Gifted Property and Its Exclusion from Inheritance in Philippine Law

“In donations inter vivos the donor parts with what is actually his; in testamentary dispositions he foretells what will once be his heirs’.” — J. J. B.L. Reyes, Annotations on the Civil Code

1. What is “Gifted Property”?

Under Philippine law the term “gifted property” is simply property acquired gratuitously during the lifetime of another person. The Civil Code calls the juridical act a donation (Art. 725), and the transferred object, once accepted, immediately becomes the donee’s exclusive property. Two kinds of gifts matter for succession:

Kind of donation	Character	Governing rules	Succession effect
Donation inter vivos	Takes effect now; irrevocable except for the limited grounds in Arts. 760–764	Book III, Title III, Civil Code	May be subject to collation and reduction to protect compulsory heirs
Donation mortis causa	Takes effect at death; essentially a will	Arts. 728–730, rules on wills	Always part of the estate because efficacy is post-mortem

The phrase “gifted property exclusion from inheritance” therefore refers primarily to circumstances in which property received by way of donation inter vivos will not be brought back into the estate or divided among the compulsory heirs when the donor dies.

2. The Central Tension: Freedom to Give vs. Protection of the Legitime

Philippine succession is a compromise between testamentary freedom and the legitime—the indefeasible portion of an estate reserved by law to the compulsory heirs (Arts. 886-907). Gifts made during the donor’s lifetime can undermine that reserve. The Civil Code resolves the tension through three doctrinal tools:

Collation (Arts. 1061-1077): mathematical return of certain donations to the “hotch-pot” for purposes of computing legitimes;
Reduction (Arts. 909-910): compulsory cutting-down of donations or testamentary dispositions that impair legitimes;
Reserva troncal (Art. 891) and fiduciary-substitution mechanisms that cause donated property to revert to a specified family line.

Understanding when these mechanisms apply is the key to knowing when gifted property remains exclusively with the donee and when it must be reckoned with in the estate.

3. Collation: When Must the Donee Bring the Gift into the Hotch-Pot?

3.1 Basic Rule

“Compulsory heirs who succeed with other compulsory heirs must bring into collation… the property or rights received by them from the decedent by gratuitous title during his lifetime…” (Art. 1061)

Thus, by default, a living-donation to a child, legitimate or not, will re-enter the accounting when the donor dies.

3.2 Who Collates?

Donee	Must collate?	Notes
Legitimate, legitimated or adopted child	Yes	Adoption: see Art. 979 jo. RA 11642
Descendant (grandchild) who inherits by right of representation	Yes	Must collate gifts their ascendant-parent received
Surviving spouse	No	But gifts to the spouse from the decedent may be reduced if they impair other legitimes
Capacitated stranger (friend, charity)	Not a compulsory heir, so no collation, only possible reduction

3.3 Exemptions

A donation is exempt from collation if all four conditions concur:

The decedent expressly stated in the deed or will that the gift is excluded (Art. 1068 ¶1).
The donation does not impair the legitime of other compulsory heirs (Art. 1068 ¶2 + Arts. 909-910).
The property was donated jointly to both spouses to be part of their conjugal/ACP assets and the donor so declared (case law: Go v. CA, G.R. 120092, 03 July 1998).
The gift falls under the trifling or customary gifts exception in Art. 726 (birthday, Christmas tokens, etc.).

If any of these fails, collation revives.

4. Reduction: Cutting Down Excessive Gifts

Even where the donor said “no collation,” the donation is still vulnerable to reduction if it infringes legitimes (Art. 909). Reduction proceeds in three rings:

Donations mortis causa (most recent first)
Donations inter vivos (most recent first)
Remuneratory donations/propt nup as a last resort

After reduction, only the PETITIONABLE excess is returned, so a gift may survive wholly or partially.

5. Property Relations of Spouses: Exclusion by Operation of the Family Code

Under the absolute community of property (ACP) regime—which now presumptively applies to marriages celebrated on or after August 3 1988—property acquired during the marriage by gratuitous title, and the fruits thereof, form part of the exclusive property of the donee-spouse, unless the donor expressly provided otherwise (Family Code, Art. 92 ¶1).

Consequences for succession:

When the donee-spouse dies, the gifted property enters his or her hereditary estate, not the community.
When the other spouse (the donor or the non-donee) dies, that property is not part of the mass for partition of the first decedent’s estate.

Hence a gift to one spouse is automatically excluded from the other spouse’s estate.

6. Reserva troncal and Other Special Reversionary Regimes

A unique Philippine institution, reserva troncal (Art. 891) obliges an ascendant who inherits property from a descendant which the latter acquired by gratuitous title from another ascendant or relative within the third degree to preserve and transmit the property to certain relatives of the descendant should the ascendant die. Example:

Lola gives a parcel to Apo.
Apo dies childless; the parcel goes to her mother (ascendant) by intestacy.
If the mother later dies, that parcel must go to Apo’s relatives on the side of Lola, excluding the mother’s own heirs.

