Introduction

In the Philippines, inheritance law governs the transfer of property from a deceased person (decedent) to their heirs. When multiple heirs inherit a property, each receives an undivided share, creating a co-ownership situation. An heir may choose to sell their share to a third party or another co-heir, which involves executing a Deed of Sale. However, this process is intertwined with estate settlement, as unsettled estates can complicate transfers. This article explores the legal framework, procedures, requirements, potential challenges, and tax implications under Philippine law, primarily drawing from the Civil Code of the Philippines (Republic Act No. 386), the Family Code (Executive Order No. 209), the Tax Code (Republic Act No. 8424, as amended), and relevant jurisprudence from the Supreme Court.

Legal Framework for Inheritance and Heir's Shares

Succession and Types of Heirs

Succession in the Philippines is either testate (with a will) or intestate (without a will). Under Article 774 of the Civil Code, succession transmits the decedent's rights, obligations, and properties to heirs at the moment of death. Heirs are classified as:

Compulsory Heirs: Legitimate children, descendants, parents, ascendants, and the surviving spouse, entitled to a legitime (reserved portion) under Articles 886-914 of the Civil Code. Their shares cannot be entirely disinherited except for specific grounds.
Voluntary Heirs: Those named in a will beyond the legitime.
Legal Heirs: In intestate succession, shares are distributed per Articles 960-1014, prioritizing descendants, then ascendants, and collaterals.

Inherited property forms part of the estate, which includes all assets minus debts and charges. Until partitioned, heirs hold undivided interests, making the property co-owned (Article 1078).

Co-Ownership of Inherited Property

Co-ownership arises automatically upon the decedent's death (Article 777). Each heir owns an ideal or abstract share, not a specific portion. This allows an heir to dispose of their undivided interest without partitioning the property (Article 493), but the buyer acquires only that share, subject to future partition.

Estate Settlement Processes

Estate settlement is crucial before or alongside selling an heir's share, as it determines clear title and settles debts/taxes. Failure to settle can lead to title defects, making the sale vulnerable to challenges.

Extrajudicial Settlement

Under Section 1, Rule 74 of the Rules of Court, if there is no will, no debts, and all heirs agree, the estate can be settled extrajudicially via a Deed of Extrajudicial Settlement of Estate (ESE). Requirements include:

Publication in a newspaper of general circulation once a week for three consecutive weeks.
Filing with the Register of Deeds (RD) and payment of estate taxes within one year from death (or extensions under BIR rules).
Bond equivalent to the property value if there are minor heirs or absentees.

The ESE partitions the estate, allowing individual titles. If not partitioned, it merely affirms co-ownership.

Judicial Settlement

For contested estates, those with wills, or outstanding debts, judicial settlement is required under Rules 73-90 of the Rules of Court. This involves:

Filing a petition in the Regional Trial Court (RTC) of the decedent's last residence.
Appointment of an administrator or executor.
Inventory, appraisal, payment of debts/taxes, and distribution via a project of partition approved by the court.

Judicial settlement can take years due to proceedings, but partial distributions may occur.

Timeline and Prescription

Claims against the estate prescribe after two years from settlement/publication for extrajudicial cases (Rule 74, Section 4). For judicial, it's within the probate period. Heirs must act promptly to avoid losing rights.

Selling an Heir’s Share: The Deed of Sale

An heir can sell their undivided share before or after estate settlement, but the process differs.

Pre-Settlement Sale

If the estate is unsettled, the heir sells an "undivided interest" in the estate. The Deed of Absolute Sale (DAS) must specify this. Buyers risk inheriting unsettled issues like debts or hidden heirs. Supreme Court rulings (e.g., Heirs of Spouses Remo v. Secretary of Agrarian Reform, G.R. No. 192925) emphasize that such sales are valid but subject to estate outcomes.

Post-Settlement Sale

After settlement and partition, the heir sells a specific portion with clear title, using a standard DAS.

