Introduction

In the Philippines, the death of a spouse often complicates the ownership and transfer of conjugal or community property, particularly when such property is intended for sale. Under Philippine law, properties acquired during marriage are generally considered conjugal unless proven otherwise. Upon the death of one spouse, the conjugal partnership terminates, and the estate must be settled before any disposition, including sale, can occur. An Extra-Judicial Settlement (EJS) of estate is a common mechanism for this purpose, allowing heirs to partition the deceased's estate without court intervention. This article explores the comprehensive requirements, procedures, and considerations for executing an EJS in the context of selling property where one spouse is deceased, grounded in relevant Philippine statutes such as the Civil Code, the Family Code, and tax regulations.

EJS is particularly advantageous for its efficiency and cost-effectiveness compared to judicial settlement, but it is only applicable under specific conditions. It enables the surviving spouse and other heirs to agree on the division of the estate, including real properties, and facilitates their transfer or sale. However, failure to comply with legal requisites can render the settlement void, leading to disputes or invalid transactions.

Legal Basis

The foundation for EJS is found in Article 103 of the Family Code, which provides for the liquidation of conjugal partnerships upon death, and Section 1, Rule 74 of the Rules of Court, which allows for summary settlement of estates without a will. The Civil Code (Articles 777-811) governs succession, emphasizing that rights to succession vest immediately upon death. For tax purposes, Republic Act No. 8424 (National Internal Revenue Code, as amended) mandates the payment of estate taxes before any transfer.

Key principles include:

Intestate Succession: If the deceased left no will, succession follows the order in the Civil Code (Article 960 et seq.), prioritizing legitimate children and descendants, then the surviving spouse.
Conjugal Property Regime: Under Article 106 of the Family Code, conjugal properties are owned equally by spouses. The deceased's share passes to heirs, while the surviving spouse retains their half.
No Outstanding Debts: EJS requires that the estate has no unpaid debts, or that creditors have been satisfied, to avoid judicial proceedings.

Applicability of Extra-Judicial Settlement

EJS is suitable only when:

The deceased died intestate (without a valid will).
There are no outstanding debts, or all debts have been paid or waived by creditors.
All heirs are of legal age or properly represented by guardians if minors.
Heirs unanimously agree on the partition of the estate.
The gross value of the estate does not necessitate a full judicial administration (though no strict value threshold exists, smaller estates are more amenable).

In cases involving a deceased spouse, EJS is commonly used for conjugal properties like real estate (e.g., family homes or lots). If the property was the exclusive property of the deceased (e.g., inherited before marriage), the process simplifies, but conjugal properties require delineating shares.

If any heir disagrees or if debts exist, the matter must proceed to judicial settlement under Rule 73-90 of the Rules of Court, which is more protracted and expensive.

Requirements for Executing an Extra-Judicial Settlement

To validly execute an EJS, the following documents and steps are essential:

1. Agreement Among Heirs

A Deed of Extra-Judicial Settlement (DEJS) must be drafted, signed by all heirs, and notarized. This document details the deceased's properties, identifies heirs, and specifies the partition.
If the settlement includes a sale (Deed of Extra-Judicial Settlement with Sale), it incorporates the buyer's details and sale terms.
For minors or incapacitated heirs, a court-appointed guardian must sign, with judicial approval if necessary.

2. Supporting Documents

Death Certificate: Issued by the Philippine Statistics Authority (PSA), proving the date and fact of death.
Marriage Certificate: To establish the conjugal nature of properties.
Birth Certificates of Heirs: To confirm legitimacy and relationship to the deceased.
Affidavit of Heirs: Sworn statement listing all heirs and affirming no other claimants.
Proof of Ownership: Titles (e.g., Original Certificate of Title or Transfer Certificate of Title) from the Register of Deeds (RD).
Tax Declarations and Receipts: From the local assessor's office, showing current valuations and paid real property taxes.
Clearance from Creditors: If applicable, waivers or receipts showing debts settled.
Special Power of Attorney (SPA): If an heir cannot sign personally.

