Experiencia en la cuenca del río Chinchiná

employees, that pension trust is not taxable.

The trust is revocable if the power to revest the title to the property of the trust is vested:

1. in the grantor or in conjunction with other person who does not have the substantial adverse interest in the disposition of the property

2. in any person who does not have substantial adverse interest in the disposition of the property.

 In irrevocable trust, you cannot transfer or revest the title of the property.

 “No substantial interest in the disposition of the property” – he must not be the beneficiary.

 If the properties of the estate is not invested in a business, so ten heirs are just co-owners of the property, that is not taxable because co- ownership as a rule is not taxable.

 If the heirs decide to continue the business, such that the administrator may manage the same, that will become an unregistered taxable partnership.

 Estate and trust may be taxed on the same manner and on the same basis as in the case of individual taxpayers. So, they may claim the deductions under Section 34 as long as these deductions were paid or incurred in connection with the business of that estate or trust.

 Estate and trust are entitled to personal exemptions P20,000.

1. In the case of intestate, the executor, or administrator may deduct the income distributed to the heirs during the particular year when such estate is still under settlement.

2. In the case of a trust, the income may be distributed to the beneficiaries during that year may also be deducted. The trustee or fiduciary may distribute the income or accumulate the income. The trustee has the discretion whether to distribute the income to the beneficiaries during the taxable year or to accumulate the same and distribute such income after the lapse of certain period of time or year. In the event that income of the trust is distributed to the beneficiary, this particular amount may also be claimed as deductions.

Questions: If there are two (2) trust created by one trustor or grantor, how do we

tax the income of that trust?

Answer: Under the law, the taxable income of these two (2) trust must be consolidated. That trust should be taxed as if they constitute one trust.

Situation:

Grantor X created 2 trust. One is A trust created and the other is B trust. There is only one beneficiary named Y.

Let us assume that the taxable income of trust A is P10,000. The taxable income of B trust is P20,000. The total taxable income is P30,000. We will tax these 2 trust separately but through consolidation.

In paying the tax after applying the applicable tax rate to the taxable income of P30,000, the tax due should be apportioned to trust A and B.

So, for purposes of income tax, the taxable income of these 2 trust should be consolidated, but for purposes of paying the tax, the tax due should be apportioned.

TRANSFER TAXES

Taxes may be imposed on onerous transmission of properties or on the gratuitous transmission of properties.

Transfer taxes that are imposed on the onerous transmission of properties:

1. VAT (value-added tax)

2. Percentage Tax (excluded this 1998 Bar) 3. Excise Tax (also excluded)

CONTENTS OF THE BACK PAGES DIVISION OF GROSS ESTATE: 1. INDIVIDUAL WHO DIED SINGLE

- G. E. includes all that he owns at the time of death 2. MARRIED DECEDENT

- his estate includes his exclusive properties and his shares in the conjugal properties BUT NOT the exclusive properties of the surviving spouse

PROPERTY OWNERSHIP bet. SPOUSES - NCC – before Aug. 3, 1988

> CPG

- EXCLUSIVE PROPERTY under N.C.C. 1. brought into the marriage as his/her own

2. acquired during the marriage by LUCRATIVE TITLE

3. acquired by RIGHT of REDEMPTION or EXCHANGE with other exclusive properties 4. purchased with exclusive money

- CPG under N.C.C.

1. acquired by ONEROUS TITLE - common fund

2. acquired by INDUSTRY/WORK, SALARY or either 3. FRUITS< RENTS or INTERESTS [conjugal/exclusive]

4. all properties not determined to be exclusive shall be presumed to be conjugal FAMILY CODE - after Aug. 3, 1988

- ACP

- EXCLUSIVE PROPERTY under the F.C.

1. gift, donation, contribution exclusively given to one of the spouses only - gift and fruits/income considered exclusive

2. INHERITANCE given exclusively to one spouse - gift or fruits/income considered exclusive 3. acquired of personal and exclusive use - except JEWELRY

4. exclusively owned before marriage including fruits /income IF spouse has children from the former marriage

5. purchased from exclusive fund. EXEMPTIONS FROM ESTATE TAX - special laws

1. Benefits received [GSIS, SSS] 2. proceeds of GSIS life insurance 3. Benefits received – U. S. Veterans 4. REPARATIONS – WW II Veterans 5. RETIREMENT BENEFITS

- if included in gross estate 6. proceeds of group insurance DECEDENT’S INTEREST

 assets that are still owned by decedent at the time of death to the extent of his equity or interest in any property whether as exclusive owner, conjugal owner, or common owner.

