Gross Estate PDF

DEPARTMENT OF ACCOUNTANCY HOLY ANGEL UNIVERSITY GROSS ESTATE GROSS ESTATE - Consists of all properties of the decedent, tangible or intangible, real or personal, and wherever situated at the point of death  Summary rules on Gross Estate...

DEPARTMENT OF ACCOUNTANCY HOLY ANGEL UNIVERSITY GROSS ESTATE GROSS ESTATE - Consists of all properties of the decedent, tangible or intangible, real or personal, and wherever situated at the point of death  Summary rules on Gross Estate Real Properties Tangible Personal Intangible Personal Properties Properties 1. Residents/ Yes Yes Yes Citizens (Within and Abroad) 2. NRA Without reciprocity i. Within Yes Yes Yes ii. Abroad No No No 2. NRA With reciprocity i. Within Yes Yes No ii. Abroad No No No Procedures in Establishing Gross Estate 1. Inventory count of existing properties at the point of death. 2. Adjustments for exempt transfers and taxable transfers. THE GROSS ESTATE FORMULA: Inventory of properties at the point of death xxx Less: Exempt Transfers Properties not owned xxx Properties owned but excluded by law xxx xxx Inventory of taxable present properties xxx Add: Taxable Transfers xxx Gross Estate xxx EXEMPT TRANSFERS 1. Transfers of properties not owned by the decedent one cannot transfer properties he or she does not own. Properties not owned by the decedent are not part his/ her donation mortis causa. 2. Transfers legally excluded Properties that are owned by the decedent at the point of death naturally form part of his/her donation mortis causa to the heirs, but are exempted by the law from estate taxation. Hence, these are excluded from gross estate. Transfer of Properties not owned by the decedent 1. Merger of the usufruct in the owner of the naked title 2. The transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to the fideicommissary 3. The transmission from the first heir, legatee, or done in favor of another beneficiary, in accordance with the desire of the predecessor 4. Proceeds of irrevocable life insurance policy payable to beneficiary other than the estate, executor or administrator 5. Properties held in trust by the decedent 6. Separate properties of the surviving spouse of the decedent 7. Transfer by way of bonafide sales  Proceeds of irrevocable life insurance policy payable to beneficiary other than the estate, executor or administrator proceeds of life insurance which are irrevocably designated by the decedent to the beneficiary are no longer owned by the decedent at the point oh his death. Hence, not included in gross estate Beneficiary Designation of beneficiary Revocable Irrevocable Estate, administrator, or executor Include Include Other parties Include Exclude  Properties held in trust by the decedent properties held in trust by the decedent at the point of his death are not owned by him. These are excluded in gross estate because these will not form part of the decedent’s donation ,mortis causa to the heirs Separate properties of the surviving spouse of the decedent The wife’s paraphernal shall not be included in the gross estate of the husband upon his death since these will not form part of his donation mortis causa and vice versa.  Transfer by way of bonafide sales transfers by way of bonafide sales are onerous transactions rather than gratuitous transactions, hence, they are not subject to estate tax. Legal Exclusions 1. Proceeds of group insurance taken out by a company for its employees 2. Proceeds of GSIS policy or benefits from GSIS 3. Accruals from SSS 4. United States Veterans Administration (USVA) benefits 5. War Damage payments 6. All bequest, devices, legacies or transfers to social welfare, cultural and charitable institutions, no part of net income of which inures to the benefit of any individual; provided, however, that not more than 30% of the said bequest, devises, legacies or transfers shall be used by such institutions for administration purposes 7. Acquisition and/or transfers expressly declared as non-taxable by law 8. Bank deposits withdrawn from the decedent account during the settlement of the estate Property acquisitions using Exempt Benefits properties acquired using GSIS benefits, SSS accruals, USVA benefits, proceeds of group insurance and war damage payments are still exempt so long as the heirs or administrators can prove that the properties were acquired using these exempt properties. Bequest, device, legacies or transfers to social welfare, cultural and charitable institutions conditional exclusion applies if the done institution uses not more than 30% of the bequest, device or legacies for administration purposes. 30% conditional exclusion is deemed satisfied if the done is an accredited non-profit done institution. Deposits withdrawn from the decedent’s bank account TRAIN law allows unlimited withdrawal from the decedent’s bank account but requires bank with knowledge of the decedent’s death to withhold 6% final withholding tax upon the withdrawal if made within one year from the decedent’s death. The 6% withholding tax is a final tax and is non-creditable. As such, amounts subjected to the 6% final tax ,must be excluded in gross estate. Taxable Transfers 1. Transfer in contemplation of death 2. Revocable transfers, including conditional transfers 3. Property passing under general power of appointment Transfers in Contemplation of Death these are donations made by the decedent during his lifetime which are motivated by the thought of his death. These transfer inter-vivos are usually made by the decedent in a stage of terminal illness or under-belief of an imminent death. Revocable Transfers and Conditional Transfers revocable transfers involve transfers of possession over property during the lifetime of the decedent, but not transfer of ownership over said property. At the point od death, the decedent owns the property; hence, it must be included as part of his gross estate since the same is part of his donation mortis causa Transfer with retention of certain rights if properties are transferred by the decedent prior to his death but retains the possession or enjoyment of, or right to income from, the property, the same shall be included in gross estate to the extent of the decedent’s interest therein. Transfer under general power of appointment Properties subject to general power of appointment by the decedent shall be included in the gross estate of the decedent. The presence of the general power enables the holder of such power to do with the property anything which he could do as if the property were his own Composition of Gross Estate 1. Properties, movable or immovable, tangible or intangible 2. Decedent’s interest on properties 3. Proceeds of life insurance: a. designated as revocable to any heir b. Designated to estate, administrator or executor as beneficiary 4. Taxable Transfers Presentation of Gross Estate in the Estate Tax Return In reporting gross estate under BIR Form 1801, the composition of the gross estate shall be classified as follows: 1. Real Properties 2. Family Home 3. Personal Properties 4. Business Interest Valuation of the Gross Estate FAIR VALUE AT THE POINT OF DEATH Real Properties whichever is higher of: -The value determined by the CIR (Zonal Value) -The value fixed by the Provincial or City Assessor Valuation of the Gross Estate Shares of Stocks Preferred Shares – valued at par value Unlisted Common shares – valued at their book value Listed Shares in the stock exchange – arithmetic mean of highest and lowest quotation at a date nearest the date of death Valuation of the Gross Estate Usufruct and Annuities To determine the value of the right to usufruct, use or 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, to be approved by the Secretary of Finance, upon recommendation of the CIR. Valuation of the Gross Estate Other Properties For properties which the law or revenue regulations has not fixed valuation rules, valuation shall take into consideration fair value rules under generally accepted accounting principles (GAAP) Additional Guidelines in determining Fair Value 1. Newly purchased property = purchase price; not newly acquired = 2ndhand value 2. Pawned properties = grossed-up pawn value by the loan to value ratio 3. Property fixed in monetary term = fixed in the contract including accrued income thereto 4. Foreign currencies = peso value translated at the prevailing exchange rate at the date of death Reference Business and Transfer Taxation 2019 edition by Rex Banggawan