Preparing Extra-Judicial Settlement with Waiver and Indemnity Deed in the Philippines

An extra-judicial settlement with waiver and indemnity deed is one of the most commonly used estate-settlement tools in the Philippines—but also one of the most misunderstood and misused. Below is a comprehensive, Philippine-specific guide to help you understand what it is, when it can be used, what it should contain, the legal risks, and the usual procedural and tax requirements.

Important note: This is general legal information, not legal advice. For an actual case, you should consult a Philippine lawyer, especially where there are family conflicts, minors, or substantial assets.

1. What Is an Extra-Judicial Settlement?

An extra-judicial settlement of estate (EJS) is a written agreement among the heirs of a deceased person (the decedent) to divide the estate without going to court, provided certain legal conditions are met.

It is typically used when:

  • The decedent died without a will (intestate), and
  • The heirs are in agreement on how to partition the estate, and
  • Other legal requirements (on debts, taxes, ages of heirs, etc.) are satisfied.

The EJS is usually memorialized in a notarized document, often titled:

  • “Deed of Extra-judicial Settlement of Estate”
  • Or “Deed of Extra-judicial Settlement of Estate with Waiver of Rights and Indemnity Undertaking”

This deed is later used to transfer titles to the heirs, pay taxes, and register the new ownership.

2. What Is a Waiver and Indemnity Deed (in this context)?

In Philippine practice, a “waiver and indemnity deed” is often:

  • A stand-alone document, or
  • A set of clauses embedded in the EJS,

where one or more heirs:

  1. Waive (renounce) their rights, interests, or shares in the estate (in whole or in part), usually in favor of another heir or group of heirs; and

  2. Indemnify (promise to hold harmless and reimburse) the other parties against claims, liabilities, or losses arising from:

    • Their own prior claims,
    • Possible future disputes,
    • Unknown heirs or creditors who might later appear.

In short, it is both a relinquishment of rights and a promise to protect others from certain risks.

3. Legal Framework in the Philippines

While “waiver and indemnity” is more about contract principles, the extra-judicial settlement itself is grounded mainly in:

  1. Civil Code of the Philippines

    • Rules on succession, heirs, legitime, co-ownership, partition, and waiver of rights.
    • General rules on contracts and obligations, including indemnity and waiver.

  2. Rule 74 of the Rules of Court

    • Governs extra-judicial settlement of estate and summary settlement in specific situations.
    • Requires publication in a newspaper of general circulation.
    • Protects creditors and other heirs through a two-year lien.

  3. Tax Laws and Regulations

    • Estate tax (BIR), documentary stamp tax, and local transfer taxes.
    • While tax rates have changed over time, the basic requirement to pay estate tax and obtain a Certificate Authorizing Registration (CAR) remains central.

  4. Property Registration Laws

    • Rules on registration of deeds with the Registry of Deeds, annotation of encumbrances, and issuance of new titles.

4. When Is Extra-Judicial Settlement Allowed?

You cannot just do an EJS anytime. It is valid only if ALL of these are met:

  1. No will

    • The decedent died intestate (no valid will), OR
    • There is a will but it has not been probated and the parties nonetheless attempt to settle extra-judicially (this is risky and often improper).

  2. No pending judicial estate proceedings

    • There must be no ongoing court case for the settlement of the estate. Once the court has taken jurisdiction in a formal estate proceeding, settlement should generally be done through that proceeding, not outside.

  3. All heirs are of legal age

    • All heirs must be 18 or older, OR
    • Minors are represented by a court-appointed guardian, and appropriate court approval is obtained.
    • Settlements that prejudice minors without court involvement are vulnerable to being voided or challenged.

  4. No unpaid debts, or debts are provided for

    • Either the deceased left no unpaid debts, OR
    • The debts are fully paid, assumed, or otherwise satisfactorily settled (e.g., creditors consent to the arrangement or are reserved sufficient assets).

  5. Heirs are in full agreement

    • The heirs agree on who the heirs are, their respective shares, and how the estate will be divided.

If any of these conditions is missing (especially with disputes or minors), a judicial settlement is usually necessary.

5. Who Are the Heirs and What Rights Can Be Waived?

Before drafting anything, you must identify:

  1. Compulsory heirs under the Civil Code, such as:

    • Legitimate children and descendants
    • Legitimate parents and ascendants
    • The surviving spouse
    • Illegitimate children (subject to specific rules)

  2. Other legal heirs, depending on the family situation (e.g., collateral relatives if there are no descendants or ascendants).

