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Problem 25

TRANSFER TAXES - ESTATETransfer Taxes and Basic Succession

1. Transfer taxes areI. Excise Taxes

II. Privilege taxes

III. Percentage taxes

d. Value added taxa. I only

b. I and II only

c. I, II and II only

d. I, II, III and IV2. If the transfer is a gratuitous transfer as a fact of death, then the applicable tax isa. Business taxes such as VAT, percentage tax, or excise taxb. Capital gains tax

c. Estate taxd. Donors taxBusiness tax if onerous transfer which is in normal course of business. CGT if onerous transfer which is a casual transfer.

3. This theory views that every inheritance received by an heir is in the nature of unearned wealth.a. Redistribution of wealth theory.

c. Ability-to-pay theoryb. Benefit received theory

d. Privilege or state partnership theory4. Estate tax is levied ona. The deceased person

b. The heirs of the deceased personc. The estate of the deceased persond. The government5. A supplement or an addition to a will, made after the execution of a will and annexed to be taken as a part thereof, by any disposition made in the original will is explained, added to, or altered. a. Probate

b. Codicil

c. Executrix

d. Administratix6. One entirely written, dated and signed in the very handwriting of the testator himself and is subject to no required form, and may be made in or out of the Philippines, and may be made without a witness.a. Notarial willb. Handmade will

c. Holographic willd. Nuncupative willNotarial will is a public instrument, notarized by lawyer, signed by testator and witnesses. Nuncupative will is oral will, not allowed.7. An estate of a deceased person without a will.a. Probate

b. Reprobate

c. Testate estate

d. Intestate estate8. A special proceeding to establish the validity of a will. It is mandatory which means that no Will passes either real or personal property unless it is approved and allowed in a proper court.a. Probate

b. Reprobate

c. Execution

d. Special proceedingsReprobate special proceeding to establish the validity of a will proved in foreign country.9. A proceeding wherein the State, by virtue of its sovereignty, steps in and claims the real or personal property of a person who dies intestate without heir. In the absence of a lawful owner, a property is claimed by the estate to forestall an open invitation to self-service by the first comers.a. Accion Pauliana

b. Accion Subrogatoria

c. Escheat

d. Special proceedings10. Which of the following is not a primary compulsory heir?a. Legitimate children (including legitimated and adopted) and their descendants, with respect to their legitimate parents and ascendants

b. Legitimate parents and legitimate ascendantsc. Surviving legitimate spouse

d. Illegitimate children and their descendants

Parents whether legitimate or illegitimate are only secondary compulsory heirs. Brothers, sisters, nephews and nieces are not compulsory heirs.

11. In the absence of compulsory heirs, the successors would be (choose the incorrect)a. The descendants relatives up to the 5th degree of consanguinity

b. The descendants relatives up to the 3rd degree of affinityc. The government

d. If there is a will, any person named by the decedent for the free portion of the net distributable estate.

12. The portion of the testators property which could not be disposed off freely because the law has reserved it for the compulsory heirs.a. Legitime

b. Free portion

c. Estate

d. Gross estate

13. In a testamentary distribution of net estate, which of the following is not correct?a. If there are legitimate children (LC), natural children (NC) and illegitimate children (IC), the share of the LC is of the legitime while the share of the NC and/or IC is of one legitimate child.b. If the successor is an IC alone, he shares f the legitime.c. If the successors are two or more LC and surviving spouse (SS), the share of the LCs is of the legitime and the share of the SS is equivalent to a share of one LC.d. If the successors are one LC and surviving spouse (SS), the share of the LC is of the legitime and the share of the SS is equivalent to a share of one LC.SS share is of the legitime.

14. An intestate succession may be done in all of the following cases, excepta. Without a written Will, o with a void Will, or one which subsequently lost its validity.

b. With a will but no one is named as successor.

c. If the heir instituted is incapable of succeeding, except in cases provided in the Code.

d. All of the above are correct15. In an intestate distribution of net estate, (which is not correct)a. If the survivors are LC and SS, the SSs share is equivalent to the share of one LC.b. If the survivors are LC and parents of the decedent, the parents gets of the share of one LC.c. If the survivors are IC and legal parents, the ICs will receive half of the estate and the parents will receive the other half.d. If the survivors are SS and legal parents, the SS will receive half of the estate and the parents will receive the other half.Parent will receive nothing.

16. The following persons are incapable of succeeding, excepta. The priest who heard the confession of the testator during his last illness, or minister of the gospel who extended spiritual aid to him during the same period, including their (priest and minister) relatives within the 4th degree, the church, order, chapter, community, organization, or institution to which such priest or minister may belong.b. A guardian with respect to testamentary dispositions given by a ward in his favor before the final accounts of the guardianship have been approved, even if the testator should die after the approval thereofc. Any attesting witness to the execution of a will, excluding the spouse, parents, or children or any one claiming under such witnessd. Any physician, surgeon, nurse, health officer, or druggist who took care of the testator during his last illness. including the spouse

Other incapable of succession are individuals, associations, and corporations not permitted by law.

