Pamantasan ng Lungsod ng Valenzuela

College of Business and Accountancy

Department of Accountancy

BUSINESS AND TRANSFER TAXATION (TAX2)

Succession and Transfer Taxes

Art. 712 (Civil Code)

“Ownership is acquired by occupation and by intellectual creation. Ownership and other real rights over property are acquired
and transmitted by law, by donation, by testate and intestate succession, and in consequence of certain contracts, by tradition. They may
also be acquired by means of prescription.”

Kinds of Acquiring Ownership

 Occupation  Tradition
 Intellectual Creation  Contract
 Law  Prescription
 Donation  Succession

Transfer Tax – the subject matter of a transfer tax is the privilege of the transferor to gratuitously transfer property or rights which takes
effect at the date of death of the transferor or during the lifetime of the donor and the donee. It is classified as “excise tax” or privilege
tax imposed on the act of passing the ownership of property and not on the value of the property or right.

Types of Transfer Taxes

1. Estate Tax – paid for a gratuitous transfer that took effect at the time of death of donor known as “donation mortis causa”
2. Donor’s Tax – paid for a gratuitous transfer that took effect during the lifetime of both the donor and the donee known as “donation
inter vivos”

Succession – mode of acquisition by virtue of which the property, rights and obligations to the extent of the value of the inheritance, of a
person are transmitted through his death to another or others either by his will or by operation of law. (Art. 774 CC)

Elements of Succession:
1. Decedent – general term applied to the person whose property is transmitted through succession, whether or not he left as will. If
he left a will, he is called a testator (Art. 775 CC).
a. Executor (male) or Executrix (female) – a person designated in the last will and testament to carry out the provisions of
the decedent’s will. He also performs a fiduciary duty such as taking care of the decedent’s estate prior to final disposition
to the heirs.
b. Administrator (male) or Administratrix (female) – is a person appointed by the court and performs the same duty, in
lieu of an executor, if the latter refused to accept the appointment, failed to qualify under the law of the last will and
testament did not appoint one.
2. Inheritance (Estate) – Include all the property, rights and obligations of a person which are not extinguished by death and all
which have accrued thereto since the opening of succession. Rights which are purely personal are not transmissible for they are
extinguished by death (Art. 776 CC).
3. Successor or Heir – a person who is called to the succession either the provision of a will or by operation of law (Art. 782 CC).
Devisees and legatees are persons to whom gifts of real and personal property are respectively given by virtue of a will.
a. Compulsory Heirs – those who succeed by force of law to some portion of the inheritance, in an amount
predetermined by law, known as the legitime. They cannot be deprived by the testator of their legitime except by
disinheritance properly effected.
i. Primary – legitimate children and descendants, with respect to their legitimate parents and ascendants.
ii. Secondary – legitimate parents and ascendants, with respect to their legitimate children and descendants.
iii. Concurring – the widow or widower, illegitimate children (filiation must be proved)
b. Voluntary Heirs – those instituted by the testator in his will to succeed to the inheritance of the portion thereof of which
the testator can freely dispose. Free portion refers to the portion or value left in the estate after deducting the legitime of
the compulsory heirs. The share of a voluntary heir is determined through the last will and testament.
c. Legal or Intestate Heirs – those who succeed to the estate of the decedent by operation of law.

Kinds of Succession (Art. 778 CC)

1. Testamentary or Testate – a type of succession that results from the designation of an heir, made in a will executed in the form
prescribed by law.
2. Legal or Intestate – a type of succession which is effected by operations of law since the decedent did not execute a will or if the
last will and testament executed by him is void.
 If a person dies without a will
 With a void will
 With a will which has subsequently lost its validity
 When the will does not institute an heir to, or dispose of all the property belonging to the testator
 If the suspensive condition attached to the institution of heir does not happen or is not fulfilled
 If the heir dies before the testator
 If the heir repudiates the inheritance, there being no substitution, and no right of accretion takes place;
 When the heir instituted is incapable of succeeding, except in cases provided in the Civil Code. (Art. 960)
3. Mixed – a type of succession which is effected partly by “will” and partly by operation of law.