COMPOSITION OF GROSS ESTATE [DI, T-GPA, RT, T-IC, P-LI, T-CD] 1. DECEDENT’S INTEREST

2. TRANSFER by VIRTUE OF GENERAL POWER OF APPOINTMENT 3. REVOCABLE TRANSFER

4. TRANSFER for INSUFFICIENT CONSIDERATION 5. PROCEEDS from LIFE INSURANCE

6. TRANSFER in CONTEMPLATION of DEATH FUNERAL EXPENSES INCLUDE:

1. expenses for interment

2. mourning clothing [widow, children] 3. expenses for wake before burial

4. charges for rites and ceremonies incident to interment 5. cost of burial plot

6. tombstone or monument 7. obituary or death notices JUDICIAL EXPENSES 1. accountants fee 2. appraisers fee 3. administrator’s fee 4. attorney’s fee 5. docket fee 6. stenographers’ fee

7. other expenses of court hearings CLAIMS AGAINST THE ESTATE

- obligations of the decedent contracted in good faith while still alive but remains unpaid at the time of death

UNPAID MORTGAGES OR INDEBTEDNESS RULES: (claimed as deductions)

1. the said mortgage/indebtedness must have been contracted during the decedent’s lifetime in good faith for an adequate and full consideration in money or moneys worth

2. the value of the decedents interest in the property mortgaged is included in the value of the gross estate

- must be undiminished by said mortgage/indebtedness 3. must not include:

A. any income tax upon income received after the death of decedent B. property taxes not accrued before his death

C. any estate tax

LOSSES – fire, storm, shipwreck or other casualty, robbery, theft, embezzlement RULES:

1. must not be compensated by insurance

2. must have been incurred during the settlement of the estate BUT NOT LATER than the last day for the payment of the estate tax (6 mos.)

3. not claimed as deduction in an income tax return of the taxable estate TAXES which are not DEDUCTIBLE

1. income tax or income received after death 2. property taxes not accrued before death 3. estate tax

COMPUTATION of VANISHING DEDUCTION FORMULA: INITIAL BASIS

GROSS ESTATE X E. L. I. T. and transfers for public purposes SHARE OF SURVIVING SPOUSE

RULES:

1. the gross conjugal estate shall be diminished by expenses and charges EXCEPT those chargeable to the exclusive properties

2. the NET amount shall be divided into two (2)

3. ½ goes to the surviving spouse and deducted from the estate of the decedent ALLOWABLE DEDUCTIONS

- NON-RESIDENT DECEDENT [ELIT-TVS] 1. ELIT (expenses, losses, indebtedness, taxes) FORMULA:

PHIL. GROSS ESTATE

WORLD GROSS ESTATE x E L I T 2. transfer for public purposes

3. vanishing deductions

4. share of the surviving spouse NOTICE OF DEATH

- if value exceeds Php20,000

- FILE notice with BIR within two mos. Of decedent’s death or within two mos. After election of qualified executor or administrator

- if gross value of estate exceeds P200,000 or if gross estate consists of registered property, FILE in duplicate and under OATH

- if value of gross estate exceeds P2,000,000, return must be supported by a certificate of C.P.A.

TIME FOR FILING RETURN

- within 6 mos. From decedent’s death - EXTENSION: not exceed 30 days PAYMENT OF ESTATE TAX

- upon filing of the estate tax return and before delivery to any beneficiary of his distribution’s share of the estate

- EXTENSION: not to exceed 5 years - If extra-judicially settled, 2 years

- It must file bond – not to exceed double the value to be paid

SURCHARGE

- 25% for late filing, for late payment - 50% for filing of false or fraudulent return INTEREST – 20% per annum

PARTIES TO A DONATION 1. DONOR – gratuitously disposes 2. DONEE – receives and accepts KINDS OF DONATION

1. PERSONAL PROPERTY – may be orally or in writing

EXCEPT: exceeds P5,000 – donation and acceptance must be in writing 2. REAL PROPERTY – PUBLIC DOCUMENT

ACCEPTANCE - same deed of donation or separate instrument; done during the lifetime of the donor

RULE: HUSBAND AND WIFE

G.R.: Every donation between Husband and Wife during the marriage is VOID EXCEPTION:

1. donation mortis causa

2. moderate gifts - family affair

*** gifts coming from the conjugal property made by both spouses are taxable, ½ to each spouse

RULE on INADEQUATE CONSIDERATION

* if the property transferred is real property classified as capital asset, the transfer is subject to capital gains tax of 6% and not to donor’s tax

* where the consideration is fictitious, the entire value of the property transfer shall be subject to donor’s tax

* the amount by which the value of the property exceed the amount of consideration shall be deemed a gift for purposes of the donor’s tax

VALUATION OF GROSS GIFTS - FMV at time of donation 1. Real Property

- BIR zonal value or FMV fixed by city/provincial assessor whichever is higher 2. Shares of Stock

B. If not listed – book value at the date of donation 3. Personal Properties – FMV at the time of donation * FMV = pawn value x 3

EXEMPTIONS/ALLOWABLE DEDUCTIONS

1. DOWRIES

RULES:

A. Exempt up to 1st _P10,000;

B. Legitimate recognized or legally adopted children; C. Made before marriage or within one year thereof.

In document CLAUDIA MARCELA BECERRA GARCÉS (página 63-93)