I. Overview and Governing Law

Estate tax is a national internal revenue tax imposed on the right of a deceased person (the “decedent”) to transfer property at death. In practical terms, it is a tax on the net estate—meaning the total value of all properties and rights the decedent owned (and certain transfers treated by law as part of the estate), less allowable deductions.

The principal laws and rules are found in the National Internal Revenue Code (NIRC), as amended (notably by the TRAIN Law and subsequent amendments), the Civil Code and Family Code (on property relations and succession concepts that affect classification and ownership), and implementing rules and Bureau of Internal Revenue (BIR) issuances that prescribe forms, documentary requirements, and administrative procedures.

Estate tax is distinct from:

Income tax of the decedent (covering income earned up to death),
Donor’s tax (for gratuitous transfers made while alive),
Documentary stamp tax (DST) and transfer taxes (local transfer taxes, registration fees, etc.) that may arise during property transfers to heirs,
Withholding tax obligations of an operating estate or businesses.

Estate tax must generally be settled before heirs can fully transfer titles and withdraw certain assets, because banks, registries, and government offices commonly require proof of tax payment or BIR clearance before releasing or registering transfers.

II. Who Must File; When Estate Tax Applies

A. Estates Covered

Estate tax applies to estates of:

Resident citizens and resident aliens: generally on worldwide properties and rights.
Non-resident aliens: generally on properties situated in the Philippines, subject to treaty considerations where applicable and statutory exclusions.

B. What Triggers the Tax

The tax arises upon death. The “estate” becomes a separate taxable entity for certain purposes, but estate tax itself is a transfer tax due because of death.

C. Who Files and Pays

Responsibility to file and pay typically falls on:

The executor or administrator (if court-appointed), or
Any legal heirs or beneficiaries (if there is no executor/administrator), or
Any person in possession of the decedent’s property, under certain circumstances.

Where multiple heirs exist, they often file jointly through an authorized representative. Even if the estate is under settlement, the filing/payment obligations remain and can affect the ability to transfer property.

III. Key Concepts That Affect Computation

A. Gross Estate vs. Net Estate

Gross estate: the total value of all includible assets and interests.
Net estate: gross estate minus allowable deductions. Estate tax is computed on the net estate, applying the applicable rate.

B. Valuation Date

Valuation is generally as of the date of death, not the date of filing or payment, unless specific rules prescribe otherwise (e.g., for certain claims or assets with determinable values).

C. Property Regimes and Ownership

In the Philippines, marital property regimes matter:

Absolute Community of Property (ACP) and Conjugal Partnership of Gains (CPG) affect what portion belongs to the decedent versus the surviving spouse.
Only the decedent’s share is included in the gross estate, but the characterization requires careful analysis of titles, acquisition dates, and the applicable family law regime.

Errors in identifying whether an asset is exclusive or community/conjugal can materially change the taxable base.

IV. What Makes Up the Gross Estate

Includible items generally include all property, rights, and interests of the decedent at death, whether tangible or intangible, real or personal, and whether held solely or as an interest.

A. Real Property

Land, buildings, condominium units
Improvements
Rights under certain contracts tied to real property

B. Personal Property (Tangible)

Vehicles, jewelry, art, machinery, equipment
Household effects (subject to valuation and documentation)

C. Personal Property (Intangible)

Bank deposits (subject to bank documentary requirements)
Shares of stock (listed and unlisted)
Bonds, notes, receivables
Partnership interests
Intellectual property rights with determinable value
Other contractual rights with economic value

D. Business Interests

Sole proprietorship assets and liabilities
Interests in partnerships and corporations
Valuation depends on the nature of the business, financial statements, and applicable BIR/market valuation approaches.

E. Special Inclusions (Common Scenarios)

Depending on the structure, the estate may include:

The decedent’s interest in jointly-held property (to the extent attributable to the decedent’s contribution/ownership, applying rules on co-ownership and evidence of consideration),
Certain transfers in contemplation of death or with retained interests where the law treats them as part of the gross estate,
Certain transfers with revocable features or retained power,
Proceeds/benefits in arrangements where the decedent retained rights or incidents of ownership, depending on the instrument.

