Estate Tax Amnesty and Extrajudicial Settlement with Waiver of Rights

Below is a comprehensive discussion of the Estate Tax Amnesty in the Philippines and the related concept of Extrajudicial Settlement with Waiver of Rights. This information is for general educational purposes only and does not constitute legal advice. If you have specific concerns or questions, please consult a qualified legal professional.

1. Overview of Estate Tax in the Philippines

  1. Definition

    • Estate Tax is a tax imposed on the right to transfer property at death. It is levied on the net estate of a decedent (the person who has passed away). In the Philippines, the tax base is the fair market value of the estate’s assets at the time of death minus allowable deductions (e.g., funeral expenses, judicial expenses, unpaid mortgages, and certain medical expenses).

  2. Governing Law

    • Prior to amnesty laws, the general rules on estate tax were provided under the National Internal Revenue Code of 1997 (NIRC), as amended.
    • The estate tax rate has evolved over time, but since the enactment of the TRAIN Law (Republic Act No. 10963), the estate tax rate has been a flat 6% of the net estate for deaths occurring on or after January 1, 2018.

2. The Estate Tax Amnesty (Republic Act No. 11213 and Amendments)

  1. Introduction and Purpose

    • The Estate Tax Amnesty was introduced under Republic Act (R.A.) No. 11213, otherwise known as the “Tax Amnesty Act,” which became effective on March 15, 2019.
    • The amnesty was meant to give taxpayers (heirs, executors, or administrators of estates) an opportunity to settle outstanding estate tax liabilities at reduced rates and with fewer documentary requirements. It aimed to encourage the settlement of estates, free up inherited properties, and promote the proper transfer of ownership and property rights.

  2. Coverage of the Original Estate Tax Amnesty (R.A. 11213)

    • Applied to the estates of decedents who died on or before December 31, 2017, with or without assessments duly issued.
    • The applicable amnesty tax rate was 6% based on the total net taxable estate at the time of death, or 6% of the decedent’s undeclared property value if an estate tax return had never been filed.
    • A minimum amnesty tax of PHP 5,000 per decedent was imposed (i.e., if 6% of the net estate came out to less than PHP 5,000, the taxpayer would pay PHP 5,000).

  3. Deadlines and Extensions

    • Under R.A. 11213, the original availment period was supposed to end on June 14, 2021 (two years from the effectivity of the Implementing Rules and Regulations).
    • Recognizing that many people had difficulty complying, especially due to the COVID-19 pandemic, Republic Act No. 11569 extended the amnesty to June 14, 2023.
    • More recently, the Philippine government has considered or enacted further extensions or modifications, so heirs are advised to confirm the current deadlines with the Bureau of Internal Revenue (BIR) or a qualified practitioner.

  4. Benefits

    • Reduced Penalties and Surcharges: Under the amnesty, the government waives penalties, surcharges, and interest on past-due estate taxes.
    • Simplicity in Documentation: Availers face fewer documentary requirements compared to a standard estate tax proceeding.
    • Opportunity to Legitimize Title: Properties left by the decedent can be transferred properly to the heirs (through updated titles and documents) once the estate taxes are settled, which is critical for selling, mortgaging, or otherwise dealing with the property.

  5. Basic Process for Availment

    • Prepare the Documentary Requirements: These commonly include the death certificate, proof of the decedent’s and heirs’ TIN (Tax Identification Number), sworn Declaration of the Estate, and other property documents (e.g., titles, tax declarations).
    • Calculate the Tax: Under the amnesty, 6% of the net estate (or 6% of the decedent’s undeclared assets), subject to the minimum of PHP 5,000.
    • File the Estate Tax Amnesty Return and Pay: Payment must be made at authorized agent banks or BIR Revenue Collection Officers.
    • Secure the Certificate of Availment: After reviewing all documents, the BIR issues a Certificate of Availment, which is necessary for transferring the properties.

3. Extrajudicial Settlement of Estate

  1. When is Extrajudicial Settlement Used?

    • In the Philippines, if a person dies without leaving a will (intestate) or leaves a will that is not probated, or if the heirs unanimously agree and there are no contests regarding the distribution of assets, the heirs can extrajudicially settle the estate.
    • Extrajudicial settlement is governed by Rule 74 of the Revised Rules of Court.
    • It is faster and less expensive than judicial settlement, as there is no full-blown court proceeding.

  2. Requirements for Extrajudicial Settlement

    • No will is left or the will is not subject to probate, or all heirs agree to extrajudicially settle.
    • All heirs must be of legal age, or if there are minors, they must be represented by a judicial or legal guardian.
    • The heirs must execute a public instrument (commonly titled “Extrajudicial Settlement of Estate” or “Extrajudicial Settlement of Estate with Waiver of Rights”), notarized by a notary public.
    • They must publish a notice of the extrajudicial settlement in a newspaper of general circulation once a week for three consecutive weeks.
    • Within 30 days after execution, the parties must file a bond with the Register of Deeds in an amount equivalent to the value of the personal property involved in the estate (in certain cases).
    • Payment of the appropriate estate taxes (and other applicable taxes) to the BIR must be done to facilitate the transfer of titles.

4. Extrajudicial Settlement with Waiver of Rights

  1. Definition and Purpose

    • Sometimes, one or more heirs choose to waive (renounce) their share in favor of a co-heir(s). This is referred to as “Extrajudicial Settlement of Estate with Waiver of Rights.”
    • This waiver can help consolidate property under fewer heirs, making property management or disposition easier.