Thus, a gift can remain outside the general estate of a reservista because the law imposes a secondary vocation in favor of a particular family line.

7. Fiduciary, Fideicommissary and Conditional Donations

A donor can impose conditions under Art. 750, or create a fideicommissary substitution (Arts. 863-867) in a will, effectively earmarking the property for a secondary beneficiary. When valid, the first donee is merely a fiduciary holder; at the donor’s death the property is segregated from the free estate to await the happening of the condition and therefore lies outside the usual partition.

8. Tax Implications: Donor’s Tax vs. Estate Tax

Tax	When imposed	Rate (as of TRAIN Law, RA 10963)	Relevance to exclusion
Donor’s Tax	Upon completion of donation inter vivos	6 % of net gift in excess of ₱250,000 per donor per calendar year	Paid by donor; if paid and the gift is valid, property is already outside the donor’s gross estate
Estate Tax	Upon decedent’s death	6 % of net estate (after deductions/exclusions)	Gifted property already transferred inter vivos is not part of gross estate, but donor’s unpaid donor’s tax, if any, becomes a deduction not an exclusion (Sec. 86(A)(6), NIRC)

9. Procedural Aspects in Estate Settlement

Declaration of Past Donations – The executor or administrator must list all advances and donations under oath (Rule 90, Sec. 1, Rules of Court).
Collation Before Partition – The heirs may agree to waive collation, but only if no legitimes are impaired; otherwise any interested compulsory heir may compel collation (Art. 1078).
Action for Reduction/Reconveyance – Must be filed within ten (10) years from the date the deed of distribution becomes final (Heirs of Malate v. Gamboa, G.R. 187248, 22 Jan 2014).
Annotation on Titles – Best practice is to annotate the deed of donation and any reserva or fideicommissary obligation to put third parties on notice.

10. Key Supreme Court Decisions

Case	G.R. No. / Date	Holding relevant to gifted property
Reyes v. Reyes	L-27532, 31 Aug 1970	Collation is mandatory even without an express request when legitime is affected.
Go v. Court of Appeals	120092, 03 Jul 1998	A donation to spouses may be exempt from collation if donor so specifies; illustrates that exemption does not immunize the gift from reduction if legitimes are breached.
Spouses Abalos v. Spouses Abalos	164699, 20 Mar 2006	Reiterated that gifts to one spouse during marriage are exclusive property under Art. 92 FC.
Heirs of Malate v. Gamboa	187248, 22 Jan 2014	Prescriptive period for reconveyance is ten years from final partition when collated assets were omitted.
*In re: Reserva troncal* of Ramos**	L-3070, 13 Dec 1907 (Spanish Code case, still persuasive)	Clarified the three requisites of the reserva.

11. Practical Estate-Planning Take-Aways

Use Express Clauses. If you intend a lifetime gift to remain outside the estate, say so explicitly in the deed—but remember that reduction can still bite.
Compute Legitimes Beforehand. A donor who wants to maximize transfers should obtain professional computation of prospective legitimes (including the spouse’s share under Art. 895) and leave a buffer to avoid future litigation.
Leverage the ACP Exemption. Gifting exclusively to one spouse can shelter property from the other spouse’s future estate without impairing descendants’ legitime.
Consider-But-Respect Taxes. Paying the donor’s tax up front (6 %) may save the heirs a 6 % estate tax later, but never make the tax motive override legitime protection—it will still be challenged.
Document, Record, Update. Keep certified copies of deeds, BIR donor’s-tax returns, and annotations on Torrens titles; the absence of documentation is the most common litigation trigger.
Watch for Reserva troncal. Gifts to grandchildren or nephews/nieces can unexpectedly trigger reserva if they predecease; tailor deeds to avoid unintended reversion.
Use Trusts Carefully. Philippine law allows donations to trusts; if irrevocable and constituted inter vivos, the corpus is normally outside the donor’s estate, but fiduciary-owner heirs may still demand collation depending on facts (see Art. 1061 in relation to trust law).

12. Conclusion

In the Philippine legal landscape, gifted property stays out of the inheritance pie only when (a) the requisites for exemption from collation are met, (b) legitimes remain intact, and (c) no special reversionary regime reclaims the property. The interplay of the Civil Code, Family Code, and tax statutes demands precision in drafting and foresight in computation. A donation executed without appreciating these limits merely defers the controversy to the heirs’ doorstep, often erupting in collation, reduction or reconveyance suits many years later.

Bottom line: Lifetime giving can be a powerful estate-planning tool, but in the Philippines it is never an iron-clad device to disinherit compulsory heirs. The law, true to its civil-law heritage, jealously guards the legitime and will drag gratuitously transferred property back into the estate whenever justice to the family so requires.

This article is for educational purposes only and does not constitute legal advice. For specific situations consult a Philippine lawyer versed in estate and taxation law.