Below is a comprehensive discussion of executing a property donation to a grandchild under Philippine law. This article covers legal foundations, formal requirements, tax implications, and common considerations. Note that this is for general informational purposes only and is not a substitute for professional legal advice. Consult an attorney or a notary public for specific guidance.

1. Definition of Donation

A donation is an act of liberality whereby a person (the donor) disposes of a thing or right in favor of another (the donee) who accepts it. In the Philippines, the governing law is primarily found in Title III (Donations) of the Civil Code of the Philippines (Articles 725–773).

Key Features of a Donation

Intention to transfer ownership: The donor must intend to transfer ownership without expecting anything in return.
Acceptance by the donee: The donee (or someone acting on the donee’s behalf) must accept the donation.
Capacity of parties: Both donor and donee must have legal capacity, although the requirements for minors differ and generally involve the parent or legal guardian.

2. Donating Property to a Grandchild

2.1 Who Can Donate

Any person who owns or has disposable rights over property can be a donor, provided they have the capacity to enter into contracts. This includes:

Grandparents who hold title to real property or have free disposal of their real or personal property.

2.2 Who Can Receive (the Donee)

Grandchildren can be recipients of donations. However, if the grandchild is a minor, the donation must be accepted on the child’s behalf by a parent or legal guardian.

2.3 Property Covered by Donation

A grandparent may donate:

Real property (e.g., house and lot, condominium, farmland).
Personal property (e.g., vehicles, jewelry, cash).

For real property donations, specific legal and formal requirements apply (discussed below).

3. Formal Requirements

3.1 Public Instrument and Acceptance

Under Article 748 of the Civil Code:

Donations of real property must be in a public instrument (i.e., notarized) to be valid.
Acceptance must also be made in a public instrument or in the same deed of donation.

If acceptance is made in a separate instrument, the donor must be notified and acknowledge it in an official capacity (commonly done by appearing before a notary or through a written instrument).

3.2 Registration with the Registry of Deeds

To bind third parties and perfect the transfer:

Notarize the Deed of Donation.
Submit the notarized document to the Bureau of Internal Revenue (BIR) for the computation and payment of donor’s tax and documentary stamp tax.
Register the Deed of Donation, together with proof of tax payment, at the Registry of Deeds where the property is located.

4. Tax Implications

4.1 Donor’s Tax

Under the Tax Reform for Acceleration and Inclusion (TRAIN) Law (Republic Act No. 10963) effective January 1, 2018, donor’s tax in the Philippines is:

6% of the total net gifts in excess of PHP 250,000 given during the same calendar year.

Example:

If a grandparent donates a property valued at PHP 1,000,000, the first PHP 250,000 is exempt, and the taxable amount is PHP 750,000. Donor’s tax is 6% of PHP 750,000 = PHP 45,000.

Key Notes:

Valuation of donated property is based on fair market value (FMV). For real property, the FMV is typically the higher of the BIR zonal value or the local government’s tax declaration value.
Multiple gifts to the same donee (or multiple donees) in one calendar year are aggregated for computation of the donor’s tax.

4.2 Documentary Stamp Tax (DST)

The donation of real property also incurs Documentary Stamp Tax (DST) at the rate of 1.5% of the property’s FMV or the consideration stated in the deed (whichever is higher).

4.3 Local Taxes and Transfer Fees

Some local government units (LGUs) impose transfer taxes on real property transfers (often 0.5% to 0.75% of the property’s FMV).
Registration fees at the Registry of Deeds vary based on the property’s declared value.

5. Successional Implications

5.1 Effect on Legitimes and Collation

In Philippine law, certain relatives (legitimate children, illegitimate children, surviving spouse, etc.) are forced heirs who are entitled to “legitimes.” A donation to a grandchild—if made during the donor’s lifetime—may be subject to collation, meaning it could be counted against the donor’s estate for purposes of dividing inheritance.

Why it matters: If the donation unduly prejudices the legitimes of forced heirs, it may be reduced or subject to legal challenge upon the donor’s death.

5.2 Advance on Inheritance vs. Outright Donation

Some donors choose to expressly state in the deed of donation that the donation is an “advance on the inheritance” to be charged against the grandchild’s share in the estate.
Alternatively, donors can state that the donation is not an advance and is being made freely. In either case, it is important to clarify the donor’s intent in writing.

