,000,000
Farm land in the Philippines, with a mortgage in favor of 3,000,000
the Philippine National Bank for P-600 000
I

Shares of stock of a domestic corporation deposited in a 2,000,000

bank safety deposit box in Malaysia
Shares of stock of a foreign corporation the entire 500,000
business of which is in the Philippines, deposited in a
bank safety deposit box in Malaysia
Receivable from a friend who has no property 300,000
whatsoever
Receivables under insurance policies:
• Life insurance policy, taken by .the decedent on ·200,000
his own life, with his estate as revocabl.e
beneficiary
• . Life insurance policy, taken by the decedent on 300,000
his own life, with a daughter as revocable
beneficiary
• Life insurance policy, taken by the dec~dent on 600,000
his own life, with a son as irrevocable beneficiary
• Life insurance (group) taken by the employer of 150,000
the decedent, with the estate as revocable
beneficiary

REQUIRED: ,
Determine the correct Gross Estate assuming the decedent was:
1. A resident citizen ·
2. Resident alien
3. Non-resident alien with reciprocity
4. Non-resident alien without reciprocity

........_
t '

~~:decedent devised to his four (4) children separate parce ls of land tlif' '
the following data . · . I • M ·1
TO JUAN, 1,000 square meter lot tn Sampa oc, am a vnth t (;
following valuation : . . . .
• Zonal value determined by the City of Manila, P25 ,000/ q.rn
• Assessed value as determined by the CIR , P1 8,000 ,000
• FMV as determined by independent assessors, P20,000,0ur
TO PEDRO, 1,000 square meter lot in Q.C . wrth the foll w inq
valuation:
• Zonal value determined by Q .C ., P15,000/sq.m .
• Assessed value as determined by the CIR , P18,000,000
• FMV as determined by independent assessors, P20,000,000
TO MARIA, 1,000 square meter lot in Makati w ith th e following
valuation:
• Zonal value determined by the City of Manila , P15 ,000/sq .m.
• FMV as determined by independent assessors, P20, 000 ,00
TO SISA, 1,000 square meter lot in Mandaluyong with the
following valuation:
• Zonal value determined by the City of Manila , (No available
valuation)
• FMV as determined by independent assessors, P20 ,000 ,000
REQUIRED: Determine the gross estate of the decedent

P2.3.
~e~ro owns vari?us sha~es of stocks form different companies during his
lifetime. At the time of his death, the following details were provided to
you by his administrator:
100,000 shares of Frozen Company's ordinary shares, not traded
• Outstanding shares - 800,000 shares; P1 O par
• Retained Earnings - P3,000,000
100,000 shares of Divergent Company's ordinary shares, listed shares
• Outstanding shares - 1,000,000 shares; P10 par
• Retained ·ear~ings - P5,000,000
■ Mean value of-the shares in the stock exchange - P15
100,000 shares of Lenovo Company's ordinary shares, listed shares
■ Outstanding shares - 1,000,000 shares; P10 par
■ Retained earnings - P5,000,000
• Mean value· of the shares in the stock exchange - P12

REQUIRED: Determine the gross estate of Pedro

62
► ..,
( -l{t/1-1/{'/ ' 1 ·/'l'F, ,/,·,:1· / ··\°111 It 'l11 r
/ l 1
P2.4. For ch of th following independent cases, determine the value of
t.h · prop · rty in tho gross 0st t .· :
1. A ~ u· ,t:ll of land inh rited from th e f1ath er was acquired by the
d ,edont' s foth r th n for a cos t of P250,000 . Upon inheritance,
tile fair m . rk t valu wa P200,000 as shown in the schedule of
v lu · s from th e Ass ssor's office and P230,000 as determined by
th offl , of th BIR Commissioner.
A. prop rty. acq uired for P1 ,000,000, was transferred in
cont ::implation of death for a consideration of P100,000. Fair
market valu e at th e time of transfer, P1 ,500,000, while at the time
of de th, P1 ,200,000 .
" . A properiy, acquired at a cost of P1 ,000,000, was transferred in
onternplation of death for a consideration of P1 ,200,000. Fair
market valu e at the time of transfer, P1 ,500,000, while at the time
of death, P1 ,200,000.
4. The decedent was about to present to his girlfriend a brand new
car worth PS,000,000 cash. Installment price is valued at
P6,000,000. on his way to meet his girlfriend, he met a car
accident and died.
5. On January 1, 2017, Pedro extended a loan worth P1 ,000,000 to
Juan due on January 1, 2019. The latter executed a promissory
note with an annual interest of 10%. Pedro died on June 30,
2018.

(MODIFIED) IDENTIFICATION:
Exercise A (Inclusions and Exclusions)
Determine whether the following is included or excluded from the gross
estate.
Included Excluded
1. Transfer with reservation of certain
rights

2. Transfer for insufficient consideration

3. Transfer for an adequate and full

consideration in money's worth

4. Transfer in contemplation of death

5. Insurance proceeds from 555 and

GSIS

6. Proceeds of group insurance taken

ou~ by a company for its employees.

