Estate Tax Allocation Among Heirs in the Philippines
(A comprehensive practitioner-level guide as of 24 June 2025)
1. Statutory Framework
| Source | Key Provisions on Allocation & Liability |
|---|---|
| National Internal Revenue Code (NIRC) of 1997 (as amended) | Title III, Chapter I (Secs. 84-97) defines the estate tax, the party primarily liable (“the Estate”), periods to file & pay, extensions, and subsidiary liability of heirs (Sec. 97). |
| TRAIN Law – R.A. 10963 (effective 1 Jan 2018) | Flattened the estate-tax rate to 6 % of the net estate and drastically raised deductions, making proportional allocation simpler. |
| Estate Tax Amnesty – R.A. 11213 (2019) & R.A. 11956 (2023) | For deaths on or before 31 May 2022, heirs may opt to pay 6 % of the decedent’s net undivided estate or the fair market value (FMV) of each heir’s actual share, whichever is higher. |
| Civil Code of the Philippines (Art. 774-1105) | Governs legitimes, free portion, collation, acceptance/repudiation, and the order of intestate succession—indispensable for working out each heir’s taxable share. |
| Revenue Regulations & BIR Issuances | RR 12-2018, RR 5-2021, RR 17-2023, RMO 15-2023, et al. clarify filing of BIR Form 1801, installment options, solidary liability, and eCAR issuance per heir. |
2. Estate-Tax Fundamentals
2.1 Moment of Liability
- Tax attaches at the instant of death; the “Estate of X” becomes a distinct taxable entity.
- The executor/administrator (or heirs in an extrajudicial settlement) files and pays within one (1) year from death, extendible for meritorious reasons.
2.2 Who Bears the Tax?
- Primary liability – the Estate itself.
- Subsidiary/Solidary liability – the heirs, devisees and legatees but only up to the value of the property they actually received (Sec. 97, NIRC).
- Transfer restrictions. Titles, shares, bank deposits, etc. cannot be transferred until the BIR issues an Electronic Certificate Authorizing Registration (eCAR) showing the tax is paid.
3. Computing the Net Estate
Gross Estate • All properties—real, personal, tangible, intangible—wherever situated if the decedent was a resident or citizen. • Philippine-situs property only if the decedent was a non-resident alien (with reciprocity rule for intangibles).
Less: Allowable Deductions (TRAIN regime)
Deduction Amount / How computed Notes Standard deduction ₱5 million Automatically allowed—no substantiation required. Family home FMV up to ₱10 million Excess over ₱10 M enters the gross estate. Claims against estate Legally enforceable debts existing at death Must be properly notarised & supported. Unpaid mortgages, taxes, casualty losses Actual amounts Subject to stringent proof. Share of the surviving spouse ½ of conjugal/community net estate Segregated before computing the decedent’s net estate. Transfers for public use; value of property previously taxed; vanishing deduction Per NIRC Rare but still relevant for large estates.
3.1 Example (simplified)
| Item | Amount (₱) |
|---|---|
| Gross Estate (real & personal) | 60,000,000 |
| Less: Standard Deduction | (5,000,000) |
| Less: Family Home (max) | (10,000,000) |
| Less: Surviving Spouse’s Share (conjugal)* | (15,000,000) |
| Net Taxable Estate | 30,000,000 |
| Estate Tax @ 6 % | 1,800,000 |
*Assumes a conjugal partnership where total conjugal assets = ₱30 M; surviving spouse gets ₱15 M, leaving ₱15 M in the decedent’s column.
4. Allocating the Estate Tax Among Heirs
4.1 Default Rule – Charge to the Estate
The tax is paid from estate funds before any distribution. Each heir therefore receives a net share automatically diminished by tax.
4.2 Subsidiary & Solidary Liability of Heirs
- If the estate is insufficient or later assessed a deficiency, all heirs become solidarily liable up to the value of the property they individually received.
- The BIR may proceed directly against an heir without first exhausting remedies against the estate if estate assets have already been distributed (SC doctrine in Estate of Malate-Filomeno line of cases).
4.3 Voluntary Allocation Schemes
Heirs may re-allocate the burden by agreement, commonly:
- Pro-rata – each heir shoulders tax in proportion to their net share.
- Payer-gets-reimbursement – one heir pays to beat the deadline, later reimbursed by others.
- Out-of-pocket vs. in-kind – heirs with cash pay, those receiving non-cash assets accept a smaller share. The BIR is indifferent as long as the full tax is paid; agreements bind only the heirs inter se.
4.4 Effect of Renunciation, Waiver, or Disinheritance
- Pure & simple renunciation in favor of those who would inherit under the law is not subject to donor’s tax and the renouncing heir bears no estate-tax load because he receives nothing.
- Renunciation in favor of specified persons (i.e., not the compulsory heirs in their exact shares) is treated as a donation and donor’s tax attaches, on top of estate tax.
