GROSS ESTATE

Gross estate > consists of all properties (real or personal tangible or intangible)
owned by s decedent at the time of his death.
> it shall not include the separate (exclusive) properties of the surviving
spouse.
Composition of the Gross Estate

Decedent:
Filipino citizen /
Resident alien
Non-resident alien

Location of
Property within

Location of
Property without

YES
YES

YES
NO

Classifications of Properties
For estate tax purposes there are generally three forms of property, namely:
1. Real property includes land, building, or any structure or even equipment permanently
attached to the land.
2. Tangible personal property is a property with physical form that could be seen or
touched such as vehicles, artwork, jewelry, clothing, equipment, and furniture.
3. Intangible personal property is a property other than real property, with no physical
form and its value lies in the rights conveyed. For example
Illustration

Citizen or
Resident alien

Non-resident alien

1. Farm in the Philippines

2. Jewelry in the Philippines
3. Bond issued by Philippine corporation
4. Bank deposit in the Philippines
5. Shares of stock in Philippine corporation
6. Shares of stock in foreign corporation
7. Investment in partnership established
in the Philippines
8. Copyright being exercised in the Philippines
9. Franchise being exercised in the Philippines
10. Car in USA

SUMMARY OF PROPERTIES INCLUDED IN THE GROSS ESTATE

1

Included in the Gross Estate

Real or immovable property situated:
a. in the Philippines
b. outside the Philippines

Tangible personal property situated:

a. in the Philippines
b. outside the Philippines

Intangible personal property with situs:

a. in the Philippines
b. outside the Philippines

Franchise exercised
a. in the Philippines
b. outside the Philippines

Shares, obligations or bonds issued by

corporations organized or constituted
under Philippine laws

Shares, obligations or bonds issued by

Foreign corporations (85% of business
located in the Philippines)

Shares, obligations or bonds issued by

any Foreign corporation that acquired
business situs in the Philippines

Shares or rights in partnership

Resident/Filipino
Citize

Non-resident
alien

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business or industry established in the

Philippines

Notes:
1. As a general rule, the situs of a property is the domicile or residence of the owner.
2. Intangible personal property located within the Philippines of a non-resident alien is subject
to the rule of reciprocity. If there is reciprocity, it is not subject to estate tax in the
Philippines.

Valuation of the Gross Estate

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.
The following rules shall be observed in the valuation of Gross Estate:
1. In general, the gross estate shall be valued at its fair market value at the time of
the decedents death.
Example
The estate of a decedent, Mr. David, has a fair value of P5,000,000 at the time of his
death. He inherited this property from his father 10 years ago when its fair value was
P2,000,000.
The amount to be included in the gross estate would be valued at ______________.
2. Real Properties should be valued at the current fair market value fixed by the
Provincial/City Assessors, or the fair market value as determined by the BIR Commissioner,
whichever is higher.
Illustration
Mr. Taipa died leaving the following real properties in Baguio City:
Fair Market Values by
Baguio City Assessor
BIR Commissioner
House and lot
P10,000,000
P12,000,000
Subdivisions lots
20,000,000
19,000,000
Totals
30,000,000
31,000,000
The amount to be included in the gross estate would be valued at ______________.
3. Personal Properties should be reported at the acquisition cost for the recently
acquired properties or the current market value for the previously acquired properties.
Example
Mr. Paulo died leaving a car which he purchased for P1,000,000 five years ago. At the time
of his death, the car has a book value of P500,000 but can be sold for P400,000.
The amount to be included in the gross estate would be valued at ______________.
4. Stocks, bonds and other securities
a. If listed in the local stock exchange the value is the mean between the highest and
lowest quoted selling prices at the date nearest the date of death, if none available on
the date of death.
b. If not listed in the local stock exchange
1. Unlisted common shares should be at book value at the date of death.
2. Unlisted preferred shares are valued at par value.
Illustration
Mr. Blake died leaving 10,000 common shares investment acquired at P110,000 from San Pedro
Corporation.
At the time of death, the stockholders equity of San Pedro Corporation show the following
information:
Capital stock:
Common, 100,000 shares, par P100
P10,000,000
Preferred, 60,000 shares at P200
12,000,000
Reserves:
Revaluation surplus
400,000
APIC common shares
600,000
APIC preferred shares
1,000,000
Retained earnings
6,000,000
Total stockholders equity
P30,000,000
The liquidating value of preferred shares is P220 per share.
REQUIRED: Determine the reportable value of investment in common stock as part of the
gross estate if the securities are:
1. Listed in the local stock exchange assuming that each common share has an initial sales
price of P140 and closing sales price of P160 at the time of death.
2. Not listed in the local stock exchange.
Note: In determining the book value of the unlisted common shares, appraisal surplus shall not be
considered as well as the value assigned to preferred shares, if there is any.

