When death comes knocking on your door, there is nothing you can do but embrace it and accept that you have reached the final chapter of your life. For an individual who cares for the future of loved ones left behind, leaving properties upon death is a sound decision. However, these properties can become a liability if estate taxes are not properly settled. The question is: Who pays the estate tax?
Estate Tax
Estate tax refers to the difference between the allowable deductions and the gross estate as defined under Section 85 and 86 of the Tax Code. The rates of estate tax are graduated and depend on the amount of net estate. The property may not be transferred to the decedent’s heirs if filing of the estate tax return has not been executed and payment of the estate tax has not been made. The problem often lies with non-payment of estate tax and this is one of the road blocks in transferring the property to the buyers’ or heirs’ names.
Estate Proceedings
When someone passes away, there are things that need to be done so you can prevent problems with transferring the property.
1. Within two months, the family has to file a Notice of Death with the Bureau of Internal Revenue after the date of death. When the value of the estate exceeds P20,000, this procedure will be applied. The Notice of Death should be filed by the administrator of the estate of executor. There is no specific format that should be followed for filing the notice.
2. A Tax Identification Number (TIN) for the Estate of the deceased individual will also be required. This can be secured by filling out the BIR Form No. 1901. The TIN is essential for filing the Estate Tax Return (BIR Form No. 1801).
3. Make sure the list of decedent’s assets and liabilities are ready. The faire market values of the properties at the time of the decedent’s death must also be obtained.
4. Essential documents for the assets and liabilities must be prepared. Some of the supporting documents that must be secured are a certified copy of the Death Certificate, Notice of Death received by the BIR, Affidavit of Self-Adjudication etc.
5. Once required documents are completed, the net estate and estate tax must be computed.
6. Estate Tax Return must be filed and estate taxes should be paid.
7. There will be a procedure for transferring the properties to the heir’s name which should be followed.
8. The procedure for cancellation of the decedent’s TIN as outlined in Section 12 of Revenue Regulations No. 7-2012 must also be followed.
