Submitted by:

Cordero, Hyacinth
Laureano, Janice
Manuel, Yvannah Kassandra
Marquez, Franklenne Dave
Sobrepena, Johara

Chapter 3: GROSS ESTATE

The starting point in computing Philippie estate tax liability is the determination and
valuation of gross estate.

The decedent's gross estate is determined by taking inventory of the following:

1. Properties owned. Properties that are owned by the decedent at the time of his
death to the extent of his equity or interest in such property, whether exclusive,
conjugal or communal, or common ownership.

2. Properties already transferred but still owned. Other properties still owned by
the decedent at the time of his death but were already transferred during his lifetime
by virtue of taxable transfer, such as:
a. Revocable transfers;
b. Transfer of Contemplation of death;
c. Transfer of insufficient consideration;
d. Property passing under general power of appointment; and
e. Proceeds of life insurance policy payable to a revocable beneficiary.

Taxable transfer are real and/or personal properties that are not physically available
at the time of death because they have been conveyed or transferred subject to
condition and revocable by the decedent during his lifetime.

These properties are included in the decedent's gross estate because the decedent
remains to control and own them until his death.

3. Decedent's accrued interest. All interest, earnings and remaining valuable rights
accruing to te decedent at the time of his death even if received or collected after his
death, such as:
a. Accrued rent or interest income;
b. Accrued profit in business and/or partnership;
c. Declared dividend on or before death not yet collected; and
d. Usufruct right transferrable to his heirs.
 Forms of Properties in the Gross Estate
For estate tax purpose, the forms of the decedent's properties that are included in the
gross estate are:
1. Real properties are immovable properties such as land, building, or any structure
or even equipment permanently attached to the land.
2. Tangible personal properties are movable properties with physical form that
could be seen or touched such as vehicles, artwork, jewelry, clothing, equipment,
amd furniture.
3. Intangible personal properties are properties other than real and tangible
personal properties. They have no physical form and their reportable values are
determined by the rights and privileges conveyed in them.

Examples of intangible personal properties are cash, bank deposit, interests and
rights, usufruct, receivables, insurance, goodwill, franchise, patents, trademarks,
bonds, stock certificates and other investment securities.

Composition and Classifications of the Gross Estate

In general, the gross estate shall include of all properties (real or personal - tangible
or intangible) owned by the decedent at the time of his death. However, the gross
estate shall not include the following:
1. Separate (exclusive) properties of the surviving spouse;
2. Properties, interest, rights and all income accruing after the death of the decedent;
and
3. Properties or transfers exempt by law from estate tax.

The Estate Tax Return (BIR Form 1801) provides the prescribed presentation of
decedend's properties in the gross estate using the schedules of specific properties
in the following order of classifications:

Composition and Classification of Gross Estate

Summary Application
Particular Properties Property Categories
Exclusive Conjugal / Communal
Personal properties / /
Real properties / /
Taxable transfers / /

The exclusive or separate properties are those that are solely owned by the
decedent. The conjugal or communal properties are properties both owned by the
spouses (applicable only to married decedent).
 SUMMARY OF PRPOERTIES INCLUDED IN THE GROSS ESTATE

Included in the Gross Estate ` Resident/Filipino Nonresident

Alien
No R* With R*

1. Real or immovable property:

a. In the Philippines xxx xxx xxx
b. Outside the Philippines xxx
2. Tangible personal property:
a. In the Philippines xxx xxx xxx
b. Outside the Philippines xxx
3. Intangible personal property:
a. In the Philippines xxx xxx
b. Outside the Philippines xxx
Franchise exercised
a. In the Philippines xxx xxx
b. Outside the Philippines xxx
Shares, Obligations or bonds
issued by corporations organized
or constituted under the
Philippine laws. xxx xxx
Shares, Obligation or bonds
Issued by Foreign corporations
(85% of business located
In the Philippines xxx xxx
Shares, Obligation or bonds issued
By any Foreign corporations
That acquired business situs
In the Philippines xxx xxx
Shares or rights in the partnership
Business or industry established
In the Philippines xxx xxx
 Situs of the Gross Estate

In general, all properties, real or personal, tangible or intangible, wherever located, in

the case of decedent Filipino Citizens and Resident Aliens, shall be included as
part of gross estate.

In case of non-resident aliens, only properties located in the Philippines upon death
are subject to Philippine estate tax. When there is reciprocity, intangible properties
with Philippine situs are excluded from the gross estate.

Reciprocity is a tax exemption principle arising from mutual agreement between or

among Sovereign States to free from tax some objects of taxation.

VALUATION OF THE GROSS ESTATE

For the purpose of computing the estate tax, it is necessary that the gross estate of
the decedent be appraised or valued at the time of death.

The date of valuation is at the time of death because the transfer of properties from
the dead to the living takes effect at the moment of death.

Date of Death Fair Market Value Rule

General Valuation Rule: In general, the gross estate shall be valued at its fair
market value at the time of the decedent's death.

The property is to be valued as of the decedent's death upon the date the tax
accrues.

