How to Settle Inherited Property Through Extrajudicial Settlement in the Philippines: Legal Requirements

When a person dies (the decedent), their estate—which may include real property, personal property, and other assets—passes on to their heirs. Under Philippine law, estates can be settled either judicially (with court intervention) or extrajudicially (without a formal court proceeding) when certain conditions are met. The extrajudicial settlement of estate can be a more streamlined method for heirs to distribute the decedent’s assets among themselves, provided the legal requirements are strictly observed. Below is a comprehensive guide to understanding the extrajudicial settlement of estate in the Philippines, including its legal basis, requirements, procedure, taxes, and possible legal consequences.

1. Legal Basis

The primary legal framework for extrajudicial settlement in the Philippines is Rule 74 of the Revised Rules of Court. Specifically:

Section 1, Rule 74 deals with Extrajudicial Settlement by Agreement Between Heirs when a person dies intestate (i.e., without leaving a will) or in certain cases where a will is left but does not require further probate (which is rare and subject to legal advice).
Section 2, Rule 74 addresses Summary Settlement of Estates of Small Value under certain conditions (estate of limited value, heirs in agreement, etc.).

In practice, most heirs utilize Section 1, Rule 74 when the deceased has no debts, or all debts are paid, and no will exists that requires probate.

2. Conditions for Extrajudicial Settlement

Extrajudicial settlement of an estate can be availed of only if the following conditions are met:

No Will or No Pending Probate
Generally, the decedent must have died intestate (without a valid will). If a valid will exists, it typically must undergo probate unless the specific circumstances legally allow an extrajudicial settlement (which is rare and must be supported by legal counsel).
Heirs Are in Complete Agreement
All the legal heirs must agree to the distribution of the estate. There should be no ongoing dispute or conflicting claims among the heirs. Each heir must be aware of and consent to the extrajudicial settlement.
No Outstanding Debts (or All Debts Settled)
The estate must have no known debts and liabilities, or if there are any, they must be fully settled. Otherwise, creditors have the right to intervene and demand payment before the distribution of the estate.
Heirs Must Be of Legal Age
All heirs participating must be of legal age. If any heir is a minor, a judicial guardianship or similar process may be required. A duly appointed guardian or legal representative may sign on behalf of the minor or incapacitated heir.
Publication Requirement
The heirs must publish a notice of the extrajudicial settlement in a newspaper of general circulation once a week for three (3) consecutive weeks. This is to inform any potential claimant of the settlement, giving them the opportunity to come forward with any claims.
Execution of a Public Instrument
The agreement for extrajudicial settlement or partition must be in the form of a public instrument (i.e., a notarized document). It must be notarized by a notary public to give it public authenticity.

3. Procedure for Extrajudicial Settlement

Below is the general step-by-step process in settling an estate extrajudicially:

Gather All Relevant Documents
- Death Certificate of the decedent
- Proof of filiation or relationship of each heir to the decedent (e.g., birth certificates, marriage certificates)
- List of the decedent’s assets (real property titles, bank documents, vehicle registration, etc.)
- Certificates showing payment of the decedent’s debts or an acknowledgment that no debts exist
- Any government-issued IDs of the heirs
Prepare the Extrajudicial Settlement Agreement
The heirs (or their counsel) draft a document commonly titled “Extrajudicial Settlement of Estate” or “Extrajudicial Settlement of Estate with Partition.” This instrument must contain:
- A statement declaring that the decedent left no will or that there is no will requiring probate.
- A declaration that all heirs have agreed to divide the property among themselves.
- A clear description of each property (real or personal) included in the settlement.
- The manner by which the properties will be divided.
- An affirmation that all known debts, if any, have been settled.
Notarization of the Document
All the heirs must sign the agreement in the presence of a notary public. The notary public then notarizes the agreement, making it a public document.
Publication of the Notice of Settlement
A notice of the extrajudicial settlement must be published once a week for three (3) consecutive weeks in a newspaper of general circulation in the province or city where the deceased resided or where the properties are situated. The notice typically includes:
- The full name of the decedent
- The date and place of death
- A statement that the settlement of the estate is being done extrajudicially by the heirs
- An invitation for any person having a claim against the estate to present the same
The newspaper or publishing company will issue an Affidavit of Publication, which the heirs should keep as proof of compliance.
Settlement of Estate Taxes with the Bureau of Internal Revenue (BIR)
The heirs must file an Estate Tax Return and pay the corresponding estate taxes within the period provided by law (generally one year from the date of death, but can be extended under certain circumstances or legislative tax amnesties).
- Before transferring any real property or withdrawing bank deposits, the BIR must issue a Certificate Authorizing Registration (CAR) or Electronic Certificate Authorizing Registration (eCAR) for real property, or a Tax Clearance for bank deposits.
- The computation of estate tax will depend on the total net estate and any applicable deductions, as provided by the Tax Code and relevant regulations.
Register the Settlement with the Register of Deeds
For real properties, submit the following documents to the appropriate Register of Deeds where each property is located:
- Notarized Extrajudicial Settlement Agreement
- Proof of Publication (Affidavit of Publication and newspaper clippings)
- BIR CAR/eCAR and other tax clearances
- Original Certificates of Title/Transfer Certificates of Title (for real property)
- Documentary Stamp Tax (DST) and transfer tax receipts
After registration, the Register of Deeds will issue new titles in the names of the heirs, reflecting their respective shares.
Updating Other Records
For personal properties (e.g., vehicles, shares of stock, bank accounts), the respective government agencies or private institutions (e.g., Land Transportation Office, corporate stock transfer agents, banks) will require copies of the notarized Extrajudicial Settlement, proof of estate tax payment, and other relevant documents to update ownership records.

