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Learnings in Taxation 402

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Tax402

I have learned a lot about estate tax that the estate tax is a tax on your right to
transfer property at your death. It consists of an accounting of everything you own or
have certain interests in at the date of death and it is calculated based on the net value
of property owned by a deceased person on the date of death. However, the fair market
value of these items is used, not necessarily what you paid for them or what their values
were when you acquired them and the total of all of these items is the gross estate.
Whether your estate will be liable for estate taxes depends on the value of your gross
estate, the amount of debt owed by you at the time of your death, the total expenses
that will be incurred while settling your estate, and any deductions that your estate can
take.
So to calculate the estate tax liability, you'll first need to calculate the value of
your gross estate. The value of the gross estate of the decedent shall be determined by
including the value at the time of his death of all property, real or personal, tangible or
intangible, wherever situated but in the case of a nonresident decedent who at the time
of his death was not a citizen of the Philippines, only that part of the entire gross estate
which is situated in the Philippines shall be included in his taxable estate.
In the calculation of the net estate, there are different considerations to be
determined. First are the deductions to the estate of a citizen or a resident which is
deducted from the value of the gross estate. First deduction is the expenses, losses,
indebtedness, and taxes where the actual funeral expenses or in an amount equal to
5% of the gross estate, whichever is lower, but in no case to exceed P200,000. Judicial
expenses include testamentary or intestate proceedings while for claims against the
estate, it should be provided that at the time the indebtedness was incurred the debt
instrument was duly notarized and if the loan was contracted within 3 years before the
death of the decedent, the administrator or executor shall submit a statement showing
the disposition of the proceeds of the loan. Lastly for unpaid mortgages or any
indebtedness to property where the value of decedent's interest is undiminished by such
mortgage or indebtedness is included in the value of the gross estate but not including

any income tax received after the decedent’s death, or property taxes not accumulated
before his death or any estate tax. Therefore, the deduction will be allowed in the case
of claims against the estate, unpaid mortgages or any indebtedness when it is establish
upon a promise or agreement and it is limited to the extent that they were contracted
bona fide and for an adequate and full consideration in money or money's worth.
Second deduction is the transfers for public use where the amount of all the donations,
legacies or transfers to or for the use of the government or any political subdivision is for
exclusively public purposes. Third deduction is the family home where the amount
should be equivalent to the current fair market value of the decedent's family home
provided that if the said current fair market value exceeds ne million pesos P1,000,000,
the excess will be subject to estate tax. Fourth deduction is the medical expenses
where it should be incurred by the decedent within 1 year prior to his death which must
be properly validated with receipts with the exemption that in no case that the deductible
medical expenses exceed P500,000.
I also learned about the share in the conjugal property which is the net share of
the surviving spouse in the conjugal partnership property as reduced by the obligations
appropriately chargeable to such property which is deducted from the net estate of the
decedent. There are also exemption of certain acquisitions and transmissions where the
following items shall not be taxed, first, the merger of usufruct in the owner of the naked
title. Second, the transmission or delivery of the inheritance by the fiduciary heir or
legatee to the fideicommissary. Third, is the transmission from the first heir, legatee or
donee in favor of another beneficiary, in accordance with the desire of the predecessor.
And fourth are all bequests, legacies or transfers to social welfare, cultural and
charitable institutions also provided, that not more than 30% of the said bequests,
legacies or transfers shall be used by such institutions for administration purposes.

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