Understanding Extrajudicial Settlement of Estate in the Philippines: A Comprehensive Guide with Sample Form

Introduction

In the Philippines, the process of settling a deceased person's estate can be complex, often involving legal procedures to ensure the proper distribution of assets among heirs. One efficient and cost-effective method to handle this is through an Extrajudicial Settlement of Estate (EJS). This approach allows heirs to divide the decedent's properties amicably without resorting to court proceedings, provided certain conditions are met. It is particularly useful in cases where the estate is small, there are no outstanding debts, and all heirs are in agreement.

This article provides a thorough exploration of extrajudicial settlements in the Philippine legal context, drawing from relevant laws such as the Civil Code of the Philippines (Republic Act No. 386), the Family Code (Executive Order No. 209), and tax regulations under the Bureau of Internal Revenue (BIR) and the Register of Deeds (RD). We will cover the legal basis, eligibility requirements, step-by-step procedure, potential pitfalls, and a sample form for illustration. Note that while this guide is informative, it is not a substitute for professional legal advice. Consulting a lawyer or notary public is recommended to tailor the process to specific circumstances.

Legal Basis for Extrajudicial Settlement

The foundation for extrajudicial settlement lies in Philippine civil law, which emphasizes the rights of heirs to inherit and manage properties outside judicial intervention when possible.

Civil Code Provisions: Article 777 of the Civil Code states that the rights to the succession are transmitted from the moment of death. Articles 1056 to 1063 outline the partition of estates among heirs. Extrajudicial settlement is implied in these provisions as a non-judicial partition, provided there is no will (testate succession) and no debts left by the decedent.
Rule 74 of the Rules of Court: Section 1 of Rule 74 allows for the summary settlement of estates without administration if the gross value of the estate does not exceed PHP 10,000 (though in practice, extrajudicial settlements are used for larger estates under certain conditions). For estates without debts and with unanimous heir agreement, no court approval is needed.
Tax Implications: Under Revenue Regulations No. 12-2018 and the Tax Code (Republic Act No. 8424, as amended by the TRAIN Law and CREATE Act), estate taxes must be settled before properties can be transferred. The BIR requires the filing of an Estate Tax Return (BIR Form 1801) and payment of taxes within one year from death (extendable under certain conditions).
Family Code Relevance: Articles 194 to 208 govern compulsory heirs, ensuring that legitimate children, spouses, and parents receive their rightful shares. Any settlement must respect these legitimes to avoid future disputes.

Extrajudicial settlement is not applicable in cases involving a last will and testament (which requires probate) or when there are debts, as creditors must be notified through judicial proceedings.

Eligibility and Requirements

To qualify for an extrajudicial settlement, the following must be satisfied:

Decedent's Status: The deceased must have died intestate (without a will). If a will exists, probate is mandatory.
No Debts: The estate must be free from outstanding obligations. If debts exist, they must be paid first, or the settlement may be challenged.
Agreement Among Heirs: All legal heirs must consent to the division. This includes legitimate and illegitimate children, surviving spouse, and ascendants/descendants as per intestate succession rules (Articles 978-1014 of the Civil Code).
Estate Composition: The estate may include real property (land, buildings), personal property (cash, vehicles, jewelry), and other assets. However, if the estate includes real property, the settlement deed must be published.
Documentation Needed:
- Death Certificate of the decedent (issued by the Philippine Statistics Authority - PSA).
- Birth Certificates or Marriage Certificates to prove heirship.
- Titles or proofs of ownership for properties (e.g., Original Certificate of Title for land).
- Affidavit of heirs declaring no debts and agreement on division.
- Waiver of rights if some heirs opt out.
Publication Requirement: For estates with real property, the Deed of Extrajudicial Settlement must be published once a week for three consecutive weeks in a newspaper of general circulation in the province where the estate is located (per Section 1, Rule 74).
Bond Requirement: If the estate's gross value exceeds PHP 10,000 and there are minor heirs or no publication, a bond equivalent to the value of personal property may be required (though this is more common in summary judicial settlements).

Failure to meet these can invalidate the settlement, leading to judicial intervention or disputes.