ADDITIONS TO THE GROSS ESTATE

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In addition to the properties and rights that are easily and physically identifiable,
there are still some rights or properties which are not physically included in the estate
at the date of death, but are still to be included as part of the gross estate of the
decedent for estate tax computation.
The following are some of the unidentifiable rights or properties to be added in the gross
estate: GRIC CAPD
1. Taxable transfers:
(Transfers during the lifetime of the decedent)
a. Property passing under general power of appointment
b. Revocable transfers
c. Transfers for insufficient consideration
d. Transfer in contemplation of death
2. Others:
a. Claims against an insolvent person
b. Amount received by heirs under R.A. No. 4917
c. Proceeds of life insurance with revocable beneficiary
d. Decedents interest accrued at the date of death
Revocable Transfer
Revocable transfer refers to a transfer of property with retention or reservation of
rights over the property by the donor(decedent) while he still lives. The following
instances describe revocable transfers:
1. By gift where the donor has reserved the power to alter, amend, and revoke donation
2. The donor retains the option to relinquish such power in contemplation of death.
Illustration
Tatang, 79 years old, donated a parcel of land with a fair value of P1,000,000 in favour
of his son, Pedro. Tatang, however, retained the power to amend or terminate the transfer
at will. Pedro died ahead of Tatang.
a. Upon the death of Pedro, will the parcel of land be included as part of Pedros
gross estate?
After a year Tatang died also
b. Upon the death of Tatang, will the parcel of land be included as part of Tatangs
gross estate?
Transfers in Contemplation of Death
These properties are not physically available in the estate at the time of death because
the decedent transferred them during his lifetime in anticipation of his death.
The following transfers are held to be in
1. Where a donation was made concurrently
2. Where the donation was made due to the
serious illness at the time of the gift
3. Where the time between the making of a
close.

contemplation of death:
with the execution of a will
decedents age and/ or the decedents known
gift and the death of the donor

was relatively

Based on section 85b of the NIRC there is a transfer in contemplation of death when the
following instances are present:
1. While still alive, the decedent transferred his property in favour of another person,
but the transfer was intended to take effect only upon the formers death.
2. By gift intended to take effect at death, or after death, or under which the donor
reserved the income or the right to designate the persons who should enjoy the income.
Illustrations
Mr. Dante donated his apartment building to his friend, Mr. Berto. The deed of donation
was executed under the condition that while Mr. Dante is still living, he retains the
rights over the property and its income.
Upon his death, Mr. Dante has a total intangible property amounting to P5,000,000. The
fair market value of the property donated was P9,000,000 and the related accrued income on
or before his death amounted to P1,000,000.
a. Is the donation mortis causa or inter vivos?
b. How much is the amount applicable as part of the gross estate if the donation is
mortis causa?
Property Passing under General Power of Appointment
The phrase general power of appointment means that the decedent must have had a power
exercisable in favour of himself, his estate, or creditors of his estate

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A power is special if it is expressly not exercisable in favour of the decedent, his

estate, his creditors, or creditors of his estate or the decedent appointed only among a
restricted or designated class of persons other than himself, his estate, his creditors
of his estate.
Decedents Interest
In general, a decedents interest is commonly thought of as a persons estate, the wealth
that he would have possessed, enjoyed and disposed, had he lived.
It also refers to the value of any interest in property or rights accrued in favour of the
decedent on or before his death which have been received only after his death.
Examples of decedents interest are as follows:
a. Dividends declared on or before the death of the stockholder, and received by the
estate after the said stockholders death
b. Partnerships profit earned prior to death of the partner, received by the estate after
the partners death
c. Accrued interest and rents on or before the time of death, but collection was made
after death.
Illustration
Mr. Gilbert is a partner in TAH Law Office for 50% interest in capitalization and profit
and loss distribution. He is also a shareholder of Bag-Sack Corporation for 1,000 shares
with par value of P500 per share.
At the date of death of Mr. Gilbert, TAH Law office has P500,000 undistributed income
which is not yet credited to the capital account of Mr. Gilbert of P600,000.
One-month prior to the death of Mr. Gilbert, Bag-Sack Corporation declared cash dividend
of P100 per share. At the date of death of Mr. Gilbert the average selling price was P600
per share.
How much is the amount applicable as part of the gross estate?
Proceeds of Life Insurance with Revocable Beneficiary
Life insurance covers all description of insurance related to life, including death
benefits and accident insurance.
The following rules shall be observed with regard to the proceeds of life insurance
policy:
1. Exclude from the gross estate if the beneficiary is irrevocable.
2. Include in the gross estate if the beneficiary is
a. Revocable
b. The decedents estate, his administrator or his executor
Illustration
The life insurance policy of Mr. Pat Tai designates his wife as the revocable beneficiary.
Upon the death of Mr. Pat, the insurance company paid Mrs. Tai P5,000,000 as the proceeds
of Mr. Tais life insurance.
In addition, Mrs. Tai, as a revocable beneficiary, received P1,000,000 as proceeds of life
insurance from SSS of her husband. An amount of P500,000 as proceeds of life insurance was
received by the estate administrator designated as irrevocable beneficiary. What would be
the amount of proceeds of life insurance to be included as part of Mr. Tais gross estate?
Notes
Proceeds of life insurance is generally subject to estate tax, except when:
a. A third person is designated as irrevocable beneficiary
b. The proceeds or benefits are from SSS and GSIS
c. The proceed are from a group of insurance taken by the employer because what the law
requires to be included refers to the proceeds under policies taken out by the decedent
upon his own life

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