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Consanguinity – relation of persons descending from the same stock or common ancestors. These persons are known as blood relatives,
and are said to be related by blood or consanguinity.
 Lineal Consanguinity – which may be descending or ascending, is that which subsists between persons of whom one is
descended in a direct line from the other.
 Collateral Consanguinity – that which subsists between persons who have the same ancestors, but who not descend (or
ascend) one from the other.

Table of Legitimes
Survivor Legitime Notes
divide by the number of LC, whether they survive alone or with
 Legitimate Child (LC) ½
concurring compulsory heir (CH)
 1 LC ½
 Surviving Spouse (SS) ¼
 2 or more LC ½
 SS Equal to 1 LC
All the concurring CH get from the half free portion, the share of
 LC ½
the SS having preference over that of the IC, whose share may
 SS ¼
suffer reduction pro-rata because there is no preference among
 Illegitimate Child (IC) ½ of LC
themselves
 Legitimate Parent/Ancestor (LPA) ½ Whether they survive alone or with concurring CH
 LPA ½
IC succeed in the ¼ in equal shares
 IC ¼
 LPA ½
 SS ¼
 LPA ½
 SS 1/8
 IC ¼
 IC ½ Divide equally among the IC
 SS 1/3
 IC 1/3
1/3 if marriage is in articulo mortis and deceased spouse dies
 SS ½
within 3 months after the marriage
 IP ½
 IP Exclude
Children inherit in the amounts established in the foregoing rules
 Any child It depends
 IP ¼ Only the parents of IC are included. Grandparents and other
 SS ¼ ascendants are excluded

Will – an act whereby a person is permitted, with the formalities prescribed by law, to control to a certain degree the disposition of his
estate to take effect after his death (Art. 783 CC). It is a document whereby a person, called the “testator”, disposes of his or her properties
or “estate” to take effect upon his or her death.
The making of a will is a strictly personal act. It cannot be left in whole or in part of the discretion of a third person, or
accomplished through the instrumentality of an agent or attorney. All persons who are not expressly prohibited by law may make a will.
The persons prohibited by law to make a will are those:
 Below 18 years old
 Who are not of sound mind at the time of its execution.

Kinds of Wills

1. Notarial or Ordinary or Attested Will – is one which is executed in accordance with the formalities prescribed by Art. 804 to
808 of the New Civil Code.
Requisites for a Valid Notarial Will
a. It must be in writing and executed in a language or dialect known to the testator.
b. It must be subscribed at the end thereof by the testator himself or by the testator’s name written by some other person in
his presence and by his express direction.
c. It must be attested and subscribed by three or more credible witnesses in the presence of the testator and of one another.
Disqualified from being witnesses to a will (Art. 821 CC)
a. Any person not domiciled in the Philippines
b. Those who have been convicted of falsification of a document, perjury, or false testimony.

2. Holographic Will – a written will which must be entirely written, dated and signed by the hand of the testator himself. It subject
to no other form and it may be made in or out of the Philippines and need not be witnessed (Art. 811 CC). In case of any insertion,
cancellation, erasure or alteration in a holographic will, the testator must authenticate the same by his full signature.
Codicil – supplement or addition to a will, made after the execution of a will and annexed to be taken as a part thereof,
by which any disposition made in the original will is explained, added to or altered. In order that a codicil may be
effective, it shall be executed as in the case of a will (Arts. 825 and 826 CC).
Probate of a Will – court procedure by which a will is proved to be valid or invalid.
Intestate Proceedings – the proceedings in the absence of a last will and testament.

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3. Foreign Will – the will of an alien who is abroad which produces and effect in the Philippines if made with the formalities
prescribed by the law of the place in which he resides, or according to the formalities observed in his country, or in conformity
with those which the Philippine civil code prescribes.

Revocation of wills and testamentary dispositions – a will may be revoked by the testator at any time before his death. Any waiver or
restriction of this right is void. (Art. 828 CC)
Modes of Revoking a Will
a. By implication of law
b. By some will, codicil, or other writing executed as provided in case of wills
c. By burning, tearing, cancelling, or obliterating the will with the intention of revoking it, by the testator himself, or by
some other person in his presence, and by his express direction.

Institution of Heir (Art. 840 CC) – an act by virtue of which a testator designates in his will the person or persons who are to succeed
him in his property and transmissible rights and obligations. The testator shall designate the heir by his name and surname, and when there
are two persons having the same names, he shall indicate some circumstance by which the instituted heir may be known. Even though
the testator may have omitted the name of the heir, should he designate him in such manner that there can be no doubt as to who has been
instituted, the institution shall be valid.

