When a loved one passes away without a will and leaves behind properties, the heirs often face the daunting task of transferring ownership. In the Philippines, the most efficient way to handle this—provided there are no debts and the heirs are in agreement—is through an Extrajudicial Settlement of Estate (EJS).
This process allows heirs to bypass lengthy court proceedings. However, it still involves specific legal mandates and significant administrative costs.
I. Legal Requirements for Extrajudicial Settlement
Under Rule 74, Section 1 of the Rules of Court, an extrajudicial settlement is valid only if certain conditions are met:
- No Will: The deceased left no last will and testament.
- No Debts: The estate has no outstanding debts (or all debts have been fully paid).
- Heirs are of Age: All heirs are of legal age, or minors are represented by judicial or legal guardians.
- The Deed of Extrajudicial Settlement: The agreement must be written in a public instrument (notarized) and filed with the Register of Deeds.
- Publication: The settlement must be published in a newspaper of general circulation once a week for three (3) consecutive weeks.
- Bond: If personal property is involved, a bond must be posted (though this is often waived in practice if only real property is involved).
II. The Step-by-Step Process
- Preparation of the Deed: A lawyer drafts the "Deed of Extrajudicial Settlement of Estate." This document lists the description of the properties (Titles, Tax Declarations) and the specific division among the heirs.
- Notarization: All heirs must sign the deed before a Notary Public.
- Notice of Settlement: The heirs must publish the notice in a newspaper. This serves as a warning to any unknown creditors or heirs.
- Tax Clearance: The heirs must file the Estate Tax Return at the Bureau of Internal Revenue (BIR) to obtain the Certificate Authorizing Registration (CAR).
- Transfer at the Register of Deeds: Once taxes are paid and the CAR is issued, the heirs present the documents to the Register of Deeds to cancel the old title and issue new ones.
III. Estimated Costs and Taxes
The financial burden of settling an estate can be substantial. Below is a breakdown of the typical expenses involved:
1. Estate Tax (The Largest Cost)
Under the TRAIN Law (Republic Act No. 10963), the estate tax is a flat rate of 6% of the net value of the estate.
- Standard Deduction: PHP 5,000,000 is deductible from the gross estate.
- Family Home: If the family home is part of the estate, an additional deduction of up to PHP 10,000,000 may apply.
2. Documentary Stamp Tax (DST)
This is usually required for the transfer of properties. For real estate, it is generally 1.5% of the selling price or zonal value, whichever is higher.
3. Transfer Tax
This is paid to the City or Provincial Treasurer’s Office. The rate varies by location but typically ranges from 0.50% to 0.75% of the property's value.
4. Publication Fees
Since the law requires publication for three weeks, you must pay a local newspaper. Costs typically range from PHP 5,000 to PHP 15,000, depending on the newspaper’s reach and the length of the notice.
5. Registration Fees
Paid to the Register of Deeds for the issuance of new titles. This follows a graduated table but usually amounts to roughly 0.25% of the property value plus minor administrative fees.
6. Legal and Notarial Fees
- Notarial Fees: Usually 1% to 2% of the property value, though this is often negotiable.
- Attorney’s Fees: If the case is complex, lawyers may charge a flat fee or a percentage of the estate.
IV. Summary of Estimated Costs Table
| Expense Item | Estimated Rate / Cost |
|---|---|
| Estate Tax | 6% of Net Estate (after deductions) |
| Documentary Stamp Tax | 1.5% of Zonal Value/Fair Market Value |
| Transfer Tax | 0.50% to 0.75% of Value |
| Registration Fees | ~0.25% + entry fees |
| Publication Fee | PHP 5,000 – PHP 15,000 |
| Legal/Notarial Fee | 1% – 5% (Negotiable) |
V. Critical Deadlines
- Filing for Estate Tax: The Estate Tax Return must be filed within one (1) year from the date of the decedent's death.
- Penalties: Failure to file on time results in a 25% surcharge, plus 12% interest per annum, and potential compromise penalties.
Important Note: If the heirs cannot agree on how to divide the properties, an Extrajudicial Settlement is not possible. In such cases, the heirs must file a Judicial Partition in court, which is significantly more expensive and can take years to resolve.