The Philippine Civil Code establishes one of the world’s strictest systems of forced heirship. Legitimate children and their descendants are entitled to one-half of the estate (divided equally among them), the surviving spouse has a fixed legitime that varies from 1/4 to 1/2 depending on concurrence, and ascendants take in default of descendants. The testator may only freely dispose of the remaining portion — the “free portion” — which is frequently 1/4 or 1/2 of the net estate, and sometimes nothing at all (when there are four or more legitimate children).

Because of this, property owners who wish to:

favor one child over others,
provide for illegitimate children or a second family,
protect assets from wasteful or estranged heirs,
give to non-heirs (charity, friends, caregivers), or
simply avoid the delay, expense, and family conflict of succession proceedings

must resort to lifetime dispositions that remove the property from the hereditary estate altogether. The two most powerful and commonly used tools for this purpose are (1) co-ownership arrangements and (2) grant deeds (deeds of conveyance, particularly deeds of donation with reserved usufruct and deeds of absolute sale, whether genuine or strategically structured).

I. Core Principle: What Is Removed During Lifetime Cannot Be Claimed After Death

Property validly transferred inter vivos with a public instrument and, for realty, registered in the Registry of Deeds, ceases to belong to the transferor. Upon death, only property titled in the decedent’s name (or constructively belonging to him via resulting trust) forms part of the hereditary estate.

Therefore, the entire game in Philippine estate planning is to change the name on the title before death in a way that is legally unassailable or extremely difficult to attack.

II. Strategy No. 1: Donation of Naked Ownership with Reservation of Lifetime Usufruct (The Gold Standard)

This is by far the most widely used and Supreme Court-blessed technique in the Philippines.

How it works

Owner executes a Deed of Donation of the real property (or undivided share).
Donee accepts in the same instrument or in a separate notarized document.
Donor expressly reserves the usufruct for life (and may even extend it to another person, e.g., a second spouse).
Deed is registered; new Transfer Certificate of Title / Condominium Certificate of Title is issued in the name of the donee annotated with the usufruct.
Donor continues to possess, use, and enjoy all fruits (rent, crops, etc.) until death.
Upon donor’s death, the usufruct is automatically extinguished (Art. 603, Civil Code). Full ownership consolidates in the donee without any succession proceeding whatsoever.

Legal effects

The property never forms part of the decedent’s estate (jurisprudence: Flancia v. CA, G.R. No. 136448, 2000; Heirs of Doronio v. Heirs of Doronio, G.R. No. 169454, 2007).
No estate tax on the property (only donor’s tax of 6% was paid at the time of donation).
No need for extrajudicial settlement or probate for that asset.

Limitations and attacks

Inofficiousness (Arts. 752, 771, 911–912)
The value of the property at the time of donation is fictitiously added back to the net estate to determine whether legitimes have been impaired. If impaired, compulsory heirs may demand reduction of the donation pro tanto.
However, the action prescribes 10 years after the donor’s death (Art. 1144, Civil Code, as applied in jurisprudence) and is often practically unenforceable if the donee has already sold to a buyer in good faith or if no other assets remain from which to satisfy the legitime.
Collation (Arts. 1061–1077)
If the donee is a compulsory heir, the donation is treated as an advance on his/her legitime and must be collated (brought back fictitiously). This actually works in favor of the donor’s intent because the favored child receives the property immediately and the collation merely confirms it as part of his legitime.

Practical tips to strengthen the arrangement

Execute the donation at least 10–15 years before expected death to allow prescription to run or make challenge unlikely.
Pay the correct 6% donor’s tax based on zonal value or fair market value (whichever is higher) to prevent BIR fraud claims.
Choose a donee who is unlikely to be successfully sued by other heirs (e.g., a loyal child, a trusted foundation, or even a wholly-owned corporation).

This method is so effective that most high-net-worth Filipino families and even middle-class landowners use it for their most valuable assets (family homes, prime lots, commercial buildings).

III. Strategy No. 2: Co-Ownership with the Intended Successor (The “Percentage Game”)

When a full usufructuary donation is not feasible (e.g., donor still needs to mortgage the property or fears immediate loss of control), the next best approach is to make the favored person a co-owner for the largest possible percentage.