Disinheritance – testamentary disposition by which a compulsory heir is deprived of, or excluded from the inheritance to which he has a
right. Disinheritance is no applicable to voluntary heirs.
Requisites for Disinheritance
a. Effected only through a valid will
b. For a cause expressly stated by law
c. Cause must be stated in the will itself
d. Cause must be certain and true
e. Unconditional
f. Total (there is no partial disinheritance)
g. The heir disinherited must be designated in such a manner that there can be no doubt as to his identity

The burden of proving the truth of the cause for disinheritance shall rest upon the other heirs of the testator, if the disinherited
heir should deny it. Disinheritance without a specification of the cause, or for a cause the truth of which, if contradicted, is not proved, or
which is not one of those set forth in this Code, shall annul the institution of heirs insofar as it may prejudice the person disinherited;
but the devises and legacies and other testamentary dispositions shall be valid to such extent as will not impair the legitime. (Art. 850 CC)

Common Causes of Disinheritance

Children and Descendants Parents or Ascendants Spouse
When a child or descendant has been found When the parent or ascendant has been When the spouse has been convicted of an
guilty of an attempt against the life of the convicted of an attempt against the life of attempt against the life of the testator, his
testator, his or her spouse, descendants, or the testator, his or her spouse, descendants, or her descendants, or ascendants.
ascendants. or ascendants.
When a child or descendant has accused When the parent or ascendant has accused When the spouse has accused the testator
the testator of a crime for which the law the testator of a crime for which the law of a crime for which the law prescribes
prescribes imprisonment for six years or prescribes imprisonment for six years or imprisonment for six years or more, if the
more, if the accusation has been found more, if the accusation has been found to be accusation has been found to be false.
groundless. false.
When a child or descendant has been When the parent or ascendant has been
convicted of adultery or concubinage with convicted of adultery or concubinage with
the spouse of the testator. the spouse of the testator.
When a child or descendant by fraud, When the parent or ascendant by fraud, When the spouse by fraud, violence,
violence, intimidation, or under influence violence, intimidation, or under influence intimidation, or under influence causes the
causes the testator to make a will or to causes the testator to make a will or to testator to make a will or to change one
change one already made change one already made already made
A refusal without justifiable cause to Unjustifiable refusal to support the children
support the parent or ascendant who or the other spouse.
disinherits such child or descendant

Other Cause of Disinheritance

Children or Descendants
a. Maltreatment of the testator by word or deed
b. The child or descendant leads a dishonorable or disgraceful life
c. Conviction of a crime which carries with it the penalty of civil interdiction
Parents or Ascendants
a. When the parents have abandoned their children or induced their daughters to live a corrupt, immoral life, or attempted
against their virtue
b. The loss of parental authority for causes specified in this Code
c. The refusal to support the children or descendants without justifiable cause
d. An attempt by one of the parents against the life of the other, unless there has been a reconciliation between them
Spouse
a. When the spouse has given grounds for the loss of parental authority
b. When the spouse has given cause for legal separation

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Right of Representation
Representation may arise wither because of:
a. Death
b. Incapacity
c. Disinheritance
It is not available to:
a. As to compulsory heirs: in case of repudiation, the one who repudiates his inheritance cannot be represented. Their own
heirs inherit in their own right.
b. As to voluntary heirs, legatees and devisees who:
i. Predecease the testator; or
ii. Renounce the inheritance cannot be represented by their own heirs, with respect to their supposed inheritance.

The representative(s) shall not inherit more than what the person they represent would inherit, if he were living or could inherit
(Art. 974). If the decedent does not have descendants, right of representation takes place only in favor of children of brothers or sisters,
whether full or half blood and only if they concur with at least one uncle or aunt. If the nephews and nieces are illegitimate, then they are
prohibited by Article 992 of the new civil code from inheriting from the relatives of their father or mother. Grandnephews and grandnieces
in the collateral line cannot inherit by right of representation.

- END OF COURSE FILE -

References
Tabag, E. D., & Garcia, E. J. (2022). Transfer & Business Taxation.