Ask the Pros: What Happens to a Deceased Person’s Properties?
We asked a lawyer about extrajudicial settlement of estate and how properties are divided among heirs
There are so many questions surrounding inheritance, dividing properties, and how to manage a deceased person’s estate. We’ve watched too many movies depicting this scenario, often with family members arguing over who gets what.
Does it always have to end in court or is having a last will and testament enough? To help you better understand this situation, we asked Atty. Mhealler Ycong, CPA for general information you need to know about extrajudicial settlement of estate, the documents that must be filed, and tax rates you need to take note of.
READ: Who Will Pay the Estate Taxes When the Property Owner Dies?
What is extrajudicial settlement of estate?
Extrajudicial settlement of estate is the distribution of properties left by a deceased person to his or her heirs (usually the spouse and children) WITHOUT GOING TO COURT.
Under Section 1, Rule 74 of the Rules of Court, heirs can divide or distribute the deceased person’s estate among themselves after complying with the following requirements:
1. The deceased must have NO WILL. If there’s a will, it must be brought to court for probate;
2. The deceased must have no debts or existing unpaid creditors;
3. Heirs must be of legal age or minors are presented by legal representatives;
4. The division of estate must be in public instrument. If there’s one heir, it’s the Affidavit of Self Adjudication and if there are two or more heirs, it’s the Agreement/Deed for Extrajudicial Settlement of Estate.
5. The public instrument must be filed and registered with the Registry of Deeds;
6. In case there are personal properties such as shares of stock, cash in bank, and bonds included in the estate, an Heirs’ Bond (from a reputable bond company) must be obtained before registering with the Registry of Deeds; and
7. The fact of settlement (agreement or self-adjudication) must be published in a newspaper of general circulation ONCE a WEEK for THREE CONSECUTIVE WEEKS.
If an heir was deprived of participation in the estate or a creditor was not paid, the said heir or creditor may bring the issue to court within two years from the distribution or settlement of estate. Extrajudicial settlement shall not be binding upon the excluded heirs.
READ: Ask the Pros: How Do You Transfer a Land Title in the Philippines?
What do you need to remember before registering with the Registry of Deeds?
The estate tax returns must be filed and estate taxes must be paid WITHIN ONE YEAR FROM DEATH.
- If there are registrable properties such as lands, condominium units, shares of stock, and vehicles, the tax clearance and Certificate Authorizing Registration must be obtained from the BIR Revenue District Office (RDO) that has jurisdiction over the deceased’s residence.
- The valuation of the properties included in the estate, allowable deductions, and tax rate shall follow the laws and rules effective at the time of death.
- The current estate tax rate is at 6 percent.
- Estates enjoy standard deduction from gross estate amounting to Php5million while deduction for family home (valued at Fair Market Value) is also allowed, a maximum of Php10million.
Can you apply for estate tax amnesty?
The BIR is now accepting applications for estate tax amnesty and the deadline is on June 14, 2023. The amnesty applies if the deceased died ON or BEFORE December 31, 2017, with or without assessments and whose estate taxes have remained unpaid or have accrued as of December 31, 2017.
The valuation of the properties included in the estate and allowable deductions shall follow the laws and rules effective at the time of death.
READ: 8 Things To Consider When Buying Foreclosed Property
What are the benefits you can get from estate tax amnesty?
The tax rate is fixed at 6 percent, regardless of the rate effective at the time of death. There are no interests, penalties, and surcharges, and the same procedure for estate settlement as mentioned above must be followed.
What else do you need to remember about extrajudicial settlement of estate?
- Real properties included in the estate shall be subject to local transfer taxes payable to the local treasurer’s office where the land is located.
- Depending on the intention of the heirs, the deed of extrajudicial settlement of estate may be executed simultaneously with other contracts involving donation, waiver of rights, and/or sale (e.g., Deed of Extrajudicial Settlement of Estate with Donation, Deed of Extrajudicial Settlement of Estate with Waiver of Rights, Deed of Extrajudicial Settlement of Estate with Sale).
If there is one surviving heir, the heir may execute an Affidavit of Self-Adjudication, which adjudicates the entire estate to himself/herself.
- In cases wherein there are several heirs, they may execute a special power of attorney (SPA) authorizing representative/s (usually lawyers) to settle the estate and for ease of transaction with relevant government agencies and private entities such as banks and corporations, to name a few.
READ: This Is The Most Common Real Estate Tax Mistake
Are you familiar with extrajudicial settlement of estate or do you know someone who has gone through the process of dividing an estate among heirs? If you have specific questions about estate settlement, it’s best to get in touch with a lawyer for advice and consultation. The information shared in this article is for general knowledge only.
Special thanks to Attorneys Nikki Cortina, Steffi Banaag, Mhealler Ycong, Aila Alvarez, and Christopher Linag.
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