6. Practical Steps in Executing the Donation

Prepare the Deed of Donation
- Usually drafted by a lawyer or notary public.
- Includes details of the donor, the donee (grandchild), the property description, the donor’s intent to donate, and the donee’s acceptance.
Sign Before a Notary Public
- Both donor and donee (or donee’s representative, if a minor) appear before a notary public to sign the deed.
- The deed becomes a public instrument.
Pay Donor’s Tax and Documentary Stamp Tax
- File BIR Form for Donor’s Tax (BIR Form 1800) within 30 days from the date of execution of the donation.
- Submit required documents (e.g., notarized Deed of Donation, proof of FMV, Tax Identification Number (TIN), etc.).
- Pay the corresponding donor’s tax and DST.
- Obtain the Certificate Authorizing Registration (CAR) from the BIR after payment.
Register at the Registry of Deeds
- Present the notarized Deed of Donation, CAR, tax receipts, and other documents.
- Pay registration fees.
- The Registry of Deeds will annotate the transfer on the title or issue a new title in the grandchild’s name if it is real property.
Local Government Clearance (if applicable)
- Some LGUs require a tax clearance or real property tax certificate before approving registration.
Keep Records
- Secure certified true copies of all notarized documents, CAR, new title (if issued), official receipts of taxes, etc.

7. Common Considerations and Best Practices

Capacity and Consent:
- Ensure the donor is of sound mind and freely gives consent.
- If the donee is a minor, have the parent/guardian formally accept on behalf of the child.
Reservation of Rights:
- Some grandparents want to retain the right to use or enjoy the property during their lifetime (a reservation of usufruct). This must be explicitly stated in the Deed of Donation.
Spousal Consent:
- If the property is conjugal or community property, spousal consent may be required.
Fair Market Valuation:
- To avoid tax discrepancies, consult the BIR’s zonal values or city assessor’s valuation.
- Keep documents proving the property’s valuation.
Timeline:
- The BIR filing and tax payment must be done within 30 days from the date of donation to avoid penalties.
Future Claims:
- Explain the donation to other heirs (if any) to avoid misunderstandings or disputes later.
- If intended as an advance on inheritance, spell this out clearly.
Legal Advice:
- Always consult a lawyer or notary public to ensure compliance with formalities and to address potential issues concerning forced heirs and future estate claims.

8. Frequently Asked Questions (FAQ)

Can I donate to more than one grandchild at the same time?
- Yes. You can specify in the deed how the property is divided among grandchildren or execute separate deeds of donation.
What if the grandchild is still a minor?
- The parent or legal guardian must accept the donation on behalf of the minor, and the donation must be formally accepted in writing before a notary public.
Do I need to inform my other heirs?
- While not strictly required by law, it is prudent to inform other forced heirs to avoid conflicts. Note that large donations may be subject to collation later.
How is donor’s tax calculated for property with multiple donors?
- Each donor is taxed separately on the portion they donate. If two grandparents co-own the property, each calculates donor’s tax on their donated share.
Is there a way to revoke a donation?
- Donations are generally irrevocable. However, under certain circumstances (e.g., ingratitude of the donee, non-fulfillment of conditions), the donor may seek revocation per the Civil Code provisions.
What if I continue to live in the property after donating it?
- You can include a clause reserving usufruct or the right to use and enjoy the property for life. However, the ownership is still transferred to the grandchild.

9. Summary

Donating property to a grandchild in the Philippines requires:

Compliance with legal formalities (public instrument, acceptance, notarization).
Observance of tax obligations (donor’s tax, documentary stamp tax, and possible local taxes).
Registration with the Registry of Deeds to ensure validity against third parties.
Awareness of successional rights and the potential impact on other forced heirs.

While the process is relatively straightforward, it is crucial to consult legal and tax professionals to navigate technicalities, especially concerning family relationships and future inheritances. Proper documentation and timely compliance with tax requirements help protect the donor, the donee, and the property rights involved.

Disclaimer: This article is intended for informational purposes only and does not constitute legal advice. For any specific concerns or unique circumstances, always seek assistance from a qualified lawyer and/or notary public in the Philippines.