  2. Donor’s Tax vs. Estate Tax Implications

    • Important Consideration: When an heir waives his or her inheritance in favor of a specific person (rather than a general renunciation), the BIR may treat it as a donation subject to donor’s tax, separate from the estate tax.
    • General rule of thumb:
      • Pure renunciation of an inheritance (i.e., “I am renouncing my entire inheritance and I do not designate to whom it goes; let it go to the common pool of heirs”) is generally not subject to donor’s tax.
      • Renunciation in favor of a specific person (i.e., “I waive my rights over this property in favor of my sibling Juan”) may trigger donor’s tax.
    • Whether donor’s tax applies will depend on the BIR’s interpretation of the waiver instrument. Heirs must be careful to structure the waiver in a manner that reflects their true intent and the existing legal rules.

  3. Content of the Document

    • The extrajudicial settlement with waiver of rights should contain:
      • Details of the decedent (name, date of death, place of death).
      • List of heirs (with identification and addresses).
      • Declaration of all the properties (real, personal, intangible) of the estate, including approximate values.
      • Mode of distribution (how each property is shared among the heirs).
      • Statement of Waiver for any heir(s) who are relinquishing their share(s), and a clear description of whether it is a general renunciation or in favor of certain individual(s).

  4. Publication and Filing

    • As with a standard extrajudicial settlement, this document needs to be notarized and published (once a week for three consecutive weeks in a newspaper of general circulation), and a copy must be filed with the Register of Deeds.
    • The settlement and payment of taxes under the amnesty program should be completed within the extended deadlines if the decedent falls within the coverage period.

5. Practical Steps to Avail Estate Tax Amnesty with an Extrajudicial Settlement

  1. Gather All Required Documents

    • Death Certificate of the decedent.
    • Certificate of No Marriage (CENOMAR), if needed, to show heirs or for completeness.
    • List of Assets, including land titles, certificates of stocks or bank accounts, and proof of valuations.
    • Tax Identification Numbers (TIN) of the decedent and heirs.
    • Other relevant documents (e.g., real property tax declarations, deeds of sale if the estate involves newly acquired property, mortgage documents, etc.).

  2. Draft the Extrajudicial Settlement Document

    • Ensure it complies with the Rules of Court.
    • Decide if any heir is executing a waiver of rights.
    • Have it reviewed by a lawyer or a paralegal knowledgeable about estate proceedings.

  3. Notarization and Publication

    • Have the instrument notarized by a notary public.
    • Publish the document once a week for three consecutive weeks in a newspaper of general circulation where the decedent last resided.

  4. Compute the Estate Tax Under Amnesty

    • Determine the net taxable estate.
    • Apply the 6% rate of the amnesty (or the minimum of PHP 5,000 if that is higher).
    • The BIR Form for Estate Tax Amnesty (e.g., BIR Form 2118-E or whatever form is applicable at the time) should be completed.
    • Pay the estate tax due.

  5. Secure the Certificate of Availment

    • Submit all documentation to the BIR, including proof of publication, extrajudicial settlement, and other documentary requirements.
    • Once verified, the BIR issues a Certificate of Availment proving that the tax amnesty has been availed.
    • This certificate is crucial for transferring the property’s title to the heirs.

  6. Register the Documents and Transfer Titles

    • Present the original documents, BIR receipts, and the Certificate of Availment to the Register of Deeds or other relevant agencies for the transfer of real property titles, or to banks/transfer agents for securities, etc.

6. Key Points and Reminders

  1. Deadline Sensitivity: Always be mindful of the amnesty deadlines. If the estate is eligible, missing the deadline can subject you to the regular estate tax (with possible penalties, surcharges, and interest).

  2. Accuracy of Assets Declared: Under the amnesty, the disclosure must be complete and truthful. Failure to disclose assets can lead to future complications, including potential penalties or assessments.

  3. Estate Tax Amnesty vs. Regular Estate Tax: If the decedent passed away after December 31, 2017 (and does not fall under any extension of coverage), the estate tax due will be computed under the regular rules of the TRAIN Law (6% flat rate), with interest and penalties if paid late.

  4. Legal Guidance: Since issues like donor’s tax, property valuations, and procedural steps can be tricky, it is advisable to consult a lawyer or a tax professional to avoid mistakes.

  5. Secondary Taxes (Donor’s Tax or Capital Gains Tax): Apart from estate tax, if heirs waive their shares in a specific manner, or if heirs ultimately decide to sell real property after transfer, donor’s tax or capital gains tax (on a subsequent sale) can come into play.

  6. Records and Proof: Keep copies of all documents—official receipts, notarized instruments, publication clippings, and the Certificate of Availment—for future reference. Proper documentation helps avoid disputes or issues when selling or mortgaging property later.

7. Conclusion

The Estate Tax Amnesty under R.A. 11213 (as extended by R.A. 11569 and subsequent legislation) provides a valuable avenue for heirs in the Philippines to settle their estate tax liabilities at reduced costs and penalties. Coupled with an Extrajudicial Settlement with Waiver of Rights, families can efficiently transfer ownership of their inherited properties while reducing litigation and administrative burdens.

However, the process can be complex. Heirs must adhere to deadlines, follow legal requirements for extrajudicial settlement (particularly if waiving rights), and ensure the correct computation and payment of any taxes due. For these reasons, seeking professional legal and tax advice is highly recommended to ensure full compliance and the smooth transfer of estate assets.

Disclaimer: This content is not legal advice and may involve AI assistance. Information may be inaccurate.

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