1) Why valuation is the “make-or-break” issue in estate tax

Philippine estate tax is imposed on the transfer of the decedent’s net estate at death. Because the tax is computed on the net estate, every peso of value assigned to assets (and every peso recognized for deductible liabilities/claims) directly affects the final tax due. In practice, most disputes and delays in estate settlement stem from:

Which valuation rule applies to a specific asset, and
Which value is controlling (e.g., zonal value vs local assessor schedules vs appraisals), and
Whether the supporting documents match the valuation date (the date of death).

This article focuses on the valuation basis—the legal anchors and the common asset-by-asset rules used in the Philippines for estate tax computation.

2) Legal framework: where the valuation rules come from

The governing rules are found primarily in the National Internal Revenue Code (NIRC), as amended, under the provisions on Estate Tax (notably the rules on Gross Estate, Deductions, and Determination of Value of the Estate), as implemented by BIR regulations and revenue issuances and applied through BIR estate-tax clearance/transfer processes (e.g., issuance of the Certificate Authorizing Registration (CAR) for real and personal property transfers).

Key idea: Estate tax valuation is pegged to the value “at the time of death.” Philippine law does not follow the U.S.-style “alternate valuation date” system as a general rule; the baseline is the date of death.

3) The valuation date: “time of death” as the default rule

A. General rule

For estate tax, properties are valued at their fair market value (FMV) as of the decedent’s date of death.

B. What “fair market value” means (practical definition)

FMV is the price at which property would change hands between a willing buyer and willing seller, neither compelled to buy/sell and both having reasonable knowledge of relevant facts.

C. Why the valuation date matters

Even if the heirs transfer, partition, or sell assets months later, the estate tax base is still anchored to FMV at death, not to subsequent price movements—unless that later transaction is used as evidence of what the FMV likely was at death.

4) Overarching valuation hierarchy for common asset classes

Different assets have different prescribed FMV rules. The most important, because they are most frequently encountered in Philippine estate settlements:

Real property (land/buildings)
Shares of stock (listed/unlisted)
Business interests (partnership/sole prop)
Bank deposits/cash and receivables
Vehicles and tangible personal property
Life insurance proceeds and special interests (usufruct, life estate, annuities)

Each is covered below.

5) Real property: the controlling “higher of” rule

A. What value is used for real property?

For Philippine estate tax, real property is generally valued at the higher of:

FMV as determined by the Commissioner (commonly the BIR zonal value), or
FMV as shown in the schedule of values fixed by the provincial/city assessors (the local assessor’s valuation system reflected in property records).

If one benchmark is unavailable for the locality/property (e.g., no zonal value), the rules typically fall back to the available benchmark (and in many settings, assessed value becomes a fallback reference). In practice, the estate tax base for real property is often driven by zonal values, but the legal structure is the “whichever is higher” comparison.

B. Key practical points (common pitfalls)

Use the schedule/zonal values relevant to the date of death. If zonal valuations are updated later, the legal theory remains FMV at death; mismatches can cause delays and queries.
Improvements and buildings matter. If the tax declaration shows improvements, the valuation must reflect them; omitting improvements is a red flag.
Classification matters (residential, agricultural, commercial). Wrong classification can distort zonal comparisons.
Location description must match the title/tax declaration. Minor discrepancies (barangay, lot boundaries, survey numbers) often stall CAR issuance.

C. Family home (ties back to real property valuation)

The family home deduction (where applicable) is capped (commonly discussed in Philippine practice as a maximum threshold), but the starting point is still the FMV of the family home at death—usually based on the same real property valuation rules (zonal vs assessor schedule, whichever is higher), with the deduction applying only up to the allowable ceiling.

6) Shares of stock: listed vs unlisted (and why the method changes)

Shares are among the most litigated valuation items because “FMV” depends heavily on whether the shares are actively traded.

