Disclaimer: The information provided in this article is for general informational purposes only and does not constitute legal advice. Laws and regulations can change, and the application of these rules can vary based on specific facts and circumstances. For advice regarding a particular case, consult a qualified legal professional licensed in the Philippines.

Extra Judicial Settlement of Estate with Sale in the Philippines

In the Philippines, settling an estate of a deceased person can be done either through a judicial process (i.e., going to court) or through an extrajudicial process (i.e., out of court). When heirs reach a mutual agreement to distribute the estate’s assets without the need for litigation, they may execute an Extra Judicial Settlement of Estate. This becomes more complex when the heirs also intend to sell part or all of the decedent’s property during or immediately after this settlement.

Below is a comprehensive overview of what an Extra Judicial Settlement of Estate with Sale entails under Philippine law.

1. Legal Basis and Governing Laws

Civil Code of the Philippines:
- The general framework for inheritance, including intestate (no will) and testate (with a will) succession, is found in the Civil Code (Republic Act No. 386).
- Relevant provisions are found in Book III, Title IV on Succession (Articles 774 to 1105).
Rules of Court:
- Rule 74 of the Rules of Court outlines the procedure on the summary settlement of estates, specifically covering extrajudicial settlements.
Other Relevant Laws:
- Tax Code (National Internal Revenue Code) for estate taxes and documentary stamp taxes.
- Local Government Code for local transfer taxes.
- Property Registration Decree (P.D. No. 1529) for the registration of real property titles.
- Notarial Law for the formalities regarding notarization of legal documents.

2. What Is an Extra Judicial Settlement of Estate?

An Extra Judicial Settlement of Estate occurs when heirs (all of legal age, or represented by guardians if minors are involved) of a deceased person decide to:

Settle the estate without court intervention, meaning there is no controversy that requires a judge’s resolution (e.g., disputes on who is an heir, the legitimacy of heirs, or the shares each heir is entitled to).
Distribute assets among themselves in accordance with either:
- The law on intestate succession (if the decedent left no valid will), or
- The provisions of the will, if valid and uncontested, but the heirs simply choose not to undergo judicial probate.

3. Conditions for Extra Judicial Settlement

Under Rule 74 of the Rules of Court, extrajudicial settlement is permissible if:

The decedent left no will, or if there is a will, it is not being contested by any heir or party in interest.
The heirs are all of legal age, or if there are minors, they must be duly represented by their legal or judicial guardians.
The heirs must execute a public instrument (a notarized document) declaring how they wish to allocate and partition the property.
There are no outstanding debts of the estate or all known debts have been fully paid. If there are debts, creditors should either be paid or given notice of the extrajudicial settlement.

If these conditions are not met, or if the distribution is contested by any party, a judicial settlement (i.e., going to court) may be necessary.

4. Publication Requirement

Once the Deed of Extrajudicial Settlement is prepared and notarized, Rule 74, Section 1 requires the heirs to:

Publish a notice of the settlement in a newspaper of general circulation, once a week for three (3) consecutive weeks.
This is intended to provide notice to potential creditors or other interested parties who might have a claim against the estate.

Failure to comply with the publication requirement could result in legal complications, including potential annulment of the deed or challenges from omitted heirs or creditors.

5. Steps in Preparing an Extra Judicial Settlement of Estate with Sale

Gather Documents:
- Death Certificate of the decedent.
- Certificate of No Marriage (CENOMAR) if relevant, to determine possible heirs.
- The decedent’s valid will, if any (although if uncontested, the heirs may opt for extrajudicial settlement).
- Property documents (Transfer Certificate of Title (TCT) or Condominium Certificate of Title (CCT), tax declarations, certificates of stock, bank passbooks/statements, vehicle registrations, etc.).
- Proof of payment or any existing debts of the decedent (if any).
Determine Heirs and Shares:
- The heirs must ascertain who is entitled to a share of the estate under the law or pursuant to any uncontested will.
- For intestate succession, the Civil Code details which relatives inherit and in what proportions.
Draft the Deed of Extrajudicial Settlement:
- Typically prepared by a lawyer or a knowledgeable legal scrivener.
- Identifies the parties (all heirs) and details the properties in the estate.
- Contains a statement confirming that the decedent left no debts (or that all debts have been paid or settled).
- Specifies the exact division of assets among the heirs.
Sale Provision:
- If the intention is to sell certain properties of the estate to a third party (or even to a co-heir) as part of the settlement, a “With Sale” clause is included in the same deed or in a separate but contemporaneous instrument.
- This provision clarifies that after partition among the heirs, they collectively (or individually, if after partition) sell the property to a buyer.
- The document is usually called “Deed of Extrajudicial Settlement of Estate with Sale” or some variant thereof.
Notarization:
- The instrument must be signed by all the heirs (and/or their representatives if minors or incapacitated).
- It is then notarized by a notary public, converting it into a public instrument.
Publication in a Newspaper:
- A notice summarizing the extrajudicial settlement is published once a week for three consecutive weeks.
- Keep proof of publication for the records (affidavit of publication and copies of the newspaper issues).
Payment of Taxes:
- Estate Tax: File an Estate Tax Return with the Bureau of Internal Revenue (BIR) and pay the corresponding estate taxes. Under the current tax rules, this is typically due within one year from the decedent’s death, although extensions may be available under certain conditions.
- Capital Gains Tax (CGT) or Withholding Tax (for real properties) on the sale. Real properties are subject to capital gains tax (6% of the higher of the gross selling price or the fair market value).
- Donor’s Tax (if any part of the property transfer is deemed a donation, which can happen if property is transferred to heirs or co-heirs for less than fair market value).
- Documentary Stamp Tax (DST) on the transfer.
- Local Transfer Taxes: Depending on the municipality or city, local transfer taxes or fees may apply.
Registration with the Register of Deeds:
- After paying the required taxes, the Deed (and any With Sale component) must be presented to the Register of Deeds for registration.
- New titles (Transfer Certificates of Title) will be issued in the names of the new owners (the heirs, if they are retaining the property, or the buyer, if the property is sold).

