Estate: Everything you own under your name minus your debt is your estate. Your estate is not limited only to the real estate you own, but also including your house, car, businesses, bank accounts and even your stocks and mutual fund investments.
Estate tax on the other hand, as described by the Bureau of Internal Revenue, is a tax on the right of the deceased person to transmit his/her estate to his/her lawful heirs and beneficiaries at the time of death and on certain transfers, which are made by law as equivalent to testamentary disposition.
It is not a tax on property. It is a tax imposed on the privilege of transmitting property upon the death of the owner. The Estate Tax is based on the laws in force at the time of death notwithstanding the postponement of the actual possession or enjoyment of the estate by the beneficiary. (source: www.bir.gov.ph)
In simple terms, it is the tax paid in order to transfer your assets to your family who are left behind upon the death of the owner. Unless this tax is paid, the properties and assets of the owner will never be passed down and enjoyed by the beneficiaries. Thus, proper estate planning should also be considered to preserve the wealth you have built.
There are different ways to do estate planning and how to minimize the estate tax (the legal way). And one way to do estate planning is to learn how to calculate the estimated estate tax your family will be most likely pay.
Today, let’s us learn how to compute the estate tax based on Philippine tax laws.
Below is the Bureau of Internal Revenue’s (BIR) Estate Tax Table and our computations will be based on the table:
Looking at the table, if the estate of the person does not exceed P200,000, then the beneficiaries are exempted to pay the estate tax.
Example: If a breadwinner dies having a balance of P200,000 in his bank account, the family can just withdraw the money without paying for the estate tax.
However, if the bank account exceeds the P200,000 mark as based on BIR’s estate tax table, then the bank account of the person who died gets frozen. The family can not withdraw the money unless estate taxes and other requirements are met.
Another example: What if the person who died is a wealthy person with a total estate of P15M (including car, house, properties, bank accounts and paper investments), then here’s how to compute the estate tax:
Based on the BIR table, for an estate over P10M, then the tax will be P1,215,000. Plus 20% of the excess which is P5M (since the total estate is P15M), thus the additional tax will be:
P5M x 20% = P1M
Total Estate Tax: 1,215,000 + 1,000,000 = P2,215,000
Disclaimer: The above calculation is for illustration purposes only. The computation and results can be used to estimate the estate tax needed to know for proper estate planning purposes. Seeking a professional and legal advice is still recommended.