Gross EstateSummary of Properties Included in the Gross Estate

PROPERTYRC / NRC / RANRA

Real property situated

In the PhilippinesYesYes

Outside the PhilippinesYes

Tangible personal property situated



Intangible personal property situated



Franchised exercised



Shares, obligations or bonds issued by corporations organized under Phils lawsYesYes

Shares, obligations or bonds issued by corporations (85% of business located in the Phils)YesYes

Shares, obligations or bonds issued by any foreign corporation that acquired business situs in the PhilsYesYes

Shares or rights in partnership or industry established in the PhilsYesYes

Conjugal Partnership of Gains vs Absolute Community Properties

PropertyCPGACP

Property inherited or received as donation during marriageExclusiveExclusive

Property acquired during marriage (other than inheritance or donation)ConjugalCommunity

Property acquired from labor of the spouses during marriageConjugalCommunity

Fruits coming from common property ConjugalCommunity

Fruits coming from exclusive propertyConjugalExclusive

Property owned before the marriage brought to the marriageExclusiveCommunity

17. In valuation of gross estate, which of the following rules should not be observed?a. gross estate shall be valued at its fair market value at the time of the decedents death

b. real properties should be valued at the current FMV as shown in the schedule of values fixed by the Provincial/City Assessors or BIR Commissioner, whichever is lowerc. personal properties should be reported at the acquisition cost for the recently acquired properties or the current market price for the previously acquired properties

d. if stocks, bonds, and other securities are listed in local stock exchange, the value is the mean of the highest and lowest quoted selling price at the date nearest to the date of the death. If not listed, common shares are valued at book value, preference shares at par value.

higher

18. The personal properties of a non-resident who is a non-Filipino is not included in the gross estate ifa. The property is intangible and in the Philippinesb. The property is intangible and in the Philippines and the reciprocity clause of estate tax law appliesc. The property is tangible and in the Philippinesd. The property is shares of stock of a domestic corporation19. The following transfers are considered not physically present at the time of death a. under limited power of appointmentb. in contemplation of deathc. with revocable terms and conditions

d. for insufficient consideration

general power of appointment

20. Proceeds of life insurance shall beS1.Excluded from the gross estate if the beneficiary is irrevocable

S2.Include in the gross estate if the beneficiary is revocable

S3. Exclude in the gross estate if the beneficiary is the decedents estate, his administrator, or his executor.

Which of the above is/are true?

a. S1 only

b. S1 and S2 only

c. S1 and S3 only.

d. S2 and S3 only

S3 is included

21. Which is wrong? Proceeds of life insurance policy taken out by the decedent on his own life are includible in the gross estate if the beneficiary isa. The estate, whether designated as revocable or irrevocable

b. The executor or administrator, whether designated as revocable or irrevocable

c. A third person, and designation is revocable

d. A third person, and designation is irrevocable22. Which of the following statements is incorrect regarding transfer for insufficient consideration?a. if the transfer is a bona fide sale with full consideration, no value shall be included in the gross estate

b. if the consideration received is less than the full consideration, the value included in gross estate is the excess of market value of property at the time of death over the consideration receivedc. if no consideration was received as in donation mortis causa, the value to be included in the gross estate is the book value of the property at time of deathd. all of the above are correctthe FMV23. Which of the following is included in the gross estate?a. Bequests to be used actually, directly, and exclusively for educational purposesb. Properties held in trustc. Proceeds of life insuranced. Separate properties of surviving spouse

Included if the beneficiary is revocableFor bequest, exception if more than 30% are used in administration.

24. Refers to a person designated who has the real or beneficial interest in an estate or fund, the title or administration of which is temporarily confided to another.a. Devisee

b. Comissary

c. Fiduciary heir

d. Fideicomissary25. The following transfers or acquisitions are excluded in the determination of gross estate, hence, not subject to estate tax, excepta. the transfer of inheritance by fiduciary heir to fideicomissary

b. the transfer of the first heir to another beneficiary in accordance with the desire of the predecessor decedent

c. the merger of the usufruct in the owner of the naked title

d. the transfer of property for insufficient consideration26. Under Conjugal Partnership of Gains, which of the following is not treated as exclusive property of a decedent?a. properties owned before marriage

b. properties acquired by inheritance during marriage

c. properties acquired as payment from exclusive property

d. properties acquired after marriage27. The conjugal property is distinguished from the community property by thea. income derived by each spouse during marriage

b. fruits of exclusive propertiesc. properties acquired through occupation during marriaged. properties inherited during marriageDeductions from Gross Estate28. The following rules are observed regarding the items of deductions from gross estate. Chose the exception:a. In general, they are decedents unpaid obligations, expenses incurred on or before the burial, and expenses or losses sustained on or before the settlement date of estate tax.b. They are presumed to be conjugal, unless specifically identified as exclusivec. Deductions already allowed as deductions from gross income are no longer allowed as deductions from gross estated. To be deductible, losses should be compensated by any insurance or extra-judicial settlementShould not be compensated29. Which of the following is an ordinary deduction?a. Standard deductionb. Family home

c. Medical expenses

d. Funeral expensesOrdinary deductions: ELITE (Expenses, Losses, Indebtedness, Taxes, Etc.)

