The passing of a loved one is a difficult period, often complicated by the legal necessity of settling their earthly affairs. In the Philippines, the transfer of a decedent’s estate to their heirs is not automatic; it requires compliance with the National Internal Revenue Code (NIRC) and the Rules of Court.

This guide outlines the legal framework, tax rates, and procedural steps required to settle an estate and pay the corresponding estate tax.

1. Understanding Estate Tax

Estate Tax is not a tax on property. Rather, it is an excise tax imposed on the privilege of transmitting property at the time of death. It applies to the "net estate" of the decedent, which is the total value of their assets minus allowable deductions.

Who Must File?

The Executor or Administrator of the estate.
In the absence thereof, any Heir or person in actual or constructive possession of the decedent's property.

Tax Rate

Under the TRAIN Law (Republic Act No. 10963), which took effect on January 1, 2018, the estate tax rate is a flat 6% of the net estate. For deaths occurring prior to 2018, the old graduated tax rates (ranging from 5% to 20%) apply.

2. The Gross Estate vs. Net Estate

To calculate the tax, one must first determine the Gross Estate, which includes all property (real or personal, tangible or intangible) owned by the decedent at the time of death.

Allowable Deductions (TRAIN Law)

To arrive at the Net Estate, the following may be deducted:

Standard Deduction: A fixed amount of ₱5,000,000 (no substantiation required).
Family Home: Up to ₱10,000,000, provided it was the decedent's actual residence.
Claims Against the Estate: Debts or liabilities contracted in good faith.
Unpaid Mortgages/Taxes: Provided they were incurred prior to death.
Transfer for Public Use: Legacies or gifts to the government.
Amount Received under R.A. 4917: Retirement benefits received by heirs from the employer.

[!IMPORTANT] Funeral expenses, judicial expenses, and medical expenses are no longer deductible under the current TRAIN Law.

3. The Two Methods of Settlement

Heirs can settle an estate in one of two ways, depending on whether there is a will or disagreement among the family.

A. Extrajudicial Settlement (EJS)

This is the fastest and most common method. It is used when:

The decedent left no will.
The decedent left no debts (or all debts have been paid).
All heirs are of legal age (or represented by guardians).
All heirs agree on the division of properties.

Requirement: The heirs must execute a public instrument called an "Extrajudicial Settlement of Estate" and publish a notice of the settlement in a newspaper of general circulation once a week for three consecutive weeks.

B. Judicial Settlement

This involves court proceedings and is necessary if:

The decedent left a will (which must undergo Probate).
The heirs cannot agree on the partition.
There are many complex debts or contested claims.

4. Compliance and Filing Procedures

The Bureau of Internal Revenue (BIR) strictly monitors the transfer of assets. Banks will generally freeze accounts, and the Register of Deeds will not transfer titles without a Certificate Authorizing Registration (CAR).

Step-by-Step Filing Process

Notice of Death: (Repealed by TRAIN Law; no longer required to be filed within 2 months).
Secure a TIN for the Estate: Apply for a Taxpayer Identification Number for the "Estate of [Name of Decedent]" at the Revenue District Office (RDO) having jurisdiction over the decedent's residence.
Prepare Documentation:

Certified true copy of the Death Certificate.
TIN of the decedent and heirs.
Proof of ownership (Transfer Certificates of Title, Condominium Certificates of Title).
Tax Declarations (for real property).
Certifications of stock holdings or bank deposits.

File BIR Form 1801: This is the Estate Tax Return.
Payment: Pay the tax at an Authorized Agent Bank (AAB) within the RDO's jurisdiction.

Deadlines

Filing and Payment: Must be done within one (1) year from the date of the decedent's death.
Extension: The Commissioner of Internal Revenue may grant an extension of up to 30 days in meritorious cases.

5. The Estate Tax Amnesty

Periodically, the Philippine government passes an Estate Tax Amnesty Act. This allows heirs with unsettled estates from previous years (especially those prior to the TRAIN Law) to settle their tax liabilities at a reduced rate (usually 6% of the net undeveloped estate) and waives all penalties and surcharges.

Summary Table of Requirements

Requirement	Description
BIR Form	Form 1801
Deadline	1 Year from date of death
Tax Rate	6% (Flat Rate)
Standard Deduction	₱5,000,000
Proof of Publication	Required for Extrajudicial Settlements
Final Output	Certificate Authorizing Registration (CAR)