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Five Effective Ways in Solving Estate Tax: Must Know

Five easy and understandable steps on how to solve comprehensive estate tax problems in board exams, pre-board, or even in quizzes.



NOTES
What is your reaction when you see a long problem of estate tax. It makes us to worry much when we see that one comprehensive problem is good for how many points. In addition, if your solution is wrong you expect also that the others are. On the other hand, if you’re solutions are correct it makes you happy.

(Relevant story: Estate Tax Train Law in the Philippines)

Let us assume that you’ve understood the basic concept of this tax. Well, understanding is not enough to fully understand this. Make sure you know how to compute and file estate tax in the Philippines. Everyone knows that the computation of the estate tax is sometimes it’s not easy and it takes a long process.

Let me give little tips on what you should know first before solving problems. Make sure you know what gross estate, estate tax rate, real properties, and exclusions from the estate is — after knowing those things, still trying to compute and no knowledge how and where to start? Let’s start these easy steps.

Effective Five (5) Tips in Solving Comprehensive Estate Tax Train Law 2019

1.    Know Your Decedent

The decedent is the person who dies with properties left. Decedents might be classified as residents and citizens or non-resident aliens.

Although the estate tax rate is similar regarding your citizenship, your estate, or properties is subject to tax in a different way. Aside from the composition of the gross estate, deductions or exclusions might be different because of some special laws might protect some of that estate.

The law also protects the interest of others like the surviving spouse and heirs. Before you move to the next steps, make sure you know the status of the decedent. If married, identify the property relations between husband and wife. According to the family code (Art. 109), the properties of the husband is husband’s capital, while the properties of the wife are wife’s paraphernalia. In the absence of any contract or marriage settlement executed before the celebration of a marriage, either the conjugal or absolute community of properties shall govern the property owner of the husband and wife.

Conjugal Partnership Gains

According to the family code,  all properties acquired during the marriage , whether the acquisition is either constructed or registered in the name of one or both spouses are considered as conjugal unless:

  1. Brought into marriage by his/her
  2. Acquired during the marriage by donations or gratuitous transfer
  3. Acquired by the right of redemption or by exchange with other property belonging to only one of the spouses.
  4. They are purchased with exclusive money from the spouse.

Absolute Community Property

During the marriage, there is no marriage settlement of properties; the absolute community will be presumed. Therefore, all properties owned by the spouses at the time of marriage or acquired after that shall form part of the husband and wife, except the following:

  1. Property and fruits acquired during marriage by gratuitous title, unless it is clearly stated by the donor that shall form part of the husband and wife
  2. Property for personal and exclusive use, however, jewelry shall form part of the community.
  3. Any property acquired before marriage by either spouse who has legitimate descendants by a form of marriage, including fruits and pertaining income.
  4. All properties acquired with exclusive money or by an exchange.

2.    Accumulate the Estate of the Decedent

What are the properties of the decedent you should accumulate? In general, all properties of the decedent, either tangible, real, or intangible properties. For more information about the list of the composition of the gross estate, you may click this article Estate Taxation in the Philippines.

3.    Identify Properties Excluded or Exempted from Estate Tax

Not all properties of the decedent are subject to tax. Some of those properties are covered by special laws in the Philippines. Section 87 of the NIRC provides the following exclusions from the gross estate that are exempted from the estate tax.

4.    Accumulate the Expenses Incurred

After the death of the decedent, there are some expenses incurred that should be deducted from the gross estate of the decedent. Make sure you read these updates about estate tax before solving any estate tax problem. Here are some ordinary expenses that you should know:

Regular Deductions

  • ELITE: Expenses, Losses, Indebtedness, Taxes, etc.
  • Transfer for Public Use
  • Vanishing Deductions

Special Deductions

  • Standard Deductions
  • Family Home
  • Medical Expenses
  • Amount Received by heirs under R.A. 4917
  • ½ Share of the surviving spouse in the net conjugal/community estate

5.    Put into Practice

There are many problems in a book or on the internet where you can practice in solving the estate tax under this new tax reform. In solving any problem, make sure to follow these steps. No matter how long the problem is, make it shorter by grouping or finding first what you need.

TIPS
I know at first, the solving problem is not easy. It takes patience and diligence to fully understand the estate tax. But, for sure if you keep on solving problems about the estate tax, you will start to love it. Furthermore, solving many comprehensive problems will help you to encounter different issues you might encounter in the board exam or other examinations. 

Conclusions

There is no shortcut to being a tax master, but your patience and diligence will help you to succeed in solving estate tax in the Philippines. Having tips from those who are tax master will have the same result or advice. All of them will have the same opinion – “practice, practice, practice.”

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