Waiver of Rights: What Can and Cannot Be Waived?

  • In general, property rights already vested (such as an heir’s share in the estate after death) can be waived, sold, or assigned, subject to:

    • Form requirements (e.g., in a public instrument for real property),
    • Rights of compulsory heirs,
    • Public policy.

  • Legitime (the portion of the estate reserved by law for compulsory heirs):

    • An heir generally cannot validly waive legitime in advance of succession (i.e., prior to the decedent’s death).
    • However, after death, the heir can renounce or assign their share or a portion thereof.

  • Waiver may be:

    • Pure waiver (renunciation) – heir simply gives up their share without receiving anything (often for love and affection, or “for valuable consideration”).
    • Assignment/sale – heir transfers his share to another in exchange for money or property. This may attract tax consequences (e.g., donor’s tax, capital gains, or other taxes).

6. Indemnity: Why Is It Included?

Indemnity clauses aim to:

  1. Protect the other heirs and transferees

    • Example: A sibling waives her share in favor of another, and promises to indemnify that sibling if she later changes her mind or if someone asserts a claim through her.

  2. Address unknown risks

    • Unknown heirs appearing later,
    • Creditors emerging with claims against the estate,
    • Errors in the list of properties or liabilities.

  3. Reallocate risk

    • Parties with more benefit from the arrangement often assume more risk (e.g., those getting most of the property agree to indemnify the others from creditor claims).

However:

  • Indemnity does NOT erase the rights of third parties (creditors or omitted heirs). It only regulates who will ultimately bear the loss among the parties to the deed.
  • A person cannot indemnify others against acts that are illegal or contrary to law, nor can indemnity deprive a third party of a right that the law gives them.

7. Preliminary Steps Before Drafting

Before actually preparing the EJS with waiver and indemnity, it is prudent to:

  1. Gather documents

    • Death certificate of the decedent
    • Marriage certificates, birth certificates of heirs
    • Titles to real property (TCTs/CCTs)
    • Tax declarations, tax clearance documents
    • Bank statements, share certificates, etc.

  2. Identify all assets

    • Real properties (land, houses, condos)
    • Personal properties (vehicles, jewelry, appliances)
    • Bank accounts and deposits
    • Shares of stock, business interests
    • Receivables and other credits

  3. Identify all liabilities

    • Loans (bank, private)
    • Taxes owed (income tax, real property tax, etc.)
    • Other obligations (promissory notes, guarantees, etc.)

  4. Agree among heirs

    • Who gets which property
    • Whether any heir waives their share
    • Whether some heirs receive money instead of property
    • How to deal with debts and unknown liabilities.

  5. Consult professionals (ideally)

    • A lawyer, for the legality and drafting
    • A tax professional, for tax planning and compliance
    • A surveyor/assessor, where land subdivisions are involved.

8. Structure of an Extra-Judicial Settlement with Waiver and Indemnity

A typical deed will contain:

  1. Title

    • Example: “Deed of Extra-Judicial Settlement of Estate with Waiver of Rights and Indemnity Undertaking”

  2. Parties

    • Names, ages, civil status, citizenship, address.
    • Clearly identify each party as an heir (e.g., surviving spouse, son/daughter, parent).

  3. Recitals (“Whereas” clauses)

    • Death of the decedent (date, place, marital status).
    • Relationship of each heir to the decedent.
    • Statement that the decedent died without a will.
    • Statement that no judicial estate proceedings have been commenced.
    • Statement that the decedent left no debts, or if there are debts, how they are being settled.
    • Statement listing the properties constituting the estate.

  4. Inventory of Properties

    • Separate listing for:

      • Real properties – with title numbers, areas, location, tax declarations.
      • Personal properties – bank accounts, shares, vehicles, etc.

    • This can be in the body or attached as an Annex “A” (or similar).

  5. Agreement to Settle Extra-Judicially

    • Heirs agree to:

      • Settle the estate extra-judicially,
      • Recognize each other’s status as heirs,
      • Respect the division laid out in the deed.

  6. Partition / Distribution

    • Clear, itemized allocation of properties per heir or group of heirs.
    • If co-ownership continues (e.g., property held jointly by siblings), the deed must say so.

  7. Waiver Clauses

    • Identify which heirs are waiving what and in favor of whom.

    • Clarify if waiver is:

      • Total or partial,
      • Gratuitous (donative) or for value (sale/assignment).

