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 simply consists of the drafting of a contract in which the assets are divided among the heirs, as the latter see fit. Property left by the decedent, collectively referred to as 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 stock in a corporation.
It should be noted that an extrajudicial liquidation 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.
Also, settlement out of court is not possible if the heirs cannot agree on how the property will be divided. In such a case, they may file an ordinary partition action.
publication 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 title transfer. At the time of the transfer of the estate, the estate tax must be paid in accordance with Section 84 of the Philippine National Revenue Code.
Inheritance tax is defined as a tax on the right of the deceased person to transmit his estate to his legitimate heirs and beneficiaries at the time of death and on certain transmissions, 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 of the decedent’s death. The term may be extended by the Commissioner of the BIR, in meritorious cases, without exceeding thirty (30) days.
It is interesting to note that the estate itself will have its own Tax Identification Number (TIN). The BIR treats the patrimony as a legal entity.
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 deceased does not have legal residence in the Philippines, the statement can be filed with:
1. The Office of the Revenue District Official, Revenue District Office No. 39, South Quezon City; gold
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 you must pay the estate tax at the same time the return is filed.
In cases involving a large estate where the tax imposed may become too high, or in cases where the decedent left property that is difficult to liquidate and does not have the cash to pay the tax, the BIR Commissioner may extend the time of payment 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 for the amount, not to exceed twice the amount of the tax, that he deems necessary.
The wealth tax is based on the value of net worth as follows:
1. If it does 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 deceased within one (1) year before his death, family home deduction of not 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 state the deductions and exemptions to determine the decedent’s exact net worth.
