This post was updated by Hermann Haller on July 30, 2024.
When a listed owner on a property title passes away, there are several legal and administrative steps that need to be taken to transfer ownership, settle the estate, and potentially facilitate a sale. Below, we outline the key processes, including the use of an extrajudicial settlement, payment of estate taxes, and relevant scenarios involving wills and non-Filipino owners. Contact Haller International Realty for more information.
1. Understanding Extrajudicial Settlement
An extrajudicial settlement is a legal process used to settle the estate of a deceased person without court intervention, provided there is no will, all heirs are of legal age, and they agree on the distribution. This is formalized through a notarized document and must be published in a newspaper for three consecutive weeks to notify potential creditors.
Steps to Process an Extrajudicial Settlement:
• Gather Required Documents: Death certificate, proof of ownership, and tax declarations.
• Draft the Settlement Document: Include details of the deceased, heirs, and estate distribution.
• Publication: Publish the settlement in a newspaper of general circulation.
• Payment of Estate Taxes: Pay the estate tax to the Bureau of Internal Revenue (BIR).
• Transfer of Title: With a Certificate Authorizing Registration (CAR) from the BIR, the title can be transferred to the heirs.
2. Standard Process: Transfer to Heirs First
Typically, the title must be transferred to the heirs before any sale can occur. This involves:
• Paying the estate tax and obtaining a CAR.
• Updating the title to reflect the heirs as the new owners.
• Heirs can then sell the property, with taxes such as capital gains tax and documentary stamp tax applying to the sale.
3. Direct Transfer to New Owners (Buyers)
In some cases, the extrajudicial settlement can include a direct sale to new buyers. This process combines the settlement with a sales agreement, allowing the title to transfer directly to the new owners. This method simplifies the transaction but requires:
• Payment of estate taxes and all sale-related taxes (capital gains and documentary stamp taxes).
• Compliance with all legal and tax requirements.
4. Payment of Estate Taxes
Estate tax is a flat rate of 6% on the net estate value. The estate tax must be paid within one year from the date of death to avoid penalties and interest. The BIR issues a CAR upon payment, which is essential for transferring the title.
5. Estate Tax Amnesty Program
Under Republic Act No. 11213 and Republic Act No. 11956, the Philippines offers an Estate Tax Amnesty program. This allows taxpayers to settle unpaid estate taxes at a reduced rate, avoiding penalties and interest. The deadline to avail of this amnesty has been extended to June 14, 2025.
Penalties and Interest Without Amnesty:
• Surcharge: 25% or 50% for late payment.
• Interest: 20% per annum on the unpaid tax.
• Compromise Penalties: Additional charges depending on the case specifics.
6. Steps to Pay Estate Tax Without Immediate Title Transfer
It is possible to pay the estate tax without immediately transferring the title. This involves:
• Filing the estate tax return.
• Paying the estate tax and obtaining the CAR.
• Holding off on the title transfer until a future date, such as during a sale.
7. Scenarios Involving Wills
• With a Will: The will must be probated, which is a court process confirming the validity of the will. The estate is then distributed according to the will's instructions.
• Without a Will: The estate is distributed according to the rules of intestate succession, typically via an extrajudicial settlement.
8. Non-Filipino Owners on Condominium Titles
Non-Filipinos can inherit property in the Philippines but are subject to ownership restrictions. If the ownership limit is exceeded, the property must be sold. The process involves the same steps as above but requires compliance with foreign ownership laws.
9. Dealing with the Death of One Owner
If only one of two listed owners has died, the process depends on the ownership structure:
a) Type of Ownership:
o Conjugal Partnership of Gains (prior to August 3, 1988): If the property was acquired during the marriage, it is considered conjugal property, and the surviving spouse owns half of the property. The deceased husband’s share is the other half, which forms part of his estate.
o Absolute Community of Property (after August 3, 1988): Similar to a conjugal partnership, all properties acquired during the marriage, including this condo, are part of the community property. The surviving spouse retains ownership of half, while the other half belongs to the estate of the deceased.
b) Estate Tax Computation:
o The estate tax is calculated on the value of the deceased's share of the property. In the case of a condominium owned under the regimes mentioned above, the husband's share (typically 50%) is subject to estate tax.
o The estate tax rate is 6% of the net estate, which is the total estate value minus allowable deductions.
c) Allowable Deductions:
o The estate may be entitled to deductions such as the standard deduction, family home deduction, and medical expenses incurred before death, among others. These deductions can reduce the taxable estate value, thereby lowering the estate tax.
d) Payment and Compliance:
o The estate tax return must be filed and the tax paid within one year from the date of death to avoid penalties and interest.
Special Scenarios:
• Surviving Spouse: The surviving spouse's ownership interest is not subject to estate tax; only the deceased's share is taxed.
Timing and Tax Considerations
Immediate Steps: Secure death certificates, assess the estate, and start the settlement process. Estate taxes should ideally be paid within one year to avoid penalties. Some steps, like title transfer, can be deferred until the property is sold, but taxes must be settled promptly.