  8. Indemnity Clauses

    • Typical provisions:

      • Waiving parties confirm they have no further claims against the estate or co-heirs.

      • Parties receiving larger shares agree to indemnify others for:

        • Claims by omitted heirs,
        • Claims by creditors,
        • Errors in the declaration of properties, etc.

  9. Warranties and Undertakings

    • Heirs warrant that:

      • They are the only heirs, as far as they know.
      • The statements in the deed are true and correct.
      • They will cooperate in executing further documents needed for registration or tax purposes.

  10. Publication Undertaking

    • An acknowledgment that the deed will be published once a week for three consecutive weeks in a newspaper of general circulation, as required under Rule 74.

  11. Miscellaneous Provisions

    • Governing law (Philippine law).
    • Severability clause (if one clause is invalid, the rest remains effective).
    • Binding effect on heirs, successors, and assigns.

  12. Signatures and Acknowledgment

    • Signatures of all heirs (and their spouses if needed for conjugal consent).
    • Notarial acknowledgment (public instrument).
    • If an heir is abroad, notarization/acknowledgment before the Philippine Consulate or duly authorized officer, subject to Philippine authentication rules.

9. Sample Concepts for Waiver and Indemnity Clauses

(These are simplified illustrative concepts, not a substitute for a properly drafted deed.)

A. Sample Waiver Concept

“Heir A hereby WAIVES, RENOUNCES, and QUITCLAIMS all his/her rights, interests, participation, and share in the estate of the late X in favor of Heir B, his/her heirs and assigns, and acknowledges that he/she has no further claim against the estate or against the other heirs with respect thereto.”

B. Sample Indemnity Concept

“Heir B, as recipient of the rights waived by Heir A and as beneficiary of the larger share in the estate, hereby agrees to indemnify and hold free and harmless Heir A, his/her heirs and assigns, from any and all claims, demands, suits, damages, and liabilities that may arise in connection with the properties adjudicated to Heir B under this Deed, including but not limited to claims of creditors or other persons asserting rights over said properties, subject to the rights of such third persons under applicable law.”

Again, actual wording should be tailor-made for the specific case.

10. Publication Requirement

Rule 74 requires that:

  • The deed of extra-judicial settlement must be published in a newspaper of general circulation in the Philippines:

    • Once a week for three consecutive weeks.

Purpose:

  • To inform creditors and possible unknown heirs of the settlement so they can assert their claims if needed.

Failure to publish may:

  • Affect the binding effect of the settlement against third parties,
  • Give grounds for creditors or omitted heirs to challenge transactions done on the basis of the EJS.

11. Protection of Creditors and Other Heirs (2-Year Period)

Under Rule 74:

  • Even after an extra-judicial settlement, properties of the estate remain bound for a period of two (2) years from the date of settlement to answer for:

    • Unpaid debts of the decedent,
    • Claims of other heirs not included, etc.

In practice:

  • Creditors or omitted heirs can go after the properties adjudicated to the heirs or even subsequent buyers within that period, subject to certain defenses.
  • After the 2-year period, rights of innocent purchasers in good faith gain stronger legal protection, though specific circumstances can vary.

Indemnity clauses often allocate the burden among the heirs if such claims arise.

12. Tax Aspects

A. Estate Tax

  • An estate tax return is generally required to be filed with the BIR.

  • Estate tax is computed based on:

    • The net estate value (gross estate minus allowable deductions) as of the decedent’s death,
    • The rate applicable at the time of death (subject to prevailing law when the death occurred).

B. Certificate Authorizing Registration (CAR)

  • For real property and certain other assets, the BIR issues a CAR after:

    • Estate tax is paid (or exempted),
    • Required documents are submitted (EJS, death certificate, titles, IDs, etc.).

The CAR is then used to:

  • Register transfer of titles with the Registry of Deeds,
  • Transfer tax declarations at the local assessor’s office.

C. Documentary Stamp Tax and Local Transfer Taxes

  • Deeds involving transfer of real property generally attract:

    • Documentary Stamp Tax (DST),
    • Local transfer tax (depending on LGU regulations).

D. Tax on Waivers and Assignments

  • Gratuitous waiver of share in favor of another heir may be treated as a form of donation, potentially subject to donor’s tax (depending on amount, date, and applicable law at that time).

  • Sale or assignment of share for value may trigger:

    • Capital gains tax,
    • Other taxes depending on the nature of property.

Because tax laws change, you should verify the current rates, thresholds, and exemptions with the BIR or a tax professional.

