Karissa is the registered owner of a beachfront property in Kawayan, Quezon which she acquired in 2015. Unknown to many, Karissa was only holding the property in trust for a rich politician who happened to be her lover. It was the politician who paid for the full purchase price of the Kawayan property. No deed of trust or any other document showing that Karissa was only holding the property in trust for the politician was executed between him and Karissa.
Karissa died single on May 1, 2017 due to a freak surfing accident. She left behind a number of personal properties as well as real properties, including the Kawayan property. Karissa’s sister, Karen, took charge of registering Karissa’s estate as a taxpayer and reporting, for income tax and VAT purposes, the rental income received by the estate from real properties. However, it was only on October 1, 2017 when Karen managed to file an estate tax return for her sister’s estate. The following were claimed as deductions in the estate tax return:
1. Funeral expenses amounting to PhP250,000;
2. Medical expenses amounting to PhP100,000, incurred when Karissa was hospitalized for pneumonia a month before her death; and
3. Loss valued at PhP6 million arising from the destruction of Karissa’s condominium unit due to fire which occurred on September 15, 2017.
(a) Should the beachfront property be included in Karissa’s gross estate? (2.5%)
(b) Are the claimed deductions proper? (2.5%)
Suggested answer only. Not an official answer and not legal advice.
**Answer:** (a) Yes, the beachfront property is included in the gross estate. (b) Medical expenses and casualty loss are proper deductions, but funeral expenses are improper. **Legal Basis:** Under Section 85(A) of the NIRC, gross estate includes all property of the decedent at
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Quick check
Under Section 85 of the Tax Code, which property is included in the gross estate of a resident decedent?
Under Section 85 of the Tax Code, the gross estate includes all real and personal property to the extent of the decedent's interest at death.
Under Section 86 of the Tax Code prior to TRAIN, what is the statutory cap for deductible funeral expenses?
Section 86 caps deductible funeral expenses at five percent of the gross estate or actual expenses, not exceeding two hundred thousand pesos.
Within what period prior to death must medical expenses be incurred to be deductible from the gross estate?
Medical expenses incurred by the decedent within one year prior to death are deductible up to five hundred thousand pesos.
Within what period after death must a fire loss occur to be deductible as a casualty loss during estate settlement?
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Why is a beachfront property registered in the decedent's name included in her gross estate despite an alleged verbal trust?
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Learn more about these topics
1. Gross Estate Inclusions
Under Section 85 of the National Internal Revenue Code, the gross estate of a decedent includes the value at the time of death of all property, real or personal, tangible or intangible, wherever situated, to the extent of the interest therein of the decedent. Real property registered under the Torrens system in the name of the decedent at the time of death is presumed to belong to the decedent. In the absence of any written deed of trust or judicial declaration establishing an implied trust, the property forms part of the decedent's taxable gross estate for estate tax purposes.
2. Allowable Estate Deductions
Under Section 86 of the Tax Code prior to recent amendments, expenses incurred for the decedent's funeral are deductible up to five percent of the gross estate or actual expenses, but not exceeding two hundred thousand pesos. Medical expenses incurred by the decedent within one year prior to death, supported by receipts, are deductible up to a maximum cap of five hundred thousand pesos. Furthermore, uncompensated casualty losses arising from fire or other casualties sustained during the settlement of the estate within six months from death are fully deductible from the gross estate.
3. Implied Trust Registration
Under Philippine property and civil law, implied trusts involving real property cannot be enforced against third parties or tax authorities without adequate documentary evidence or judicial confirmation. When title to real property is registered solely in the name of a trustee without any registered encumbrance or written trust agreement, the tax law treats the registered owner as the actual beneficial owner upon death. Consequently, the Bureau of Internal Revenue is legally entitled to include the full market value of such registered real property in the decedent's gross estate.