Extrajudicial Settlement of Estate in the Philippines

Not a lot of people know what an extrajudicial settlement of the estate is. Well, not unless they have experienced losing a member of the family and dividing his remaining properties.

Extrajudicial settlement of the estate simply means drafting a contract where the properties are divided among the heirs, as the latter may see fit. Enumerated in the contract are the properties left by the deceased, collectively called the "estate". The properties may range from real properties such as parcels of land, buildings, or personal properties such as money left in the bank, cars, jewelry, furniture and even shares in a corporation.

It should be well-noted that an extrajudicial settlement by agreement is only possible if there is no will left by the deceased. Even if there is a will but the will does not include all of the decedent's estate, then those not covered can by extrajudicially partitioned by agreement.

Moreover, extrajudicial settlement is not possible if the heirs cannot agree on how the properties will be divided. In that case, they can file and ordinary action for partition.

Publication requirement

After the settlement agreement is signed, the heirs should cause the publication of the agreement in a newspaper of general circulation to ensure that interested parties, if there are any, such as creditors and unknown heirs, will be given due notice.

Payment of Estate tax

After the publication, transfer of title may follow. Upon the transfer of the estate, the Estate Tax must be paid in accordance with Section 84 of the National Internal Revenue Code of the Philippines.

Estate tax is defined as a tax on the right of the deceased person to transmit his estate to his 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 a form of transfer tax, not a property tax. More particularly, it is a tax on the privilege of transferring the property of the decedent to the heirs.

The Estate Tax Return must be filed within six (6) months from the decedent's death. The deadline may be extended by the Commissioner of the BIR, in meritorious cases, not exceeding thirty (30) days.

It is interesting to note that the estate itself will have its own Tax Identification Number (TIN). The BIR treats the estate as a juridical person.

The Estate Tax Return is filed with Revenue District Office (RDO) having jurisdiction over the place of residence of the decedent at the time of his death.

If the decedent has no legal residence in the Philippines, then the return can be filed with:

1. The Office of the Revenue District Officer, Revenue District Office No. 39, South Quezon City; or

2. The Philippine Embassy or Consulate in the country where decedent is residing at the time of his death.

For estate taxes, the BIR imposes the pay-to-file system which means that you have to pay the estate tax at the same time the return is filed.

In cases involving a huge estate where the tax imposed can get too high, or in cases where the decedent left properties which are difficult to liquidate and they do not have the cash to pay the taxes, the BIR Commissioner can extend the time of payment but the extension cannot be over two (2) years if the estate is settled extrajudicially. If an extension is granted, the BIR Commissioner may require a bond in such amount, not exceeding double the amount of tax, as it deems necessary.

The estate tax is based on the value of the net estate as follows:

1. If not over P200,000, it is exempt

2. If over P200,000 but not over P500,000, then tax is 5% of the excess over P200,000

3. If over P500,000 but not over P2,000,000, then tax is P15,000 PLUS 8% of the excess over P500,000

4. If over P2,000,000 but not over P5,000,000, then tax is P135,000 PLUS 11% of the excess over P2,000,000

5. If over P5,000,000 but not over P10,000,000, then tax is P465,000 PLUS 15% of the excess over P5,000,000

6. If over P10,000,000, then tax is P1,215,000 PLUS 20% of the excess over P10,000,000

In computing the net estate, allowable deductions shall always be considered. These deductions include funeral expenses, share of the surviving spouse, medical expenses incurred by the decedent within one (1) year prior to his death, family home deduction of not more than P1,000,000.00, standard deduction of P1,000,000.00, among others. It is best to consult a lawyer or an accountant to determine to ensure that the heirs can properly indicate the deductions and exemptions and thereby determine the accurate net estate of the decedent.

Should you wish to know more about extrajudicial settlement of estates and related concerns, feel free to contact Atty. Joyce Domingo at +6328231090 or email your queries to ajd.prime@gmail.com.

Good day!

What if there is already a transfer of certificate among the legal heirs using extrajudicial settlement then after a year, one of the heir present a valid holographic will of their deceased father stating that they should not sell the property within 20yrs after his death. is the will still binding even if the property is already in the name of the heirs?

thank you!

Hello and Good day po!

CLARIFICATION: on the Notarizing Authority and Validity of a Property Settlement

I was helping my mother and her siblings for clarification and at least smoothly process this issue legally.

1. Can an extrajudicial partition/settlement that was acknowledged and filed in a barangay and signed by the barangay captain (at that time) be CONSIDERED as "notarized file"? or a certified lawyer/notary public must do the notarization?
2. Is it still VALID if it lacks a signature of one of the heirs despite the signature of the Brgy. Captain? The said heir was verbally informed and had agreed but due to his regional proximity and time constraint he wasn't able to sign until now.

The said partition sounded like a last will of my grandparents who were both physically weak but mentally capable at the time this was drafted, signed, and thumb-marked last 2010. In the document, my grandparents were giving two small parcel of lands to solely one child, another two small parcel of lands to solely to another child, and another larger land but of unequal partition to the 3 of their 4 children. It was also specified that the lands given to their children can be sold only to the immediate family (i.e. among their siblings or niece/nephew-sons/daughters of their sibling).

And as of January 2016, my grandfather recently passed away and my grandmother had been bedridden and exhibited dementia.
I. What is the best course of action shall my mother and her siblings take if the above-mentioned document is not considered notarize and invalid?
II. Could they just notarize (now with a certified lawyer/notary public):
a. Deeds of Extrajudicial settlement and deeds of donation from their mother? or
b. Notarize separate deeds of extrajudicial settlement with waiver and renunciation of rights/share for every/set of land/s and with which will indicate the sole heir and their mother and other siblings waiving their rights to that specified land?


Thank you po and God bless us all!