A. Listed shares (traded on a stock exchange)

For listed shares, FMV is generally derived from market quotations around the valuation date (date of death). The common Philippine tax approach uses a quotation-based method (often framed as an average or mean of high/low or other exchange quotations on the valuation date, with a nearest-trading-day approach if the date of death falls on a non-trading day or if there were no trades that day).

Practical tips:

Secure official exchange price data for the valuation date (or nearest trading days if required).
Document the basis clearly (number of shares × valuation per share).

B. Unlisted shares (not traded on an exchange)

For unlisted shares, Philippine estate tax practice generally uses:

Book value for common shares (based on the corporation’s financial statements), and/or
Par value for preferred shares (depending on the rights/terms and prevailing tax guidance).

Because book value depends on financial statements, the usual reference point is the corporation’s latest financial statements available as of death (and in many audits/assessments, the preference is for audited statements when available).

Practical tips:

Use financial statements that are defensible and consistent with the valuation date.
If the corporation has significant unrecorded assets or outdated book values (e.g., land carried at old cost), expect scrutiny—BIR often examines whether book value fairly reflects net assets.

C. Shares subject to restrictions (e.g., close corporations, transfer restrictions)

Restrictions may affect real-world marketability, but Philippine estate tax valuation typically follows the prescribed statutory/regulatory method (market quotations for listed; book/par for unlisted), with restrictions mainly relevant to documentation and transfer approvals rather than a “discount” automatically recognized for estate tax purposes.

7) Business interests: sole proprietorships and partnerships

A. Sole proprietorship (business assets owned by the decedent)

A sole proprietorship is not a separate juridical person from the owner. For estate tax, what is valued is the underlying assets and liabilities attributable to the business as of death.

Tangible assets: valued under the relevant asset rules (real property → zonal/assessor schedule; vehicles → vehicle valuation basis; inventory → cost/NRV type evidence; etc.)
Receivables: face value less reasonable allowance for uncollectibles
Payables/loans: deductible if properly substantiated and enforceable

Goodwill/intangibles: Philippine practice can be conservative; unless reflected in recognized valuation methods or supported by appraisals and evidence, claimed goodwill values can be contested. However, if the business is sold shortly after death, that sale may become strong evidence of value (or of asset FMV).

B. Partnership interest

A partner’s interest is typically valued based on the partner’s proportionate share in the partnership’s net assets at death, supported by partnership financial statements and asset valuations consistent with estate tax rules.

Practical tip: If the partnership holds real property, its real property should still be supportable under the real property valuation rules; otherwise the partnership net worth figure can be challenged.

8) Bank deposits, cash, and receivables

A. Cash and bank deposits

Cash is valued at face value.
Bank deposits are valued at the balance as of date of death, typically supported by bank certifications.

B. Receivables (loans receivable, promissory notes, accounts receivable)

Baseline is face value (principal plus accrued interest to date of death, if legally due).
Discounting may be defensible if there is clear evidence of uncollectibility or impairment, but it must be documented.

Common pitfalls:

“Receivable” that is actually a disguised donation or undocumented family advance.
Missing loan documents, no proof of interest terms, no evidence of demandability.

9) Vehicles and other tangible personal property

A. Motor vehicles

Valuation is generally anchored to recognized market references and documentary evidence at death (e.g., prevailing fair market indicators used by tax authorities or industry references), supported by registration documents and (when needed) appraisals.

B. Jewelry, art, collectibles, and high-value personal effects

These are valued at FMV at death, usually requiring:

Professional appraisal,
Purchase documents (if available),
Insurance schedules (as corroboration, not always controlling).

Because these are easy to understate, they are commonly examined when the decedent’s lifestyle/means suggests the presence of valuable personal assets.

10) Life insurance: when proceeds are included and how valued

A. Inclusion in the gross estate (conceptual trigger)

Life insurance proceeds are included in the gross estate depending on who the beneficiary is and whether the decedent retained certain powers (e.g., to revoke/change the beneficiary designation), under estate tax inclusion rules.