6. Common Issues and Pitfalls

Omitted Heirs: If an heir is excluded (whether intentionally or by oversight), that heir may later file a legal challenge (action for annulment of the extrajudicial settlement) within a prescribed period. This can nullify the settlement or cause complications for innocent purchasers.
Outstanding Debts: If debts or claims against the estate remain unpaid or unknown at the time of settlement, creditors may pursue the heirs after the fact, potentially leading to litigation.
Insufficient Publication: Failure to properly publish the notice of settlement can render the settlement voidable, and third parties with claims against the estate might argue they received no notification.
Tax Liabilities and Penalties: Delayed or incorrect filing of the Estate Tax Return, or miscalculation of capital gains tax, can incur penalties and surcharges.
Notarization Defects: Improper notarization can invalidate the public instrument. Ensuring a duly commissioned notary public handles the deed is crucial.

7. Frequently Asked Questions

Can an extrajudicial settlement be executed if there is a valid will?
- Yes, if the will is uncontested and all heirs agree. However, it is more common and clearer to undergo probate if there is a will. If all parties agree not to contest, then extrajudicial partition can still proceed, provided the same rules and publication requirements are followed.
Is the presence of a lawyer required?
- While not strictly mandated by law that a lawyer must prepare the deed, it is strongly advisable to consult or hire one for correct drafting, tax guidance, and to prevent legal mistakes.
How long does an extrajudicial settlement with sale take?
- The timeframe depends on the complexity of the estate, the promptness of heirs in providing documents, tax clearance, and publication. A straightforward case might take a few months from drafting to registration.
What if a minor is an heir?
- A minor must be represented by a judicially appointed guardian. Court approval may be required for transactions involving minors, particularly the sale of a property.
Can heirs sell the property immediately after extrajudicial settlement?
- Heirs may either include a “With Sale” provision in the same deed or execute a separate deed of sale after the partition. In either case, compliance with tax and registration requirements is necessary before a new title can be issued to the buyer.
What happens if disputes arise later?
- Parties can file a petition in court to nullify or amend the extrajudicial settlement if it was executed through fraud, omission, or mistake. This underscores the importance of thorough disclosure and correct procedure.

8. Practical Tips and Recommendations

Conduct thorough due diligence on the decedent’s assets and liabilities. Missing out on a creditor can complicate the settlement later.
Communicate openly among all heirs to prevent misunderstandings. Written agreements detailing each party’s share and responsibilities will reduce the risk of future disputes.
Engage a reputable lawyer to handle the drafting of the deed and to advise on tax implications, especially for complex estates.
Complete tax compliance diligently and within the required periods to avoid penalties.
Keep detailed records of all pertinent documents: tax receipts, death certificate, deed of extrajudicial settlement, publication notices, and notarized deeds.

9. Conclusion

An Extra Judicial Settlement of Estate with Sale is a streamlined, out-of-court process to distribute a deceased’s assets among the heirs and simultaneously transfer or sell properties. It can save time and resources compared to a full-blown judicial proceeding, provided all the mandatory requirements are met—particularly the correct execution of the deed, payment of the proper taxes, and compliance with the publication requirement.

Nevertheless, while this process can be efficient and cost-effective, it must be handled carefully to ensure that all legalities are observed, no heirs are overlooked, and no creditors’ rights are compromised. Consulting a knowledgeable legal professional will minimize risks and safeguard the interests of all parties involved.

Disclaimer: This article is provided for informational purposes only and should not be construed as legal advice. Always consult a licensed attorney in the Philippines for guidance tailored to your particular situation.