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Thursday, May 30, 2013
Settlement of Estate; Estate Taxes; Delays and their Consequences
Incidents of a Person’s Death.
Typically, there are, to my mind, two main incidents
of a person’s death: Succession and Taxation. These two come hand in hand,
meaning if you succeeded to a nil estate, you are taxed nil.
The legal process by which a deceased’s net estate is
distributed to the heirs is called Settlement of Estate. It could either be a testate
proceeding, where the deceased left a will, in which case the latter is also
called the testator, or intestate proceeding, where the deceased left no will,
and in which case the latter is simply referred to as the decedent. The term
decedent is plain and generic to a person who dies with or without a will.
Settlement of Estate may be done either judicially or
extra-judicially. However, there are circumstantial requirements that make
extra-judicial settlement (fast and less expensive) available or possible. For
instance, if the decedent left a will, the heirs foreclose their option of
settling the estate out of court (extra-judicial), submission to probate being
the only route.
Even if the decedent left no will, but the heirs are
in disagreement on the particulars or conditions of partition, or the decedent
left debt/s, they likewise have to go to court for the settlement of respective
creditor’s claims, and to make a determination of the heirs’ share thereof
applying the laws on intestacy or legal succession. Also, if the amount of the
estate exceeds Ten Thousand Pesos (Php10,000.00), extra-judicial partition is
not available. In judicial settlement of estate, where the decedent left no
will, a letter of administration shall be applied for, and granted by, the
court where the same is filed.
Probate of a Will, Testate Proceeding
Book 2, Chapter 2 of the New Civil Code defines a
783. A will is an act whereby a person is permitted, with the formalities
prescribed by law, to control to a certain degree the disposition of his
estate, to take effect after his death. (667a)
kinds of Will:
Will. A holographic will must be entirely written, dated, and signed by the
hand of the testator himself. It is subject to no other form, and may be made in
or out of the Philippines, and need not be witnessed (Article 810,
Will. Notarial Will is governed by the following provisions of the Civil Code,
805. Every will, other than a holographic will, must be subscribed at the end
thereof by the testator himself or by the testator’s name written by some other
person in his presence, and by his express direction, and attested and
subscribed by three or more credible witnesses in the presence of the testator and
of one another.
testator or the person requested by him to write his name and the instrumental
witnesses of the will, shall also sign, as aforesaid, each and every page
thereof, except the last, on the left margin, and all the pages shall be
numbered correlatively in letters placed on the upper part of each page.
attestation shall state the number of pages used upon which the will is
written, and the fact that the testator signed the will and every page thereof,
or caused some other person to write his name, under his express direction, in
the presence of the instrumental witnesses, and that the latter witnessed and
signed the will and all the pages thereof in the presence of the testator and
of one another.
the attestation clause is in a language not known to the witnesses, it shall be
interpreted to them.
806. Every will must be acknowledged before a notary public by the testator and
the witnesses. The notary public shall not be required to retain a copy of the
will, or file another with the office of the Clerk of Court.
In a Will, four parties may figure out: Indispensably,
the testator who made the Will; the executor (she is also called executrix),or
the person upon whom the testator has left the task of implementing the
provisions of the Will; the legatee or the person on whom personal property is
given; and the devisee on whom real property is given.
While the will takes effect upon the death of the
testator, it can however be probated during the testator’s lifetime. In fact,
this is favored as the testator could no doubt establish and affirm the
validity of his own Will.
Where the decedent left a Will, any interested party
(heirs, creditors, or anyone with equitable claim against the estate) may file
a petition for Probate of the Will (a special proceeding governed by special
set of rules under Rule 73 of the Revised Rules of Court) before the proper
court: within Metro Manila, Municipal Trial Court (MTC) if the estate does not
exceed Four Hundred Thousand Pesos (Php400,000.00) or the Regional Trial Court (RTC)
if the estate exceeds said amount; outside of Metro Manila, Municipal Trial
Court (MTC) if the estate does not exceed Three Hundred Thousand Pesos
(Php300,000.00) or the Regional Trial Court (RTC) if the estate exceeds said
Probate of a Will is mandatory: a Will shall pass no
property, either personal or real, unless it is proved and allowed in a proper
court. It is not at the option of the heirs whether to file for Probate or not.
Even when an intestate proceeding had already commenced, once a Will of the
same decedent is submitted to court, the latter is under obligation to suspend
the same and supplant it with the proper Probate proceeding to determine its
extrinsic validity: genuineness and due execution; and thereafter confirm its
This is so because as held by the Court in Dy Yieng
Sangio V. Reyes (G.R. 140371-72, Nov. 27, 2006):
“It is a fundamental principle that the intent
or the will of the testator, expressed in the form and within the limits
prescribed by law, must be recognized as the supreme law in succession. All
rules of construction are designed to ascertain and give effect to that
intention. It is only when the intention of the testator is contrary to law,
morals, (sic) public policy, that it cannot be given effect.”
The judicial venue is determined by the decedent’s
residence at the time of his death, and if he was an alien, the place in
which he had estate (where properties are located).
Power of the Probate Court
Probate courts and proceedings therein deal generally
with the extrinsic validity of the Will: that it is indeed the decedent’s will;
that the testator has the testamentary capacity; that the Will complies with
the formalities prescribed by law; and that the Will was duly executed
(includes the determination if the testator was of sound and disposing mind at
the time of execution, that he had freely executed the will, and was not acting
under duress, fraud, menace or undue influence).
