Death has always been synonymous to endings: to seize living, the demise of life, the riding off to the sunset, and the end of things. Death has always been associated with pain and loss – to lose something that can never be taken back. For some, they call it being cynic, some prefer to be called realist – for death is a reality of life. However, the optimist can look at death on a different perspective. Death could mean a brand new start as it can usher new beginnings and replace prior associations in a different spectrum.
As one picks up the pieces of a life left behind, those surviving from loss would realize, that there are interests, which the heir has in the properties held by the decedent during his lifetime. Hence, apart from the flowers, candles, prayers, that one prepares to commemorate the life once lived, it is also worth to know the requirements in the payment of estate taxes and be guided on the nuances thereof. As we pray for peace for our dearly departed during All Soul’s Day, Todos Los Santos, or Undas (in Filipino culture), may we also have peace in knowing what to do when the inevitable occurs.
At this point, perhaps, there might be lingering questions that bothers you. Calm your thoughts, and let’s walkthrough UNDAS as we learn Estate Tax.
Understanding Estate Tax
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. Upon the death of the decedent, succession takes place and the right of the State to tax the privilege to transmit the estate vests instantly upon death. (Revenue Regulations No. 12-2018)
Simply put, Estate Tax is a tax levied on the privilege of transmitting property upon death of the owner to his lawful heirs and beneficiaries. It is a tax based on the fair market value of the net estate of the decedent at the time of his death.
The Estate Tax is based on the laws in force at the time of death of the decedent, regardless if there is a delay or gap of time from death to the actual possession of the properties by the heir or beneficiary.
Notable dates to Remember
It is important to remember that those who wishes to avail of the Estate Tax Amnesty may do so until 14 June 2023 pursuant to the extension granted by Republic Act No. 11569.
The Estate Tax Amnesty shall cover the estate of decedents who died on or before December 31, 2017, with or without assessments duly issued therefor, whose estate taxes have remained unpaid or have accrued as of December 31, 2017. Note however, that the Estate Tax Amnesty shall not extend to estate tax cases which shall have become final and executory and to properties involved in cases pending in appropriate courts as identified by the law. (Sections 4 and 9 of the Republic Act No. 11213)
Notably, the duly sworn Estate Tax Amnesty Return, Acceptance Payment Form and proof of payment together with the completed documentary requirements must be submitted to the Revenue District Office (“RDO”) having jurisdiction not later than 14 June 2023. Otherwise, the same shall be tantamount to non-availment of Estate Tax Amnesty.
For deaths that have occurred after 31 December 2017, the Estate Tax provisions under the National Internal Revenue Code (NIRC) as amended shall take effect. As such, for purposes of determining the Estate Tax, the Estate Tax return shall be filed within one (1) year from the decedent’s death. Meanwhile, in meritorious cases, a reasonable extension not exceeding 30 days, may be granted by the Commissioner or his authorized Revenue Officer. (Section 90 (C) of the National Internal Revenue Code, as amended and Section 9 of Revenue Regulations No. 12-2018).
Please take note of the following mandatory requirements:
- Death Certificate;
- TIN of the decedent and heir/s;
- BIR Form 1801, Estate Tax Return
- Affidavit of Self-Adjudication or Deed of Extrajudicial Settlement (EJS) of the decedent; or court decision/ judgment if the estate has been settled judicially or if there is a last will and testament;
- Barangay Certification for the last residence of the decedent and claimed Family Home, if any;
- Report from a Certified Public Accountant on the itemized assets of the decedent, itemized deductions from gross estate and the amount due if the gross value of the estate exceeds five million pesos (Php 5,000,000) for decedent’s death on or after January 1, 2018 or two million pesos (Php2,000,000) for decedent’s death from January 1, 1998 to December 31, 2017.
- For claims against the estate – Contract of Loan, Notarized Promissory Note, if applicable;
- Proof of the claimed “Property Previously Taxed”, if any;
- Proof of the claimed “Transfer for Public Use”, if any;
- At least one (1) valid government ID of the executor/ administrator of the estate or if there is no executor or administrator appointed, the heirs, transferees, beneficiaries or authorized representative;
- Proof of valuation/ownership/registration of Real and/or Personal Properties at the time of death:
- The heirs can secure Certified true copies of the Transfer/Original/ Condominium Certificates of Titles and Tax Declarations of Real properties from the Registry of Deeds and the City assessor’s Office.
