Mr. Agustin, 75 years old and suffering from an incurable disease, decided to sell for valuable and sufficient consideration a house and lot to his son. He died one year later.
In the settlement of Mr. Agustin’s estate, the BIR argued that the house and lot were transferred in contemplation of death and should therefore form part of the gross estate for estate tax purposes.
Is the BIR correct? (7%)
Suggested answer only. Not an official answer and not legal advice.
No, the BIR is not correct.
Under Section 85(B) of the NIRC, a transfer in contemplation of death forms part of the gross estate except in the case of a bona fide sale for an adequate and full consideration in money or money's worth.
Here, Mr. Agustin sold the house and lot to his son for valuable and sufficient consideration. Because the transaction was a bona fide sale for full consideration, it falls squarely under the statutory exception under Section 85(B), regardless of his age or health condition.
Thus, the BIR erred in including the house and lot in Mr. Agustin's gross estate.
This is not an official scoring system and carries no weight with the Supreme Court or any bar review provider. It measures how much of the suggested answer's wording your response covers, not whether your reasoning is correct. For practice only.
Quick check
Under Section 85(B) of the NIRC, which transaction is exempt from inclusion in the gross estate as a transfer in contemplation of death?
A bona fide sale for adequate and full consideration is explicitly excluded from the gross estate under Section 85(B).
What is the primary factor that determines whether a transfer is made in contemplation of death?
A transfer is in contemplation of death when the impelling cause of the disposition is the thought of death.
If an elderly, terminally ill person sells a house to his son for full market value, how is the house treated for estate tax purposes?
A bona fide sale for adequate consideration is excluded from the gross estate despite the seller's illness or age.
What replaces property sold by a decedent during lifetime for adequate consideration in money or money's worth?
The purchase price received replaces the asset, and only retained proceeds form part of the gross estate.
Which entity bears the burden of proving that a sale of real property between family members was a simulated transaction?
The tax authority assessing tax must establish that a transaction was simulated or lacked full consideration.
Learn more about these topics
1. Bona Fide Sale
Under Section 85(B) of the National Internal Revenue Code, transfers of property made in contemplation of death are generally includible in the decedent's gross estate for estate tax purposes. However, the statute explicitly exempts a bona fide sale for an adequate and full consideration in money or money's worth. When a transfer is executed as a genuine sale for full market value, the property sold is excluded from the gross estate, regardless of the transferor's advanced age or terminal illness.
2. Contemplation of Death
A transfer in contemplation of death occurs when the thought of death is the impelling cause or controlling motive motivating the disposition of property. Factors such as advanced age, serious illness, or execution of a will near the time of transfer often suggest testamentary intent. Nevertheless, even if an elderly or terminally ill individual transfers property in contemplation of death, the statutory exception for bona fide sales for full consideration completely overrides the presumption of estate taxability.
3. Gross Estate Computation
The gross estate of a decedent encompasses all property, real or personal, tangible or intangible, to the extent of the decedent's interest at the time of death. Where property was sold during lifetime for valuable and full consideration, the property itself no longer belongs to the decedent at death. Instead, the purchase price received replaces the asset, and only remaining proceeds or acquired assets in the decedent's possession at death form part of the gross estate.