This article talks about the process of extrajudicial settlement of estate of persons who died from January 1, 2018 to present.
Extrajudicial Settlement of Estate
The death of a loved one is a painful experience. It is even made more painful when we are required to comply with certain legalities in order to settle the estate of the deceased. Settlement of an estate need not undergo judicial proceedings all the time. Rule 74, Section 1 of the Rules of Court allows the extrajudicial settlement of estate by agreement among the heirs. Said Rule states:
“Sec. 1. Extrajudicial settlement by agreement between heirs. – If the decedent left no will and no debts and the heirs are all of age, or the minors are represented by their judicial or legal representatives duly authorized for the purpose, the parties may, without securing letters of administration, divide the estate among themselves as they see fit by means of a public instrument filed in the office of the register of deeds, and should they disagree, they may do so in an ordinary action of partition. If there is only one heir, he may adjudicate to himself the entire estate by means of an affidavit filed in the office of the register of deeds. The parties to an extrajudicial settlement, whether by public instrument or by stipulation in a pending action for partition, or the sole heir who adjudicates the entire estate to himself by means of an affidavit shall file, simultaneously with and as a condition precedent to the filing of the public instrument, or stipulation in the action for partition, or of the affidavit in the office of the register of deeds, a bond with the said register of deeds, in an amount equivalent to the value of the personal property involved as certified to under oath by the parties concerned and conditioned upon the payment of any just claim that may be filed under Section 4 of this rule. It shall be presumed that the decedent left no debts if no creditor files a petition for letters of administration within two (2) years after the death of the decedent.
The fact of the extrajudicial settlement or administration shall be published in a newspaper of general circulation in the manner provided in the next succeeding section; but no extrajudicial settlement shall be binding upon any person who has not participated therein or had no notice thereof.”
Conditions for Extrajudicial Settlement of Estate
It must be emphasized that extrajudicial settlement of estate cannot be resorted to every time. There are conditions which must be satisfied such as:
1. The decedent left no will.
2. The decedent has no debts or his debts have been fully paid.
3. The heirs are all of legal age or the minors are duly represented by their judicial or legal representatives.
4. A public instrument is duly executed by the heirs and filed with the Register of Deeds.
Extrajudicial settlement of estate is often recommended to expedite the transfer of properties of the decedent to his heirs. This is in view of the fact that judicial settlement of estate takes years before the case is concluded. Furthermore, this is more adversarial and is resorted to when the heirs disagree on the properties to be partitioned and the corresponding shares of the respective heirs.
Contents of a Deed of Extrajudicial Settlement of Estate
An extrajudicial settlement of estate is done by executing an “Extrajudicial Settlement Among Heirs”. This is a legal document specifying:
1. Compliance with the legal conditions for an extrajudicial settlement
2. Description of the properties to be extrajudicially settled (title number, value, location, lot size, technical description, etc.)
3. Nature of the property (if conjugal property)
4. Name of the heirs
5. How the properties shall be divided amongst the heirs.
6. Posting of a bond if there is personal property involved.
7. Undertaking that the Deed will be published in a newspaper of general circulation once a week for 3 consecutive weeks.
It must be noted that the Deed of Extrajudicial Settlement must be published in a newspaper of general circulation once a week for 3 consecutive weeks. Kindly consult with the Register of Deeds where the property is located for the listing of these newspapers.
Payment of Estate Tax
Before filing the Deed of Extrajudicial Settlement with the Register of Deeds where the land is located, it is necessary that the estate taxes be paid first. Under Philippine laws, estate tax is defined as a tax on the right of the deceased person to transmit his estate to his lawful heirs and beneficiaries at the time of death and on certain transfers, which are made by law as equivalent to testamentary disposition. According to the Bureau of Internal Revenue, estate tax is not a tax on property but rather imposed on the privilege of transmitting property upon the death of the owner.
The Estate Tax Return must be filed within one (1) year from the decedent’s death. The deadline may be extended by the Commissioner of the BIR, in meritorious cases, not exceeding thirty (30) days. It must be noted that the estate itself is assigned its own Tax Identification Number (TIN). The Estate Tax Return is filed with any of the authorized agent bank of the Revenue District Office (RDO) having jurisdiction over the place of domicile of the decedent at the time of his death. If the decedent has no legal residence in the Philippines, then the return can be filed with the authorized agent bank of the Revenue District Office where the executor or administrator is registered or if not registered, domiciled.
Furthermore, the estate tax shall be paid at the time the return is filed. However, upon request and if the Commissioner of the BIR finds that payment on the due date of the Estate Tax or of any part thereof would impose undue hardship upon the estate or any of the heirs, he may extend the time for payment of such tax or any part thereof not to exceed five (5) years, in case the estate is settled through the courts or two (2) years in case the estate is settled extra-judicially.
The estate tax is 6% of the net taxable estate.
The estate tax is now fixed at six percent (6%) of the net taxable estate as of the time of the death of the decedent.
The basis shall be the net estate. That means that there are allowable deductions on the estate. The standard deduction is an amount equivalent to Five Million Pesos (P5,000,000.00). Other deductions include, claims against the estate, claims of the deceased against insolvent persons, unpaid mortgagtes, property previously taxed, transfers for public use, and family home to the extent of an amount not exceeding P10,000,000 of the fair market value. For a more exhaustive discussion on estate taxes, please read our article on death and estate taxes.