63
7. Transfer from the first heir to th e
second heir designated by the
predecessor. ----------- -
B. Donation to the national government

9. Merger of usufruct in the owner of

the naked title -·-- ---
10. Legacy to a charitable institutions
whose administrative expenses did
not exceed 30% of the legacy

Exercise B {Insufficient Consideration)

Determine the amount to be included in the Gross ~state of the Transferor-
Decedent from the following independeDt cases:
Inclusion in the
Particulars: Gross Estate (P)
1. FMV at the time of Transfer PS,000,000
FMV at the time of Death 6,000,000
Consideration received 5,000,000
Answer:

2. FMV at the time of Transfer PS,000,000

FMV at the time of Death 6,000,000
Consideration received 6,000,000

3. FMV at the time of Transfer PS,000,000

FMV at the time of Death , 6,000,000
Consideration received 7,000,000

4. FMV at the time of Transfer PS,000,000

FMV at the time of Death . 6,000,000
Consideration received 2,000,000

5. FMV at the ttme of Transfer PS,000,000

FMV at the time of Death 6,000,000
Consideration received nil

64
...,

Exerci~e C (Proceeds of Life Insurance Premium)

Determine the amount that shou ld b includ d In th ~ gro e tat :

Inclusion in th
Particulars: ross tat (P)
1. The decedent took an insurance on hi life for
Pl0,000,000
2. The decedent took an insurance on his life for
P20,000,000 and designated his estate as the
revoca ble benefici~ ry.
3. The decedent took an insurance for his life for
PS,000,000 and irrevocably designated the
administrator of his estate as the beneficiary.
4. The decedent took an insurance on his life for
Pl0,000,000 and designated his son as
beneficiary.
5. The decedent took an insurance on his life for
Pl0,000,000 and designated his son as
irrevocable beneficiary.

TRUE OR FALSE

1. Estate tax is· a tax imposed on the privilege that a person is given in
the disposition of his property, either by will or by operations of law, to
take effect upon death.
2. Estate tax is an ad-valorem tax
3. The accrual of the estate tax is distinct from the obligation to pay the
same.
4. Delivery and accep_ tance is an essential element of estate taxation.
5. Under the "ability to pay theory", the imposition of estate tax is
justifiable because it reduces the property received by the successor,
thus, helping t~ promote equitable distribution of wealth in society.
6. Regardless of situs, the tax code excludes "intangible" personal
property of a non-resident alien decedent in determining his taxable
estate.
7. Section 85 of the Tax Code provides that the value of the gross estate
of a nonresident alien should be determined by including the value at
the time of his death, of all property, real or personal, tangible or
intangible, wherever situated .

65
c'fter £.ercisu - Er&tLe,, 7;(
8. There is reciprocity if the decedent at the time of his death wa s a
resident citizen of a foreign country which at the time of his death did
not impose an estate tax of any character in respect_ ?f t~ngible
personal property of citizens of the Philippines not residing m that
foreign country. .
9. For estate tax computation, real estate, in general, shall be valued at
fair market value at the date of death of the decedent.
1o. If zonal value of a real estate is available at date of death , and th is is
higher than the fair market value per assessor's listings of values, then
the amount to be reported in the gross estate is the zonal value .
11. Donation mortis causa are transfers intended to take effect at the time
of the decedent's death. Hence, the property should be valued at the
fair market value of the property at the date of the actual transfer.
12. Donation to the national government is an exempt transaction but
should still require inclusion of the property in the gross estate.
13. Juan devised in his will a piece of land; naked title to Pedro and
usufruct to Ana for as long as Ana lives, thereafter to Pedro. The
transmission from Juan to Pedro and Ana is subject to estate tax but
the merger of the usufruct and the naked title to Pedro upon the death
of Ana is exempt.
14. Ron devised in his will real property to his brother Bert who is
entrusted with the obligation to preserve and transmit the property to
Jay, son of Bert, when Jay becomes of age. The transmission from
Bert to his son Jay is subject to estate tax.
15. Wh~n an estate, under administration, has income-producing
property, the annual income. of the estate becomes part of the taxable
gross estate.
16. _When an estate, under administration, has income-producing property
and its income during the year is distributed to the heirs, the income
so distributed is taxable to the heirs as part of their gross income for
the year.
17. A sp~cial power of appointment authorizes the donee of the power to
appoint only from among a designated class or group of persons other
than tiimself.
18. The donee-decedent of a special power of appointment only holds the
property in trust, hence, the property shall form part of the donee-
decedent's gross estate. ·
19. The Tax ?ode as amended under RA10963 (TRAIN Law) provides
that the filing of estate tax return should be done within one ( 1) year
from the d~cedent's death.
~O. The payment of estate tax could only be extended up to the maximum
of thirty (30) days from the date of filing .

66
..
MULTIPLE CHOICE
Principles
1. An excise tax on transfers inter-vivos '" 11(.X • Drn cr
a. Donor's tax
c. Income tax
b. Estate tax
d. VAT

An excise on transfers morti~ricausa

. a. VAT
c. Income tax
b. Estate tax
d. Donor's tax
1
3. Which among the following s1tatements is not correct?
I. Estate taxation is governed by the statute in force at the time
of death of the decedent.
11. Estate tax accrues as of the death of the decedent.
111. Succession takes place and the right of the State to tax the
privilege to transmit the estate vests instantly upon death.
a. I only c. 111 only
b. 11 only d. None of the above

Estate tax is a tax on the right of the deceased person to transmit his
. estate to his lawful heirs and beneficiaries. Hence, it is
I. A tax on property. ·
11 . An excise tax
a. I only c. Both I and II
b. II only d. Neither I nor II
~
J,
1-,<., OJ 11.A,
(j 5. -Estate tax is imposed upon the:
a. Decedent
b. Property or rights transferred .
c. Right to tr~nsfer property upon death
d. Privilege to receive inheritance

U 6. When will the transfer through succession be effective?