F. Exclusions (General)

Some items may be excluded or treated differently due to:

Ownership clearly belonging to someone else (e.g., the surviving spouse’s exclusive property),
Statutory exclusions for certain nonresident cases,
Specific benefits or entitlements that do not form part of the estate under applicable rules, depending on the nature of the benefit and designation, and whether the decedent had a transferable interest.

Because exclusions are fact-sensitive, documentation (titles, contracts, beneficiary designations, proof of acquisition and funding) is critical.

V. Deductions from the Gross Estate

Allowable deductions reduce the taxable base, but they must be supported by competent evidence.

A. Standard Deduction

Philippine law provides a standard deduction for estate tax purposes. This is claimed without the need to substantiate particular expense items, but the estate must still properly declare the gross estate.

B. Family Home Deduction

A deduction is available for the family home, subject to a statutory cap and qualifications (e.g., it must qualify as the family home under civil law and be part of the decedent’s estate). Proof typically involves title, tax declaration, and evidence of use as a family home.

C. Claims Against the Estate

These generally include:

Unpaid debts and obligations of the decedent existing at death (loans, payables),
Accrued but unpaid expenses that are legally enforceable against the estate.

These must be valid, enforceable, and properly documented. Related-party claims are commonly scrutinized.

D. Claims Against Insolvent Persons

Receivables of the decedent that are uncollectible may qualify, subject to rules and proof.

E. Unpaid Mortgages and Liens

Where the decedent’s property is encumbered, the unpaid portion that is a valid claim against the estate may be deductible, typically tied to the included asset.

F. Taxes

Certain taxes due and unpaid as of death may be deductible, subject to rules and substantiation.

G. Losses

Casualty losses or certain losses incurred during estate settlement can be deductible when allowed under regulations, subject to timing, proof, and conditions.

H. Transfers for Public Use or to Qualified Entities

Bequests, devises, or transfers to the government or qualified charitable/social welfare institutions may be deductible under conditions.

I. Share of the Surviving Spouse

Under ACP/CPG, the surviving spouse’s share is not a “deduction” in the ordinary sense but is excluded from the decedent’s taxable estate once properly determined. Practically, computations often show the gross community/conjugal property, less the spouse’s share, leaving the decedent’s share for estate tax inclusion.

VI. Estate Tax Rates and the Basic Computation

A. General Rate Structure

For estates subject to the current regime, estate tax is generally computed as a flat rate on the net estate (after deductions), rather than graduated brackets.

B. Core Computation Flow

A typical computation follows these steps:

Identify all assets potentially includible in the estate.
Determine ownership classification (exclusive vs. community/conjugal; co-ownership interests; corporate ownership vs. personal).
Value each asset as of date of death based on applicable valuation standards.
Compute gross estate (sum of includible values).
Apply allowable deductions (standard deduction; family home; claims; etc.).
Arrive at net taxable estate.
Compute estate tax due = Net taxable estate × applicable flat rate.
Add penalties if late (surcharge, interest, compromise) where applicable.
Determine total amount payable and settle through authorized channels.

VII. Valuation of Common Assets

Valuation is the most frequent point of dispute and delay. The BIR and registries typically require values consistent with prescribed bases.

A. Real Property

Common valuation references include:

Zonal value (as determined by the BIR for the area),
Fair market value (FMV) per tax declaration (assessor’s value),
Contract price (if relevant), and other accepted indications of FMV.

In many tax administrations, the higher between relevant official values is used as a basis for tax purposes. Documentary requirements typically include:

Certified true copy of title,
Latest tax declaration,
Certificate of no improvement (if applicable) or details of improvements,
Location plan, and other local assessor documents as required.

B. Shares of Stock

Listed shares: often based on market quotations around the date of death, subject to prescribed averaging or specific reference dates.
Unlisted shares: may rely on book value adjusted by certain rules or appraisal methods based on financial statements.

Supporting documents commonly include:

Stock certificates, secretary’s certificate,
Latest audited financial statements,
General information sheets and corporate records,
Proof of transfer restrictions (if any).

C. Bank Deposits and Financial Accounts

Banks often require:

Death certificate,
Proof of authority (executor/administrator or heirs’ affidavit),
BIR clearance or proof of estate tax filing/payment, depending on bank policy and regulations,
Account statements as of date of death.

