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ESTATE TAX The savings account and car, valued at

Estate tax is a tax imposed on the transfer of the ₱3,000,000, will be divided among them
net estate of a deceased person to their heirs or according to the law.
beneficiaries. It is levied before the distribution Final Distribution of Assets
of the estate and is based on the total value of
the deceased’s assets at the time of death.

Succession
mode of acquisition by virtues of which the
property, rights, and obligations to the extent of
Key Takeaways:
the value of the inheritance, of a person are
transmitted through his death to another or Mixed Succession happens when part of the
others either by his will or by operation of law. estate is distributed by a will, while the rest is
determined by law.
Types of Succession If a person does not include all assets in a
will, the remaining assets are distributed by
Testamentary Succession intestate rules.
is that which results from the designation The law ensures fair distribution among
of an heir; made in a will executed in the form legal heirs in the absence of a full will.
prescribed by law.
Will- is an act whereby a person is permitted,
Intestate Succession with the formalities prescribed by law, to
When a decedent dies without a will or with an control to a certain degree the disposition of this
invalid one, the distribution of the estate shall be estate, to take effect after his death.
in accordance with the default provision of the
Civil Code on succession. Types of Will
1. Holographic Will – A will entirely write,
Mixed Succession dated, and signed by the testator (the
transmission of the decedent properties shall be person making the will) without the
partly by virtue of a written will and partly by need for witnesses.
operation of law. 2. Notarial Will – A formal will that is
Scenario: notarized and requires witnesses,
Maria, a wealthy businesswoman, passed away, usually prepared with legal assistance.
leaving behind the following assets: 3. Codicil – A supplement or amendment
• House and lot: ₱10,000,000 to an existing will that modifies, adds, or
• Savings account: ₱2,000,000 revokes certain provisions without
• Family business: ₱5,000,000 replacing the entire will.
• Car: ₱1,000,000
Total Estate: ₱18,000,000 Nature of Succession- is a gratuitous
Maria's Will (Testamentary Succession) transmission of property from a deceased person
Maria left a last will and testament, in which she in favor of his successors.
specified:
Elements of Succession
Her house and lot should go to her eldest
daughter, Anna. 1.Decedent – the general term applied to the
Her family business should be inherited by person whose property is transmitted through
her two sons, John and Mark. succession, whether or not he left a will. If left a
Intestate Succession (Operation of Law) will, he is also called the testator.
Since Maria did not include her savings account 2. Estate- The property, rights, and obligations of
and car in her will, these assets will be the decedent not extinguished by his death. This
distributed according to the Civil Code of the is also referred to as the ‘inheritance’ of the
Philippines (intestate succession rules). decedent
The law states that the legal heirs of a deceased
person are: 3. Heirs - a person called to the succession
1. Spouse either by the provision of a will or by operation
2. Children of law.
3. Parents (if no children exist)
Maria was survived by:
✔ Her husband, Pedro
✔ Her three children: Anna, John, and Mark
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Explanation of Situs of Taxation

Who are the heirs?
The situs of taxation refers to the place or
1. Primary Heirs – Legitimate children and location where a tax is legally imposed on a
their direct descendants. subject matter. Different types of assets, income,
2. Secondary Heirs – or transactions are taxed based on different
Legitimate/illegitimate parents and factors, such as residence, location, or source.
ascendants. Here’s a breakdown of how taxation is applied to
3. Concurring Heirs – The surviving spouse different subject matters:
and illegitimate descendants. 1. Persons → Residence of the taxpayer
• A person is generally taxed based on
Legitime their place of residence.
is that part of the testator’s property which he • For example, many countries tax their
cannot dispose of because the law has reserved residents on their worldwide income,
it for certain heirs who are, therefore, called while non-residents are only taxed on
compulsory heirs. income earned within that country.

LET’S CHECK (TAXATION TEST BANK) 2. Real Property → Location

TRANSFER TAXES: (1-17) • Real property (land, buildings) is taxed
CONCEPT OF SUCCESSION (18-32) based on where it is physically located.
• Example: If you own a house in New
Summary of rules on gross estate York, you pay property taxes to the local
New York authorities, even if you live in
another country.

