When a person passes away without leaving a will (intestate) and leaves behind no debts, the heirs are not necessarily required to go through a lengthy and expensive court-supervised probate process. Under Rule 74, Section 1 of the Rules of Court, the heirs may instead opt for an Extrajudicial Settlement of Estate. This is a private agreement where the heirs divide the estate among themselves via a public instrument.
To ensure the validity and enforceability of this settlement, specific legal requirements and procedural steps must be strictly followed.
I. Essential Pre-requisites
Before drafting the document, three conditions must concurrently exist:
- The Decedent died intestate: The deceased left no last will and testament.
- No Outstanding Debts: The estate has no unpaid debts at the time of settlement. If there are debts, they must be settled first, or the creditors must sign off on the agreement.
- Agreement Among Heirs: All heirs must be of legal age (or represented by judicial guardians) and must be in total agreement regarding the division of the properties.
II. Formal Requirements of the Deed
The settlement must be reduced to writing, specifically in a document called the "Deed of Extrajudicial Settlement of Estate." It must contain:
- Declaration of Heirship: A statement that the parties are the sole legal heirs of the decedent.
- Description of Properties: A detailed list of the real and personal properties involved, including Transfer Certificate of Title (TCT) numbers, Tax Declaration numbers, and technical descriptions for land.
- The Agreement of Partition: A clear manifestation of how the properties are divided (e.g., "To Heir A, the 500sqm lot in Quezon City...").
- Affidavit of Self-Adjudication: If there is only one sole heir, they execute an "Affidavit of Self-Adjudication" instead of a Deed of Extrajudicial Settlement.
- Public Instrument: The document must be signed by all heirs and notarized by a Notary Public.
III. Mandatory Procedural Steps
Execution of the deed is only the beginning. To bind third parties and the government, the following must occur:
1. Publication Requirement
The settlement must be published in a newspaper of general circulation in the province or city where the deceased resided, once a week for three (3) consecutive weeks.
Note: Publication does not preclude an heir who did not participate from contesting the settlement within two years.
2. Filing with the Register of Deeds
A copy of the notarized deed, along with proof of publication, must be filed with the Register of Deeds where the properties are located.
3. Payment of Estate Taxes
Under the Tax Reform for Acceleration and Inclusion (TRAIN) Law, the estate tax is a flat rate of 6% of the net estate.
- Deadline: The Estate Tax Return (BIR Form 1801) must be filed within one (1) year from the date of death.
- E-CAR: Once the Bureau of Internal Revenue (BIR) processes the payment, they will issue an Electronic Certificate Authorizing Registration (e-CAR). This is the "golden ticket" required to transfer the title from the decedent’s name to the heirs.
IV. Summary of Documentary Requirements
When submitting the settlement to the BIR and the Register of Deeds, the following are typically required:
| Category | Documents Needed |
|---|---|
| Mandatory | Notarized Deed of Extrajudicial Settlement; Death Certificate (Certified True Copy); TIN of the Decedent and Heirs. |
| Real Property | Certified True Copy of the TCT/CCT; Latest Tax Declaration; Certificate of No Improvement (if applicable). |
| Personal Property | Bank Certificates; Stock Certificates; Proof of Registration for vehicles (LTO CR/OR). |
| Compliance | Affidavit of Publication; Newspaper Clippings of the notice. |
V. The "Two-Year Rule" and Bonds
Section 4 of Rule 74 provides a two-year lien on the settled properties. This serves as a safety net for any creditors or excluded heirs who may emerge.
- Bond Requirement: If the estate involves personal property (e.g., cash in bank) and the heirs wish to distribute it immediately, they must file a bond with the Register of Deeds in an amount equivalent to the value of the personal property.
- Annotated Titles: The two-year prescriptive period is usually annotated on the back of the new titles issued to the heirs. This annotation can be cancelled after the two years have lapsed without any claims being filed.
VI. Conclusion
The Extrajudicial Settlement of Estate is an efficient tool for the transmission of wealth, provided there is harmony among the heirs. Failure to publish the deed or pay the correct estate taxes can lead to heavy penalties or clouded titles, complicating future sales or transfers. In cases where the heirs cannot agree, the only recourse is a Judicial Partition, which involves a full-blown court proceeding.