~ a. Upon ,t he signing of a written will .
b. Upori payment of estate tax.
c. Upon death of the te~ tator
d. Upon registration in ·the register of deeds.

A 7. Which of the following is . not a characteristic of donation mortis

causa?
a. The transfer to the donee is irrevocable while donor is alive .
b. There is no conveyance of title or ownership to the doneee
before the death of the donor.
c1yt« ~uses ~ E.s6:de 7~
/

c. The transferor retains the full or naked ownership and control

of the property while alive. .
d. The transfer should be void if the donor should survrve the
donee.

F 8. Mr. Wais thought that due to old age, death may be imminent.
Knowing that the value of estate tax is high , he disposed his
properties to his rightful heirs prior to his . death (transf~r in
contemplation of death). To prevent undue avoidance of tax, rnte r-
vivos disposition in contemplation of death is subject to:
a. Donor's tax c. Income tax
b. Estate tax d. Excise tax

Classification of Taxpayers
9. )The gross estate of a decedent shall be comprised of the following
properties and interest therein at the time of his death, includ ing
revocable transfers and transfers for insufficient consideration , etc. :
I. Residents and citizens: All properties, real or personal or
intangible, wherever situated.
11. Nonre~ident aliens: Only properties situated in the Philippines,
that, with respect to intangible personal property, its inclusion
in the gross estate is not subject to the rule of reciprocity
a. I only c. Both I and II
b. 11 only d. Neither I nor II
t.
11
10. Which of th~ fo_llowing shall _be con~idered personal property?
I. Obhgat1ons and actions which have for their object movables
or demandable sums.
II . Sh~~es .of stock of agricultural, commercial and industrial
entities, although they may have real estate
a. Both I and II c. I only .
b. Neither I nor II d. 11 only

11. In ~etermining the net estate of a de :

rules is not correct? cedent, which of the following
a. Real estate abroad is not included in th
decedent who is a resident ar e gross estate of a
b V · h' · ,en.
· ams mg deduction must be s b: . .
c. Shares of stocks being intan ;~ ~ect to hm,tations .
. the decedent's gross estate ;he~e~:~p~rty shall be included in
d. Funeral expenses are deductibl . situated. .
total gross estate but not exceed~ top the extent of 5% of the
rng 200,000.

68
►
( /lt; l<'r l :rcrc,~ff.1 - t -1fr1Le-· ¼{:
J (.
i~ 12. The personal property of a non-resident not citizen of the Philippines,
would not be included in the gross es tat~ if;
a.. The ~ntang~ble personal property is in the Philippines . ·
b. The intangible property is in the Philippines and the reciprocity
clause of the estate tax law applies.
c. The tangible property is in the Philippines.
d. The personal property is shares of stocks of a domestic
corporation 90% of whose business is in the Philippines .

'' 13. Which of th~ following is subject to the rule of reciprocity?

a. Car in the Philippines owned by a non-resident alien decedent;
b. Investment in stock in a US Corporation owned by a non-
resident alien decedent·
'
c. Investment in bonds in a US Corporation that has acquired
business situs in the Philippines, and is owned by a resident
alien;
d. Shares owned by a non-resident alien in a partnership
established in the Philippines.

,. 14. The rule of reciprocity applies to:

Non-resident alien Intangible personal property
decedent in the Philippines
a. · Yes Yes
b. No No
C. Yes No
d. No Yes

•: , 15. Intangible Personal Property of Non-Resident Alien Decedent with

Situs in the Philippines shall be Exempt from Taxation if:
I. The decedent, at the time of his death was a resident citizen of
a foreign country which at the time of his death did not impose
an estate tax of any character in respect of intangible personal
property of citizens of the Philippines not residing in that
foreign country.
II. The laws of the foreign country of which the decedent was a
resident citizen at the time . of his death allow a similar
exemption from f3State taxes of every character, in respect of
intangible pe'rsonal property owned by citizens of the
Philippines not residing in that foreign country.
a. I only c. Either I or II
b. II only d. Neither I nor II

69
◄
( ;li'jl l'I" / ~rt'1<'i,'t,1 L ;i,tlc r;,;<'
~I 16, One of tha followlng I not an Intangible personal prope rty situated in
th Philippines:
L Shares; obligations or bond s Issued by any corpor~tio~ or
socl dad anonlma organized and constituted in th e Ph1lipp1nes
In accord ance with Its law s.
II. Shares, obligations or bonds issued by any fo~~ig~ corporation
where 85%> of its business Is located in the Philippines .
Ill. Shares, obligation s or bonds issued by a foreign corporation if
such shares, obligations or bonds have acquired business in
the Philippines.
IV. Shares or rights in any partnership, business or industry
established outside the Philippines .
a. I only C. Ill only
b. 11 only d. IV only