This guide provides an overview of the processes and legal requirements when handling property transfers after the death of the owner(s). Consulting with legal and tax professionals is essential to ensure compliance with all applicable laws and to handle specific circumstances properly. Contact us at Haller International Realty and allow us to help coordinate your transaction.
1. Understanding Extrajudicial Settlement
An extrajudicial settlement is a legal process used to settle the estate of a deceased person without court intervention, provided there is no will, all heirs are of legal age, and they agree on the distribution. This is formalized through a notarized document and must be published in a newspaper for three consecutive weeks to notify potential creditors.
Steps to Process an Extrajudicial Settlement:
• Gather Required Documents: Death certificate, proof of ownership, and tax declarations.
• Draft the Settlement Document: Include details of the deceased, heirs, and estate distribution.
• Publication: Publish the settlement in a newspaper of general circulation.
• Payment of Estate Taxes: Pay the estate tax to the Bureau of Internal Revenue (BIR).
• Transfer of Title: With a Certificate Authorizing Registration (CAR) from the BIR, the title can be transferred to the heirs.
2. Standard Process: Transfer to Heirs First
Typically, the title must be transferred to the heirs before any sale can occur. This involves:
• Paying the estate tax and obtaining a CAR.
• Updating the title to reflect the heirs as the new owners.
• Heirs can then sell the property, with taxes such as capital gains tax and documentary stamp tax applying to the sale.
3. Direct Transfer to New Owners (Buyers)
In some cases, the extrajudicial settlement can include a direct sale to new buyers. This process combines the settlement with a sales agreement, allowing the title to transfer directly to the new owners. This method simplifies the transaction but requires:
• Payment of estate taxes and all sale-related taxes (capital gains and documentary stamp taxes).
• Compliance with all legal and tax requirements.
4. Payment of Estate Taxes
Estate tax is a flat rate of 6% on the net estate value. The estate tax must be paid within one year from the date of death to avoid penalties and interest. The BIR issues a CAR upon payment, which is essential for transferring the title.
5. Estate Tax Amnesty Program
Under Republic Act No. 11213 and Republic Act No. 11956, the Philippines offers an Estate Tax Amnesty program. This allows taxpayers to settle unpaid estate taxes at a reduced rate, avoiding penalties and interest. The deadline to avail of this amnesty has been extended to June 14, 2025.
Penalties and Interest Without Amnesty:
• Surcharge: 25% or 50% for late payment.
• Interest: 20% per annum on the unpaid tax.
• Compromise Penalties: Additional charges depending on the case specifics.
6. Steps to Pay Estate Tax Without Immediate Title Transfer
It is possible to pay the estate tax without immediately transferring the title. This involves:
• Filing the estate tax return.
• Paying the estate tax and obtaining the CAR.
• Holding off on the title transfer until a future date, such as during a sale.
7. Scenarios Involving Wills
• With a Will: The will must be probated, which is a court process confirming the validity of the will. The estate is then distributed according to the will's instructions.
• Without a Will: The estate is distributed according to the rules of intestate succession, typically via an extrajudicial settlement.
8. Non-Filipino Owners on Condominium Titles
Non-Filipinos can inherit property in the Philippines but are subject to ownership restrictions. If the ownership limit is exceeded, the property must be sold. The process involves the same steps as above but requires compliance with foreign ownership laws.
9. Dealing with the Death of One Owner
If only one of two listed owners has died, the process depends on the ownership structure:
a) Type of Ownership:
o Conjugal Partnership of Gains (prior to August 3, 1988): If the property was acquired during the marriage, it is considered conjugal property, and the surviving spouse owns half of the property. The deceased husband’s share is the other half, which forms part of his estate.
o Absolute Community of Property (after August 3, 1988): Similar to a conjugal partnership, all properties acquired during the marriage, including this condo, are part of the community property. The surviving spouse retains ownership of half, while the other half belongs to the estate of the deceased.
b) Estate Tax Computation:
o The estate tax is calculated on the value of the deceased's share of the property. In the case of a condominium owned under the regimes mentioned above, the husband's share (typically 50%) is subject to estate tax.
o The estate tax rate is 6% of the net estate, which is the total estate value minus allowable deductions.
c) Allowable Deductions:
o The estate may be entitled to deductions such as the standard deduction, family home deduction, and medical expenses incurred before death, among others. These deductions can reduce the taxable estate value, thereby lowering the estate tax.
d) Payment and Compliance:
o The estate tax return must be filed and the tax paid within one year from the date of death to avoid penalties and interest.
Special Scenarios:
• Surviving Spouse: The surviving spouse's ownership interest is not subject to estate tax; only the deceased's share is taxed.
Timing and Tax Considerations
Immediate Steps: Secure death certificates, assess the estate, and start the settlement process. Estate taxes should ideally be paid within one year to avoid penalties. Some steps, like title transfer, can be deferred until the property is sold, but taxes must be settled promptly.
This guide provides an overview of the processes and legal requirements when handling property transfers after the death of the owner(s). Consulting with legal and tax professionals is essential to ensure compliance with all applicable laws and to handle specific circumstances properly. Contact us at Haller International Realty and allow us to help coordinate your transaction.