Settlement of estate tax

AFTER two decades, the tax rates on the settlement of the assets of deceased persons will be reviewed by the Senate to make them responsive to the present times.

Sen. Juan Edgardo Angara has filed Senate Bill 980 which, among others, aims to amend the existing rules on the computation and payment of the estate tax. The estate tax is a tax on the right of the deceased to transfer to his heirs or beneficiaries (or if he died without a will, to his legal heirs) the properties he has left behind.

All these assets, e.g., cash, bank deposits, financial instruments and personal and real properties, are collectively described as “estate” which, for purposes of settlement, is accorded a juridical personality.

As a rule, no part of the estate can be passed on to the decedent’s heirs or beneficiaries unless the proper estate tax is paid either by the estate administrator or the recipient of the property.

At present, an estate whose net value, i.e., after deducting allowable deductions and expenses, does not exceed P200,000 is exempt from estate tax.

The tax increases depending on the net value of the estate. The maximum cut-off value is over P10 million, whereby the tax due is P1.21 million plus 20 percent of the excess over P10 million.

Deductions

The bill seeks to increase the standard deduction from the computation of the estate tax to P2 million from the present P1 million.

In addition, the medical and funeral expenses that can be charged to the estate (and therefore excluded from the computation of its valuation) shall be up to P1 million and P500,000, respectively, subject to the condition that they are covered by the appropriate receipts. The adjustments reflect the “high cost of dying.”

Pending the settlement of the estate, the authorized representative of the deceased will be allowed to withdraw P200,000 from the latter’s bank deposits to defray his funeral and burial expenses.

This proposal will override the existing Bureau of Internal Revenue (BIR) order to banks that only “reasonable amounts” can be withdrawn from the bank deposits of deceased depositors to pay for the costs of their internment.

The restriction on withdrawal amounts is aimed at ensuring  there will still be funds available in the deceased’s bank account to pay for the estate tax that may be due on his estate.

The determination of what constitutes a reasonable withdrawal is left to the discretion of the bank manager concerned depending on his appreciation of the social standing of the deceased.

To avoid running afoul with the BIR, banks sometimes send their staff to the funeral house to verify the death of the depositor.

The unwritten rule, though, is if the representative of the deceased has good personal or business relations with the bank manager, the latter may be more liberal in setting the limits of the withdrawal.

Reduction

Angara believes that with the increase in the allowable deductions on the estate and reduction of the estate tax, the beneficiaries and heirs of the deceased will be encouraged to immediately settle the estate and enjoy the benefits of the distributed assets.

The expedited settlement would likewise translate to additional revenues for the government, and the properties involved can be put to immediate commercial use by their new owners as soon as possible.

The proposed changes are long overdue. For one reason or another, the past Congresses seemed averse to the idea of reviewing the rules on estate taxation which were enacted way back in 1997.

The indifference jibes with the Filipinos’ discomfort in talking about or preparing for death, which also accounts for the low uptake of life insurance policies in the country.

Discussions about settlement of the estates of the deceased are considered to be in bad taste and disrespectful. Sometimes, these give rise to emotional disputes among the surviving heirs.

Thus, if only to preserve unity in the family, it is not uncommon for brothers and sisters to delay the settlement of the estates of their parents until financial circumstances force them to do so.

Procedures

The substantive elements of the proposed amendments on estate taxation are laudable. If the bill is enacted into law and implemented properly, there is a strong possibility its objectives can be achieved.

For good measure, the review of the law on estate taxation should go beyond its substantive aspects. The procedural or administrative steps in the settlement of estates should also be looked into by Congress.

To date, based on the nature of the assets in an estate that is subject of a settlement, the BIR requires the submission of 22 documents before it issues the certifications required to, for example, allow the turnover of the proceeds of the deceased’s bank deposits to his heirs or beneficiaries, or the issuance by the register of deeds of new titles over the real properties of the deceased in favor of their intended recipients.

The list of documentary requirements may get longer depending on the mood or enthusiasm of the BIR staff assigned to process the application for payment of the estate tax.

A review of these documents gives the impression the BIR assumes that the estate administrator or taxpayer concerned is out to cheat the government of the taxes due on the estate, hence the requirement for the submission of voluminous documents that will prove it otherwise.

The settlement of estate of deceased persons is not a routine tax obligation. It’s literally (no pun intended) a once-in-a-lifetime occasion that can be simplified to lessen the emotional and financial traumas that all deaths in the family bring.

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