Estate Tax Allocation Among Heirs in the Philippines – A 2025 Practitioner’s Guide

1. Policy Rationale & Snapshot

Nature of the tax. The Philippine estate tax is a transfer tax imposed on the net value of the decedent’s estate —not on the individual shares of the heirs. It attaches at the moment of death and is a lien on every estate asset until paid.
Flat rate. Since 1 January 2018 (TRAIN Law, R.A. 10963) the estate tax is a flat 6 % of the net estate, regardless of size.
Who pays. The executor/administrator is statutorily liable. In default, heirs become subsidiarily liable in proportion to the value of the property they actually receive (“beneficiary-pay” principle).
Amnesties. R.A. 11213 (2019) and its extension R.A. 11956 (2023) allow estates of decedents who died on or before 31 May 2022 to pay 6 % of the gross estate (or minimum ₱5,000) without penalties until 14 June 2025.

2. Core Statutes & Regulations

Source	Key Sections / Issuances	Core Points
National Internal Revenue Code (NIRC, as amended)	§§84-97	Imposition, deductions, returns, due dates, liens, liability rules
Civil Code (Book III, Succession)	Arts. 774-1105	Legitimes, order of intestacy, collation, partition
Rules of Court, Rule 73-77	Probate & settlement procedures
BIR Revenue Regulations (RR) 12-2018, 17-2021, 26-2023	Implement 6 % rate, electronic Certificate Authorizing Registration (eCAR), amnesty guidelines
Jurisprudence	CIR v. Pineda (G.R. L-22734), Heirs of Don Escano (G.R. 161126) et al.	Solidary liability of heirs, tax lien scope

3. Step-by-Step Allocation Framework

Stage	Action	Legal Basis
A. Identify the Gross Estate	List all property wherever situated if decedent was a Philippine resident; otherwise, Philippine-situs property only.	§85, NIRC
B. Classify Regime	Separate exclusive vs conjugal/community assets; include surviving-spouse’s share only in his/her own future estate.	Art. 99 Family Code; §85(A)(2)
C. Deduct Allowables	Standard deductions (₱5 million), family home up to ₱10 million, funeral up to ₱200 000, medical last year up to ₱500 000, claims against estate, unpaid mortgages, vanishing deduction, transfers for public use, etc.	§86
D. Compute Net Estate	Gross – Deductions = Net Estate. Apply flat 6 %.	§84
E. Allocate Tax Burden	Although tax is computed on the whole, *heirs ultimately shoulder it pro-rata to their intrinsic* shares** (unless the will or a written agreement fixes another arrangement).	§91; Art. 1078 & 1080 Civil Code
F. File & Pay	Within one (1) year from death; extensions possible for up to two years (more if court-approved) upon showing undue hardship.	§90
G. Secure eCAR & Partition	BIR issues an eCAR per heir/per property upon full payment. Register deeds with Registry of Deeds, cancel liens, annotate new TCTs.	RR 17-2021

4. Determining Each Heir’s Intrinsic Share

Check for a Will (Testate).
- Free portion may be allocated freely, but legitimes of compulsory heirs cannot be impaired (Arts. 906-909 Civil Code).
If Intestate.
- Surviving spouse & legitimate children: Equal shares.
- No descendants: Parents ascend to legitimes; spouse gets equal share with them.
- Illegitimate children: ½ share of a legitimate child (“½ rule”) but never excluded.
- Collateral relatives inherit only in default of descendants, ascendants, and spouse.
Conjugal/Community Property.
- Only the decedent’s one-half enters the estate. The surviving spouse’s half is tax-free.

Collegiate Distribution of Legitimes.

Legitime table (simplified percentages of net hereditary estate, i.e., after obligations but before estate tax):

Situation	Legitimate Children	Surviving Spouse	Parents	Illegitimate	Free Portion
Spouse + 1 legitimate child	½	¼	—	—	¼
Spouse + 2 legit children	½ (⅓ each)	⅙	—	—	⅙
Parents + Spouse (no children)	—	½	½	—	—
Only illegitimate children	—	—	—	½	½

(Percentages adjust with other permutations; see Arts. 895-906.)

5. Practical Allocation of the 6 % Tax

Compute tax on the whole net estate.
- Example:* Net estate = ₱20 million ⇒ Estate tax = ₱1.2 million.
Allocate proportionally.
- Heir A’s intrinsic share ÷ Net estate × ₱1.2 M = Heir A’s tax hit.
- If heirs agree, they may pay unequal amounts (e.g., wealthier heir shoulders all to expedite partition).
Withholding at Source.
- Executor may retain amounts equivalent to each heir’s tax share (Art. 1104 Civil Code) pending BIR clearance.
Effect of Vanishing Deduction.
- Assets received within five years from a prior decedent enjoy staged deductions (20 %–100 %), effectively reducing the tax that particular heir bears.
Estate Tax Amnesty Opt-in.
- If qualified, heirs pay 6 % of the gross estate; allocation often mirrors gross values because deductions are ignored.

