Estate Planning and Wealth Transfer
Estate Planning and Wealth Transfer
This domain tests how property passes at death and how to reduce friction, taxes, and family conflict. Expect questions on wills, intestate succession, legitime, compulsory heirs, estate tax, donor’s tax, beneficiary designations, and ownership structures under the Civil Code and Family Code.
Core rules
- A valid will may be notarial or holographic; intestate succession applies without a will.
- Compulsory heirs are protected by legitime; the free portion can be disposed of subject to limits.
- Estate tax is 6% of net estate; the standard deduction is ₱5 million, and the family home deduction may reach ₱10 million subject to rules.
- Donor’s tax is 6% on net gifts above ₱250,000 per year.
- Life insurance proceeds paid to a named beneficiary are generally income-tax exempt, but estate-tax inclusion depends on ownership and designation; do not assume automatic exclusion.
Worked example
Gross estate ₱20 million; allowable deductions ₱3 million; standard deduction ₱5 million; family home deduction ₱8 million. Net taxable estate = ₱20M − ₱3M − ₱5M − ₱8M = ₱4 million. Estate tax = 6% × ₱4 million = ₱240,000. Reasoning: deduct allowable items before applying the flat rate, and confirm documentation for the family home.
Traps
- Ignoring legitime and compulsory heirs.
- Failing to update beneficiary designations.
- Assuming joint accounts avoid estate tax automatically.
- Missing estate-tax filing and payment deadlines.
- Using lifetime gifts without considering donor’s tax.