Requirements for the Deed of Sale

The DAS is a contract under Articles 1458-1544 of the Civil Code, transferring ownership for a price. Key elements:

Parties: Seller (heir) must have capacity; buyer can be anyone, but co-heirs have right of redemption (see below).
Consent: Free and voluntary; if minor heir, court approval needed.
Object: The heir's share, described clearly (e.g., "1/4 undivided interest in Lot No. XXX").
Price: Certain and in money or equivalent.
Form: Must be in writing if over PHP 500 (Article 1403), notarized for registration.

Additional documents:

Death certificate of decedent.
Proof of heirship (birth certificates, marriage certificates).
ESE or court order if settled.
Tax clearances (estate tax, capital gains tax).
Title documents (Original Certificate of Title or Transfer Certificate of Title).

Execution and Registration

Notarize the DAS before a notary public.
Pay Documentary Stamp Tax (DST) at 1.5% of the higher of selling price or zonal value (Section 196, Tax Code).
Register with the RD under Presidential Decree No. 1529 (Property Registration Decree). Registration annotates the sale on the title, protecting against third parties (Article 1544).

If the property is conjugal or has liens, spousal consent or clearance is required.

Rights of Co-Heirs and Third Parties

Right of Redemption

Under Article 1620, co-heirs have a 30-day right to redeem the sold share at the sale price plus expenses. Notice must be given (Article 1623). Failure to notify can void the sale (Verdad v. CA, G.R. No. 109268).

Pre-emptive Rights

No general pre-emptive right exists, but in agrarian lands under Republic Act No. 6657 (CARP), heirs may have preferences.

Challenges from Other Heirs

Disputes can arise if the seller is not a legitimate heir or if the share encroaches on legitime. Courts may rescind sales violating compulsory heirship (Nuguid v. Nuguid, G.R. No. L-23445).

Tax Implications

Estate Tax

Payable on the entire estate at 6% (TRAIN Law, Republic Act No. 10963) on net value exceeding PHP 5 million. Must be settled before transfer.

Capital Gains Tax (CGT)

Seller pays 6% on the higher of selling price or fair market value (Section 24(D), Tax Code). Exempt if principal residence and proceeds reinvested (Section 24(D)(5)).

Donor’s Tax

If the sale is below market value, it may be deemed a donation, taxable at 6% (Section 99).

Withholding Tax

Buyer withholds if applicable (e.g., non-individual buyers).

BIR Clearances

Certificate Authorizing Registration (CAR) from BIR is required for RD registration.

Potential Challenges and Remedies

Unsettled Estates

Sales in unsettled estates may face annulment if debts exceed assets or unknown heirs emerge. Remedy: Settle estate first.

Fraud or Simulation

If the DAS is simulated to avoid taxes or creditors, it's void (Article 1409). BIR can reclassify.

Registration Issues

Unregistered sales bind only parties, not third parties. Adverse claims can be annotated (Section 70, PD 1529).

Litigation

Common disputes include partition actions (Article 494) or accion publiciana for possession. Mediation under Republic Act No. 9285 is encouraged.

Special Considerations

Agricultural Lands

Under CARP, sales require DAR clearance; heirs may consolidate shares.

Condominium or Subdivided Properties

Governed by Republic Act No. 4726 (Condominium Act); shares are in units plus common areas.

Foreign Buyers

Limited to 40% in condominiums; prohibited for lands (1987 Constitution, Article XII).

Impact of COVID-19 and Recent Laws

Post-pandemic, electronic notarization is allowed under Republic Act No. 11590 (2021). Estate tax amnesty extensions may apply (Republic Act No. 11569).

Conclusion

Buying an heir’s share in inherited property in the Philippines requires navigating succession laws, estate settlement, and property transfer rules to ensure validity and clear title. While an heir can alienate their share, proper documentation, tax compliance, and respect for co-heirs' rights are essential to avoid disputes. Parties should consult legal professionals for case-specific advice, as jurisprudence evolves with decisions like those emphasizing heirship proof (Heirs of Ypon v. Ricaforte, G.R. No. 198680).