4.5 Collation, Advances, and Unequal Distributions
Gifts inter vivos that must be brought to collation (Arts. 1061-1068, Civil Code) effectively increase a child’s share for legitime purposes; thus that child’s effective estate-tax burden increases correspondingly when distributions are aligned to legitimes.
5. Settlement Modes and Their Impact
5.1 Judicial Settlement
- Court-appointed administrator marshals assets, pays debts, then petitions the court to approve a Schedule of Partition reflecting tax paid.
- Heirs cannot demand distribution until the estate tax (and other obligations) have been settled.
5.2 Extrajudicial Settlement (EJS)
- Allowed if (a) no will, (b) no outstanding debts, or all creditors are paid, and (c) all heirs are of age or duly represented.
- Documented in a Deed of Extrajudicial Settlement and Adjudication, published once a week for three consecutive weeks in a newspaper, then registered with the Registry of Deeds.
- eCAR per transferee: The BIR issues one electronic CAR for each parcel/asset headed to each heir—practically forcing asset-level allocation of tax and fees.
5.3 Estate Administration Considerations
- Administrator’s fee is a deductible expense but reduces the pool from which tax can be paid.
- Liquidity planning (life insurance payable to the estate or heirs, buy-sell agreements for businesses, etc.) ensures cash is available for the tax so heirs are not forced to sell assets.
6. Special Scenarios Affecting Allocation
| Scenario | Allocation Nuance |
|---|---|
| Conjugal partnership / absolute community | Only the decedent’s ½ share of conjugal/community property enters the tax base; tax therefore burdens heirs, not the surviving spouse’s retained half. |
| Non-resident alien decedent | Only Philippine-situs properties included; heirs abroad may post a special power of attorney for a Philippine administrator to pay. |
| Life insurance | If the beneficiary is the Estate, proceeds enlarge the gross estate and hence increase the tax burden for all heirs. If any individual heir is irrevocably designated, proceeds bypass the estate and the tax. |
| Illiquid estates (e.g., land-rich families) | Heirs may request payment in two yearly installments (Sec. 91, NIRC) or apply for a five-year extension (Sec. 92) upon showing undue hardship; a bond may be required. |
| Estate Tax Amnesty (R.A. 11956, window until 14 June 2025) | Heirs calculate 6 % either on the total net estate or their specific share’s FMV, then pay per heir if doing simultaneous partitions—even if the estate had no prior tax filing. |
7. Penalties, Interest & Assessments
| Item | Current Rules (2025) |
|---|---|
| Surcharge | 25 % for late filing or payment; 50 % for willful neglect or false return. |
| Interest | 12 % per annum (double the legal interest rate) computed from the original due date. |
| Compromise penalty | Fixed amounts under RMO 7-2015; commonly ₱25 k–₱50 k depending on deficiency size. |
| Assessment Prescriptive Period | BIR must assess within 3 years from filing or original due date, whichever is later; 10 years if a false or fraudulent return is filed or no return at all. |
| Collection Period | 5 years after assessment becomes final; but the lien on estate assets persists in rem until the tax is paid. |
8. Philippine Jurisprudence on Heirs’ Liability
- Heirs of the late Don Ramon Aboitiz v. BIR – confirmed that BIR may directly assess heirs after distribution.
- Republic v. Sandiganbayan (2017) – estate-tax lien follows property in the hands of heirs or transferees.
- BIR v. Estate of Benedicto – articulated the solidary nature of heirs’ liability under Sec. 97.
- F.F. Cruz & Co. v. Court of Tax Appeals (2020) – clarified that the eCAR requirement is jurisdictional before the Registry of Deeds may transfer title.
9. Best-Practice Checklist for Heirs & Executors
- File the Notice of Death (if gross estate > ₱5 M or with registered real property) within 30 days.
- Open an “Estate of X” TIN and bank account to centralise cash flow for taxes and debts.
- Prepare an accurate inventory—undisclosed assets discovered later trigger surcharges and interest borne by the heirs who received them.
- Secure appraisals early (BIR zonal values or actual FMV) to plan liquidity.
- Consider life insurance payable to specific heirs to keep proceeds out of the estate.
- Document internal allocations of estate tax to prevent future disputes and to show the BIR the trail of funds.
- Keep records for at least 10 years from the estate-tax payment date—the BIR’s collection period plus a safety margin.
10. Conclusion
In Philippine practice, “Who ultimately shoulders the estate tax?” hinges on two pivot points:
- Legal default: The tax is first a charge on the estate itself.
- Practical reality: Once assets are distributed, Sec. 97 makes every heir a potential target—solidarily and subsidiarily—for any deficiency, interest or penalty, but only up to the fair value of what each actually received.
Accordingly, a well-planned estate pays the tax before partition, keeps meticulous documentation, and, whenever liquidity is tight, leverages installment options, life-insurance proceeds, or even the Estate Tax Amnesty (while still available) to prevent heirs from bearing an outsized, unexpected burden.
With these principles and the statutory architecture laid out above, heirs, executors, and advisors can allocate the estate tax fairly, efficiently, and in full compliance with Philippine law.