Death and taxes

As they say, the only thing certain in this world is death and taxes.

This is especially true for those whose loved ones left property, whether real or personal, and whose title and ownership the deceased was not able to transfer to his heirs, and the corresponding taxes (whether for sale or donation to the heirs) paid to government before his or her death.

Here is one example. A friend of mine got married sometime in 1985. The grandmother of her husband gifted them with real property in Tagaytay. There was no deed of donation. But my friend and her husband have been religiously paying the real property taxes. The grandmother died in 1986, or prior to the effectivity of the National Internal Revenue Code (NIRC).

Now, my friend wants to sell the property but first she and her husband have to transfer the title to their names. This they cannot do without going through the process of estate settlement of the deceased. The procedure will depend on whether the decedent left a will (testate) or did not (intestate).

If there is a will, then it has to be probated, which is a judicial process where the court identifies the deceased person’s property, pays for any debts, identifies the proper heirs, and then distributes the property to them in accordance with the provisions of the will.

If there is no will, then the probate court during the intestate estate proceedings will identify the heirs and distribute the property to them again after all the debts and taxes have been paid.

If there is only one heir and there are no debts, then the sole heir can execute an affidavit of self adjudication. But again, the sole heir can only have the affidavit registered with the Registry of Deeds after payment of the proper estate taxes.

Going back to my friend’s dilemma. She asked me to compute roughly how much she had to pay in terms of estate taxes. Prior to the NIRC, the estate tax rates were very steep. The zonal value of the property that she received as a gift was around P3 million. The estate tax she has to be pay is about P2 million, or 66 percent.

Second example. Another friend of mine wants to sell certain shares of stocks owned by her late husband. Since she was the sole heir, she executed an affidavit of self-adjudication. According to the BIR, we need to have this published in a newspaper of general circulation once a week for three consecutive weeks. And this we did. We went to BIR RDO 47, submitted all the requirements (death certificate, marriage certificate, affidavit of publication, certification from Makati City that the deceased did not own any real property, a certification from the Makati Stock Exchange as to the value of the shares at the time of death, certification from the stock transfer agent as to the number of shares in the name of the deceased at the time of his death). Considering that the law allows a standard deduction of P1 million, we did not have to pay anything, except for penalties amounting to P10,000. We also submitted the corresponding receipt.

It has been two months since we submitted all the required documents and up to now, we have not received the certificate authorizing registration or CAR, which we have to submit to the Makati Registry of Deeds together with the affidavit of self-adjudication and the affidavit of publication.

According to the revenue examiner in charge of our case, our application had to be routed a number of times.

They have a check list. All they had to to is compare the check list and our submissions. Why the circuitous process?

It is indeed good news that the Senate and House bicameral committee finalizing President Duterte’s proposed new taxes have agreed “to cut the rates and the requirements” on the estate tax.

Under the agreed version, which will be sent to the two chambers for ratification, and eventually to the President for his signature, the estate tax will be levied a six percent flat tax, family homes valued at P10 million will be exempted, and standard deduction hiked to P5 million.

At present, there are six tiers of the estate tax, with assets worth P200,000 exempt, with the highest rate slapped on an estate valued at P10 million and up, which will pay P1.25 million, plus 20 percent in excess of P10 million.

The estate tax on the fourth tier, which covers assets in the P2 million-P5 million range is P135,000 plus 11 percent in excess of P 2 million.

The bicameral conference committee on the so-called TRAIN bill has also agreed to increase the estate tax-exempt value of a family home to P10 million from P1 million.

Also, the standard allowable deduction has been raised to P5 million. At present, surviving heirs can claim a maximum of P500,000 for medical expenses and P200,000 for the funeral of the deceased.

Another stringent rule relaxed by the TRAIN conferees is the amount which can be withdrawn from the deceased’s bank deposits, which are automatically frozen upon the demise of the account holder.

The filing of the estate tax return will also be extended from six months to one year. As proposed, the tax can now be paid in installments. The required notice of death prior to estate settlement has also been removed.

Complicated rules have resulted in low payment of estate tax, with only eight deaths out of 100 making an estate tax filing.

If our government really wants to make things easier for surviving heirs, they it should make the process of filing and securing the CAR simpler. Anyway, it is also the President’s priority to cut red tape in government. Why should it take more than two months from the time of filing of the requirements for the BIR to issue the CAR, especially if the estate is already exempt from payment of taxes?

If this circuitous and arduous process by the BIR continues, then not even a reduction in the estate tax rates would encourage the heirs to make an estate tax filing. They should make it simple and easy that the services of a lawyer should no longer be needed.

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