D. Vehicles

May be valued using official schedules or market guides accepted by agencies, with registration documents.

E. Business Assets

May require:

Inventory lists,
Accounts receivable/payable schedules,
Financial statements,
Appraisals for key assets.

VIII. Deadlines: When to File and Pay

Estate tax returns must be filed and the tax paid within a statutory period from the date of death, subject to extensions in specific cases under the tax code and regulations. Late filing/payment triggers penalties.

Because deadlines and extension rules are strict, estates should prioritize:

Securing death certificates and titles,
Gathering asset lists and liabilities,
Determining marital property allocations,
Preparing valuation documents.

IX. Where and How to File

A. Which BIR Office Has Jurisdiction

Filing is typically done with the BIR office having jurisdiction over:

The decedent’s legal residence at death (for residents), or
The location of property (for certain nonresident cases), or
As otherwise provided by BIR rules on venue.

B. Estate Tax Return

The estate tax return is filed using the prescribed BIR form. This return declares:

Decedent’s information,
Heirs/beneficiaries,
Detailed schedules of properties and valuations,
Deductions and computation of tax due,
Payment details (if paid upon filing or after assessment).

C. Supporting Documents (Typical)

While exact checklists vary, commonly required documents include:

Death certificate,
Taxpayer identification details of decedent and heirs,
Proof of property ownership (titles, tax declarations, certificates),
Bank certifications and statements,
Corporate documents for shares,
Proof of deductions: loan documents, official receipts, statements of account, notarized instruments,
Proof of family home qualification,
Settlement documents: extrajudicial settlement, judicial settlement papers, or affidavits of self-adjudication, as applicable,
Special power of attorney/authority documents for representatives.

Organizing documents per asset class (real property, bank, shares, vehicles, other) reduces processing delays.

X. How to Pay

Payment is made through BIR-authorized payment channels, which may include:

Authorized agent banks (AABs),
Revenue collection officers (in areas without AABs),
Electronic payment platforms accredited by the BIR, subject to availability and compliance requirements.

Proof of payment (validated return, bank confirmation, electronic acknowledgment) is essential for subsequent transfers and releases of assets.

XI. After Payment: Clearance, CAR, and Transferring Assets to Heirs

Payment of estate tax is usually followed by BIR processing that leads to documents necessary for transfer:

A. Certificate Authorizing Registration (CAR) / Equivalent Clearance

For properties requiring registration (e.g., real property with the Registry of Deeds, shares of stock), the BIR generally issues a certificate authorizing registration (or similar clearance) once tax compliance is confirmed.

B. Transfer of Real Property

Steps commonly include:

Secure BIR clearance/CAR.
Pay local transfer tax (city/municipal treasurer), if applicable.
Pay registration fees and submit documents to the Registry of Deeds.
Update tax declaration with the local assessor.

C. Transfer of Shares

Transfers may require:

CAR/clearance,
Corporate approval and transfer book entries,
Payment of applicable fees,
Updating records with the corporation and, if relevant, depository participants for listed shares.

D. Release of Bank Deposits

Banks typically release funds to heirs upon submission of:

Settlement documents,
BIR clearance,
Identification and compliance documents,
Other internal bank requirements.

XII. Extrajudicial Settlement, Judicial Settlement, and Their Tax Implications

A. Extrajudicial Settlement

Where the decedent left no will (intestate) or even in certain cases involving a will after probate issues are resolved, heirs may settle the estate extrajudicially if legal requirements are satisfied (e.g., no outstanding debts, all heirs are of age or properly represented). It usually involves:

A notarized deed of extrajudicial settlement (or affidavit of self-adjudication when there is only one heir),
Publication requirement in a newspaper of general circulation (commonly required in practice),
Presentation to agencies for transfers.

Estate tax still applies regardless of the chosen settlement mode.

B. Judicial Settlement

If there is a will requiring probate, disputes among heirs, or complex estates, judicial settlement may be required. The estate tax return still must be filed and paid within the tax law timeline, separate from the pace of court proceedings, though specific administrative accommodations may apply under rules.