B. Valuation

When includible, life insurance is generally valued at the amount receivable as of death (policy proceeds), supported by insurer certification.

11) Usufruct, life estate, annuities, and similar interests

These interests are valued using actuarial/present value concepts, typically based on:

The value of the underlying property, and
The duration of the interest (life expectancy or term), and
An assumed interest/discount rate used in prescribed tables or administrative guidance.

Because these valuations are technical, estates usually support them through:

The governing instrument (will, contract),
The property valuation at death, and
The applicable actuarial table computation used by tax authorities.

12) Situs rules (because valuation follows inclusion)

Valuation only applies to items included in the gross estate. For cross-border estates, inclusion depends on residency/citizenship classification and situs rules:

For a decedent treated as a resident/citizen, worldwide assets may be considered, subject to applicable rules.
For a nonresident alien, only properties situated in the Philippines are generally included, with special rules for intangibles (often involving reciprocity principles).

Once an item is included, the valuation basis is still pegged to FMV at death, using the asset-specific rules above.

13) Deductions: valuation issues also apply to liabilities and claims

While this topic is “valuation basis,” note that valuation questions also arise in deductions, particularly:

Claims against the estate (loans, obligations): must be enforceable, documented, and properly valued as of death (including accrued interest, if legally due).
Claims of the decedent against others: these are assets (receivables) and must be valued accordingly.
Mortgages/encumbrances: reduce the net value of encumbered properties if properly substantiated.

In short: improper valuation is not limited to assets; it also affects what an estate can legitimately deduct.

14) Documentation: how valuation is proven in real-life BIR processing

Even with the correct legal theory, estates often fail on proof. Typical supporting documents that align with valuation rules:

Real property

Transfer Certificate of Title / Condominium Certificate of Title
Tax Declaration(s) and local assessor certifications
Zonal value references applicable to the property/location
Sketch plans, lot data, and documents reconciling property identifiers

Shares of stock

Stock certificates / proof of ownership
For listed shares: exchange quotation records near the date of death
For unlisted shares: financial statements and corporate certifications

Bank deposits

Bank certification of balance as of date of death

Vehicles

LTO registration documents
Market valuation support / appraisal if needed

Insurance

Insurer certification of proceeds and beneficiary designation status

15) Common dispute patterns (and how to avoid them)

Using present-day values rather than date-of-death values Fix: anchor every document and valuation reference to the death date.
Undervaluation of real property by relying on assessed value alone Fix: apply the “higher of” rule; reconcile zonal and assessor schedule values.
Unlisted shares valued without defensible financial statements Fix: use appropriate FS evidence; reconcile material assets (especially land).
Hidden improvements (buildings) not reflected in valuations Fix: ensure tax declarations and appraisals reflect improvements.
Receivables and payables lacking legal documentation Fix: formalize and prove enforceability; otherwise they may be disallowed or recharacterized.

16) Practical roadmap: valuation-first approach to estate tax computation

A defensible estate tax computation usually follows this workflow:

Inventory all assets and classify by asset type (real property, listed shares, unlisted shares, cash, etc.).
Apply the correct FMV rule per asset class, all pegged to the date of death.
Build a valuation folder per asset with documentary proof.
Reconcile inclusion/situs rules for cross-border items.
Only then compute gross estate → allowable deductions → net estate → estate tax due.
Prepare for transfer/CAR processing, since BIR review often re-tests valuation assumptions during property transfer clearance.

17) Closing note

Estate tax valuation in the Philippines is less about “what the heirs think the property is worth” and more about applying the legally prescribed FMV method per asset type and backing it with documents tied to the date of death. Real property and unlisted shares typically drive the biggest valuation issues; getting those right—on both rule and proof—usually determines how smooth (or difficult) the entire estate settlement will be.

If you want, you can share a sample list of estate assets (with dates and property types), and I can lay out the exact valuation basis per line item in a clean, computation-ready format.