4. Estate Tax and Other Tax Considerations

Estate Tax Return
Under Philippine law, heirs must file an Estate Tax Return. The due date to file and pay estate taxes is generally within one year from the date of the decedent’s death. If the heirs cannot file within that time, they may request an extension from the BIR, subject to conditions and possible penalties or interest.
Penalties for Late Payment
Failure to pay the estate tax on time can lead to penalties, surcharges, and interest charges.
Possible Tax Amnesty
The Philippine government has, from time to time, enacted estate tax amnesty laws, allowing heirs to settle estates at reduced rates and with fewer penalties. Heirs should be on the lookout for such legislation, as it can significantly lower the overall tax burden.
Local Transfer Taxes
When transferring real property, the local government unit (LGU) where the property is located will impose a Transfer Tax based on the property’s fair market value or zonal value. Documentary Stamp Taxes (DST) and registration fees must also be settled before the issuance of new titles.

5. Legal Consequences and Considerations

Publication Requirement and Claims
The publication requirement exists to protect potential creditors or other claimants who may have a legal interest in the estate. Should a legitimate claimant surface, they can challenge the extrajudicial settlement and may file a case in court to protect their right.
Liability to Unknown Creditors
Under Rule 74, Section 4 of the Rules of Court, if an heir or heirs distribute the estate without accounting for all liabilities, they become personally liable to any unpaid creditor for the value of the property received.
Fraudulent Omissions
If any heir deliberately omits a property or conceals certain heirs in the extrajudicial settlement, they could be criminally and civilly liable for fraud. They may be required to share or return the concealed property and pay damages.
Nullity of Agreement
If the extrajudicial settlement was not executed in accordance with the requirements of the law—e.g., missing signatures of all heirs, failing to properly publish, or paying estate taxes—the agreement may be declared null and void by a court, leading to more complex legal disputes.
Minors or Incapacitated Heirs
If one of the heirs is a minor or otherwise legally incapacitated, a judicially appointed guardian is usually required to represent them. Attempting to proceed with an extrajudicial settlement without proper representation for minors or incapacitated heirs can result in the agreement’s nullification.

6. Practical Tips

Consult an Attorney
While extrajudicial settlement is designed to avoid formal court litigation, it still involves legal nuances. Consulting with a lawyer ensures compliance with the law and helps avoid future complications.
Coordinate with All Heirs
Open communication among heirs regarding asset valuation, division, and possible liabilities can prevent misunderstandings and disputes.
Keep Detailed Records
Secure all relevant documents—from the decedent’s birth and marriage certificates to property titles and proof of settlement of debts. Having a complete paper trail is invaluable for a smooth extrajudicial settlement process.
Set Aside Funds for Taxes and Fees
Estate settlement inevitably involves taxes, publication fees, and registration charges. Proper budgeting prevents delays in processing.
Follow Timelines
Comply promptly with the BIR filing deadlines, the publication requirement, and local government payments to avoid penalties, surcharges, and interest.

7. Conclusion

An extrajudicial settlement in the Philippines offers a cost-effective and relatively faster alternative to court-supervised probate or intestate proceedings, provided strict adherence to legal requirements. Heirs who work together, complete the necessary paperwork, pay the correct taxes, and publish the settlement notice can generally transfer the decedent’s assets without judicial intervention.

However, one must tread carefully: failing to comply with legal formalities can invalidate the settlement, delay the distribution of assets, and, in some cases, lead to legal liabilities. It is always prudent to consult a qualified legal professional—particularly in complex estates or where potential disputes and liabilities exist. By following the steps and best practices outlined above, heirs can settle the estate amicably and lawfully through extrajudicial settlement.

Disclaimer: This article is for informational purposes only and does not constitute legal advice. For specific concerns regarding your situation, consult a qualified attorney or a legal professional familiar with Philippine succession law and estate procedures.