Estate taxes

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When a loved one dies, whether a relative or not, let us remind the heirs that there is still that step that should be taken so they can enjoy the properties their loved one left them

My father passed away more than 11 years ago. But to this day, I still remember what Tonito, my close friend and law firm partner, reminded me at the wake. He politely told me, “Dinds, I know this is not the opportune time, but let us work on the settlement of the estate of your dad soonest…” In the middle of grieving, I realized that yes, that had to be done.

Taxes would have to be paid and properties transferred to us. If not done within six months (as this was before the TRAIN — Tax Reform for Acceleration and Inclusion), we would be incurring penalties and surcharges. And so discussion with Tonito, even during the wake, ensued.

More often than not, when we lose a loved one, we get so immersed in mourning. After interment, the pain lingers on. And it takes quite some time before we get to move on. I remember those days after my dad’s demise, my brother and I together with our families, would literally have dinner in my mom’s place every single evening that whole summer to keep her company. And more often than not, we would see her in tears and unable to eat.

I guess that is human nature. A loved one’s passing away derails us for months… or even years. And chances are, we overlook what the law requires of us. It may not even be overlooked; as many people do not know this requirement. And not being lawyers, that is perfectly understandable. When my uncle passed away, I had to inform my cousins about what the law requires. And they were forever grateful as they did not incur penalty when they followed my advice.

When a person dies without a last will and testament, all his properties, both real and personal, are passed on to his compulsory heirs — surviving spouse and children. Real properties refer to land, houses, townhouses, condominium units, buildings and the like.

Personal properties refer to all the rest not relating to land (i.e., shares of stock, cars, money and investments, etc.). All these comprise the estate of the decedent, the person who passed away. But before the family members can dispose of them, ownership must be transferred to their names. And what is the proof of such? For real properties, when the TCT or CCT (title to the property) already bears their names. For personal properties like shares of stock for instance, when the stock certificates are already in their names. Before this happens, the heirs must pay estate taxes to the government. Under the TRAIN which became effective on 1 January 2018, the heirs have one year from death to settle the estate tax. Beyond that, the BIR will impose penalties and surcharges. And they are hefty. If they remain unsettled, tax due can balloon to an amount even equivalent to the value of the properties. I remember in one of my previous articles (“Tax simplified, better Philippines”), I mentioned cases wherein heirs decided against settling the taxes when they found out how much taxes they had to pay after many years of not paying them.

I guess that is human nature. A loved one’s passing away derails us for months… or even years. And chances are, we overlook what the law requires of us.

What is the effect if estate taxes remain unpaid? Not only do the penalties accrue, the properties remain in the name of the decedent. The result, the heirs cannot do whatever they please with them. They cannot sell the land that their deceased father left them. While legally, the properties automatically pass to the heirs upon death of the ascendant, technically they are not yet theirs for want of payment of taxes. And the most cogent proof of payment is when the properties are already under their names. But before then, they cannot sell them to interested buyers.

So now you see the importance of settling estate taxes. We should already be conscious of this fact. When a loved one dies, whether a relative or not, let us remind the heirs that there is still that step that should be taken so they can enjoy the properties their loved one left them. It is vital that they are informed because they may end up losing them to penalties and surcharges. And that is why I remember vividly, after all these years, what Tonito reminded me during the wake. Not that I did not know about it. But I suddenly realized that yes, after the interment and all, there was still work to be done for my dad… and for us.

Email: eduardo.martinez@mvgslaw.com

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