Inheritance

Philippine inheritance

Introduction

One of the most common disputes Filipino families have is dividing their inheritance from parents or other relatives who passed away. This happens most of the time if the deceased failed to write a will or didn’t allocate their properties equally. There are also cases where rights of legitimate and illegitimate children are unclear. This article, hopes to give clearer view of inheritance and the law relating to it.

The law on inheritance

Succession is a mode of acquisition by virtue of which the property, rights and obligations to the extent of the value of the inheritance, of a person are transmitted through his death to another or others by his will or by operation of law.

Properties may be inherited with or without a will. The parents or owner of the property may write a will based on how they want their property distributed among their heirs as permitted by law. However, for deceased who failed to write a will, the Philippine law takes over the distribution.

Inheritance with a will

A will or testament is a legal document whereby a person is permitted, with the formalities prescribed by law, to control to a certain degree the disposition of this estate, to take effect after his death.

It is important that a testator writes a will to prevent any disputes that may occur due to unclear allocation of the properties that will be left behind. Moreover, by writing a will, the testator gains control over their property to a certain extent permitted by law.

If the testator has an illegitimate child, they will have a chance to legally allocate properties for them because illegitimate children are not mandated by law to inherit any property unless stated and signed in a notarized will.

Who can write a will?

Anyone who is 18 years old and above, of sound mind and not prohibited by law can write a will. One identifier of a sound mind is that if the testator knows how to divide the property legally.

Distribution of property with a will

A testator may give more to a specific child but a testator cannot give a lower amount than what the law allows.

In the case where there is a surviving spouse with two children, the law mandates that half of the property is automatically given as conjugal share to the surviving spouse, and ¼ is reserved for the legitimate children, which still includes the spouse, and the remaining ¼ is the free portion.

This remaining ¼ or the free portion may be distributed freely by the testator however the testator wishes to distribute it. The free portion may be given to a friend, charity, etc.

Requirements for writing a will

  • Notarial Will –  Notarial will has formal requirements. First, it must be written in a language or dialect known to the testator. Second, it must be subscribed by the testator and three credible witnesses who will sign in front of each other. It should be type written, signed in each page on the left-hand margin. Credible witnesses include: Resident of the Philippines, not necessarily citizen, not convicted of perjury, or any conviction, must be able to read and write, must not be blind or deaf, must be over 18 years of age, must not be a successor. Lastly, it must be acknowledged by a notary public.
  • Holographic will – A testator may write a holographic will. It is a handwritten will signed by the testator. The Philippine law recognizes holographic wills but requires to meet the following requirements: proof that the testator actually wrote the will, proof that the testator had the mental capacity to write the will and the will must contain testator’s wish to disburse personal property to beneficiaries. This type of will must strictly be handwritten and is not required to be witnessed or notarized which therefore do not require the presence of a lawyer. If in the case, however that the will is typewritten, it should be witnessed.

Disadvantages of not writing a will

If there is no will, the testator allows the law to take full control of the property.

There is a high number of cases where families are torn apart due to conflicts that arises from unclear inheritance. Family conflicts are surfaced even more when it comes to dividing the property.

Inheritance without a will

If the parent or owner failed to write a will before their death, the law will be taken into action. This is called intestacy. If the deceased has immediate family or other relatives that are still alive, properties will automatically be given to them. If, however, the deceased no longer have relatives, all the properties will immediately be transferred to the ownership of the government.

The following is the order of hereditary or intestate succession if the deceased was a legitimate child:

  • Legitimate children or descendants;
  • Legitimate parents or ascendants;
  • Illegitimate children or descendants;
  • Surviving spouse;
  • Brothers and sisters, nephews and nieces;
  • Other collateral relatives within the fifth degree; and,
  • The State

The following is the order of hereditary or intestate succession if the deceased was an illegitimate child:

  • Legitimate children or descendants;
  • Illegitimate children or descendants;
  • Illegitimate parents (other ascendants are excluded);
  • Surviving spouse;
  • Brothers and sisters, nephews and nieces; and,
  • The State.

Distribution of inheritance according to the Philippine Civil Code

If the deceased has a surviving spouse, half of the property will be inherited by the spouse and the rest of the half will be distributed equally among the children of the deceased and still, together with the spouse. The spouse here, is considered a legitimate child. Adopted children possess the same rights as the legitimate children.

In cases where the deceased has illegitimate children, each illegitimate child is entitled to half of the share of a legitimate child. The parents of the deceased together with the brothers and sisters in this case are naturally excluded from the inheritance because the priority of the distribution of the property is the immediate family.

Inheritance tax

The amount taxable from an inheritance is computed after deducting all expenses, losses, debts and taxes related to the property including the surviving spouse’s net share. Rates are progressive as follows:

ESTATE TAX
TAX BASE, PHP (US$) TAX RATE
Up to 200,000 (US$4,255) 0%
200,000-500,000 (US$ 10,638) 5% on band over US$4,255
500,000-2 million (US$ 106,383) 8% on band over US$10,638
2 million – 5 million (US$ 106,383) 11% on band over US$42,553
5 million – 10 million (US$212,766) 15% on band over US$106,383
Over 10 million (US$212,766) 20% on band over US$212,766
Source: Global Property Guide

The following deductions are allowed for citizens and resident foreigners. These are aside from the expenses and taxes related to the property and the surviving spouse’s share:

  • PHP 1 million (US$21,277) standard deduction,
  • PHP 1million (US$21,277) for the family home,
  • PHP 200,000 (US$4,255) for funeral expenses and
  • PHP 500,000 (US$10,638) for medical expenses during one whole year before the testator’s death.

Donor’s Tax

When nonresident foreigners donate real property located in the Philippines, they are required to pay donor’s tax which is generally levied at progressive rates and computed as follows:

DONOR’S TAX
TAX BASE, PHP (US$) TAX RATE
Up to 100,000 (US$2,128) 0%
100,000-200,000 (US$4,255) 2% on band over US$2,128
200,000-500,000 (US$10,638) 4% on band over US$4,255
500,000 – 1 million (US$21,276) 6% on band over US$10,638
1 million – 3 million (US$63,830) 8% on band over US$21,276
3 million – 5 million (US$106,383) 10% on band over US$63,830
3 million – 10 million (US$212,766) 12% on band over US$106,383
Over 10 million (US$212,766) 15% on all value over US$212,766
Source: Global Property Guide

These rates apply to any person related to the deceased: children, spouse, brother, sister, parents or any relatives by consanguinity in the collateral line within the fourth degree of relationship. However, if the recipient of the donation is not related, the recipient is considered a stranger and is subject to a flat rate of 30% tax.

Sources:

Filipinohomes.com

GlobalPropertyGuide

Holographic Will