However, the courts have the power to pass upon issues
concerning intrinsic validity (legitime or reserved shares of compulsory
heirs, or compliance with the provisions on succession), and can declare a Will
void even after it had been admitted to probate (declared extrinsically valid).
In that sense, probate proceeding is in fact a two-stage proceeding. If a will
is extrinsically invalid, it is voided and laws on intestacy (legal succession)
apply even if it is found intrinsically valid. If the Will is intrinsically
invalid, it is voided and laws on intestacy apply even if it had been found
When the Will has already been allowed, and creditors
have already been paid, the net estate is now ready for distribution to the
heirs. Here is where the snag comes in.
In our jurisdiction transfer of properties incident to
the Settlement of Estate is allowed only upon securing a Tax Clearance or
Certificate Authorizing Registration (CAR) from the Bureau of Internal Revenue
(BIR) evidencing that Estate Taxes on the decedent’s Estate have been satisfied
Section 90 of the National Internal Revenue Code
SEC. 90. Estate Tax Returns.
(A) Requirements. - In
all cases of transfers subject to the tax imposed herein, or where, though
exempt from tax, the gross value of the estate exceeds Two hundred thousand
pesos (P200,000), or regardless of the gross value of the estate, where the
said estate consists of registered or registrable property such as real
property, motor vehicle, shares of stock or other similar property for which a
clearance from the Bureau of Internal Revenue is required as a condition
precedent for the transfer of ownership thereof in the name of the transferee,
the executor, or the administrator, or any of the legal heirs, as the case may
be, shall file a return under oath in duplicate, setting forth:
(1) The value of the gross
estate of the decedent at the time of his death, or in case of a nonresident,
not a citizen of the Philippines, of that part of his gross estate situated in
(2) The deductions allowed from
gross estate in determining the estate as defined in Section 86; and
(3) Such part of such
information as may at the time be ascertainable and such supplemental data as
may be necessary to establish the correct taxes.
Provided, however, That estate
tax returns showing a gross value exceeding Two million pesos (P2,000,000)
shall be supported with a statement duly certified to by a Certified Public
Accountant containing the following:
(a) Itemized assets of the decedent with their corresponding gross value at the
time of his death, or in the case of a nonresident, not a citizen of the
Philippines, of that part of his gross estate situated in the Philippines;
(b) Itemized deductions from
gross estate allowed in Section 86; and
(c) The amount of tax due
whether paid or still due and outstanding.
(B) Time for filing. - For
the purpose of determining the estate tax provided for in Section 84 of this
Code, the estate tax return required under the preceding Subsection (A) shall
be filed within six (6) months from the decedent's death.
A certified copy of the
schedule of partition and the order of the court approving the same shall be
furnished the Commissioner within thirty (30) days after the promulgation of
Naturally, there are consequences to delays or failure
to comply with the provisions of the tax law. In this case, the consequences
are rather hefty. For failing to file on time, the filer is charged a penalty
(some fixed amount), plus interest (at some rate per annum) from the
time the tax is due until it is paid.
However, the Commissioner may, in meritorious cases,
grant a reasonable extension for the filing of Estate Tax Return of not
exceeding thirty (30) days. Further, if the Commissioner finds that the payment
of the estate tax or any part thereof on the due date would impose undue
hardship upon the estate or any of the heirs, he may extend the payment of such
taxes for a period not exceeding five (5) years in case of judicially settled
estate, or two (2) in case of extra-judicially settled estate.
To reinforce the foregoing provisions and ensure
payment of estate taxes the NIRC imposes upon, among others, RD, SEC, LTO, and
other agencies with which registration of registrable properties is filed, the
duty to allow transfers or registration in the name of transferee/s only upon
production and presentation of Tax Clearance or Certificate Authorizing
Registration (CAR) evidencing payment of estate taxes thereon.
Settle the Estate Taxes Promptly and Save the Estate
In my experience, it is NOT uncommon to come across
heirs settling the estate of the decedent, and pay the corresponding estate
taxes years after the latter’s death. Heirs, oblivious of the implications, do
not bother to settle the estate of the decedent until there is that need to
transfer titles to properties comprising the estate like when they decide to
partition or sell whole or part of the estate.
Sadly, by that time, considerable time has likely
elapsed, and the tax consequences have already factored in. One thing is for
sure, though, you had better settle that NOW regardless of delays already
incurred, than settle later and decimate the estate with penalties and interest
on unpaid taxes.
Once you have the Tax Clearance, next stop is with
Register of Deeds (RD) for registration: cancellation of prior titles, and
issuance of new titles (subject to provision of law on redemption, where
applicable). Of course, there is a registration fee of some amount for every
thousand. By the time you get to the RD, you might have already sold the property
so things should now be lighter for you.
With regards to extra-judicial
settlement, again where circumstances warrant, it should be a breeze: less
tedious and costly process. The heirs simply have to execute an affidavit
stating that they are the only and sole heirs of the decedent, that the
decedent left no will and no debt, and that the heirs voluntarily agreed to
divide the estate among themselves. File the affidavit with the proper court,
and the latter finding the same in order shall issue an order approving or
affirming the same. With the order or approval of the court at hand, transfers
may now be effected.