Computation of the Net Hereditary Estate in Compulsory Succession (Philippine Civil Law)

Under Civil Law, particularly the rules on Wills and Succession, compulsory succession mandates that a portion of a decedent’s estate be reserved for compulsory heirs, regardless of the decedent’s wishes. Computing the Net Hereditary Estate is essential in determining the extent of these heirs’ rights and the free portion of the estate.

Here is a detailed explanation of the computation of the Net Hereditary Estate in the context of compulsory succession:

1. Gross Estate

The gross estate includes all the properties, rights, and obligations of the decedent at the time of death. It comprises:

Real Property (land, buildings, improvements).
Personal Property (vehicles, jewelry, cash, shares of stock, etc.).
Claims and Rights (e.g., receivables, royalties).
Businesses or Interests (e.g., partnerships, joint ventures).

The valuation of the gross estate should be based on the fair market value or as determined under applicable tax and civil laws.

2. Deductions from the Gross Estate

To arrive at the net hereditary estate, specific deductions are made from the gross estate. These deductions are enumerated below:

a. Funeral Expenses

Reasonable funeral expenses are deducted. While the Civil Code does not specify a maximum amount, tax laws (e.g., the National Internal Revenue Code) typically impose a cap (e.g., up to 5% of the gross estate or a fixed ceiling, as provided by regulations).

b. Judicial and Extra-Judicial Expenses

These include expenses related to the settlement of the estate, such as:
- Filing fees
- Attorneys’ fees
- Appraiser's fees
- Other costs of administration

c. Debts and Obligations

Valid and enforceable debts of the decedent are deducted, including:
- Loans
- Mortgage debts (secured and unsecured)
- Credit card liabilities
- Promissory notes

d. Taxes

Taxes unpaid by the decedent before death, such as real property tax and income tax, are deductible. However, estate tax itself is not deducted as it applies after determining the net estate.

e. Claims Against the Estate

Legitimate claims from third parties that are properly documented (e.g., contracts, judicial orders).

f. Collation

Properties previously donated or advanced to compulsory heirs are collated (added back to the estate for computation purposes). This ensures fairness in distributing the estate according to legitime and free portions.

g. Liabilities of the Decedent

These include:
- Obligations arising from contracts
- Compensation for damages or liabilities adjudicated by courts
- Other enforceable obligations.

h. Special Deductions under Tax Laws

As stipulated by tax laws, these may include family home deductions, standard deductions, or medical expenses incurred within one year prior to death.

3. Legitimate and Free Portions

Once the Net Hereditary Estate is determined, the estate is divided into:

Legitime: The portion reserved by law for compulsory heirs. This is non-disposable and varies depending on the heirs present:
- Children and Descendants: Share equally in the legitime.
- Surviving Spouse: Entitled to a share in the legitime and, in some cases, to equalize with children.
- Ascendants (Parents, Grandparents): Entitled to a share if there are no children or descendants.
- Illegitimate Children: Entitled to half of the share of legitimate children.
Free Portion: The remaining portion of the estate that the decedent can freely dispose of through a will or testamentary disposition.

4. Collation and Reduction

The process of collation involves adding back to the net estate any donations or advances made during the decedent’s lifetime to compulsory heirs. If the total legitime exceeds the net estate due to these advancements, the donations are reduced or returned to satisfy the legitime.

Steps in Collation:

Identify properties given as donations inter vivos or advances.
Determine the value of these properties at the time of donation.
Add these values to the net estate for the purpose of computing the legitime.

Reductions:

If testamentary dispositions exceed the free portion, the will is reduced in this order:

Free portion (excess first deducted here).
Legacies and devises (pro-rata reduction applies if the free portion is insufficient).
Donations inter vivos (may be revoked or reduced to restore the legitime).

5. Illustration of Computation

Example Scenario:

Gross Estate: ₱10,000,000
Deductions:
- Funeral expenses: ₱200,000
- Administration expenses: ₱500,000
- Debts: ₱2,000,000
- Taxes: ₱300,000
  Total Deductions: ₱3,000,000
Net Hereditary Estate: ₱7,000,000
Collation:
- Donation to Child A: ₱1,000,000
  Adjusted Estate for Legitime: ₱8,000,000

Division:

Assuming 3 legitimate children and a surviving spouse:
- Total Legitime: 50% of ₱8,000,000 = ₱4,000,000
- Free Portion: ₱4,000,000
- Each child gets ₱1,000,000 (legitime).
- Spouse gets ₱1,000,000 (legitime) + potential share in the free portion.

6. Key Jurisprudence and Rules

Barretto v. Cabangis (1927): Established the principle of strict compliance with legitime allocations.
Article 906, Civil Code: Confirms the reduction of excessive testamentary dispositions to protect legitime.
National Internal Revenue Code: Supplements computation with tax-related deductions and exemptions.

Conclusion

The computation of the Net Hereditary Estate ensures the proper allocation of the estate in accordance with Philippine law. The protection of compulsory heirs through legitime and the equitable distribution of assets are fundamental in succession. Familiarity with the relevant laws, processes of collation, and deductions is crucial for legal practitioners to ensure compliance and fairness.