Computation of Net Estate

COMPUTATION OF THE NET ESTATE (RR 12-2018)

The value of the net estate of a citizen or resident alien of the Philippines shall be determined by deducting from the value of the gross estate the following items of deduction:

1.   Standard deduction. – P5,000,000 

2.   Claims against the estate.

·      The word “claims” is generally construed to mean debts or demands of a pecuniary nature which could have been enforced against the deceased in his lifetime and could have been reduced to simple money judgements. 

·      Claims against the estate or indebtedness in respect of property may arise out of: 

a.    Contract;

b.   Tort; or 

c.    Operation of Law. 

·      Requisites for Deductibility of Claims Against the Estate-


i)     The liability represents a personal obligation of the deceased existing at the time of his death; 

ii)   The liability was contracted 

(1)  in good faith and for adequate and 

(2)  full consideration in money or money’s worth; 

iii)  The claim must be a debt or claim which is 

(1)  valid in law and 

(2)  enforceable in court; 

iv)  The indebtedness must 

                                                            I.         not have been condoned by the creditor or 

                                                           II.         the action to collect from the decedent must not have prescribed. 

·      Substantiation Requirements. - All unpaid obligations and liabilities of the decedent at the time of his death are allowed as deductions from gross estate. Provided, however, that the following requirements/documents are complied with/submitted: 

                                                  I.         In case of simple loan (including advances): 

·      GR: The debt instrument must be duly notarized at the time the indebtedness was incurred 

XCP: loans granted by financial institutions where notarization is not part of the business practice/policy of the financial institution-lender 

·      Duly notarized Certification from the creditor as to the unpaid balance of the debt, including interest as of the time of death:

CREDITOR	SIGNATORY
CORPORATION	President, or Vice- President, or other principal officer of the corporation
PARTNERSHIP	any of the general partners
BANK OR OTHER FINANCIAL INSTITUTIONS	branch manager of the bank/financial institution which monitors and manages the loan of the decedent-debtor
INDIVIDUAL	the individual

NOTE:

GR:

in any of the above cases, the one who should certify must not be a relative of the borrower within the fourth civil degree, either by consanguinity or affinity

XCP:

When the lender, or the President/Vice-president/principal officer of the creditor-corporation, or the general partner of the creditor-partnership is a relative of the debtor in the degree mentioned above, a copy of the promissory note or other evidence of the indebtedness must be filed with the RDO having jurisdiction over the borrower within fifteen days from the execution thereof 

·      In accordance with the requirements as prescribed in existing or prevailing internal revenue issuances, proof of financial capacity of the creditor to lend the amount at the time the loan was granted, as well as its latest audited balance sheet with a detailed schedule of its receivable showing the unpaid balance of the decedent-debtor. 

·      A statement under oath executed by the administrator or executor of the estate reflecting the disposition of the proceeds of the loan if said loan was contracted within three (3) years prior to the death of the decedent; 

                                               II.         If the unpaid obligation arose from purchase of goods or services:

Pertinent documents evidencing the purchase of goods or service, such as sales invoice/delivery receipt (for sale of goods), or contract for the services agreed to be rendered (for sale of service), as duly acknowledged, executed and signed by decedent debtor and creditor, and statement of account given by the creditor as duly received by the decedent debtor 

·      Duly notarized Certification from the creditor as to the unpaid balance of the debt, including interest as of the time of death:

CREDITOR	SIGNATORY
CORPORATION	President, or Vice- President, or other principal officer of the corporation
PARTNERSHIP	any of the general partners
SOLE PROPRIETORSHIP	Owner of the business

NOTE: 

GR:in any of the above cases, the one who should certify must not be a relative of the borrower within the fourth civil degree, either by consanguinity or affinity

XCP:When the lender, or the President/Vice-president/principal officer of the creditor-corporation, or the general partner of the creditor-partnership is a relative of the debtor in the degree mentioned above, a copy of the promissory note or other evidence of the indebtedness must be filed with the RDO having jurisdiction over the borrower within fifteen days from the execution thereof 

·      Certified true copy of the latest audited balance sheet of the creditor with a detailed schedule of its receivable showing the unpaid balance of the decedent-debtor. Moreover, a certified true copy of the updated latest subsidiary ledger/records of the debt of the debtor-decedent, (certified by the creditor, i.e., the officers mentioned in the preceding paragraphs) should likewise be submitted. 

                                             III.        Where the settlement is made through the Court in a testate or intestate proceeding, pertinent documents filed with the Court evidencing the claims against the estate, and the Court Order approving the said claims, if already issued, in addition to the documents mentioned in the preceding paragraphs. 

3.  Claims of the deceased against insolvent persons as defined under R.A. 10142 and other existing laws, where the value of the decedent’s interest therein is included in the value of the gross estate. 


4.  Unpaid mortgages, taxes and casualty losses. 


·     Requisites for deductability of claims against the estate, unpaid mortgages or any indebtedness 


a.    founded upon a promise or agreement,

b.   limited to the extent that they were contracted bona fide and 

c.    for an adequate and full consideration in money or money’s worth.

