Extra Judicial Settlement With Renunciation of Rights: Requirements and Fees in the Philippines

Introduction

In the Philippines, the settlement of a deceased person's estate can be accomplished through judicial or extrajudicial means. An extrajudicial settlement (EJS) offers a faster, less costly alternative to court proceedings, provided that certain conditions are met. This process is governed primarily by Section 1, Rule 74 of the Revised Rules of Court, as well as relevant provisions of the Civil Code and tax laws under the Bureau of Internal Revenue (BIR). When an EJS involves a renunciation of rights, it means one or more heirs voluntarily waive their inheritance in favor of other heirs or specified parties. This renunciation must be explicit, documented, and integrated into the settlement deed to ensure legal validity.

An EJS with renunciation is applicable only when: (1) the decedent left no will (intestate succession); (2) there are no outstanding debts, or if there are, they have been paid; (3) all heirs are of legal age or properly represented; and (4) the heirs unanimously agree on the division of the estate, including any renunciations. If these conditions are not satisfied, the estate must be settled judicially. This article explores the requirements, procedural steps, associated fees, potential pitfalls, and legal implications of an EJS with renunciation in the Philippine context.

Legal Basis and Scope

The foundation for extrajudicial settlements is found in Rule 74 of the Revised Rules of Court, which allows heirs to divide the estate among themselves without court intervention. Article 1056 of the Civil Code permits renunciation of inheritance, provided it is done gratuitously and without fraud or undue influence. Renunciation can be total or partial, but it must not prejudice the rights of creditors or compulsory heirs under legitime rules (Articles 886-914, Civil Code).

This process applies to real and personal properties, including land, bank accounts, vehicles, and shares of stock. However, it excludes properties with co-ownership issues, contested claims, or those requiring special court approval, such as estates involving minors or incapacitated heirs without guardians. For estates exceeding certain values, compliance with Republic Act No. 11232 (Revised Corporation Code) or other sectoral laws may be necessary if corporate assets are involved.

Requirements for Extrajudicial Settlement with Renunciation

To execute an EJS with renunciation, the following documents and conditions must be prepared and fulfilled:

1. Death Certificate of the Decedent: Issued by the Philippine Statistics Authority (PSA) or local civil registrar. This certifies the date, place, and cause of death, establishing the basis for succession.

2. Affidavit or Deed of Extrajudicial Settlement: A notarized document executed by all heirs, detailing the decedent's properties, the agreed division, and any renunciations. The renunciation clause must clearly state the heir's waiver (e.g., "I hereby renounce my share in favor of [named heir(s)]") and be signed by the renouncing party. If real property is involved, this deed must describe the properties with technical details (e.g., tax declaration numbers, titles).

3. Proof of Relationship to the Decedent: Birth certificates, marriage certificates, or affidavits of heirship to establish legitimacy as heirs.

4. Titles and Ownership Documents: Original or certified true copies of Transfer Certificates of Title (TCT), Condominium Certificates of Title (CCT), tax declarations, vehicle registration certificates, stock certificates, or bank passbooks.

5. Certification of No Outstanding Debts: An affidavit from the heirs attesting that all debts have been settled, or waivers from creditors if applicable.

6. Publication Requirement: The deed must be published once a week for three consecutive weeks in a newspaper of general circulation in the province where the estate is located. This serves as notice to potential claimants.

7. Bond Requirement: If the estate includes real property and the settlement is executed within two years from the decedent's death, a bond equivalent to the value of the personal property must be filed with the Register of Deeds (RD). This protects against future claims.

8. Tax Clearances and Payments: Estate tax return (BIR Form 1801) filed with the BIR, along with payment of estate taxes under Republic Act No. 10963 (TRAIN Law). Donor’s tax may apply if the renunciation is deemed a donation (e.g., in favor of non-compulsory heirs).

9. Special Requirements for Certain Assets:

   • For real property: Clearance from the Department of Agrarian Reform (DAR) if agricultural land.
   • For vehicles: Clearance from the Land Transportation Office (LTO).
   • For securities: Compliance with Philippine Stock Exchange (PSE) or Securities and Exchange Commission (SEC) rules.
   • If minors are involved: Court-appointed guardian's consent and judicial approval, potentially shifting to judicial settlement.

All documents must be original or certified, and heirs must be free from any legal impediments (e.g., no ongoing disputes).

Procedural Steps

The process typically unfolds as follows:

1. Inventory and Appraisal: Heirs compile a list of assets and liabilities, appraising properties at fair market value (using BIR zonal values for real estate).

2. Execution of the Deed: Draft and notarize the Deed of Extrajudicial Settlement with Renunciation. All heirs sign, including spouses if community property is involved.

3. Payment of Estate Taxes: File BIR Form 1801 within one year from death (extendable). Compute tax based on net estate value, with rates from 6% under TRAIN Law. Secure Certificate Authorizing Registration (CAR).

4. Publication: Publish the deed in a qualified newspaper. Obtain publisher's affidavit after completion.

5. Filing with Register of Deeds: Submit the deed, publication affidavit, bond (if required), CAR, and other documents to the RD for annotation on titles. New titles are issued in the heirs' names, reflecting renunciations.

6. Transfer of Other Assets: For bank accounts, submit the deed to the bank; for vehicles, to LTO; etc.

The entire process can take 3-6 months, depending on BIR processing and publication.

Fees and Costs Involved

Fees vary by estate value, location, and complexity, but common expenses include:

• Notarial Fees: P200-P500 per document, plus P100-P200 per page for the deed.

• Publication Fees: P5,000-P20,000, depending on newspaper rates and estate location (higher in urban areas like Metro Manila).

• Estate Tax: 6% of the net estate (gross estate minus deductions like funeral expenses, debts). Minimum filing if net estate is below P5 million (exempt under TRAIN Law, but return still required).

• Donor's Tax (if applicable): 6% on the value of renounced share if considered a donation.

• Documentary Stamp Tax (DST): P15 per P200 of property value for the deed.

• BIR Processing Fees: P1,000-P5,000 for CAR issuance.

• Register of Deeds Fees: P500-P2,000 for registration, plus annotation fees per title (P100-P500).

• Appraisal Fees: P5,000-P10,000 if professional appraiser is hired.

• Legal Fees: If a lawyer drafts the deed, P10,000-P50,000, depending on estate size.

• Other Miscellaneous Fees: PSA document copies (P150-P300 each), LTO transfers (P500-P1,000 per vehicle).

Total costs can range from P20,000 for small estates to over P100,000 for larger ones, excluding taxes.

Potential Pitfalls and Legal Implications

• Invalid Renunciation: If not properly documented or if it violates legitime (e.g., disinheriting compulsory heirs like children), it can be challenged in court.

• Claims by Third Parties: The two-year period post-death allows creditors or unknown heirs to contest the settlement, potentially voiding it.

• Tax Evasion Risks: Underdeclaration of estate value can lead to penalties up to 50% of tax due, plus interest.

• Fraudulent Settlements: Misrepresentation of heirs or assets can result in criminal charges under Article 172 of the Revised Penal Code.

• Impact on Future Transactions: Improperly settled estates may complicate property sales or loans.

Heirs should consult a lawyer to avoid these issues, ensuring compliance with evolving laws like amendments to the Family Code or tax regulations.

Conclusion

An extrajudicial settlement with renunciation streamlines estate distribution in the Philippines, promoting family harmony and efficiency. By adhering to the outlined requirements and procedures, heirs can secure their inheritance while minimizing legal hurdles. Proper documentation and timely tax compliance are crucial to the process's success.