Transfer taxes are excise taxes imposed upon the privilege of gratuitously transmitting one’s property to another. There are two types of transfer taxes: donor’s tax and estate tax. Donor’s Tax Imposed upon privilege to give Transfer is the living Estate Tax Imposed upon the privilege to transmit property to heirs Transfer is from the deceased, through his/her estate, to the living Transfer takes place only between natural persons
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Transfer may take place between natural and juridical persons I. ESTATE TAX
PRINCIPLES Definition It is a graduated tax imposed upon the privilege of the decedent to transmit property at death and is based on the entire net estate. It is not a direct tax on the property transmitted or transferred although its amount is based thereon. Applicable Law It is a well-settled rule that estate taxation is governed by the statute in force at the time of the death of the decedent. The estate tax accrues as of the death of the decedent and the accrual of the tax is distinct from the obligation to pay the same. Upon the death of the decedent, succession takes place and the right of the State to tax the privilege to transmit the estate vests instantly upon death. (Section 3, RR 22003) Transfers Affected 1. Transfers Mortis Causa - Gratuitous transfers mortis causa or after death are the usual objects of the estate tax. Such transfers are either testate or intestate. 2. Transfers Inter Vivos - Generally, gratuitous transfers inter vivos attract donor’s tax. However, certain transfers inter vivos are treated as testamentary dispositions and are accordingly included in the computation of the gross estate in order to arrive at the proper estate tax liability. These transfers are the following: a. Transfers in contemplation of death (Sec. 85B) The term “in contemplation of death” does not refer to the general expectation of death which all entertain. The transfers referred to are those impelled by the thought of death (i.e., the motivating factor or controlling motive is the thought of death), regardless of whether the transferor was near the possibility of death or not. In ascertaining such intent, the following are considered: o The age of the decedent at the time the transfers were made; b.
The decedent’s health, as he knew it, at or before the time of the transfers; The interval between the transfers and the decedent’s death; The amount of the property transferred in proportion to the amount of property retained; The nature and disposition of the decedent, e.g., whether peaceful or gloomy, sanguine or morbid, optimistic or pessimistic; The existence of a general testamentary scheme of which the transfers were part; The relationship of the donee or donees to the decedent, i.e. whether they were the natural objects of their bounty; The existence of a desire on the part of the decedent to escape the burden of managing property by transferring the property to others; The existence of a long established giftmaking policy on the part of the decedent; The existence of a desire on the part of the decedent to vicariously enjoy the enjoyment of the donees of the property transferred; and The existence of the desire by the decedent of avoiding estate taxes by means of making inter vivos transfers of property. (Source: Nolledo, The NIRC Annotated)
Transfer with retention or reservation of certain rights (Sec. 85B) This contemplates those cases where the owner transfers his property during life but still retains the economic benefits – the possession or enjoyment of the property, or the power to designate the persons who may exercise such rights. By reason of the restriction or encumbrance, the transferee is incapable of freely enjoying or disposing of the property until the transferor’s death, that the transfer may be regarded as having been intended to take effect in possession or enjoyment at the...