Basics of Estate Tax: What it is, Why it’s important, and How to Compute for Estate Tax
When you have worked so hard for so long to make life easier for you and your family, you wouldn’t want it all to just go to waste in the end when you finally have to face the inevitable. You would make plans to ensure the future of your dependents and beneficiaries when you’re gone.
The topic of inheritance and whatever else happens to the money you have accrued and saved throughout your life after you pass away is an uncomfortable one, but nonetheless important.
However, it doesn’t just get passed down without consequence. The government does have a hand in the process, which is where estate tax comes in. While there’s no love lost for the taxman, the estate tax is a reality that families all over the country do have to deal with.
Why is Estate Tax Important?
An estate tax is imposed on a person’s right to transfer his/her estate to lawful heirs and beneficiaries at the time of death and on certain transfers that are made by law as similar to testamentary disposition. Take note this is not a tax on property, but merely tax on the privilege of transferring that property.
Also, remember that the estate tax is based on laws enforced at the time of death. Therefore, if a law changes just before the time of death, you will have to go with the newer law. It is also notwithstanding postponement of actual possession or enjoyment of the estate by the beneficiary, so make sure to prepare for all eventualities in anticipation of the process.
Real property may not be transferred without filing and payment of estate tax, yet people not paying estate tax happens all the time. It brings about problems whenever properties are to be transferred from a decedent to his/her heirs. Being aware of everything that estate tax entails can help prevent such problems in the future.
How to Compute for Estate Tax
Current estate tax rates here in the Philippines range from 5% to 20% of the net estate, depending on how much is expected to be transferred over.
The more there is, the higher the rate of the estate tax, ranging from below PHP 200,000 to over PHP 10,000,000.
This chart shows what you should know with estate tax rates in the Philippines.
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So basically, if it’s PHP 200,000 or below, it’s exempt from estate tax. This version of estate tax was implemented on January 1, 1998, and it’s still effective today.
It actually used to be higher for values over PHP 2,000,000, but it was since remanded to be less impactful, perhaps to encourage more people to actually pay estate tax and not try to “circumvent” the law.
Once you’re able to compute the estate tax involved in an inheritance (transfer of property from a decedent to heir), you should then file the paperwork with all the requirements like a certified true copy of Death Certificate, Deed of the estate, Notice of Death duly received by the BIR, and so on.
Regardless of what you may think of the need to file taxes when you have just lost a loved one, it’s an eventuality that must be dealt with nonetheless. It may be a sensitive topic, but it merits discussion and debate.
You can also say that you know your family is truly united if everyone is able to comfortably discuss this topic without too much trepidation. Once you’re able to get that out of the way, the devil is in the details.