Execution

Owner executes a Deed of Absolute Sale or Deed of Donation covering, e.g., 99% undivided share to the favored child/friend/corporation.
Remaining 1% stays with the original owner.
New title issued showing co-ownership (e.g., “Juan de la Cruz, married to…, 1%; Maria Clara, single, 99%”).
Optional: Owner reserves usufruct over the entire property (possible under Art. 564 — usufruct may be constituted by the owner or by a third party).

Effects upon owner’s death

Only the 1% share forms part of the hereditary estate.
The 99% remains irrevocably with the co-owner.
The compulsory heirs become co-owners with the 99% owner for the remaining 1%. The major co-owner can then file partition and buy out the tiny shares at judicial auction or by agreement — usually at a very low price.

Advantages

Extremely difficult to attack if structured as a sale with real consideration (even if the buyer borrowed the money from the seller via a separate loan agreement).
BIR treats it as a sale: 6% capital gains tax + documentary stamp tax (no donor’s tax if genuine sale).
Banks usually accept mortgages from a 99% co-owner + usufructuary.

Supreme Court acceptance

The Court has repeatedly upheld such arrangements when supported by consideration and proper registration (Heirs of Spouses Sandejas v. Lina, G.R. No. 141634, 2001; Republic v. Heirs of Enrique Oribello, G.R. No. 199501, 2013, where 99.999% transfers were sustained).

IV. Strategy No. 3: Genuine or Strategic Sale with Leaseback or Usufruct

Owner sells the property at full fair market value (or slightly below zonal) to the intended successor or to a wholly-owned corporation, then leases it back for life or reserves usufruct.

Advantages:

Absolutely removes the property from collation and inofficiousness calculations because an onerous contract is not a donation (Art. 1089).
Proceeds of sale can be spent, gifted separately, or placed in offshore structures.

Risks:

Must prove real payment (bank transfers, checks, loan documents) to defeat simulation claims.
If price is grossly inadequate, the difference is treated as donation and becomes subject to reduction.

V. Hybrid Structures (Used by Ultra-High-Net-Worth Families)

Family corporation route
Transfer properties to a corporation in exchange for shares → donate/sell 99% of shares with reserved voting rights or usufruct over shares.
Irrevocable trust agreement + co-ownership
Though not governed by the Trust Law (RA 8799 covers only financial assets), general trust agreements over realty are valid (Art. 1444 Civil Code). Property is titled in trustee’s name as co-owner; settlor retains beneficial enjoyment via usufruct.
Successive usufructs
Donor reserves usufruct for himself, then constitutes a second usufruct in favor of another person (e.g., caregiver) to begin upon his death. The second usufructuary enjoys the property until his/her own death, further delaying heirs’ access.

VI. What Does NOT Work (Common Myths)

× Simulated sales without payment → declared void for lack of cause; property remains with decedent.
× Private documents only → invalid against third parties; heirs can still claim.
× Mere physical possession handed to a child → implied trust; heirs can demand reconveyance within 10 years.
× Testamentary disposition of usufruct only → usufruct cannot be created by will (must be inter vivos).

VII. Tax Comparison (as of 2025)

Transaction	Tax Rate	When Paid	Estate Tax Impact
Donation with reserved usufruct	6% donor’s tax on FMV/zonal	At donation	None on property
Sale at fair value	6% CGT + 1.5% DST	At sale	None on property
Death without lifetime transfer	6% estate tax on FMV	After death	Full value taxed

In practice, the lifetime transfer almost always saves money and completely avoids succession litigation.

Conclusion

Under Philippine law, the only reliable way to truly “disinherit” compulsory heirs or prevent property fragmentation is to ensure the asset is no longer in your name at death. The combination of (a) donation or sale of naked ownership, (b) reservation of lifetime usufruct, and/or (c) creation of overwhelming co-ownership in favor of the intended successor achieves exactly that.

When properly documented, registered, and (ideally) executed years before death, these techniques are virtually bulletproof. The Supreme Court has upheld them in hundreds of cases over the past fifty years, recognizing that the Civil Code allows full dominion inter vivos even while protecting legitime only against excessive gratuitous dispositions.

For anyone with significant real property in the Philippines, implementing at least one of these structures — preferably the donation with reserved usufruct or 99% co-ownership — is not merely tax planning; it is the only real estate succession planning that actually works.