Claiming Overseas Stocks and Local Life Insurance Inheritance in the Philippines: Documents and Process

Introduction

In the Philippines, inheritance laws are primarily governed by the Civil Code of the Philippines (Republic Act No. 386), which outlines the rules on succession, including intestate and testate inheritance. When a Filipino decedent leaves behind assets such as overseas stocks (e.g., shares in foreign corporations) and local life insurance policies, the process of claiming these involves a blend of Philippine legal procedures, tax obligations, and potentially foreign jurisdictional requirements. This article provides a comprehensive overview of the documents and processes involved, focusing on the Philippine context while noting intersections with international elements.

Overseas stocks are considered part of the decedent's estate and are subject to estate settlement proceedings, which may require judicial or extrajudicial resolution. In contrast, proceeds from local life insurance policies are generally not part of the taxable estate if a beneficiary is irrevocably designated, but they still require specific claiming procedures. The Bureau of Internal Revenue (BIR) plays a central role in ensuring tax compliance, particularly under the Tax Code as amended by the Tax Reform for Acceleration and Inclusion (TRAIN) Law (Republic Act No. 10963) and subsequent reforms like the CREATE Act (Republic Act No. 11534).

Key principles include:

Compulsory Heirs: Legitimate children, spouses, and parents have reserved shares (legitimes) that cannot be fully disinherited.
Estate Tax: A 6% flat rate on the net estate value, filed within one year of death (extendable).
Extrajudicial vs. Judicial Settlement: If heirs agree and there is no will, extrajudicial settlement is possible; otherwise, probate is required.
International Aspects: For overseas stocks, compliance with the laws of the country where the stocks are held (e.g., U.S. SEC regulations) is essential.

This article covers the processes separately for overseas stocks and local life insurance, followed by common considerations, challenges, and best practices.

Legal Framework in the Philippines

Governing Laws

Civil Code (Articles 774-1105): Defines succession, types of heirs, and the division of estate.
National Internal Revenue Code (NIRC), as amended: Sections 84-97 cover estate taxes; life insurance proceeds are exempt from estate tax if the beneficiary is irrevocable and not the estate itself (Section 32(B)(6)).
Family Code: Affects spousal and child rights in inheritance.
Securities Regulation Code (Republic Act No. 8799): Relevant for stock transfers, though primarily for local securities; foreign stocks fall under the jurisdiction of the issuing country.
Anti-Money Laundering Act (Republic Act No. 9160, as amended): May require due diligence for large transfers.
International Treaties: The Philippines adheres to the Hague Convention on the Law Applicable to Succession (though not fully ratified), and tax treaties (e.g., with the U.S.) may prevent double taxation on overseas assets.

Key Concepts

Gross Estate: Includes all property owned by the decedent at death, wherever situated (for residents/citizens) or only Philippine-situs property (for non-residents).
Net Estate: Gross estate minus deductions (e.g., funeral expenses, debts).
Beneficiary Designation: For life insurance, if irrevocable, proceeds go directly to the beneficiary without passing through the estate.
Transfer of Ownership: Stocks require endorsement and registration; insurance requires claim submission.

Claiming Overseas Stocks as Inheritance

Overseas stocks, such as shares in U.S. companies (e.g., Apple or Tesla) held through brokers like Fidelity or via Philippine banks' custodial services, are treated as intangible personal property. For Filipino citizens or residents, these are included in the worldwide estate. The process involves settling the estate in the Philippines first, then coordinating with foreign entities for transfer.

Step-by-Step Process

Gather Initial Documents and Notify Heirs:
- Obtain the death certificate from the Philippine Statistics Authority (PSA).
- Locate the stock certificates, brokerage statements, or account details.
- Identify all heirs and secure their consent if pursuing extrajudicial settlement.
Estate Settlement:
- If No Will (Intestate): Heirs can execute a Deed of Extrajudicial Settlement of Estate (EJS), published in a newspaper of general circulation for three weeks.
- If With Will (Testate): File a petition for probate in the Regional Trial Court (RTC) of the decedent's last residence. This validates the will and appoints an executor/administrator.
- Timeline: EJS can be done in months; probate may take 1-2 years or more.
Tax Compliance:
- File BIR Form 1801 (Estate Tax Return) within one year of death.
- Pay estate tax (6% on net estate over PHP 5 million exemption, as per current thresholds).
- Obtain Certificate Authorizing Registration (CAR) from BIR, which is required for asset transfers.
- For overseas stocks, declare their fair market value (FMV) at death, using exchange rates from the Bangko Sentral ng Pilipinas (BSP).
Transfer of Stocks:
- Secure a court order (for probate) or EJS notarized and registered with the Register of Deeds.
- Contact the foreign broker or transfer agent (e.g., Computershare for U.S. stocks).
- Submit Philippine documents to the foreign entity, possibly apostilled via the Department of Foreign Affairs (DFA) for international recognition.
- Comply with foreign requirements, such as U.S. IRS Form W-8BEN for non-U.S. persons to claim tax treaty benefits.
- If stocks are held in a Philippine bank nominee account, the bank may handle the transfer upon presentation of the CAR.
Registration and Distribution:
- Endorse stock certificates or execute transfer forms.
- Divide shares per legitime or will provisions.
- Register new ownership with the foreign issuer.