Situs of Estate
, 17; Which of the following rules on "situs" of property of a decedent
correct?
I. As a general rule, the situs real property is the place or
country where it is situated .
II. As a general ~ule, the situs of tangible personal property is the
place or country where such is actually located at the time of
the decedent's death.
111 . Tl)e rule that situs of intangible personal property is the
domicile or residence of the owner does not apply when the
property has a situs elsewhere.
IV. The test of situs of property of a non-resident alien decedent is
not important-at all because only the transmissions of property
located in the Philippines are subject to estate tax.
a. I only c. I, II and Ill only
b. I and II only d. I, 11, Ill, and IV
,-:) 18. Which is not a test of situs?
a. Residence of the debtor in· case of accounts receivable.
b. Place of storage in case of certificates of stocks.
c. Location of depo·s itory bank in case of bank deposit.
d. Place of exercise in case of copyright.
1_7 19. One of'the following is not an intangible personal property situated in
the Philippines:
a. Shares, obligations or bonds issued by any corporation or
sociedad anonima organized or constituted in the Philippines
in accordance with its law;

70
cf Cf £ercues - Er&tt& T"t:

b. Sh:res, obligat~ons or bonds issued by any foreign corporation

85 1/0 of the ?usrness of which is l9cated in the Philippines;
c. ~hares, obligations or bonds issued by any foreign corporation
if_su~h shares, obligations or bonds have acquired business
situs rn the Philippines;
d. Shares, _obligations or bonds issued by a non-resident foreign
corporation.

20. Which of the following statements is correct?

a. The estate tax accrues as of the death of the decedent and
the accrual of the tax · is distinct from the obligation to pay the
same . .
b. Estate taxation is governed by the statute in force at the time
the return is filed .
c. Both "a" and "b"
d. Neither "a" nor "b"
I

v· 21 . Which of the following item is considered situated outside the

Philippines?
a. Franchise in the name of the decedent which is exercised in the
Philippines
b. Share of stock holdings of decedent in a foreign corporation
whose business is 90% done in the Philippines
c. Bond certificate issued by a domestic corporation owned by a non-
resident decedent
d. Foreign currency deposited in bank outside the Philippines

r1 22. Pedro died on April 13, 2018, leaving the following properties:
1
Common stocks · of Sunchamp Corporation (2,000 shares) - listed in
the Philippine Stock Exchange (highest - P40; lowest - P39).
Common stocks of AgriNurture Corporation (1,500 shares) - not listed
in the stock exchange. Cost - P50 per share; book value - P45 per
share.
Preferred stocks of Greenergy Inc. (3,000 shares) - not listed in the
stock exchange. Cost - P?0 per share; book value - P60 per share;
par value - ·P50 per share
Car (cost - P600,000; book value - P350,000; market value -
P400,000) ·
Real properties (zonal value - P120,000; assessed value - P72,000)

The gross estate of Pedro is -

a. P817 ,500 c. P824,000
p~ ?816,500 d. ?846,500

71
U !!Ll.of/o~ n d~ t_tJ_lot l!H , m f IWc C} {JtJc)t tf< rt:i
23. ollowlng ar prorlortlo In thn f)tc) o t 1tt wltll u, 1; fft lF m:,kt:,t
value :
House and lot! family homo in Ouo1, n -,11y 1J l)O ,l l}C
Bank depo~It in tho rowlgn lmmc;l1 of o c1mno. lie: ! 00,()(l)
bank
Bank deposit In Mekatl br-:mc/1 of ~ f< rtilgn bunk : 00 ,000
Shares of tock I ued by a dorn lie t,nrporntion 1,000,000
(certificate kept in Canada)
rFranchise exercised in Manila 800 ,000
Receivable, debtor from Mindanao 200,000
If the decedent was non-resldont all n ond them i.· r up1oc1ty,
property e_xc/uded from gro -s e tat l valu d t
a. P2,800,000 c. P2,300,000
b. P2 ,600 ,000 d. P2, 000,000

resident alien and there is no reciprocity, the

? 24. If the decedent was nonM
gross estate is valued at
a. P4,300,000 c. P3,500,000
b. P3,800 ,000 d. P3,200,000

25. A Filipino decedent residing in Hawaii during his lifetime, left the
following properties:
House & lot, USA P10,000 ,000
Mansion, Philippines 50,000,000
Cars, Philippines 2,000,000
Shares of stock, Singapore 5,000,000
Accounts receivable, USA 3,000,000
The gross estate of the decedent is
a. P70,000,000 c. P65,000,000
b. P67,000,000 d. P62,000,000

U e the following data for the next two (2) questions

The gross estate of a decedent included the following:
Cost Fair value
_,, . t and & building, Philippines P1,600,000 P2 ,000,000
House and Jot, UK 1,800,000 1,500,000
Personal properties, UK 1,000,000 600 ,000
.J::iouse and Jot, Philippines 4,000,000 3,500,000
Shares of stocks. UK corp. 200,000
Shares of stocks, domestic corp. 250,000
(certificate kept in UK)
a e of stocks, domestic corp. 100,000
ce T1ea e kept in Phils.)