6. Modes of Settlement & Their Tax Consequences

Mode	Procedural Notes	Tax Allocation Impact
Judicial Settlement	Probate or intestate petition; court approves project of partition.	Court order usually details prorated tax debits; executor remits.
Extrajudicial Settlement (EJS)	Allowed if no will & no minor/incapacitated heirs; use Deed of EJS with Waiver of Rights and Quitclaim; publish for 3 weeks.	Parties stipulate exact sharing of tax plus 1.5 % Documentary Stamp Tax (DST) on realty values.
Pay-and-Partition (“payment first”)	Heirs pay estate tax jointly then partition; speeds up eCAR issuance.	Simplest for BIR; proportional sharing enforced informally.
Partition first, pay later (rare)	Requires BIR bond; discouraged due to lien issues.	Heirs post bond jointly and severally; can trigger disputes.

7. Liability, Enforcement & Penalties

Solidary liability. Upon distribution, each heir is solidarily liable with the executor for any deficiency up to the fair market value of the property he received (CIR v. Pineda).
Penalties & interest. 25 % surcharge + 12 % interest per annum (or prevailing rate) from statutory due date. Compromise penalties may apply.
Tax lien. Statutory lien follows the property even in the hands of innocent purchasers until fully satisfied.
Fraudulent transfers. BIR may rescind partitions under §97 NIRC within five years from discovery of fraud.
Prescription. Assessment: ten (10) years if no return filed or false return; otherwise, three (3) years from filing.

8. Special Situations

Scenario	Allocation Twist
Multiple Successive Deaths	Partition and tax must be done per estate; vanishing deduction softens double taxation.
Non-resident decedent or heir	Philippine-situs assets only; foreign heirs pay via Philippine representative or depositary bank.
Trust/Insurance Proceeds	If revocably transferred, still part of estate; proceeds allocated to beneficiaries but taxed in the estate.
Donations mortis causa	Taxed as part of estate (not donor’s tax) and included in allocation.
Family-owned corporations	Estate may own shares; BIR requires CAR for transfer on stock-and-transfer book, not just real property eCAR.

9. Checklist for Counsel / Executor

Secure TINs for estate and each heir.
Inventory & appraise all assets at fair market value on death date (zonal value for realty, book or market for personalty).
Segregate conjugal share.
Gather documents (death certificate, certificate of title, tax declarations, stock certificates, bank certifications, etc.).
Compute net estate & estate tax; run amnesty vs regular comparison.
Draft return (BIR Form 1801); file at RDO where decedent was a resident (or where executor is) with supporting schedules.
Pay via AAB/eFPS/GCash/Landbank; obtain eCAR(s).
Prepare partition deed allocating tax burden; register deeds and new titles.
Keep records for 10 years in case of audit.

10. Practical Drafting Tips for Allocation Clauses

Prorata Clause – “All estate taxes, including penalties and interest, shall be borne by the heirs proportionately to the net value of the share adjudicated to each of them.”
Gross-up Clause – “Should any heir advance estate tax in excess of his proportionate share, the others shall reimburse such excess within thirty (30) days from demand, plus legal interest.”
Holdback Fund – advisable where estate includes illiquid real properties; set aside 8-10 % of gross estate as reserve.
Indemnity Clause – heirs indemnify executor against future deficiency assessments.

11. Common Pitfalls

Pitfall	Prevention
Under-declaration of real property values	Use higher of zonal value or fair market value in BIR table; attach BIR-certified zonal maps.
Ignoring illegitimate children	They remain compulsory heirs under Art. 887; allocate legitime.
Missing deadlines for amnesty	Note absolute expiry 14 June 2025; no further extension signaled by Congress.
Failing to file bonds on installment requests	File BIR Form 1772 and surety bond within 15 days of approval.
No tax clearance prior to sale of inherited assets	Buyers will require eCAR; absence stalls transaction.

12. Key Take-aways for 2025

6 % flat rate remains unless Congress overhauls the code.
Amnesty window is the last call for pre-June 2022 estates—act before 14 June 2025.
Digital processing: eCARs, online payments, and BIR’s Estate Tax New Payment Portal shorten timelines but still require meticulous documentation.
Allocation is ultimately a civil matter, but heirs who fail to shoulder their share risk liens and suits from co-heirs and the BIR alike.

This article synthesizes statutory, regulatory, and jurisprudential rules as of 20 June 2025. It is intended for informational purposes and does not constitute legal advice; practitioners should verify any subsequent amendments or BIR rulings.