Step-by-Step Procedure

The process typically unfolds as follows:

Gather Documents and Identify Heirs: Compile all necessary certificates and list all heirs. Determine the estate's value through appraisal if needed.
Draft the Deed: Prepare the Deed of Extrajudicial Settlement (or Affidavit of Self-Adjudication if there's a sole heir). This document outlines the decedent's details, heir list, property inventory, and division agreement.
Notarization: Have the deed notarized by a licensed notary public. All heirs must sign.
Publication: Publish the deed in a newspaper for three weeks. Obtain an Affidavit of Publication as proof.
Pay Taxes: File the Estate Tax Return with the BIR and pay any estate taxes (rates: 6% on net estate under TRAIN Law). Secure a Certificate Authorizing Registration (CAR).
Register with Authorities:
- Submit the deed, CAR, and other documents to the Register of Deeds for annotation on property titles.
- If applicable, transfer titles to new owners via the RD.
Distribution: Once registered, distribute the properties as agreed.

The entire process can take 3-6 months, depending on BIR processing and publication.

Potential Pitfalls and Considerations

Disputes Among Heirs: If one heir disagrees, the matter escalates to court. Pre-settlement mediation is advisable.
Tax Evasion Risks: Under-declaring estate value can lead to penalties (up to 50% surcharge plus interest).
Minor Heirs: If heirs are minors, a guardian must represent them, and court approval may be needed.
Foreign Elements: If the decedent was a foreigner or properties are abroad, international laws (e.g., Hague Conventions) may apply.
Time Limits: Heirs have two years from death to settle without penalties under Rule 74; beyond that, a bond is required.
Costs: Expect fees for notarization (PHP 500-2,000), publication (PHP 5,000-10,000), taxes (variable), and RD registration (PHP 1,000+).

In cases of fraud or omission of heirs, the settlement can be annulled within four years (Article 1104, Civil Code).

Sample Extrajudicial Settlement Form

Below is a sample Deed of Extrajudicial Settlement of Estate for illustrative purposes. This is a template and should be customized. It assumes multiple heirs and real property involvement. For a sole heir, use an "Affidavit of Self-Adjudication."

DEED OF EXTRAJUDICIAL SETTLEMENT OF ESTATE

KNOW ALL MEN BY THESE PRESENTS:

We, [Full Name of Heir 1], of legal age, [civil status], Filipino, and resident of [address]; [Full Name of Heir 2], of legal age, [civil status], Filipino, and resident of [address]; and [Full Name of Heir 3], etc., all heirs of the late [Full Name of Decedent], who died intestate on [date of death] at [place of death], as evidenced by Death Certificate No. [number] issued by the [issuing office],

DO HEREBY DECLARE:

That the said decedent left no last will and testament;
That the decedent left no debts or obligations at the time of death;
That we are the only surviving heirs of the decedent, namely: [list all heirs with relationships, e.g., "surviving spouse," "legitimate child"];
That the estate of the decedent consists of the following properties:

a. Real Property: [Description, e.g., "A parcel of land located at [address], covered by TCT No. [number], with an area of [sqm] square meters, assessed value PHP [amount]"];

b. Personal Property: [Description, e.g., "Savings account at [bank] with balance PHP [amount]; One (1) motor vehicle, plate no. [number]"];

Total gross value: PHP [amount].
That pursuant to Section 1 of Rule 74 of the Rules of Court, we have agreed to divide and adjudicate the estate among ourselves as follows:

a. To [Heir 1]: [specific properties assigned];

b. To [Heir 2]: [specific properties assigned];

etc.
That we bind ourselves to warrant the title to the properties adjudicated and to defend the same against any claims.

IN WITNESS WHEREOF, we have hereunto set our hands this [date] at [place].

[Signature of Heir 1]
[Printed Name]

[Signature of Heir 2]
[Printed Name]

etc.

SUBSCRIBED AND SWORN to before me this [date] at [place], affiants exhibiting their competent evidence of identity: [ID details].

Notary Public
Doc. No. ___;
Page No. ___;
Book No. ___;
Series of [year].

After notarization, attach annexes (e.g., death certificate) and proceed with publication and registration.

Conclusion

Extrajudicial settlement offers a streamlined path to estate distribution in the Philippines, promoting family harmony and efficiency. However, its success hinges on full compliance with legal requirements and mutual agreement. For complex estates or uncertainties, engaging a lawyer ensures adherence to laws like the Civil Code and tax regulations. By understanding and properly executing this process, heirs can honor the decedent's legacy while securing their inheritance rights.