The passing of a parent is an emotionally challenging time, often compounded by immediate financial obligations such as funeral expenses, medical bills, and outstanding debts. When surviving heirs attempt to withdraw funds from the deceased parent’s bank account to cover these costs, they are frequently met with a harsh reality: the account has been frozen. In the Philippine jurisdiction, navigating a frozen bank account requires a clear understanding of banking laws, the National Internal Revenue Code (Tax Code), and the rules on the settlement of estates.
Why Do Banks Freeze the Account?
Under Philippine law, a bank account is frozen the moment the bank receives formal notice or gains official knowledge of the account holder's death. This is done for two primary reasons:
- Protection of the Estate: It prevents unauthorized withdrawals by third parties, co-depositors, or even well-meaning relatives before the legal heirs are properly identified.
- Tax Compliance: The government has a statutory interest in the funds because they form part of the decedent’s gross estate, which is subject to estate tax.
The Paradigm Shift: Accessing Funds Under the TRAIN Law
Prior to 2018, accessing the bank deposits of a deceased person was a tedious process. Heirs could not withdraw any amount unless they could present a clearance from the Bureau of Internal Revenue (BIR) proving that the estate tax had been settled.
This changed significantly with the passage of Republic Act No. 10963, otherwise known as the Tax Reform for Acceleration and Inclusion (TRAIN) Law, which took effect on January 1, 2018.
The 6% Final Withholding Tax Rule
Under Section 97 of the amended Tax Code, if a bank has knowledge of the death of a person who maintained a bank deposit account (whether alone or jointly), it shall allow any withdrawal from the said deposit account, subject to a final withholding tax of six percent (6%).
Crucial Conditions under the TRAIN Law:
- Time Limit: The withdrawal under this specific tax provision must be made within one (1) year from the date of the decedent's death.
- Withholding Agent: The bank acts as the withholding agent. It will automatically deduct the 6% tax from the amount to be withdrawn and remit it directly to the BIR.
- Exclusion from Gross Estate: The amount withdrawn, having been subjected to a final tax, will no longer be included in the computation of the remaining gross estate for regular estate tax purposes.
Legal Avenues for Estate Settlement
If the one-year period has lapsed, or if the heirs wish to close the account completely and distribute all remaining assets, they must legally settle the parent's estate. In the Philippines, this is done through two main avenues:
1. Extrajudicial Settlement of Estate (EJS)
This is the fastest and most common method. It is permitted under Rule 74, Section 1 of the Rules of Court only if the following conditions are met:
- The deceased left no will (intestate).
- The deceased left no debts (or all debts have been fully settled).
- All the heirs are of legal age, or the minors are legally represented.
To execute an EJS, the heirs must sign a public instrument known as a Deed of Extrajudicial Settlement of Estate. This deed must be published in a newspaper of general circulation once a week for three (3) consecutive weeks.
2. Judicial Settlement of Estate
If the deceased left a written will (testate), if there are outstanding debts, or if the heirs cannot agree on how to divide the money, the estate must be settled through the courts. This involves filing either a Petition for Allowance of Will (Probate) or a Petition for Letters of Administration. The court will appoint an administrator to manage the funds, pay off creditors, and eventually distribute the remaining balance to the rightful heirs.
Step-by-Step Guide to Releasing the Funds
To successfully secure the release of the frozen funds from the bank, the heirs must navigate the following administrative steps:
Step 1: Notify the Bank and Inquire
Inform the bank branch manager of the depositor's demise. Request a formal checklist of requirements, as internal bank policies can vary slightly.
Step 2: Consolidate the Required Documents
Banks strictly vet claimants to avoid liability. Generally, the following documents must be submitted:
| Document | Purpose |
|---|---|
| PSA Death Certificate | Official proof of the parent's passing. |
| PSA Birth Certificate(s) | Establishes the filiation/relationship of the children to the parent. |
| PSA Marriage Contract | Establishes the relationship of the surviving spouse (if applicable). |
| Valid IDs of all Heirs | Verifies the identity of the claimants. |
| Deed of Extrajudicial Settlement | Proves the legal agreement on asset distribution (if closing the account). |
| Affidavit of Publication | Proof from the publisher that the EJS was advertised for 3 weeks. |
| BIR Form 1904 / TIN of the Estate | Required for tax processing. |
Step 3: Execution of Bank Indemnity Agreements
Most banks require all legal heirs to sign a joint affidavit of heirs and an Indemnity Agreement. This document protects the bank from liability in case an unknown or disgruntled heir surfaces later to dispute the withdrawal.
Special Scenarios to Consider
Joint Accounts: "And" vs. "And/Or"
- "And" Accounts: If the account is under the name of "Parent AND Child," the funds belong to both jointly. Upon the parent's death, the entire account is frozen because the signature of both is required for transactions.
- "And/Or" Accounts: If the account is under "Parent AND/OR Child," the surviving co-depositor technically has the right to withdraw the funds. However, under the TRAIN Law, the 6% final withholding tax still applies to the share of the deceased parent (presumed to be 50% of the total balance, unless proven otherwise).
Passbook or ATM Card Possession
Possessing the deceased parent's ATM card and PIN code does not grant legal permission to withdraw funds after their death. Withdrawing money via ATM post-mortem to circumvent estate taxes or settlement procedures constitutes fraud and can lead to civil and criminal liabilities if discovered by the BIR or contested by other heirs.
Final Words of Advice
While the TRAIN Law has greatly eased the financial burden on grieving families by allowing a 6% tax withdrawal within the first year, completely closing a deceased parent's bank account still requires strict adherence to estate laws. Heirs should act promptly within the one-year window to leverage the final withholding tax option for immediate financial needs, while simultaneously preparing the documentation needed for the final settlement of the estate.