XIII. Penalties for Late Filing/Payment

Failure to file or pay on time can result in:

Surcharge (a percentage of the tax due),
Interest (computed on unpaid amounts over time),
Compromise penalties (in certain cases, depending on circumstances and BIR rules),
Potential administrative difficulties in transferring property.

Penalty exposure can become substantial, especially for high-value estates and long delays.

XIV. Practical Guidance: Step-by-Step Workflow for Heirs

Step 1: Organize the estate file

Death certificate, IDs, marriage certificate (if relevant), birth certificates of heirs (as needed).
List of all assets and liabilities.

Step 2: Classify assets by ownership

Exclusive property of decedent,
Community/conjugal property (determine decedent’s share),
Co-owned assets with others (determine fractional interest).

Step 3: Obtain valuation documents

Real property zonal value references and tax declarations,
Bank statements as of date of death,
Stock valuations and corporate certifications,
Vehicle valuation references.

Step 4: Identify and document deductions

Loans (contracts, statements of account),
Liens and mortgages,
Family home documentation,
Proof for other deductible items.

Step 5: Prepare and file the estate tax return

Complete schedules carefully.
Ensure consistency of names, TINs, and property descriptions with titles.

Step 6: Pay estate tax and secure proof of payment

Use an authorized channel.
Keep validated copies and confirmations.

Step 7: Obtain CAR/clearances

Submit required documents to the BIR.
Address any findings promptly.

Step 8: Transfer and register properties

Pay local transfer taxes and registration fees.
Update titles and tax declarations.
Coordinate with banks/corporations for asset releases and transfers.

XV. Common Issues and How to Avoid Them

A. Missing or inconsistent names and details

Differences in spelling across titles, IDs, and certificates cause rejections. Align documentation early and, when necessary, secure affidavits of one and the same person or corrections through proper legal channels.

B. Undeclared assets discovered later

Undeclared assets can create compliance problems and may require amended filings and additional tax, penalties, and processing delays.

C. Incorrect marital property allocation

Assuming all property is solely owned by the decedent (or solely by the surviving spouse) is a frequent error. Determine the correct regime and trace acquisition.

D. Unsupported deductions

Claims and expenses without receipts, contracts, or credible evidence are often disallowed. Maintain a deduction binder with originals and certified true copies.

E. Real property valuation disputes

Using unsupported private valuations or ignoring prescribed valuation bases can lead to reassessment. Use official documents and accepted bases.

XVI. Special Topics

A. Estate Tax vs. Estate Administration Expenses

Certain administration expenses may be deductible only if allowed by rules and properly supported. Distinguish between expenses incurred before death (personal obligations) and after death (administration costs).

B. Estate with Ongoing Business

If the decedent operated a business, additional steps include inventorying business assets, determining receivables/payables, and ensuring continuing tax compliance during settlement (e.g., invoicing, withholding, VAT/percentage tax where applicable). Estate tax computation should reflect accurate net values and enforceable liabilities.

C. Properties with Encumbrances, Adverse Claims, or Litigation

These require careful treatment:

Encumbrances may reduce net value through deductions if they qualify.
Litigation risks may affect valuation and collectibility of claims, but the tax treatment must still be grounded on rules and evidence.

D. Estates Involving Nonresident Decedents

Situs rules determine which assets are taxable in the Philippines. Documentation often includes proof of nonresidency, location of assets, and sometimes consularized/apostilled documents depending on where issued.

XVII. Compliance Checklist

Complete asset inventory with supporting ownership documents
Proper marital property analysis and allocation
Date-of-death valuations supported by official documents
Deductions supported by contracts, receipts, statements, and proof of enforceability
Correct venue for filing; complete BIR return schedules
Timely payment; retain validated return and payment proofs
CAR/clearance secured for registrable assets
Local transfer taxes and registry requirements satisfied for title transfers
Bank/corporate requirements completed for releases and transfers

XVIII. Summary of the Computation Model

Gross Estate (includible assets valued at date of death)
Less: Allowable Deductions (standard deduction, family home deduction, valid claims/liens, and other permissible deductions)
Equals: Net Taxable Estate
Multiply by the estate tax rate under current law
Add penalties if late
Pay through authorized channels and secure clearance for transfers