Concept of Succession & Estate Tax 2019 PDF

DEPARTMENT OF ACCOUNTANCY HOLY ANGEL UNIVERSITY CONCEPT OF SUCCESSION AND ESTATE TAX SUCCESSION - Mode of acquisition by virtue of which the property, rights and obligations to the extent of the value of the inheritance, of a person are transmitted through his death to...

DEPARTMENT OF ACCOUNTANCY HOLY ANGEL UNIVERSITY CONCEPT OF SUCCESSION AND ESTATE TAX SUCCESSION - Mode of acquisition by virtue of which the property, rights and obligations to the extent of the value of the inheritance, of a person are transmitted through his death to another or others either by his will or by operation of law. Rights to the succession are transmitted from the moment of the death of the decedent. INHERITANCE - Includes all the property, rights and obligations of a person which are not extinguished by his death. DECEDENT - Is a deceased or dead person. TYPES OF SUCCESSION 1. Testate or Testamentary Succession (Extrajudicial Settlement) - Designation of an heir, made in a will executed in the form prescribed by law - Designation must be made through written document called last will and testament 2. Legal or Intestate Succession (Judicial Settlement) - Distribution of the estate shall be in accordance with the default provision of the civil code.  TYPES OF SUCCESSION 3. Mixed Succession - Shall be partly by virtue of a written will and partly by operation of law. WILL - Is an act whereby a person is permitted, with formalities prescribed by law, top control to a certain degree the disposition of this estate, to take effect after his death. TYPES OF WILL 1. Holographic Will 2. Notarial Will 3. Codicil NATURE OF SUCCESSION -gratuitous transmission of property from a deceased person in favor of his successors -involves only the net properties of the decedent ELEMENTS OF SUCCESSION 1. Decedent (Testator) 2. Estate (Inheritance) 3. Heirs WHO ARE THE HEIRS? Intestate Taxation (Without Testate Taxation (With Will) Will) 1. Compulsory Heirs 1. Compulsory Heirs 2. Relatives up to fifth 2. Other persons specified by degree of consanguinity the decedent in his will 3. Republic of the Philippines TYPES OF COMPULSORY HEIRS 1. Primary Heirs – Legitimate Children and their direct Descendants 2. Secondary Heirs – legitimate/Illegitimate Parents and ascendants 3. Concurring Heirs – Surviving Spouse and illegitimate descendants In the absence of compulsory heirs, the following shall inherit in the following order of priority: 1. Collateral relatives up to the fifth degree of consanguinity 2. The Philippine Government BASIC INTESTATE PARTITION PROCEDURES 1. The decedent and the surviving spouse shall first share in their common properties 2. Determination of the decedent’s net interest 3. Partition of the decedent’s net interest to the heirs Legitime is that part of the testator’s property which he cannot dispose of because the law has reserved it for certain heirs who are, therefore, called compulsory heirs. The excess properties of the decedent is called “free portion”. OTHER PERSONS IN SUCCESSION 1. Legatee – person whom gifts of PERSONAL property is given by virtues of a will 2. Devisee- person whom gifts of REAL property is given by virtues of a will 3. Executors- person named by the decedent who shall carry out the provisions of his will 4. Administrators – person appointed by the court to manage the distribution of the estate of the decedent ESTATE TAXATION - Pertains to the taxation of the gratuitous transfer of properties of the decedent to the heirs upon the decedent’s death. - TRAIN LAW applies on or after January 1, 2018 while NIRC applies before the said date NATURE OF ESTATE TAX 1. Excise Tax 2. Revenue or general tax 3. Ad Valorem Tax 4. National Tax 5. Proportional Tax 6. One-time Tax CLASSIFICATION OF DECEDENTS FOR TAXATION PURPOSES Resident OR Citizen Decedents taxable on properties located within or outside the Philippines Non-resident Alien Decedents taxable only on properties located in the Philippines, except intangible personal property when the reciprocity rule applies ESTATE TAX MODEL Separate Common TOTAL Gross Estate XXX XXX XXX Less: Ordinary Deductions (XXX) (XXX) (XXX) Net Estate Before share of Surviving XXX XXX XXX spouse Less: Share of Surviving Spouse /2 (XXX) Less: Special Deductions (XXX) Net Taxable Estate XXX Reference Business and Transfer Taxation 2019 edition by Rex Banggawan