When a person passes away leaving property in the Philippines, the law generally requires a formal process to transfer the title of the deceased’s assets to their lawful heirs. While judicial settlement (court-supervised probate) is an option, the most common and efficient method used when there is no dispute is the Extrajudicial Settlement of Estate (EJS).
This process is governed primarily by Rule 74, Section 1 of the Rules of Court.
1. Requisites for a Valid Extrajudicial Settlement
For heirs to settle an estate outside of court, the following conditions must be met:
- No Will: The deceased must have died intestate (without a last will and testament).
- No Debts: The estate must have no outstanding debts. If there are debts, they must be settled before or during the EJS process.
- Agreement Among Heirs: All heirs must be of legal age (or represented by judicial guardians) and must be in total agreement regarding the division of the properties.
- Public Instrument: The settlement must be executed via a notarized deed, typically titled "Extrajudicial Settlement of Estate."
2. The Procedure
Step 1: Drafting the Deed
The heirs execute a notarized document describing the property (real or personal) and the agreed-upon distribution. If there is only one heir, they execute an Affidavit of Self-Adjudication.
Step 2: Publication
Under Philippine law, the EJS must be published in a newspaper of general circulation once a week for three consecutive weeks. This serves as constructive notice to any unknown creditors or heirs.
Step 3: Payment of Estate Tax
The heirs must file the Estate Tax Return with the Bureau of Internal Revenue (BIR).
- The tax is generally 6% of the net estate value (subject to current TRAIN Law provisions).
- Upon payment, the BIR issues a Certificate Authorizing Registration (CAR), which is essential for transferring titles.
Step 4: Registration and Transfer
The CAR, the notarized Deed of EJS, and proof of publication are submitted to the Register of Deeds (for land) or the relevant agency (for vehicles or shares of stock) to issue new titles or certificates in the names of the heirs.
3. Bond Requirements
If the estate involves personal property, the law requires the heirs to post a bond with the Register of Deeds in an amount equivalent to the value of the personal property involved. This bond acts as a safeguard for any person who might have been deprived of their lawful participation in the estate.
4. The "Two-Year Rule" (Rule 74, Section 4)
A critical nuance of the EJS is the "two-year lien." For two years following the settlement, the rights of any heir or creditor who was excluded or unaware of the proceedings remain protected. During this period, a "Section 4" annotation is typically placed on the new Transfer Certificate of Title (TCT). If no claims arise within those two years, the lien may be cancelled.
5. Advantages and Risks
| Pros | Cons |
|---|---|
| Speed: Much faster than court proceedings which can take years. | Unanimity: A single dissenting heir can block the entire process. |
| Cost: Avoids heavy litigation and attorney fees associated with trial. | Limited Protection: If a hidden will or unknown heir appears, the settlement can be contested. |
| Simplicity: Fewer procedural hurdles than a full judicial probate. | Liability: Heirs remain liable to creditors for two years. |
6. When EJS is Not Possible
If any of the following circumstances exist, the heirs must resort to Judicial Settlement:
- The deceased left a valid Last Will and Testament.
- The heirs cannot agree on how to divide the property.
- There are unresolved debts that the heirs refuse to pay.
- One or more heirs are minors without a legal guardian to sign on their behalf.