72
,..........
_,.....,

Ci7ter Eerci,c.1
7
Franch~se exercised in the Phils. • 200,000
Franchise exercised in UK
150,000
Receivables, debtor is from UK
50,000
Receivables , debtor is from Phils. 50,000

C 26 . If_~h~ de~~dent was a nonresident alien and his country exempts a

Filt~mo c,t,ze~ from estate tax, how much of his assets ·would be
subJect to re_
cIprocity?
a . P 1,000,000 c. P600,000
b. PB00,000 d. P350,000

/ 27 • If t~e d~cedent was a nonresident alien and assuming there is no

rec1procIty, how much is the gross estate? .
a. P10,700,000 c. P6,100,000
b. P6,600 ,000 d. PS,850,000

Valuation of Estate
C. 28. When the property is donated in contemplation of death, the basis of
the tax shall be
a. Fair market value at the time of donation
b. Fair market value in the hands of the donor before the time of
the donation.
c. Fair market value at the time of death of the donor
d. Cost when the property was acquired

·
/
29. As a rule, the basis of valuation of property in the gross estate is the
fair market value prevailing at the time of decedent's death. In the
case of domestic shares of stock not traded thru the stock exchange,
the fair market value is
a. The value appearing in the schedule of fixed values from the
assessor's office
b. . Net realizable value
c. Acquisition cost
d. Issuer's book value.
.... . .
.,, 30. Which of the following -value is not used when valuing gross estate?
a. Fair market value at the time of death; ·
b. Fair market value at the time the estate return is filed;
c. Zonal value when higher than the assessed value in case of
real property; ·
d. Book value in case of shares not traded in the stock
exchange.

73
r,lu71t,·r 1~ /'{'r,'I :H:, 1 Id Ir z;,,
31 . The following statements pertain to rules on valu ing the e ta t · 1 ft h;
a decedent. Select the incorrect statem e nt.
I. Values in the gross estate are based on ~al~e s at th . irn ) )f
the decedent's death because it is at this t,m th at th e ho1r
legally succeeds to the inheritan ce .
II. Receivable are appraised on the basis of th_e arn c unt r f ht
principal and interests due and unpaid at th e t, m , o 1 d ea th
a. I only c . Both I and II
b. II only d . Neither I no r 11

32. A decedent left a piece of land . The following data w ere ava ilabl(~ m
connection with the property.
Assessed valued, one (1) month before P2 ,500 ,000
death
Zonal value, time of death 2 ,000 ,000
FMV at the time of filing estate tax return 3,000 ,000
What would be the value of the piece of land in the gro s e
a. P3,000,000 c . P2,000 ,000
b. P2,500 ,000 d . cannot be d ete rm ined

Use the fol/owin data for the next four 4 uestions:

A decedent left 1,000 XYZ Corporation common shares. Th e s hare w . rr•
not traded in the stock exchange . The following data w e re m ade availabl
1. Capital stock , XYZ Corporation P 10.000 ,000
Retained earnings 2 ,000 ,000
Outstanding shares 100. 000
., 33. What was the value included the decedent's gross e state?
a. P100,000 c. P150 ,000
b. P120,000 d . PO

34. Assume that the shares were classified as prefere nce sha re s, wh at
was the value included the decedent's gross e state?
a. P100,000 c . P150,000
b. P120,000 d . PO

35. Assume that the shares were traded m the stock exchange. Assume
further that the average value at the time of death was P1 per oo
share. What was the value included the decedent's gross estate?
a. P100,000 c . P120,000
b. P110,000 d. P150,000

74
D/t511,,, ,·.rri.s,:r
~ 1- E.s&d&711(;
J

"' 36. Assume that th~ shares were traded in the stock exchange. However,
the quoted pnce at the time of death was not determinable.
Nonetheless, the highest and lowest quotations of the shares in the
market were P140 and P80, respectively, what was the value included
the decedent's gross estate?
a. P100 ,000
C. P120,000
b. P110 ,000
d. P150,000

37. Decedent died in 2018 leaving a will which directed all real estate
owned by him not to be disposed or sold for a period of 2 years after
his death , and ordered that the property be given to Juan Dela Cruz
after 2 years . In 2018, the estate left by the decedent had a fair
market value of P500,000. In 2020 the fair market value of the said
estate increased by P4,500,000 and' the BIR Commissioner assessed
thereon estate tax based on assessed value of P4,000,000 in 2018 .
What would be the correct amount of the gross estate?
a. PS,000,000 c. P4,500,000
b. P4,000,000 d. PS00,000

INCLUSIONS IN THE GROSS ESTATE

Decedent's Interest .
38. Decedent's Interest
•I. Refers to the extent of equity or ownership participation of t~e
decedent on any property physically existing and present rn
the gross estate, whether or not. in his possession, control or
dominion.
Refers to the value of any interest, having value or capable of
IL being valued or transferred, in _woperty owned or possessed
by the decedent at the time of his death.
I onl c. Both I and II
~: 11 oniy d. Neither I nor 11

39. Which of the following is not . to be included in the gross estate of

citizen de_c~dent?. d clared but not yet actually received at

a. O1v1dend income e '

d~~r~fi~e;~~nership's profit earned immediately after date of

b. S
th
dea _
Rent income accrue d before death but collected after death
c.
d. None of the above

