Don Sebastian, single but head of the family, Filipino, and resident of Pasig City, died intestate on November 15, 2009. He left the following properties and interests:
House and lot (family home) in Pasig
P 800,000
Vacation house and lot in Florida, USA
1,500,000
Agricultural land in Naic, Cavite which he inherited from his father
2,000,000
Car which is being used by his brother in Cavite
500,000
Proceeds of life insurance where he named his estate as irrevocable beneficiary
1,000,000
Household furnitures and appliances
1,000,000
Claims against a cousin who has assets of P10,000 and liabilities of P100,000
100,000
Shares of stock in ABC Corp, a domestic enterprise
100,000
The expenses and charges on the estate are as follows:
Funeral Expenses
P 250,000
Legal fees for the settlement of the estate
500,000
Medical expenses of last illness
600,000
Claims against the estate
300,000
The compulsory heirs of Don Sebastian approach you and seek your assistance in the settlement of his estate for which they have agreed to the above-stated professional fees. Specifically, they request you to explain and discuss with them the following questions. You oblige:
What are the properties and interests that should be included in the computation of the gross estate of the decedent? Explain. (2.5%)
What is the net taxable estate of the decedent? Explain. (2.5%)
When is the due date for filing and payment of the applicable tax return and tax? Are these dates extendible? If so, under what conditions or requirements? (2.5%)
If X, one of the compulsory heirs, renounces his share in the inheritance in favor of the other co-heirs, is there any tax implication of X’s renunciation? What about the other coheirs? (2.5%)
Suggested answer only. Not an official answer and not legal advice.
Gross estate is P7,000,000; net estate is P3,700,000; return/tax due is May 15, 2010 (extendible); and general renunciation has no tax effect, while specific renunciation triggers donor's tax. Under Secs. 85, 86, 90 & 91, NIRC (pre-TRAIN), citizens
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Quick check
Which properties must be included in the gross estate of a deceased resident citizen under Section 85 of the NIRC?
Resident citizens are subject to estate tax on all properties and interests wherever situated worldwide.
Under the pre-TRAIN Tax Code rules (Section 86), what was the maximum allowable deduction for actual funeral expenses?
Pre-TRAIN estate tax rules capped allowable funeral expense deductions at 5% of gross estate or P200,000, whichever was lower.
Under Section 90 of the Tax Code (pre-TRAIN), within what period from the decedent's death must the estate tax return be filed?
Under pre-TRAIN estate tax law, the estate tax return was required to be filed within six months from the date of death.
What is the tax consequence when an heir executes a general and unconditional renunciation of his inheritance share?
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When an heir renounces his share in an inheritance specifically in favor of one designated co-heir, how is the transfer taxed?
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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 deceased resident citizen encompasses all real and personal property, tangible or intangible, wherever situated. For resident citizen decedents, worldwide assets, including foreign real estate and life insurance proceeds where the estate or executor is designated as beneficiary, must be fully included in the gross estate computation.
2. Estate Tax Deductions
Under Section 86 of the pre-TRAIN Tax Code, allowable deductions from the gross estate include actual funeral expenses up to two hundred thousand pesos, judicial and legal fees, claims against the estate, medical expenses during last illness up to five hundred thousand pesos, the family home up to one million pesos, and a standard deduction of one million pesos.
3. Inheritance Renunciation Tax
The tax consequences of an heir's renunciation of inheritance depend on the nature of the waiver. A general and unconditional renunciation by an heir in favor of all co-heirs in accordance with successional rights incurs no donor's tax. However, a specific renunciation in favor of a designated co-heir constitutes a taxable gift subject to donor's tax under tax regulations.