A client
consulted me about the computation of estate and donor’s tax on her late father’s
estate. Estate refers to the properties left by a deceased person.
Her father died
intestate (without a Will) in 2007 and was survived by his wife and six (6)
children. The surviving heirs executed a Deed of Extrajudicial Settlement (EJS)
with Waiver of Rights sometime in 2022 dividing the estate (all are real
properties) among themselves. Two (2) of the six (6) siblings waived their
inheritance in favor of the other heirs.
When they filed
the Estate Tax Return, the BIR examiner showed them the ONETTE computation
indicating the tax applicable, as follows:
A.
Estate tax based on the zonal value of the real properties
in 2007.
B.
Donor’s tax based on the zonal value of the real properties
in 2022.
She was advised
that the waiver of the two (2) heirs of their inheritance shall be subject to
donor’s tax.
Client asked why
the donor’s tax was based on the zonal value of the real properties in 2022 while
the estate tax was based on the zonal value in 2007. Her concern is that the
Donor’s Tax due is higher if it is based on the zonal value in 2022.
I told her that for
purposes of estate or donor’s taxation, the tax base shall be based on the zonal
value at time of the transfer of the properties.
The Civil Code
provides that succession and donation are among the modes of acquiring
ownership of a property.
Succession is the
transfer of ownership from a deceased person to his/her heirs. On the other
hand, donation is the gratuitous transfer of property from a donor to the
donee.
Succession is
subject to estate tax while donation is subject to donor’s tax.
Succession
If the deceased
person died intestate (without a Will), the surviving heirs can execute an EJS
stating, among others, that (a) the decedent left no will, (b) they are the
only surviving heirs, (c) the deceased left no other properties or debts, and (d)
they agree to divide the estate among themselves.
Under
the Civil Code, the possession of hereditary property (estate) is deemed
transmitted to the heir without interruption and from the moment of the death
of the decedent, in case the inheritance is accepted.
Therefore,
as a general rule, the estate is deemed transmitted to the heir at the time of
death of the decedent.
Donation
In case of
donation, the Civil Code states that the transfer of property is perfected from
the moment the donor knows of the acceptance of the donee coupled with the
delivery of the property. In case of real property, the donation and acceptance
of the donee must be made in a public instrument.
Here, the EJS
Deed with Waiver of Rights shows the donative intent of the donor and
acceptance of the done. Thus, its execution transfers the ownership of the real
property through donation.
Conclusion
Since both the
succession and donation are modes of acquisition or transfer of ownership, the
property subject of the transfer shall be valued at the time of their transfer,
i.e., at the time of death of the deceased in case of succession and at the
time of the execution of the Deed in case on Donation of real properties.
Hence, for
purposes of computing the estate tax, the tax base shall be based on the zonal value
of the real properties in 2007, the time of death of the decedent.
On the other hand,
since the EJS with Waiver of Rights was executed in 2022, then tax base shall
be the zonal value of the real properties in 2022.
General
renunciation of inheritance
Finally, Revenue Memorandum
Circular No. 94-2021 dated July 21, 2021 states that the general renunciation
of an heir on his share from the inheritance is not subject to donor’s tax.
Here, two (2)
heirs waived their inheritance in favor of other heirs.
Now, the question
is if this waiver of inheritance is also not subject to donor’s tax? This may
be subject to further discussion in another article.
Need further
information? You can reach us at 09773186192 or rbb@bodotalaw.com
Our office is
located at Reyes & Bodota Law Office, 3F Ventura Center Building, Sta.
Rosa-Tagaytay Rd., Sta. Rosa City, Laguna.