75
(
i I
,fl 1~1· ' I
II
U'((' /1(',\
(

Tr n f r \n Cont mpl ·tlon of Death

·w. Tr msf r In ·:>nlt mp\ ,t1or1 of doa th . d by thtJ docmdunt btjt w
I. H, f. rs to proporty forrrn rly owrm . , U- ,,r,,
no I ng r own :1d by hlrn at t.h0 urne of hi. dod :
t.. ,
II . /ontompl to~ tt ltuatlon whern tho tran foror rJtmno h1i,
lift tlm , tr m!-ihr prop1;nty In conternplatlon,. . o.f or .inh r~do<J t,J
. "t I", , po . .'"'slc,n orcmjoymont at or wfter hi ·t· cfoc.1th
tl \ko. ff l::>C ~l ,. . •
.
\I I. Inc~1LIC10S
J ·t atlc)nS whero th trnn · feror retr1i ns or f 11!0 lh,i
SI .Ur~
1

poss ~slon or njoyrnent, or the righ t to tti n_c.,orn f1 rorn Hlf;

pr pmty, .r tho right to de ignate th por. on who <;ti;JII
po s ss or enjoy th property or the Income therefrom .
IV . At the time of the decedent' death, th ./ decedent n lonwir
owned th prop rty, but such property form s part of hi · Qr<>.i:,
estate for e tate tax purposes.
a. I and II only c. All of the above
b. I, II and 111 only d. None of the above

· 41 . Which among the following is correct?

I. There may be properties which at the tirne of the decedent',
death are not in the estate because they were ~ransferred by
him during his lifetime.
II. The gross. estate, for purposes of the estate tax, may exceed
the actual value of his assets at the time of his death as it
includes the value of transfers of property by him during his
lifetime that partake of the nature of testamentary dispositions.
a. I only c. Both I and II
b. II only d. Neither I nor II

t, 42. Transfers in contemplation of death have the following in common :

I. They are ostensible transfers, usually with the purpose to
evade the es.tate tax.
II. They are extension of interests.
Ill. If the transfers are in fact for a bona fide consideration then
they will not form part of the gross estate. '
a. I and II only c. All of the above
b. II and Ill only d. None of the ~bove

1 43. The following are deemed transfers in contemplation of death, except

a. While still alive, the decedent donated property where the
donation will take effect at the time of his death.
b. The decedent transferred a property in the. regular course of
the business operation .
c. The decedent donated a property with the condition that
he/she will enjoy the fruits of such while he/she is still alive.

76
C~ e,- E,!em :.Ses - Estde, T~
d. The decedent tra f
death ns erred a property to take effect ~fter his/her

~
_, 44. Transfers in contemplation of death:

Consideration FMV upon FMV upon

received transfer death
Land
P1 ,500,000 P1 ,500,000 P2,000,000
Shares of stock
100,000 50,000 150,000
Vintage car
50,000 80,000 100,000
Painting
250,000 400,000 500,000
The correct gross estate should be
a. P120,000 c. P300,000
b. P300,000 d. P350,000
Transfer with reservation of right-s and revocable Transfers
45. An agreement created by will or an agreement under which title to
property is passed to another for conservation or investment with the
income therefrom and ultimately the corpus to be distributed in
accordance with the directives of the creator as expressed in the
governing instrument
a. Estate c. Fiduciary •
b. Trust d. Beneficiary

t., 46. All of the following statements are true, except

a. In a revocable transfer, the decedent during his lifetime may
revoke, alter, amend, or terminate the terms of enjoyment or
ownership of the property.
b. A revocable transfer is always includible in the gross estate of
the decedent-transferor.
c. The power of the decedent-transferor to revoke terms may be
exercised just once.
A revocable transfer shall be included in the gross estate of
d. the decedent-transferor even though the power to revoke was
not exercised.
,.... . . ot included in the gross estate?
'J 4 7. Which of the following ,sf n h e the consideration is not sufficient
a. Revocable trans fer w ~:re the power of revocation was not
. b. Revocable trans er w
exercised . d general power of appointment
Transfer passing un er .
c.
d. Transfer for sufficient consideration

77
cf i« [ercisa - Er&te, T«t
ideration of P100,000. Fair
de for a cOns h ·
48. A revocable transfer was ma at the time of transfers and at t e time of
market values of the property respectively. In the gross estate,
000
death were P250,000 and P300, ,
the value of the property was c. P200,000
a. P100,000 d Exempt
b. P250,000 .
of appointment
Transfer under genera.1power t egarding transfer under general
49 . Which of the following statemen s r f under special power of
power of appointment and trans er
appointment is correct? . d under this rule; the
1. There are three persons mvo 1ve
transferor, the first tra·nsferee, and the second transferee . The
iirst transferee is the decedent. .
II. If authority is granted by the transferor to the fir st htransfeldree tot
determine the person, who, upon the latter's deat : wou n~x
possess or enjoy the property trans_ferred, his authority
emanates from a general power of appointment.
Ill. If the transferor himself had determined beforehand who upon
the death of the first transferee, woulo next possess or enjoy .
the property, then' the authority of the first transferee
emanated from a special power of appointment.
a. I and II only c. All of the above
b. II and Ill only d. None of the above ·

50. Which is wrong?

a. A power of appointment is the right to designate the person or
persons who shall succeed to the property of a prior decedent.
b. A special power of appointment authorized the donor of the
power to appoint only from among a designated class or group
of persons including himself.
c. The done-deceden! of a special power of appointment only
holds the property in trust, hence, the property shall not form
part of the done-decedent's gross estate.
d. None of the above ·

51 . Which of the following statements is not true?

a. A general power of appointment authorizes the donee of th
power to appoint any person to possess or enjoy the property e
b. A general power of appointment makes the donee of th~
power the owner of the property.
c. A power of appointment is not always general.