13. Registration with the Registry of Deeds and Other Offices

For real properties:

  1. Prepare documents

    • Notarized EJS with waiver and indemnity
    • CAR (from BIR)
    • Tax clearance/real property tax receipts
    • Transfer taxes payment receipts
    • Owner’s duplicate certificates of title

  2. Submit to the Registry of Deeds

    • For annotation of the deed and issuance of new titles in the name of the heirs.

  3. Update Local Records

    • Transfer of tax declarations with the City/Municipal Assessor’s Office.
    • Ensure real property taxes are correctly assessed to the new owners.

For personal properties:

  • For vehicles:

    • Transfer with the Land Transportation Office (LTO)

  • For shares of stock:

    • Recording the transfer in the corporate stock and transfer book

  • For bank accounts:

    • Bank will require BIR papers, EJS, IDs, and internal documents to release funds or open new accounts in the heirs’ names.

14. Special Situations

A. Minors as Heirs

  • A minor cannot validly sign a deed of EJS or waiver.

  • A legal guardian (often appointed by the court) must represent the minor.

  • Courts often require that:

    • Any waiver or disposition of the minor’s property be approved by the court,
    • The transaction be “clearly advantageous” to the minor.

Any settlement prejudicial to minors without proper court involvement is highly vulnerable to challenge.

B. Heirs Residing Abroad

  • Heirs abroad can participate by:

    • Executing a Special Power of Attorney (SPA) in favor of someone in the Philippines,
    • Or personally signing the EJS before the Philippine Consulate, with proper consular acknowledgment.

The SPA or consular acknowledgment must comply with Philippine authentication rules to be recognized.

C. Unknown or Disputed Heirs

  • If it is genuinely unclear whether there are other heirs, the EJS should:

    • Acknowledge this uncertainty, and
    • Stipulate how claims will be handled (indemnity; obligation to share proportionately if an heir later appears).

  • In seriously disputed cases, a judicial estate proceeding is generally safer.

D. Co-Owned Properties with Third Parties

  • If a property is co-owned with non-heirs (e.g., business partners), the EJS can only deal with the decedent’s share, not the entire property.
  • Transfer of that share may still require consent of co-owners in certain transactions.

15. Common Pitfalls and Risks

  1. Failure to include all heirs

    • Omitted compulsory heirs can attack the settlement and claim their shares.

  2. Improper handling of minors

    • Settlements without proper court approval or guardianship can be void or voidable.

  3. No publication or defective publication

    • Weakens the settlement’s effect against creditors and unknown heirs.

  4. Ignoring the decedent’s debts

    • Creditors can go after properties or heirs, and disputes may ensue.

  5. Assuming waivers erase third-party rights

    • Waiver and indemnity only allocate risks among signatories, not against outsiders.

  6. Poor drafting of indemnity clauses

    • Vague, overbroad, or unclear clauses can lead to disputes about who must pay if something goes wrong.

  7. Tax non-compliance

    • Unpaid estate tax and transfer taxes block registration and can incur penalties and surcharges.

16. Practical Best Practices

  • List everything: Fully itemize properties and liabilities.

  • Be transparent among heirs: Avoid secret deals; they usually come back to haunt the family.

  • Use clear, plain language: Legal terms are fine, but clarity reduces future disputes.

  • Tailor the waiver and indemnity clauses:

    • Identify exactly whose rights are waived,
    • Specify the scope and limits of indemnity,
    • Clarify how future claims will be shared or absorbed.

  • Observe formalities strictly:

    • Notarization,
    • Publication,
    • Tax filings,
    • Registration.

  • Keep complete records:

    • Copies of newspaper publication,
    • Tax receipts,
    • CAR,
    • New titles.

  • Seek legal and tax advise early, not only when a problem appears.

17. Conclusion

A Deed of Extra-Judicial Settlement with Waiver and Indemnity is a powerful tool for efficiently settling an estate in the Philippines without going to court. Properly used, it:

  • Allows heirs to divide and transfer property more quickly,
  • Can reduce legal costs,
  • Provides a framework to handle risks arising from unknown claims.

However, because it intersects with succession law, contract law, property registration, and taxation, it also carries significant legal and financial risks if done incorrectly—especially where there are minors, complex assets, or potential disputes.

For any real-world case—especially with large estates, conflicting claims, or vulnerable heirs—getting tailored advice from a Philippine lawyer and a tax professional is strongly recommended.

Disclaimer: This content is not legal advice and may involve AI assistance. Information may be inaccurate.

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