Supporting Documents for Extrajudicial Settlement of Estate
For extrajudicial settlement of estate, the following documents (including two (2) photocopies of each document) must be submitted with the BIR (source: BIR Guidelines and Instructions for BIR Form No. 1801) :
1. Certified true copy of the Death Certificate
2. Taxpayer Identification Number (TIN) of the decedent and heir/s
3. Notice of Death (only for death prior to January 1, 2018) duly received by the BIR, if
gross taxable estate exceeds P20,000 for deaths occurring on January 1, 1998 up to
December 31, 2017; or if the gross taxable estate exceeds P3,000 for deaths occurring
prior to January 1, 1998
4. Original copy of any of the following: a) Affidavit of Self Adjudication; b) Deed of
Extrajudicial Settlement of the Estate, if the estate has been settled extrajudicially; c)
Court order if settled judicially; d) Sworn Declaration of all properties of the Estate
5. A certified copy of the schedule of partition and the order of the court approving the
same within thirty (30) days after the promulgation of such order, in case of judicial
6. Validated return and Original Official Receipt/Deposit Slip as proof of payment; for no
payment return, copy of Acknowledgement Receipt of return filed thru eBIRForms
7. Proof of Claimed Tax Credit, if applicable
8. CPA Statement on the itemized assets of the decedent, itemized deductions from gross
estate and the amount due if the gross value of the estate exceeds five million pesos
(P5,000,000) for decedent’s death on or after January 1, 2018 or two million pesos
(P2,000,000) for decedent’s death from January 1, 1998 to December 31, 2017
9. Certification of the Barangay Captain for the claimed Family Home (If the family home
is conjugal property and does not exceed Php10 Million, the allowable deduction is
one-half (1/2) of the amount only)
10. Duly Notarized Promissory Note for “Claims Against the Estate” arising from Contract
11. Accounting of the proceeds of loan contracted within three (3) years prior to death of
12. Proof of the claimed “Property Previously Taxed”
13. Proof of the claimed “Transfer for Public Use”
For Real Properties, if any:
14. Certified true copy/ies of the Transfer/Original/Condominium Certificate/s of Title of
real property/ies, if applicable
15. Certified true copy of the Tax Declaration of real properties at the time of death, if
16. Certificate of No Improvement issued by the Assessor’s Office where declared
properties have no improvement
For Personal Properties, if any:
17. Original copy of Certificate of Deposit/Investment/Indebtedness owned by the decedent
and the surviving spouse, if applicable
18. Certificate of Registration of vehicles and other proofs showing the correct value of the
same, if applicable
19. Proof of valuation of shares of stock at the time of death, if applicable
a. For shares of stock not listed/not traded – Audited Financial Statement of the issuing
corporation nearest to the date of death of decedent with computation of the book
value per share.
b. For shares of stock listed/traded – Value at the time of death or closing rate nearest to
the date of death
c. For club shares – Transaction value on the date of death or nearest to the date of
death, as published in the newspaper
20. Certificate of stocks, if applicable
21. Proof of valuation of other types of personal property, if applicable
Other Additional Requirements, if applicable:
a. Duly Notarized Original Special Power of Attorney (SPA), if the person
transacting/processing the transfer is not a party to the transaction and/or Sworn
Statement if one of the heirs is designated as executor/administrator
b. Certification from the Philippine Consulate if document is executed abroad
c. Location Plan/Vicinity map, if zonal value cannot be readily determined from the
d. Certificate of Exemption/BIR Ruling issued by the Commissioner of Internal Revenue
or his authorized representative, if tax exempt
e. BIR-approved request for installment payment of Estate tax due
f. BIR-approved request for partial disposition of Estate
g. Such other documents as may be required by law/rulings/regulations/etc.
Registration of the Deed of Extrajudicial Settlement with the Register of Deeds
After the estate taxes have been paid, the heirs may proceed to the Register of Deeds where the land is situated. If the Register of Deeds would allow it, the filing with the BIR and Register of Deeds may be simultaneous. The proof of payment of the estate tax, Affidavit of Publication of the Deed, the Deed of Extrajudicial Settlement of Estate are the basic requirements to be submitted to the Register of Deeds. When all pertinent documents are submitted, the Register of Deeds will correspondingly issue the Transfer of Certificates of Title to the proper heirs.
On a final note, it must be borne in mind that the extrajudicial settlement can be nullified if it was done in fraud of creditors or other rightful heirs. Furthermore, this can open the erring heirs to criminal liabilities.
About Nicolas and De Vega Law Offices
If you want to learn how to make a will or need help regarding estate planning, wills and succession, we can help you. Nicolas and De Vega Law Offices is a full-service law firm in the Philippines. You may visit us at the 16th Flr., Suite 1607 AIC Burgundy Empire Tower, ADB Ave., Ortigas Center, 1605 Pasig City, Metro Manila, Philippines. You may also call us at +632 84706126, +632 84706130, +632 84016392 or e-mail us at [email protected]. Visit our website https://ndvlaw.com .