78
cf fcF~ lwc,:,-e.,· . E.,lt1k ~;;er
d. The appointed .
appointment is property .pas~ing under a general power of
deced en.t not includible in the gross estate of the donee-

r 52. The power of appoint t

through the foll . men may be exercised by the donor-decedent
owing modes
I. By will
II. By deed to tak ff ·
his death. e e ect in possession or enjoyment at or after
111.
By deed under which he has retained for his life or any period
not_ asce~ainable without reference to his death or for any
period which does not in fact end before his death.
a. 1 only c. I and II only
b. II only d. I, II and Ill

Transfer for Insufficient Consideration

" 53. ~hich of the following transfer is not included in the gross estate?
a. Transfer with reservation of certain rights
b. Transfer for insufficient consideration
C. Transfer for an adequate full consideration in money or
money's worth
d. Transfer in contemplation of death

54; In determining ·whether the value of a property transferred onerously

by ·a decedent during his lifetime should be included in his estate, ask
yourself, "was the consideration insufficient?"
I. If yes, then add the excess of the FMV at the time of death over
the consideration received.
II. If no, then it was a bona fide sale. Exclude the property in
determining the decedent's gross estate.
a. 1·only c. Both I and II
b. II only d. Neither I nor II

Proceeds of life insurance

55. Proceeds of life insurance includible in the taxable gross estate
Insurance proceeds from SSS or ~~IS
~: Amount receivable by any benef1cb1a ryd ot~er tthadn. thteh esta_te,
administrator or executor, irrevoca 1y es1gna e in e po 1icy
by the insured . . .
c. Amount receivable by any beneficiary designated in the
insurance policy .
d. Proceeds of group insurance taken out by a company for its
employees. ·

79
,..._
◄
. Ur.fter 0_~em:,e., Estate T~
. estate of the deceased, his executor or
56 . Amounts receivable ~y th e der policy taken by the decedent
administrator as an insurance un
upon his own life is:
Excluded from the gross e5tate. . •
~·. Part of the gross estate whether the beneficiary is revocable or
irrevocable . · . · bl
c. Part of the gross estate if the bene~c~ary ~s ~evoca e.
d. Part of the gross estate if the benef1c1ary is irrevocable.

57 . Which of the following is not included in the gros.s e~tate? ..

· a. Revocable transfer where the consideration 1s not ~ufflc1ent
b. Revocable transfer where the power of revocation was not
exercised
c. Proceeds of life insurance where the beneficiary designated is
the estate and the designation is irrevocable .
d. Proceeds of life insurance where the beneficiary designated is
the mother and the designation is irrevocable.

58. Proceeds of life insurance where the beneficiary of the decedent is not
his estate·, executor or administrator is
a. Part of gross income if the beneficiary is revocable
b. Part of gross income regardless of whether the beneficiary is
revocable or irrevocable
c. Not part of gross estate if the beneficiary is irrevocable
d. Part of gross estate regardless of whether the beneficiary is
revocable or irrevocable

· 59. Proceeds of life insurance to the extent of the amount receivable by

the estate of the deceased, his executor or administrator under
policies taken out by the decedent upon his own life shall be ·
I. Part of the gross estate irrespective of wtiether or not the
insured retained the power of revocation
II. Not part of the gross estate if the beneficiary is irrevocable.
Ill. Part of the gross income if the designation of the beneficiary is
revocable
IV. Not part of the gross income ·irrespective of whether or not the
insured retained the power of revocation
a. I and II c. I and IV
b. I and Ill d. only I

80
1111"""" .

( ,11r1.J l t'r / ( l 't 'l i't .' 1, ', 1

I
60
/' - ~s. Balo, spous~ of the deced ·nt who di c1 In u bu i ·1ccldonl (Hmurot.
ransport), received P2,500,000 brok n dnwn as follow ,
9
P 00,000 From H br1mbuhay if In UrPl h CH Cornpnny.
A life insuranc t ken out by tho ducudr trt
design ating his wi fe as r( voca ble bmmfi ,I ry .

P1 ,200,000 From Wal ang Hangganan Life In H1ra II co

Company taken out by the docodont
designating his wife < · lrrnvocable
beneficiary.
P400,000 From Harurot Transport Company (own er of
the bus involved in the accident) whore
settlement was made outside court
. proceedings.
The gross estate of the decedent shall include
a. P900,000 c. P2, 100,000
b. P1 ,200,000 d. P2,500,000

Claims against insolvent persons

t., 61. Whi<2_h of the following is not true regarding a claim against insolvent
persons?
The decedent's claim is deductible in full because the debtor's
c;l.
liabilities exceed his remaining assets.
b. The decedent's claim must be included in full i"n the gross
estate.
c. The decedent's claim which cannot be collected is deductible
according to the ratio of the debtor's assets to his liabilities .
d. Claim against insolvent person is a claim against person
whose assets are not sufficient to pay his liabilities .

.\ 62. Which is correct?

I. In a claim against insolvent person, the insolvency of the
• debtor must be proven and not merely alleged.
II. It could be that the amount to be included as part of the gross
estate in a claim against insolvent person is less than the full
amount owed.
a. I only c. Both I and II
b. II only d. Neither I nor II

-, 63. Which of the following is included in the income of the estate of a

decedent? .
a. Income received by the estate of a deceased person during
the period of administration or settlement of the estate.