Example: funeral, judicial, casualty losses, claims against estate, claims against insolvent persons, unpaid mortgages and taxes.

30. Actual funeral expenses include the following, excepta. Cremation and interment fees, including cost of burial lot and tombstoneb. Mourning apparel of surviving spouses and childrenc. Expenses for decedents wake (food and beverage)d. Expenses for death notice publication and telegrams sent to relatives of the deceased

Only for surviving spouse and unmarried children

31. Which of the following is a deductible funeral expense?a. Cost of prayer masses on the 40th day after deathb. Funeral expenses unsupported with receipts or documentary evidencec. Cost of upkeep of tombstoned. Fees for rites and ceremonies during burialFuneral expenses after death but before interment and burial.32. Claims against the estate may arise froma. Operation of law

b. Contract

c. Tort

d. All of the above33. A claim against the estate will be allowed as a deduction ifa. The liability was contracted in bad faith and for adequate and full considerationb. The claim is not valid and enforceable in law and in courtc. The debt has been condoned by the creditor d. The action to collect by the creditor from the decedent must not have been prescribedContracted in good faith, valid and enforceable, and has not been condoned.34. Claims by the estate against insolvent persons is deductible ifS1.The amount of said claim is not included in the gross estate

S2. The incapacity of the debtor is proven and not merely alleged

a. S1 only

b. S2 only

c. S1 and S2

d. None of the above35. A tax incurred prior to date of decedents death which remained unpaid as of the date of death is deductible? Which of the following unpaid taxes is not deductible from gross estate?a. Donors tax

b. Property tax accrued prior to decedents death

c. Income tax for income received by decedent before death

d. Income tax for income received by decedent after death 36. To be fully deductible, transfer for public use (choose the incorrect statement)a. is for the use of Government of the Republic of the Philippines used exclusively for public purposeb. maybe given to a private body, as long as it is used exclusively for the publicc. should be through testamentary succession

d. should be an exclusive property of the decedent

37. Which is true regarding vanishing deductions,a. The present decedent died within three years from receipt of property through gratuitous transferb. Value taken is reduced by mortgage paid by the decedent and proportionate deductionc. Proportionate deduction includes medical expensesd. The final basis of vanishing deduction initial basis less ordinary deductions Formula of vanishing deduction:

Value taken

Less: mortgage paid by the decedent

Initial basis

Less: Proportionate deduction (ELITE + transfer for PP) x ( Initial basis / Gross estate)

Final basis of Vanishing deduction

Multiply: % of deduction level

Vanishing deduction38. Which of the following is not a special deduction?a. Standard deduction

c. Family homeb. Amount received by estate under RA 4917

d. Medical expensesReceived by heirs

39. Which is false regarding medical expenses? To be fully deductible, medical expenses

a. Should be incurred by the decedent within one year prior to his death

b. Should be substantiated with receipts

c. Should be paid on or before the time of his deathd. Should not exceed P500,000. Any excess is no longer deductible

40. Non-resident aliens are allowed deductions related to the following, excepta. Expenses, losses, indebtedness, taxes, etc.

c. Amounts of transfer for public useb. Vanishing deductions

d. Special deductionsAdministrative Requirements

Value of Gross Estate

RequirementsExceeds P20,000Exceeds P200,000Exceeds P2,000,000

Notice of death (within 2 months)YesYesYes

Estate tax return (within 6 months)NoYesYes

CPA certificate (within 6 months)NoNoYes

41. Which is false regarding liability for payment of estate tax?a. The estate, through the executor, shall have the primary obligation to pay the estate tax

b. Where there two or more administrators, all of them are jointly and mutually liable for the payment of estate taxc. The heirs or beneficiaries have subsidiary liability to pay the estate tax

d. After payment of estate tax, a estate tax clearance issued by BIR Commissioner or RDO having jurisdiction of the estate, which will serve as authority to distribute the remaining distributable estate to heirs or beneficiaries

They are severally liable

42. In case the available cash of the estate is not sufficient to pay its total estate tax liability, the estate may be allowed to pay the tax by instalment, provided that (choose the incorrect one)a. A clearance shall be released only with respect to the property the corresponding/computed tax on which has been paid

b. Any amount paid after the statutory due date of the tax shall be imposed the corresponding applicable penalty thereto

c. The Commissioner may enforce action against the estate after the due date of the estate tax provided that all applicable laws and required procedures are observed.d. If the Commissioner approves the payment of estate tax after the due date, no more penalty shall be imposed.Imposable penalty is interest only.

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