3. Tangible Personal Property → Location

• Tangible personal property includes
physical assets like vehicles, equipment,
and furniture.
Key Points: • Tax is imposed based on where the
• Residents and Citizens are taxed on all property is located at a given time.
properties worldwide. • Example: If you own a car in California,
• NRAs without reciprocity are taxed only you pay registration and property taxes
on properties within the country, while there, regardless of where you live.
properties outside are exempt.
• NRAs with reciprocity are taxed on real 4. Intangible Personal Property → Domicile of
and tangible properties within the the owner
country but are exempt from tax on • Intangible property includes stocks,
intangible properties due to reciprocity bonds, copyrights, and patents.
agreements. • The tax is imposed based on the
domicile (permanent legal residence) of
APPLICATION OF SITUS OF TAXATION the owner.
• Example: If a person living in Canada
SUBJECT owns shares in a U.S. company, they may
SITUS be taxed on those shares based on
MATTER
Persons Residence of the taxpayer Canadian tax laws.
Real Property Location
Tangible 5. Income → Residence, Citizenship, Source of
Personal Location Income
Property • The taxation of income depends on
Intangible three main factors:
Personal Domicile of the owner o Residence: Countries may tax
Property residents on their worldwide
Residence, citizenship, income.
Income
source of income o Citizenship: Some countries
Business Place of business (e.g., the U.S.) tax citizens even if
Gratuitous Residence or citizenship
they live abroad.
Transfer of of the transferor or
o Source of Income: Income
Property location of property
earned within a country may be
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taxable there, even if the PROPERTIES EXISTING AT THE TIME OF DEATH

recipient lives elsewhere. SUCH AS:
• Example: A U.S. citizen living in Germany a. Real property and other tangible personal
still has to file U.S. taxes, while a German property
working in the U.S. is taxed on U.S. b. Decedent's interest and intangibles
earnings. • Decedent’s Interest – Refers to the
extent of equity or ownership
6. Business → Place of Business participation of the decedent on any
• Businesses are taxed based on where property physically existing and present
they operate. in the gross estate, whether or not in his
• Example: A company with its possession, control, or dominion. It also
headquarters in Japan but doing refers to the value of any interest in
business in the U.S. may be subject to property owned or possessed by the
U.S. taxes on U.S.-sourced income. decedent at the time of his death
(interest having value or capable of
7. Gratuitous Transfer of Property → Residence being valued, transferred).
or Citizenship of the Transferor, or Location of Intangible Properties Considered Located in the
Property Philippines:
• This applies to inheritances, gifts, or • Franchise which must be exercised in the
donations. Philippines;
• Taxes are usually imposed based on: • Shares, obligations, or bonds issued by
o The giver’s residence or any corporation or sociedad anonima
citizenship (e.g., U.S. citizens organized or constituted in the
may be subject to gift taxes). Philippines;
o The location of the transferred • Shares, obligations, or bonds issued by
property (e.g., a house in France any foreign corporation, at least 85% of
given as a gift may be taxed in the business of which is located in the
France). Philippines;
• Example: If a person in the U.K. gifts • Shares, obligations, or bonds issued by
property in Canada to someone, any foreign corporation if such shares,
Canadian tax laws may apply to the obligations, or bonds have acquired a
transfer. business situs (used in the furtherance of
its business in the Philippines) in the
Conclusion Philippines;
The situs of taxation determines which • Shares or rights in partnership, business,
jurisdiction has the right to impose taxes. It or industry established in the
ensures fairness and prevents double taxation Philippines.
conflicts between countries or states.
Understanding this helps businesses and LET’S CHECK (TAXATION TEST BANK)
individuals manage their tax obligations COMPOSITION AND VALUATION OF THE GR:
efficiently. (33-38)

VALUATION OF GROSS ESTATE- FMV+

PP- FMV+
RP- FMV+<>ZV+ (H)
Share of Stocks
LSE- Mean Value+ if not given Bid H+L/2
NLSE – CS(BV+) / PS(PV+)
Usufruct- Basic Mortality Rate approved by SOF

LET’S CHECK (TAXATION TEST BANK)

COMPOSITION AND VALUATION OF THE GR:
(41-55)
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