When a person passes away in the Philippines leaving no will and no debts, the heirs are not necessarily required to go through a lengthy and expensive court trial to distribute the deceased’s properties. Instead, they can opt for an Extrajudicial Settlement of Estate (EJS).
When one or more heirs decide to give up their share of the inheritance, the document becomes an Extrajudicial Settlement with Waiver of Rights.
1. Legal Basis and Definition
Under Rule 74, Section 1 of the Rules of Court, if the decedent left no will and no debts, the heirs may divide the estate among themselves through a public instrument (a notarized deed) filed with the Register of Deeds.
An Extrajudicial Settlement with Waiver of Rights is a legal contract where:
- The heirs agree on the partition of the properties.
- One or more heirs voluntarily renounce their legal interest or share in favor of another person (usually a co-heir).
2. Essential Requisites for Validity
For an EJS with Waiver to be valid and binding, the following conditions must be met:
- The Decedent died intestate: There is no Last Will and Testament.
- No Outstanding Debts: The estate must have no unpaid debts at the time of the settlement.
- All Heirs are of Age: Heirs must be of legal age, or if minors, represented by a judicial or legal guardian.
- Unanimity: All heirs must agree to the adjudication and the waiver.
- Public Instrument: The agreement must be in writing and notarized.
- Publication: The settlement must be published in a newspaper of general circulation once a week for three consecutive weeks.
3. Understanding the "Waiver of Rights"
A waiver in this context is more than just "giving up" a share; it has specific tax and legal implications depending on how it is structured.
| Type of Waiver | Description | Tax Implication |
|---|---|---|
| General Waiver | The heir waives their share in favor of the estate or "all other heirs" equally. | Generally treated as a simple renunciation (Estate Tax only). |
| Specific Waiver | The heir waives their share in favor of a specific person (e.g., "I waive my share to my sister only"). | Treated as a Donation. This may trigger Donor’s Tax in addition to Estate Tax. |
| Onerous Waiver | The heir waives their share in exchange for money or another property. | Treated as a Sale. This may trigger Capital Gains Tax. |
4. The Step-by-Step Process
Step 1: Preparation of the Deed
The heirs draft the document. It must contain a description of the properties (Titles for land, Tax Declarations, or certificates for bank accounts) and the specific agreement on how they are divided. The waiver clause must be explicit.
Step 2: Notarization
All heirs must sign the document before a Notary Public. If an heir is abroad, the document must be apostilled or authenticated by the Philippine Consulate in that country.
Step 3: Publication
The law requires the EJS to be published to notify any potential creditors or excluded heirs. Keep the Affidavit of Publication from the newspaper publisher as proof.
Step 4: Payment of Estate Taxes
File the Estate Tax Return at the Bureau of Internal Revenue (BIR) having jurisdiction over the decedent's residence at the time of death.
- Current Rate: Under the TRAIN Law (since 2018), the Estate Tax is a flat rate of 6% of the net estate.
- The eCAR: Once taxes are paid, the BIR issues an Electronic Certificate Authorizing Registration (eCAR). Without this, the title cannot be transferred.
Step 5: Transfer of Title
Submit the eCAR, the notarized EJS, proof of publication, and the original titles to the Register of Deeds (for real estate) or the Land Transportation Office (for vehicles) to issue new ownership documents.
5. Important Considerations and Risks
The "Bond" Requirement: Rule 74 requires heirs to post a bond with the Register of Deeds if the estate includes personal property (like cash or stocks) to protect potential creditors or excluded heirs for a period of two years.
The Two-Year Rule
Under Section 4, Rule 74, an EJS does not immediately "clear" the title. A memorandum is inscribed on the new title stating that the property is subject to the rights of any heir or creditor who may have been excluded. This annotation can be cancelled after two years.
What if an heir is excluded?
If an heir was left out of the EJS, the settlement is not binding on them. They may file an action for annulment of the settlement or partition within the prescriptive period (generally 10 years, though this varies based on circumstances like fraud).
6. Summary Checklist of Requirements
- Death Certificate (Certified True Copy).
- Proof of Relationship (Birth Certificates/Marriage Contract).
- Original Transfer Certificates of Title (TCT).
- Tax Declarations (Land and Improvements).
- Certificate of No Improvement (if applicable).
- Affidavit of Publication and clippings of the notice.
- BIR Form 1801 (Estate Tax Return).