81
/"I

df l'f ftuc,,s&S ~ Esttlie, r1~

b. Excess of selling price over theh ap~raisevpaep p~aced Upon

the property at the time of deat , w ere e Ywas sold
after the settlement of the estate.
th
c. Appreciation in the value of property passed to e executor or
administrator upon death of decedent. .
d. Delivery of property in kind to legatee or dev1see.

64. One of the items in the gross estate of a decede~t is a claim against
1
.., an insolvent person amounting to P500,000. The insolvent debtor can
sti\l pay P100,000 out of the P500,000. How much will be included in
and deducted from the gross estate?
Gross estate Deduction
a. P100,000 P100,000
b. P500,000 P100,000
C. P500,000 P400,000
d. None None

EXCLUSIONS FROM THE GROSS EST ATE .

1 65. The following are transactions exempt from transfer tax except:
a. Transmission from the first heir or donee in favor of another
beneficiary in accordance with the desire of the predecessor
b. transmission or delivery of the inheritance or legacy by the
fiduciary heir or legatee to the fideicommisary ,
c. The merger of usufruct in the owner of ther naked title
d. All bequest, devices, legacies, or transfers to social welfare,
cultural and charitable institutions
,,. .
66._Which of the following exempt transmissions will still require inclusion
· ot the property in the gross estate'?
a. Merger of the usufruct in the owner the naked title;
b. Legacy to a charitable institutions whose administrative
expenses did not exceed 30% of the legacy;
c. Transfer from a first heir to a second heir designated by the
decedent;
d. Death benefits under the GSIS and GSIS. .

67. Following are exclusion from gross estate, except:

a. Transfer in contemplation of death
b. Transfer as a result of which there is merger of usufruct in the
owner of the naked title;
c. Amount received.from SSS or GSIS
d. All of the above.

82
D'Jltir C{em:ra ~ b&ti& T.re
68 O th
· ~e odf e following is included in the gross estate of a nonresident
a1,en ecedent:
a.Wholly un?ollectible claims against a debtor who absconded,
debt_or resides outside the Philippines.
b. Pa~rally _collectible claims against an insolvent person who
resides rn Manila, the country of the nonresident alien
decedent does not impose transfer taxes of any kind.
c. Proceeds of life insurance of the decedent where the
deced~nt's estate was designated as irrevocable beneficiary,
th e policy was procured in Manila.
d. Personal property situated in the Philippines donated by the
decedent before he died to a son on account of the son's
marriage.

: 69. Which of the following is a transfer in contemplation of death?

a. ~halapit Nha has been fighting for his life since he was
diagnosed to have a terminal illness. Accepting his fate, he
sought the assistance of Atty. Lho Yer, and· made his will.
b. Mr. Matibay celebrated his 101 st birthday. Feeling that death
is not far, he transferred all his properties to Pedro and Juan.
c. Both "a" and "b"
d. Neither "a" nor "b"

70. Which of the following is a transfer under special power of

appointment?
I. Eari transfers his property in trust for his son, Gabry and then
in trust for anybody whom Gabry may, by will, appoint or
designate.
II. Mr. Byahero frequently travels due to the nafure of his
profession. H~ thinks that he is not spared from meeting
accidents considering the rampant occurrence of accidents
these days. He decided .to execute his last will and testament
appointing his properties to his children.
Ill. Georgia designated his special friend, E. Garcia as beneficiary
of an insurance which he took upon his own life.
a. I only c. All of the above
b. II only d. None of the above

Administrative Provisions . .
71. Under which of the following situations an estate tax return 1s required
to be filed under the TRAIN Law?
a. Transfers which are subject to estate tax.

83
"' 1, 1, ,1. f:,rl'r<'1~,-(., --- l:~d,rlc- ,./ ,
(
.1/l ;1 '1' l r(ct°

. istered or registrable properties for

st
b. The estate consi s of retghe BIR is required as a condition
which a clearance from .
precedent for the transfer of ownership .
11
C. Both "a" and "b
11
d. Neither "a" nor "b

72. Who shall file the estate t_a~ return? f the legal heirs
a. Executor, or administrator, or any 0
b. Creditors of the decedent
c. Personal secretary of the decedent
d. Debtors of the decedent

73 . Statement 1: The estate tax imposed under the Tax C?de shall be
paid by the executor or administrator be'.ore the ~~livery of the
distributive share in the inheritance to any heir or beneficiary·

Statement 2: The executor or administrator of an estate has the

primary obligation to pay the estate tax but the heir or beneficiary has
subsidiary liability for paying that portion of the estate corresponding to
his distributive share •n the value of the total net estate.
a. Statements 1 & 2 are false
b. Statement 1 is true but statement 2 is false
c. Statement 1 is false but statement 2 is true
d. Statements 1 and 2 are true

74. Statement 1: The Commissioner or any of the Revenue Officer

authorized by him pursuant to the tax code shall have the authority to
grant, in meritorious cases , a reasonable extension not exceeding
thirty (30) days for filing the return .

Statement 2: The application for the extension of time to file the estate
_tax return mu~t be filed with the RDO where the estate is required to
secure its TIN and file tax return of the estate.
a. Statements 1 & 2 are false
b. Statement 1 \s true but statement 2 is false
c. Statement 1 is false but statement 2 is true
d. State,ments 1 and 2 are true

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