Not everyone undergoes estate planning or executes a will to manage the properties to be inherited by the heirs in case of a person’s death. Lack of estate planning or a valid will leaves the decedent’s heirs at a loss as to what to do next. Thinking that going through a formal process of estate settlement is difficult, lengthy and costly, heirs tend to resort to estate settlement discussions without any documentations as to who gets what. Others sometimes skip the discussion part and just proceed with claiming ownership over properties that they prefer, without the other heirs’ consent. Oftentimes, this leads to family quarrels, and the family members ultimately find themselves in court.
On the other hand, while it is possible that there is no conflict among the heirs, problems typically arise if the heirs decide to sell the properties belonging to an estate that is not legally settled yet.
While judicial settlement of estate applies to certain cases, our law allows extrajudicial settlement of estate, which is undoubtedly more convenient.
A. When does extrajudicial settlement of estate apply and what are the requirements?
2. No outstanding debts at the time of extrajudicial settlement;
3. Heirs are all of legal age or minors represented by judicial guardians or legal representatives;
4. Settlement made in public instrument ( i.e. , deed of extrajudicial settlement of estate ) duly filed with the Register of Deeds;
5. Publication of the fact of extrajudicial settlement in a newspaper of general circulation in the province once a week for three (3) consecutive weeks (note that publication does not constitute constructive notice to the heirs who had no knowledge or did not participate in the settlement, hence, extrajudicial settlement is not binding on them); and
6. Bond to be posted with the Register of Deeds if the estate includes personal property.
It is essential that all the heirs must agree and cooperate in executing the extrajudicial settlement of estate. A disagreement among the heirs will certainly impede the process and might even require a judicial settlement of estate.
Generally, the heirs execute a public instrument in a form of deed of extrajudicial settlement of estate where the foregoing legal requirements are stated, together with the following:
1. Description of the estate ( i.e. , itemized list of the properties, title or account number, value, location, lot size, technical description, nature);
2. How the properties are divided amongst the heirs; and
3. An undertaking that the deed of extrajudicial settlement will be published in a newspaper of general circulation.
Depending on the intention of the heirs, the deed of extrajudicial settlement may be executed simultaneously with other contracts involving donation, waiver of rights, and/or sale. Likewise, it may be executed simultaneously with a special power of attorney authorizing representative/s such as lawyers, to settle the estate for ease of transactions with the relevant government agencies and private entities ( i.e. , banks, corporations).
If there is one surviving heir, the heir may execute an affidavit of self-adjudication , which adjudicates the entire estate to him/herself.
B. What are the requirements to transfer the properties in the name of the heirs?
Generally, estate settlement proceedings are done with the end-goal that the properties of the deceased are transferred in the names of the heirs. Complying with the requirements described above is just the first step to transfer the property titles to the heirs. Transfer of property titles or registrations further requires the following:
1. Payment of estate taxes with the Bureau of Internal Revenue (BIR)
An estate tax of 6% (based on the value of net estate) under the TRAIN Law is due on the transfer of the net estate of a decedent. However, if the person died prior to January 1, 2018, the applicable rate of estate tax shall be based on the schedular rates provided under Section 84 of the National Internal Revenue Code of 1997. Note that the tax is imposed on the value of the net estate (gross estate less deductions allowed by law).
As a general rule, the BIR requires the following:
i. For death prior to January 1, 2018, filing of the Notice of Death with the BIR office which has jurisdiction over the place of the decedent’s residence at the time of death;
ii. Preparation of the documents to be submitted together with the estate tax return :
a. Certified true copy (CTC) of the decedent’s Death Certificate;
b. Notice of Death, duly received by the BIR (for death prior to January 1, 2018);
c. Deed of Extrajudicial Settlement or Affidavit of Self-Adjudication (or any other documents executed by the heirs pursuant to estate settlement);
d. If estate includes real properties:
e. If estate includes personal properties ( i.e. , vehicles, cash and cash equivalents, investments, shares of stock):
f. Certified Public Accountant (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:
g. Special power of attorney if the person transacting with the BIR is a representative of the heir/s; and
iii. Filing of the estate tax return with supporting documents and payment of estate tax.