·      Requisites for deductability of taxes

a.    accrued as of the death of the decedent 

b.   unpaid as of the time of death. 

c.     deduction will not include 

                                                                                   i.     income tax upon income received after death, 

                                                                                 ii.     property taxes not accrued before his death, or 

                                                                                iii.     the estate tax due from the transmission of his estate. 

·      Requisites for deductability of casualty losses

a.    such losses are not compensated for by insurance or otherwise, 

b.   if at the time of the filing of the return such losses have not been claimed as a deduction for income tax purposes in an income tax return, 

c.    such losses were incurred not later than the last day for the payment of the estate tax 

·      The mortgaged property, to the extent of the decedent’s interest therein, should always form part of the gross taxable estate. 

5.   Property previously taxed. 

DEDUCTABLE VALUE	PERIOD OF DEATH
100%	if the prior decedent died within one (1) yearprior to the death of the decedent, or if the property was transferred to him by gift, within the same period prior to his death
80%	if the prior decedent died more than one (1) year but not more than two (2) yearsprior to the death of the decedent, or if the property was transferred to him by gift within the same period prior to his death
60%	if the prior decedent died more than two (2) years but not more than three (3) years prior to the death of the decedent, or if the property was transferred to him by gift within the same period prior to his death
40%	if the prior decedent died more than three (3) years but not more than four (4) years prior to the death of the decedent, or if the property was transferred to him by gift within the same period prior to his death
20%	if the prior decedent died more than four (4) years but not more than five (5) yearsprior to the death of the decedent, or if the property was transferred to him by gift within the same period prior to his death

6.   Transfers for public use. 

The amount of all bequests, legacies, devises or transfers to or for the use of the Government of the Republic of the Philippines or any political subdivision thereof, for exclusively public purposes. 

7.   The Family Home. 

·      An amount equivalent to the current fair market value of the decedent’s family home: Provided, however, that if the said current fair market value exceeds Ten million pesos (P10,000,000), the excess shall be subject to estate tax. 

·      The dwelling house, including the land on which it is situated, where the husband and wife, or a head of the family, and members of their family reside, as certified to by the Barangay Captain of the locality. The family home is deemed constituted on the house and lot from the time it is actually occupied as a family residence and is considered as such for as long as any of its beneficiaries actually resides therein. (Arts. 152 and 153, Family Code) 

·      The beneficiaries of a family home are: 

a.    The husband and wife, or the head of a family; and 

b.   Their parents, ascendants, descendants including legally adopted children, brothers and sisters, whether the relationship be legitimate or illegitimate, who are living in the family home and who depend upon the head of the family for legal support. (Art. 154, Ibid) 

·      Conditions for the allowance of family home as deduction from the gross estate: 

a.    The family home must be the actual residential home of the decedent and his family at the time of his death, as certified by the Barangay Captain of the locality where the family home is situated; 

b.   The total value of the family home must be included as part of the gross estate of the decedent; and 

c.    Allowable deduction must be in an amount equivalent to the current fair market value of the family home as declared or included in the gross estate, or the extent of the decedent’s interest (whether conjugal/community or exclusive property), whichever is lower, but not exceeding P10,000,000. 

8.   Amount received by heirs under Republic Act No. 4917.

Any amount received by the heirs from the decedent’s employer as a consequence of the death of the decedent- employee in accordance with Republic Act No. 4917 is allowed as a deduction provided that the amount of the separation benefit is included as part of the gross estate of the decedent. 


9.   Net share of the surviving spouse in the conjugal partnership or community property. 

After deducting the allowable deductions appertaining to the conjugal or community properties included in the gross estate, the share of the surviving spouse must be removed to ensure that only the decedent’s interest in the estate is taxed. 


COMPUTATION OF THE NET ESTATE OF A DECEDENT WHO IS 
A NON-RESIDENT ALIEN OF THE PHILIPPINES 

NON-RESIDENT ALIEN

An individual whose residence is not in the Philippines and who is not a citizen thereof (Dascil, 2018)

COMPUTATION THE NET ESTATE (RR 12-2018)

The value of the net estate of a decedent who is a non-resident alien in the Philippines shall be determined by deducting from the value of that part of his gross estate which at the time of his death is situated in the Philippines the following items of deductions: 

1.  Standard deduction - P500,000 

2.  The proportion of the total losses and indebtedness which the value of such part bears to the value of his entire gross estate wherever situated. Losses and indebtedness shall include the following: 

a.    Claims against the estate.

·      The word “claims” is generally construed to mean debts or demands of a pecuniary nature which could have been enforced against the deceased in his lifetime and could have been reduced to simple money judgements. 

·      Claims against the estate or indebtedness in respect of property may arise out of: 

d.   Contract;

e.    Tort; or 

f.     Operation of Law. 

·      Requisites for Deductibility of Claims Against the Estate-


i)    The liability represents a personal obligation of the deceased existing at the time of his death; 

ii)  The liability was contracted 

(1)  in good faith and for adequate and 

(2)  full consideration in money or money’s worth; 

iii)The claim must be a debt or claim which is 

(1)  valid in law and 

(2)  enforceable in court; 

iv)        The indebtedness must 

                                (1)  not have been condoned by the creditor or 

                                (2)  the action to collect from the decedent must not have prescribed. 

