Sunlife

 What is Estate Tax?

Estate Tax is a tax on the right of the deceased person to transmit his/her estate to his/her lawful heirs and beneficiaries at the time of death and on certain transfers, which are made by law as equivalent to testamentary disposition. It is not a tax on property. It is a tax imposed on the privilege of transmitting property upon the death of the owner. The Estate Tax is based on the laws in force at the time of death notwithstanding the postponement of the actual possession or enjoyment of the estate by the beneficiary.

Estate taxes are paid by the heirs, beneficiaries, executor, or  the administrator in order to transfer property to beneficiaries or heirs upon the decedent’s passing. 

How is estate tax determined?
Estate tax is calculated by first determining the value of the deceased’s net estate. This is done by getting the difference between the deceased’s gross estate as defined under Section 85 of the Tax Code, and the allowable deductions of the decedent, which is defined under Section 86.

Net Estate = Gross Estate – Deductions

Gross Estate can be:

- Real properties, bank accounts (savings, joint, time deposit), stocks and other securities

- Personal property such as car, jewelry, works of art, furniture, etc.


Once the values are established, the estate tax is easily established by referring the amount to the BIR’s Estate Tax Table, which has been in effect since 1998.

Sample Presentation (say husband died) (Note: also applicable to your parents, siblings, relatives, etc. as 

                                                                             long as they have Gross Estate)

Example Gross  Estate

 - Real Estate Properties (House and Lot and Vacant Lot in Province)   -   P 7,000,000

 - Personal properties (car, bank deposit/time deposit, stocks, etc.)  -       3,000,000

                            Total  -  P 10,000,000

Example Deductions:

- Standard Deduction                                                                                 1,000,000

- Family Home                                                                                           1,000,000

- Funeral Expenses  -                                                                                     200,000

- Medical Expenses                                                                                        500,000  

                                                                                                 Total  -  P 2,700,000        

Net Estate = Gross  Estate – Deductions  
                  (P 10,000,000 – P 2,700,000)= P 7,300,000 

Tax due to be paid to BIR (refer below to BIR’s Estate Tax Table):
             First P 5,000,000  -   P 465,000
             Next P 2,300,000  -   P 345,000 
             Total TAX DUE      -  P 810,000 (this is the amount the wife will pay to BIR)

 BIR Estate Tax Table (effective January 1, 1998 up to present)

Here comes  the problem:

 1.  Where  does  the wife will get P 810,000?  Wife couldn’t withdraw their savings account /    
     joint account or time deposit. Wife must pay first the TAX DUE to BIR.

2.  Wife couldn’t sell their properties to get  money. She must pay first the TAX DUE to BIR.

3.  Wife must pay to BIR within 180 days (6 months) from time of  husband’s death. 
     (BIR Penalty: 25% surcharge + 20% interest per annum + compromise penalty)

What could have  the husband  and wife did to prevent this  bad ordeal?

 - When Husband was still alive, he and his  wife  should had estimated their GROSS ESTATE. 
Husband  and wife could have applied for Life Insurance. Since insurance is tax free, the husband or wife  who is the irrevocable beneficiary could easily withdraw the claims  to pay the TAX DUE.

Can you escape paying  Estate Taxes? NO!

 1.  When Bank Managers knew that the depositor died, depositor’s account will be automatically
     freeze.

2.  BIR is monitoring obituaries in newspapers.

3.  BIR is monitoring the list of deaths in National Statistics Office (NSO).