If estate settlement includes taxable donations or sale, applicable donor’s tax or capital gains tax shall also be paid.
2. BIR’s Issuance of Certificate Authorizing Registration (CAR)
If the property involved is a real property or share of stock, a CAR is required to transfer the property in the name of the heirs. The BIR issues the CAR after filing of the estate tax return (and other required documents) and payment of estate taxes. Issuance of CAR may take months depending on the relevant BIR office. The CAR will be submitted to the relevant government agencies or corporations upon application for transfer of property titles or registration.
3. Request for transfer of the property’s certificate of title with the Register of Deeds
After the CAR is issued by the BIR, request for transfer of the property’s certificate of title in the name of the heirs is filed with the Register of Deeds where the property is located. As a general rule, the submission of the following documents are required to process the transfer of property title:
i. Deed of extrajudicial settlement or affidavit of self-adjudication duly-stamped by the BIR;
ii. Original owner’s duplicate copy of the title;
iii. CTC of the CAR;
iv. Transfer tax receipt from the treasurer’s office with security seal and certification;
vii. Affidavit of publication with newspaper clippings; and
viii. Proof of payment of transfer tax ( i.e. , official receipt).
The requirements above may differ depending on the relevant Register of Deeds which has jurisdiction over the property.
4. Request for transfer of the property’s Tax Declaration with the Assessor’s Office
i. Original and photocopy of the newly issued certificate of title;
ii. Photocopy of the previous certificate of title;
iii. Photocopy of the deed of extrajudicial settlement or affidavit of self-adjudication;
iv. CTC of the old Tax Declaration;
v. Photocopy of the CAR;
vi. Original and photocopy of the payment of the transfer tax paid at the City Treasurer;
vii. Tax Clearance; and
viii. A 3x5 picture of the property’s location printed on photo paper.
Likewise, the foregoing documentary requirements may differ depending on the relevant Assessor’s Office that has jurisdiction over the property.
The process and requirements of the transfer of proper registrations of personal properties differ depending on the nature of the properties. Typically, government and private entities require submission of the deed of extrajudicial settlement or affidavit of self-adjudication, proof of payment of estate tax, proof of property registration, and CAR if the personal properties consist of shares of stock.
Since the documents are to be submitted to numerous parties (government and private) when processing title or registration transfers, it is crucial to know the documentary requirements of each relevant party to plan ahead and prepare the number of copies of the documents to be executed by the heirs and/or requested from relevant government agencies and private entities.
If the above-mentioned requirements and procedures appear to be overwhelming and complicated, you should consider asking the advice of an expert, especially a tax lawyer or an estate attorney.
Arceo Balmoja & Irasusta Law Firm (ABI Law) is a law office in Bulacan, Philippines. This Bulacan law firm was founded by Atty. Reginald M. Arceo, Atty. Nel Vincent G. Balmoja, and Atty. Kyle D. Irasusta, CPA, who are all graduates of top law schools in the Philippines. Also, Atty. Arceo took up Bachelor of Arts in Public Administration from the National College of Public Administration and Governance, University of the Philippines – Diliman, Quezon City, Atty. Balmoja graduated with Bachelor of Science in Business Economics from the University of the Philippines, and Atty. Kyle D. Irasusta became a Certified Public Accountant (CPA) after she took up Bachelor of Science in Accountancy at the University of Sto. Tomas and passed the licensure exams. Before establishing the firm, our attorneys were employed as associate lawyers of some of the best private law firms in the Philippines. Arceo Balmoja & Irasusta Law Firm’s attorneys are engaged in wide-ranging areas of legal practice, which include corporate law, taxation law, litigation and dispute resolution, labor law, immigration, annulment, adoption, real estate and property, estate planning, wills and probate, investments and doing business in the Philippines, personal injury and products liability, administrative law, and insurance, among others. The Firm offers flexible and reasonable fees designed for the unique needs of each client.
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