3. Publication Requirement

Under Section 1, Rule 74, the DEJS must be published once a week for three consecutive weeks in a newspaper of general circulation in the province where the estate is located.
An Affidavit of Publication from the newspaper publisher is required.
This serves as notice to potential creditors or claimants, who have two years to contest the settlement.

4. Bond Requirement

Heirs must file a bond with the RD equivalent to the value of the personal property involved (not real property). This protects against claims within two years.
The bond is typically a surety bond from an insurance company.

5. Tax Compliance

Estate Tax Return (BIR Form 1801): Filed with the Bureau of Internal Revenue (BIR) within one year from death (extended from six months under TRAIN Law amendments).
Payment of estate tax (6% flat rate on net estate under RA 10963, the TRAIN Law) is mandatory before title transfer.
Certificate Authorizing Registration (CAR): Issued by BIR after tax payment, essential for RD registration.
Donor’s tax or capital gains tax may apply if the partition involves unequal shares or sale.
For sales, 6% capital gains tax on the selling price or zonal value (whichever higher), plus 1.5% documentary stamp tax.

Procedure for Extra-Judicial Settlement and Property Sale

The process unfolds as follows:

Inventory and Appraisal: Heirs list all assets and liabilities, appraising properties via the BIR zonal value or assessor’s market value.
Draft and Notarize DEJS: Include a waiver of rights if needed, and specify shares (e.g., surviving spouse gets half plus a share in the deceased's half).
Publish the DEJS: Comply with the three-week publication.
File Estate Tax Return and Pay Taxes: Secure CAR from BIR.
Register with Register of Deeds: Submit DEJS, supporting documents, CAR, and bond. The RD annotates the title, cancels the old title, and issues new ones reflecting the partition.
Execute Sale: If selling, the DEJS with Sale is registered similarly. The buyer receives a new title free from liens (except noted ones).

For conjugal properties, the surviving spouse's share is segregated first, and the deceased's share divided among heirs. If the family home is involved (under Article 152 of the Family Code), it may be exempt from execution but still requires settlement for sale.

Timeline: Typically 3-6 months, depending on BIR processing and publication.

Special Considerations for Deceased Spouse

Surviving Spouse's Rights: The surviving spouse has usufructuary rights over the deceased's share if there are children, but full ownership requires settlement.
Illegitimate Children: They are compulsory heirs (Article 887, Civil Code) with half the share of legitimate ones, necessitating inclusion to avoid invalidation.
Pre-Deceased Children: Representation applies, allowing grandchildren to inherit.
Foreign Elements: If the deceased was a foreigner, Philippine laws on succession apply to Philippine properties, but consular authentication may be needed for documents.
COVID-19 or Similar Delays: Extensions for tax filings may be granted under BIR issuances.
Joint Properties: Bank accounts or vehicles may require separate affidavits for release.

Taxes and Fees Involved in Property Sales

Beyond estate taxes:

Capital Gains Tax (CGT): 6% on gain from sale, withheld by buyer.
Documentary Stamp Tax (DST): 1.5% on selling price or zonal value.
Transfer Tax: 0.5-0.75% local tax based on value.
Registration Fees: Variable, based on property value.
Non-payment voids the transfer; BIR clearance is pivotal.

Common Issues and Pitfalls

Contested Heirship: Omitted heirs can challenge within two years, potentially nullifying the sale.
Unregistered Titles: Delays if titles are not updated.
Debts Surfacing: Creditors can demand judicial administration.
Fraudulent Declarations: Penalties under tax laws for under-declaration.
Multiple Properties: Separate DEJS per province if properties span jurisdictions.
Buyer's Due Diligence: Buyers should verify clean title via RD search.

To mitigate, consult a lawyer or notary experienced in estate matters.

Conclusion

Extra-Judicial Settlement provides a streamlined path for settling estates involving a deceased spouse, enabling property sales without prolonged court involvement. Compliance with documentary, publication, and tax requirements ensures validity and protects all parties. While efficient, it demands meticulous adherence to Philippine laws to prevent future disputes. Heirs are advised to seek professional legal assistance to navigate nuances, ensuring a smooth transfer and sale process.