- A Certificate of No Improvement issued by the Assessor’s Office must be secured where the declared lots have no improvement.
- Certificate of Deposit/ Investment/ Indebtedness owned by the decedent and the surviving spouse
- A copy of Certificate of Registration of vehicles and other proofs showing the correct value of the same
- For shares of stocks not listed/not traded in the stock exchange – Latest Audited Financial Statement of the issuing corporation with computation of the book value per share;
- For shares of stocks listed/traded in the stock exchange – Price index from the Philippine Stock Exchange/latest Fair Market value published in the newspaper at the time of transaction;
- For club shares – Price published in newspapers on the transaction date or nearest to the transaction date.
- Copy of certificate of stocks
- Proof of valuation of other types of personal property
- Special Power of Attorney (SPA), if the person transacting is the authorized representative; and
- If document is executed abroad, the document has to be apostilled or authenticated
For those availing of Estate Tax Amnesty, the above-enumerated documents are applicable including the following:
- Instead of BIR Form 1801 or Estate Tax Return, the Estate Tax Amnesty Return (ETAR) shall be filed;
- Acceptance Payment Form, or Revenue Official Receipt ,if paid to Revenue Collection Officer (Applicable in availing Estate Tax Amnesty)
- Proof of valuation/ownership/registration of Real and/or Personal Properties as stated in the Tax Amnesty Return Guidelines.
The net estate of every decedent, whether resident or non-resident of the Philippines shall be subject to an estate tax at the rate of six percent (6%) (Section 84 of the NIRC as amended, Revenue Regulations 12-2018).
On the other hand, for those availing of the Estate Tax Amnesty, please note that an estate tax rate of six percent (6%) shall be imposed on decedent’s total net taxable estate at the time of death. The law guaranteed that there will be no penalties (i.e. interest and surcharge) at every stage of transfer of property. Note however that the minimum Estate Amnesty Tax for the transfer of the estate of each decedent shall be Five Thousand Pesos (Php 5,000) (Republic Act 11213 and Republic Act 11569).
Significant Agencies of the Government
The three (3) significant government offices that one has to go through in settlement of the estate of the decedent are as follows:
1. Bureau of Internal Revenue
In case of a resident decedent, the new TIN of the estate of the decedent shall be secured from the Revenue District Office (RDO) where the decedent was domiciled at the time of his/her death. Payment of the Estate tax must be paid in the Accredited Agent Bank of the RDO as described above. The RDO where the estate is registered shall issue the Certificate Authorizing Registration (“CAR”) as proof of payment of the estate and transfer taxes.
Meanwhile, in case of a non-resident decedent, whether non-resident citizen or non-resident alien, with executor or administrator in the Philippines, the estate shall be registered from the RDO where the executor or administrator was registered, or his legal residence may be found whichever is applicable. In the event that the decedent has no executor or administrator in the Philippines, the estate’s TIN and the Estate Tax return must be secured and filed with the Office of the Commissioner through RDO No. 39-South Quezon City. (Revenue Regulations No. 12-2018)
2. Local Government Unit (LGU)
Apart from Estate Tax assessed by the BIR, the Local Transfer Tax on the real properties included within the estate of the decedent shall also be paid. This Local Transfer Tax will be assessed by the respective LGU where the property may be found.
3. Registry of Deeds
Upon payment of the necessary taxes and receipt of the pertinent clearances from the BIR and LGU, the issuance of the new title may now be processed with the Registry of Deeds. This agency shall issue new Transfer Certificate of Title under the name of legal heirs and/ or subsequent beneficiaries.
As we go through the motions of life, we understand that parting is truly an unbearable sorrow. Nonetheless, changes and transfers occasioned by settlement of estate need not be. After all, death should not always mean the end, the same way as sunsets never stopped promising a man of the coming of a new day.
So, when to let go? For estate taxes it may be certain, but for a longing heart, only time can tell.