In the Philippines, when a property owner passes away without leaving a will and without any outstanding debts, the heirs are not required to go to court to settle the estate. Instead, they can opt for an Extrajudicial Settlement (EJS).
When the heirs agree not only to divide the estate but also to give their respective shares to a specific person (often one of the heirs or a third party), the process becomes an Extrajudicial Settlement with Donation. This is a common practice when siblings decide to consolidate a family property under the name of their mother or one chosen sibling.
1. Legal Basis and Conditions
The process is governed primarily by Rule 74, Section 1 of the Rules of Court. For an EJS with Donation to be valid, the following conditions must be met:
- No Will: The deceased left no last will and testament.
- No Debts: The estate has no outstanding debts, or if there were any, they have been fully paid.
- Heirs are of Age: All heirs are of legal age. If there are minors, they must be legally represented by judicial guardians.
- Mutual Agreement: All heirs must agree to the adjudication and the subsequent donation.
- Public Instrument: The settlement must be written in a public instrument (notarized) and filed with the Register of Deeds.
2. The Nature of "Donation" in EJS
While the document is often titled "Extrajudicial Settlement with Waiver of Rights," the Bureau of Internal Revenue (BIR) treats a waiver of rights in favor of a specific person as a Donation.
- General Renunciation: If an heir waives their share and it is distributed proportionately to all other heirs, it is generally taxed as part of the Estate Tax.
- Specific Donation: If an heir waives their share specifically in favor of one person (e.g., "I waive my share in favor of my sister, Maria"), this is a donation. This triggers Donor’s Tax in addition to Estate Tax.
3. The Step-by-Step Process
Step 1: Preparation of the Deed
The heirs must sign a Deed of Extrajudicial Settlement of Estate with Donation. This document must specifically describe the property (Title Number, Technical Description, and Tax Declaration) and clearly state the intent to donate the shares to the donee.
Step 2: Publication
Under the law, the EJS must be published in a newspaper of general circulation once a week for three (3) consecutive weeks. This serves as notice to any creditors or excluded heirs.
Step 3: Payment of Taxes at the BIR
This is the most critical stage. You must go to the Revenue District Office (RDO) having jurisdiction over the deceased's residence at the time of death.
- Estate Tax: Currently 6% of the net estate (under the TRAIN Law).
- Donor's Tax: Currently 6% of the value of the donated property in excess of ₱250,000.
- CAR Issuance: Once paid, the BIR issues a Certificate Authorizing Registration (CAR). You cannot transfer the title without this.
Step 4: Payment of Transfer Tax
Go to the City or Provincial Treasurer’s Office where the property is located to pay the Transfer Tax. This must usually be done within 60 days from the date of notarization or death (depending on local ordinances).
Step 5: Registry of Deeds (RD)
Submit the CAR, the notarized Deed, the Affidavit of Publication, and the old Title to the RD. They will cancel the old title and issue a new one in the name of the donee.
Step 6: Assessor's Office
Finally, take the new title to the City or Municipal Assessor’s Office to update the Tax Declaration.
4. Required Documents Checklist
| Document | Purpose |
|---|---|
| Original Title (TCT/CCT) | For cancellation and issuance of new title. |
| Death Certificate | Proof of death of the property owner. |
| Birth Certificates | To establish the relationship of the heirs. |
| Deed of EJS with Donation | The legal instrument of transfer. |
| Affidavit of Publication | Proof that the legal notice was published. |
| Tax Declaration | For valuation purposes by the BIR and LGU. |
| Certified True Copy of Tax Clearance | To prove real property taxes are paid. |
5. Vital Considerations and Costs
The Two-Year Lien (Section 4, Rule 74)
Every new title issued via EJS carries a "Section 4, Rule 74" annotation. This is a legal lien that lasts for two years, protecting any creditors or heirs who may have been excluded from the settlement. While the property can be sold, banks often refuse to accept titles with this annotation as collateral until the two-year period expires.
Summary of Costs
- Estate Tax: 6% of the appraised value.
- Donor's Tax: 6% of the donated portion's value.
- Publication Fees: Varies by newspaper (approx. ₱5,000–₱15,000).
- Transfer Tax: Usually 0.5% to 0.75% of the property value.
- Registration Fees: Paid to the RD (approx. 0.25% of the value).
- Notarial Fees: Usually 1% to 2% of the property value.
Note on the TRAIN Law: If the property owner died before January 1, 2018, the estate tax rates may follow the old graduated schedule (which could be as high as 20%) unless the estate qualifies for an existing Estate Tax Amnesty program.