·      Substantiation Requirements. - All unpaid obligations and liabilities of the decedent at the time of his death are allowed as deductions from gross estate. Provided, however, that the following requirements/documents are complied with/submitted: 

                                           In case of simple loan (including advances): 

·      GR: The debt instrument must be duly notarized at the time the indebtedness was incurred 

XCP: loans granted by financial institutions where notarization is not part of the business practice/policy of the financial institution-lender 

·      Duly notarized Certification from the creditor as to the unpaid balance of the debt, including interest as of the time of death:

CREDITOR	SIGNATORY
CORPORATION	President, or Vice- President, or other principal officer of the corporation
PARTNERSHIP	any of the general partners
BANK OR OTHER FINANCIAL INSTITUTIONS	branch manager of the bank/financial institution which monitors and manages the loan of the decedent-debtor
INDIVIDUAL	the individual

NOTE:

GR:

In any of the above cases, the one who should certify must not be a relative of the borrower within the fourth civil degree, either by consanguinity or affinity

XCP:

When the lender, or the President/Vice-president/principal officer of the creditor-corporation, or the general partner of the creditor-partnership is a relative of the debtor in the degree mentioned above, a copy of the promissory note or other evidence of the indebtedness must be filed with the RDO having jurisdiction over the borrower within fifteen days from the execution thereof 

·      In accordance with the requirements as prescribed in existing or prevailing internal revenue issuances, proof of financial capacity of the creditor to lend the amount at the time the loan was granted, as well as its latest audited balance sheet with a detailed schedule of its receivable showing the unpaid balance of the decedent-debtor. 

·      A statement under oath executed by the administrator or executor of the estate reflecting the disposition of the proceeds of the loan if said loan was contracted within three (3) years prior to the death of the decedent; 

                                        If the unpaid obligation arose from purchase of goods or services:

Pertinent documents evidencing the purchase of goods or service, such as sales invoice/delivery receipt (for sale of goods), or contract for the services agreed to be rendered (for sale of service), as duly acknowledged, executed and signed by decedent debtor and creditor, and statement of account given by the creditor as duly received by the decedent debtor 

·      Duly notarized Certification from the creditor as to the unpaid balance of the debt, including interest as of the time of death:

CREDITOR	SIGNATORY
CORPORATION	President, or Vice- President, or other principal officer of the corporation
PARTNERSHIP	any of the general partners
SOLE PROPRIETORSHIP	Owner of the business

NOTE: 

GR:

In any of the above cases, the one who should certify must not be a relative of the borrower within the fourth civil degree, either by consanguinity or affinity

XCP:

When the lender, or the President/Vice-president/principal officer of the creditor-corporation, or the general partner of the creditor-partnership is a relative of the debtor in the degree mentioned above, a copy of the promissory note or other evidence of the indebtedness must be filed with the RDO having jurisdiction over the borrower within fifteen days from the execution thereof 

·      Certified true copy of the latest audited balance sheet of the creditor with a detailed schedule of its receivable showing the unpaid balance of the decedent-debtor. Moreover, a certified true copy of the updated latest subsidiary ledger/records of the debt of the debtor-decedent, (certified by the creditor, i.e., the officers mentioned in the preceding paragraphs) should likewise be submitted. 

                                         Where the settlement is made through the Court in a testate or intestate proceeding, pertinent documents filed with the Court evidencing the claims against the estate, and the Court Order approving the said claims, if already issued, in addition to the documents mentioned in the preceding paragraphs.

b.   Claims of the deceased against insolvent persons where the value of the interest therein is included in the value of the gross estate. 

c.    Unpaid mortgages, taxes and casualty losses. 

The allowable deduction under this subsection shall be computed using the following formula: 

(PHIL GROSS ESTATE/WORLD GROSS ESTATE) X (ITEM B) 

3.   Property previously taxed. 

DEDUCTABLE VALUE	PERIOD OF DEATH
100%	if the prior decedent died within one (1) yearprior to the death of the decedent, or if the property was transferred to him by gift, within the same period prior to his death
80%	if the prior decedent died more than one (1) year but not more than two (2) yearsprior to the death of the decedent, or if the property was transferred to him by gift within the same period prior to his death
60%	if the prior decedent died more than two (2) years but not more than three (3) years prior to the death of the decedent, or if the property was transferred to him by gift within the same period prior to his death
40%	if the prior decedent died more than three (3) years but not more than four (4) years prior to the death of the decedent, or if the property was transferred to him by gift within the same period prior to his death
20%	if the prior decedent died more than four (4) years but not more than five (5) yearsprior to the death of the decedent, or if the property was transferred to him by gift within the same period prior to his death

4.   Transfers for public use. 

The amount of all bequests, legacies, devises or transfers to or for the use of the Government of the Republic of the Philippines or any political subdivision thereof, for exclusively public purposes. 

5.   Net share of the surviving spouse in the conjugal partnership or community property. 

After deducting the allowable deductions appertaining to the conjugal or community properties included in the gross estate, the share of the surviving spouse must be removed to ensure that only the decedent’s interest in the estate is taxed.