Taxpp.docx

ESTATE TAX The estate tax is an excise tax on the right of transmitting property at the time of death and on the privilege that a person is given in controlling to a certain extent the disposition of his property to take effect upon death. SEC. 84. Rate of Estate Tax. - There shall be levied, assessed, collected and paid upon the transfer of the net estate as determined in accordance with Sections 85 and 86 of every decedent, whether resident or nonresident of the Philippines, a tax at the rate of six percent (6%) based on the value of such net estate. SEC. 85. Gross Estate. - The value of the gross estate of the decedent shall be determined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated: Provided, however, that in the case of a nonresident decedent who at the time of his death was not a citizen of the Philippines, only that part of the entire gross estate which is situated in the Philippines shall be included in his taxable estate. More specifically, the decedent’s estate includes --(A) Decedent's Interest. - To the extent of the interest therein of the decedent at the time of his death. It shall include the following: 1. Dividends declared by a corporation before death of the stockholder although paid after death, if the decedent was living on the record date; 2. Partnership profits even if paid after death of partner; 3. Proceeds of life insurance policy payable to a revocable beneficiary; and 4. Right of usufruct if transferable to the heirs. (B) Transfer in Contemplation of Death. - To the extent of any interest therein of which the decedent has at any time made a transfer, by trust or otherwise, in contemplation of or intended to take effect in possession or enjoyment at or after death, or of which he has at any time made a transfer, by

trust or otherwise, under which he has retained for his life or for any period which does not in fact end before his death (1) the possession or enjoyment of, or the right to the income from the property, or (2) the right, either alone or in conjunction with any person, to designate the person who shall possess or enjoy the property or the income therefrom; EXCEPT in case of a bona fide sale for an adequate and full consideration in money or money's worth. Question: What does this mean? Answer: It is the thought of death, as a controlling motive, which induces the disposition of the property for the purpose of avoiding estate tax. Question: What is the main reason behind this provision? Answer: To reach ingenious schemes to evade the estate tax liability, by the use of other forms of conveyances rather than by succession or transfer mortis causa. Question: What are some indicators that the transfer is in contemplation of death? Answer: Per jurisprudence --(i) Where a donation is made concurrently with the execution of a will; or (ii) Where the time between the making of a gift and the death of the donor were relatively close. GENERAL RULE: There is a transfer in contemplation of death when: a. The decedent transferred the possession or enjoyment of, or the right to the income from his property to another, but this transfer was intended to take effect only upon his death; b. The decedent transferred title to the property but retained for his lifetime the right to possess or enjoy the property or the income therefrom, or the rights to designate whom shall possess or enjoy the same. EXCEPTION: A sale made in good faith and for an adequate and full consideration.

Illustration When the doctor informed Concha that she is suffering from terminal cancer, she decided to donate her house and lot worth P1,000,000 to her friend Migay. (i) Is this a transfer in contemplation of death?