Required Documents

Death certificate (PSA-authenticated).
Marriage certificate (if spouse is involved).
Birth certificates of heirs.
Will (if any), with probate order.
Affidavit of Self-Adjudication (if sole heir) or Deed of Extrajudicial Settlement.
Inventory of estate assets, including stock valuations.
BIR Estate Tax Return and payment receipts.
CAR from BIR.
Brokerage account statements.
Apostilled documents for foreign use.
IDs of heirs (e.g., passport, driver's license).
Tax clearance from foreign authorities if applicable (e.g., U.S. estate tax clearance for large holdings).

Taxes and Fees

Estate tax: 6% on net value.
Capital gains tax (CGT): 15% if heirs sell stocks post-transfer (based on FMV at death as cost basis).
Documentary stamp tax (DST): PHP 1.50 per PHP 200 on stock transfers.
Foreign taxes: E.g., U.S. withholding tax on dividends (reduced to 15% under PH-US tax treaty).

Claiming Local Life Insurance Inheritance

Local life insurance policies from Philippine insurers (e.g., Sun Life, Pru Life UK) are governed by the Insurance Code (Republic Act No. 10607). Proceeds are exempt from estate tax if the beneficiary is designated irrevocably and is not the estate, executor, or administrator. This makes claiming relatively straightforward, as it bypasses full estate settlement.

Step-by-Step Process

Notify the Insurer:
- Contact the insurance company within 90 days of death (though claims can be filed later, promptness avoids interest penalties).
Submit Claim:
- Fill out the insurer's claim form.
- Provide proof of death and beneficiary status.
Verification and Payout:
- Insurer verifies the policy and beneficiary.
- Payout via check, bank transfer, or lump sum/annuity.
- Timeline: Typically 30-60 days if documents are complete.
Tax Reporting (if Applicable):
- If beneficiary is revocable or the estate, include in estate tax return.
- Report interest earned on proceeds as income.

Required Documents

Original policy document or certificate.
Death certificate (PSA-authenticated).
Claimant's ID and proof of relationship (e.g., birth/marriage certificate).
Physician's statement or autopsy report (if death is contested).
Waiver from other potential claimants (if needed).
Bank details for direct deposit.
If minor beneficiary: Guardianship papers from court.

Taxes and Fees

Generally tax-free to beneficiary.
Income tax on interest portions.
No DST on insurance proceeds.

Common Considerations and Challenges

Overlaps Between Stocks and Insurance

If insurance proceeds are used to buy stocks, they become part of the estate.
For decedents with mixed assets, settle the entire estate holistically to avoid disputes.

Challenges

Heir Disputes: May lead to court litigation, delaying claims.
Foreign Compliance: Time zones, language barriers, and costs for apostille/legalization.
Valuation Issues: Fluctuating stock prices; use FMV at death.
Non-Resident Decedents: Only Philippine assets taxed; overseas stocks may require ancillary probate abroad.
COVID-19/Emergency Impacts: Digital submissions now common, but physical documents still required for some.
Fraud Risks: Verify documents to avoid scams.

Best Practices

Consult a lawyer specializing in estate planning.
Use estate planners or trusts to simplify transfers.
Keep records updated, including beneficiary designations.
File taxes promptly to avoid penalties (20% surcharge + interest).
For overseas assets, engage international law firms if complex.

In conclusion, claiming overseas stocks involves more rigorous estate settlement due to their inclusion in the taxable estate, while local life insurance is simpler and often tax-exempt. Always tailor the process to the specific circumstances, and seek professional advice to ensure compliance with evolving laws. This article is for informational purposes and not legal advice.