Not many people know what an extrajudicial liquidation of the inheritance is. Well, not unless they have experienced the loss of a family member and the division of their remaining property.
The extrajudicial liquidation of the inheritance consists simply in the drafting of a contract in which the assets are divided among the heirs, as the latter deem convenient. Property left behind by the decedent, collectively called the “estate,” is listed in the contract. Property can range from real estate like parcels of land, buildings, or personal property like money left in the bank, cars, jewelry, furniture, and even shares in a corporation.
It should be noted that an extrajudicial settlement by agreement is only possible if there is no will left by the deceased. Even if there is a will but the will does not include all of the decedent’s assets, then those that are not covered can be divided out of court by agreement.
Furthermore, extrajudicial liquidation is not possible if the heirs cannot agree on how the properties will be divided. In such a case, they can file an ordinary partition action.
Posting Requirement
Once the settlement agreement is signed, the heirs must have the agreement published in a newspaper of general circulation to ensure that the interested parties, if any, such as creditors and unknown heirs, are duly notified.
Inheritance Tax Payment
After publication, you can follow the transfer of title. At the time of the transfer of the estate, the estate tax must be paid in accordance with Section 84 of the Philippine National Internal Revenue Code.
Inheritance tax is defined as a tax on the deceased person’s right to transfer his estate to his legitimate heirs and beneficiaries at the time of death and on certain transfers, which are made by law as equivalent to testamentary disposition. It is a form of transfer tax, not a property tax. More specifically, it is a tax on the privilege of transmitting the assets of the deceased to the heirs.
The estate tax return must be filed within six (6) months after the decedent’s death. The term may be extended by the BIR Commissioner, in meritorious cases, without exceeding thirty (30) days.
It is interesting to note that the inheritance itself will have its own Tax Identification Number (TIN). The BIR treats the estate as a legal person.
The estate tax return is filed with the Revenue District Office (RDO) that has jurisdiction over the decedent’s place of residence at the time of death.
If the decedent does not have a legal residence in the Philippines, the declaration can be filed with:
1. The District Revenue Clerk’s Office, District Revenue Office No. 39, South Quezon City; Prayed
2. The Philippine Embassy or Consulate in the country where the decedent resides at the time of death.
For estate taxes, the BIR imposes the pay-per-filing system, which means that you must pay the estate tax at the same time the return is filed.
In cases involving a large estate where the tax levied may become too high, or in cases where the decedent left behind properties that are difficult to liquidate and do not have the cash to pay the taxes, the BIR Commissioner may extend the payment time but the extension cannot be greater than two (2) years if the succession is resolved out of court. If an extension is granted, the BIR Commissioner may require a bond in the amount, not to exceed twice the amount of the tax, that he deems necessary.
The estate tax is based on the value of the net worth as follows:
1. If you do not exceed P200,000, you are exempt
2. If it is more than P200,000 but not more than P500,000, then the tax is 5% of the excess over P200,000
3. If it exceeds P500,000 but does not exceed P2,000,000, then the tax is P15,000 PLUS 8% of the excess over P500,000
4. If it exceeds P2,000,000 but does not exceed P5,000,000, then the tax is P135,000 PLUS 11% of the excess over P2,000,000
5. If it exceeds P5,000,000 but does not exceed P10,000,000, then the tax is P465,000 PLUS 15% of the excess over P5,000,000
6. If it exceeds P10,000,000, then the tax is P1,215,000 PLUS 20% of the excess over P10,000,000
When computing net worth, allowable deductions will always be considered. These deductions include funeral expenses, part of the surviving spouse, medical expenses incurred by the decedent within one (1) year before his death, family home deduction of no more than P1,000,000.00, standard deduction of P1,000,000.00, among others. . It is best to consult an attorney or accountant to determine and ensure that the heirs can correctly report deductions and exemptions to determine the decedent’s exact net worth.