In reporting the gross estate, the gross amount of properties shall not be diminished
by:
1. Encumbrances or mortgage loans attached to the property.
2. Portion of claims that are worthless like bad debts;
3. Taxes, and other permissible deductions;
4. Share of the surviving spouse in the conjugal or communal property; and
5. Any subsequent contingency affecting the estate.

SPECIFIC VALUATION METHODS

The tax code and other tax regulations provide the specific valuation methods for the
following:
1. Usufruct;
2. Real properties;
3. Personal properties; and
4. Stocks, bonds and other securities.
Note: These valuation methods are both used for estate tax and donor's tax purpose.
 Usufruct Valuation
Usufruct is the legal right to use and enjoy the benefits and profits of property
belonging to another.

To determine the value of the right to usufruct, use of habitation, as well as that of
annuity, there shall be taken into account the probable life of the beneficiary in
accordance with the latest Basic Standard Mortality Table (BSMT), to be approved by
the Secretary of Finance, upon recommendation of the Insurance Commissioner.

Real Property Valuation

Real properties should be valued at the current fair market value (FMV) as shown in
the schedule of values fixed by the Provincial/City Assessors (assessed value), or the
fair market value as determined by the BIR Commissioner (zonal value) whichever is
higher.

Personal Property Valuation

Personal (movable) properties should be reported at the following values at the
time of death:
1. Current market price (purchase value) - for the recently or newly acquired personal
property.
2. Second-hand market price (second-hand value) - for the previously acquired
personal and used properties.
3. Grossed-up loan value - for loaned or pawned personal property.
4. Fair value plus accrued interest - for interest-earning receivables and bank
deposits.
5. Discounted value - for non-interest bearing notes receivables.
6. Face value - for Philippine peso currency.
7. Converted Philippine peso value - for foreign currencies.

Stocks, Bonds and Other Securities Valuation

Stocks, bonds and other securities:
1. If listed in the local stock exchange - thw FMV is shall be
a. Closing price on the date of death - this is the preferred valuation method. Or
b. Trading price at the date nearest to the date of death, if none is available on the
date of death - this is the alternative valuation method.

2. If not listed in the local stock exchange - The fair market value of share of stock
not listed and traded in the local stock exchanges is determined by using the Adjust
Net Asset Method at the date of death.

Adjusted Net Assets Method

Under the current Rev. Reg. No. 6-2013, the value of the share of stock not listed in
the stock market disposed shall used the Adjusted Net Asset Method whereby all
assets and liabilities are adjusted to fair market values.

The formula to compute the adjusted net asset method would be:

Fair value of assets Pxxx

Less: Fair value of liabilities xxx
Adjusted net asset values xxx

The net of adjusted asset minus the liability values is the indicated value of the
equity. The fair market value usually approximates the carrying value (ofter called
"book value") of the current and monetary assets.

When a company has real properties the appraised value of the real property at the
time of sale shall be the higher of:
1. The FMV as determined by the Commissioner, or
2. The FMV as shown in the schedule of valued fixed by the Provincial and City
Assessors, or
3. The FMV as determined by an Independent Appraiser.

EXCLUSIVE PROPERTIES OF THE DECEDENT

The following rules are guides to determine whether or not the property of the
decedent is to be classified as exclusive property in the gross estate:

1. Unmarried decedent. If a man or a woman is unmarried, it is presumed that all of

his or her properties are exclusive properties.

2. Married decedent. If a man or woman is married, their exclusive properties would

depend on their property relations whether under the regime of
a. Absolute Community Property;
b. Conjugal Partnership of Gains; or
c. Complete Separation of Property.

Exclusive Properties under Absolute Community Property Relations

Marriage on or after August 3, 1988

Under this property relationship, the following are considered as the exclusive
properties of each spouse:
1. Property acquired during marriage through gratuitous title by either spouse, and
the fruits as well as income thereof, if there are any, unless it is expressly provided by
the donor, testator, or grantor that they shall form part of the community property.

2. Property for personal and exclusive use of either spouse; however, jewelry shall
form part of the communal property.

3. Property acquired before the marriage by either spouse who has legitimate
descedants by former marriage, and the fruits as well as the income, if there are any,
of such property.

4. In general, properties acquired by purchase with exclusive money, or by exchange

with exclusive property, shall be considered exclusive.

Exclusive Properties under Conjugal Partnership of Gains Property Relations

Marriage before August 3, 1988

Under this property relationship, the following are considered as the exclusive
properties of each spouse:
1. That which is brought to the marriage as his/her own
2. That which each acquires during the marriage through gratuitous transfer
3. That which is acquired by right of redemption or by exchange with other property
belonging to only one of the spouses; and
4. That which is purchased with the exclusive money of the wife or the husband.

Regime of Complete Separation Property

If a man or woman before getting married agreed that their property relations shall be
governed by complete separation of property, their respective properties are his or
her exclusive properties.

In the Regime of Complete Separation of Properties, each spouse shall own, dispose
of, possess, administer and enjoy his or her own separate estate, without the need of
the other's consent. To each spouse shall belong all the earnings from his or her
profession, business or industry and all fruits, natural, industrial or civil, due or
received during the marriage from his or her separate property.

The parties are free to manage their respective properties without interference from
the other spouse. Likewise, the parties are also free to donate without interference of
the other.