BASIC SUCCESSION
CHAPTER 2
TRANSFER TAXES AND BASIC SUCCESSION
Problem 2-1 1. True
2. False – first P100,000 of net gift is exempt. 3. False – subject to business tax
4. False – gratuitous 5. False – an income earned 6. False – upon right to transfer 7. True
8. False – upon death 9. True
10. False – the legitime is based on value of the estate, not on the form of the estate. 11. False – they are voluntary heirs.
12. True
13. False – fixed by law 14. False – executor Problem 2-2
1. False – relatives up to the 5th degree 2. True
3. False – the relative is the legitimate heir
4. False – if part of inheritance is through the written will 5. False – if the transfer is testamentary
6. False – one for the legitimate child and half for the illegitimate child 7. True
8. True
9. False – equal rights 10. True
11. False 12. True
Problem 2-3 Problem 2-4 Problem 2-5
1. A 2. C 3. A 4. A 5. C 6. C 7. C 8. D 9. A 10. D 1. C 2. A 3. A 4. C 5. D 6. B 7. B 8. B 9. D 10. B 1. B 2. C 3. D 4. A 5. B 6. A 7. C 8. A 9. C 10. A Problem 2-6 1. C
Car – first prize P1,000,000
Amount of mortgage assumed 1,900,000
Salary 240,000
BASIC SUCCESSION 2. C
House and lot as donation, net of mortgage (P2,000,000 – P1,900,000) P 100,000
Farm as inheritance 500,000
Amount of gratuitous transfer P 600,000
Problem 2-7 1. A
Car P 800,000
2. C
House and lot – mortis causa P1,000,000
Problem 2-8 C
Net value of property left by the decedent (P5,000,000 – P1,000,000) P 4,000,000
Transfers in contemplation of death 2,000,000
Hereditary estate P 6,000,000
Problem 2-9 C
Net hereditary estate P5,000,000
Legitime of children (P5,000,000 x ½) ( 2,500,000)
Portion for the surviving spouse (P5,000,000 x ¼) ( 1,250,000)
Free portion – may be distributed to strangers P1,250,000
Note: The distribution is testamentary because there is a devise or legacy. Problem 2-10 B
Inheritance of the spouse (P5,000,000/5) P1,000,000
Problem 2-11 A
Hereditary estate P3,000,000
Legitime of children (P3,000,000 x ½) ( 1,500,000)
Portion for the spouse (P1,500,000/4) ( 375,000)
Free portion P1,125,000
Multiplied by 20%
Legacy to the sister-in-law P 225,000
Problem 2-12 C
Hereditary estate P3,000,000
Portion for the illegitimate child (P3,000,000 x 1/3) (1,000,000)
Amount inherited by the wife P2,000,000
Problem 2-13
Hereditary estate, net of charges (P7,000,000 – P1,000,000) P 6,000,000 Legitime of legitimate children (P6,000,000 x ½) ( 3,000,000) Portion for the acknowledge natural child (P3,000,000/3) x 50% ( 500,000) Portion for the surviving spouse (P3,000,000/3) ( 1,000,000) Free portion – could be disposed of as legacy to the nanny P 1,500,000 Problem 2-14
Inheritance of each child (P5,000,000/5) P 1,000,000
Problem 2-15
Cash in bank P 100,000
House and lot 5,000,000
BASIC SUCCESSION
Total gross estate P5,500,000
Less: Unpaid mortgage P 200,000
Existing loan 100,000
Funeral expense 100,000
Estate tax 100,000 500,000
Hereditary estate P5,000,000
Problem 2-16
Legitimate child – Mario (P1,200,000 x ½) P 600,000
Illegitimate child – Maria (P600,000 x ½) 300,000
Surviving spouse (P600,000 x ½) 300,000
P1,200,000 Problem 2-17
With respect to legitime: Son Wife Legitimate child (P4,200,000 – P200,000) x 50% P2,000,000
Surviving spouse (P2,000,000 x ½) P1,000,000
Remaining balance (divide based on the intention of the will)
Legitimate child (P1,000,000 x ½) 500,000 Surviving spouse (P1,000,000 x ½) . 500,000 P2,500,000 P1,500,000 Problem 2-18 Gross estate Less: Deduction
Net estate before share of the surviving spouse Less: Share of the surviving spouse (P1,000,000 x 50%) Net estate before estate tax
Less: Estate tax Net distributable estate
P2,000,000 1,000,000 P1,000,000 500,000 P 500,000 15,000 P 485,000 Dorado (child) Maya (child) Jess (husband) Total Fraction of share - intestate 1/3 1/3 1/3 1 Distribution of inheritance P161,667 P161,667 P161,667 P485,000
Death of Jess
Exclusive share when Sabel died Add: Share from distributable share Distributable estate
P 500,000 161,667 P 661,667 Dorado (child) Maya (child) Free Portion Total Fraction of share - testate ¼ ¼ ½ 1 Distribution of inheritance P165,417 P165,417 P333,883 P 661,667
Problem 2-19
Gross taxable value for:
1. Capital gain tax P 300,000
2. Donor’s tax P 500,000 3. Business tax P 0 -4. Estate tax P1,800,000 Problem 2-20 Gross estate Less: Deductions P3,000,000 1,000,000
BASIC SUCCESSION
Net estate before estate tax Less: Estate tax
Net distributable estate
P2,000,000 135,000 P1,865,000 Tito (legitimate son) Vic (illegitimate son) Total Fraction of share - intestate 1 ½ 1.5 Distribution of inheritance P1,243,333 P621,667 P1,865,000 Problem 2-21 1. Gross estate (P500,000 + P250,000 + P1,000,000 + P100,000) P1,850,000 2. Inheritance of Tim (P500,000 x ½) P 250,000 Problem 2-22
1. Testamentary
Legitime:Legitimate son – Peter (P35,000,000 x 50%) x ½ P8,750,000 Legally adopted son – Petros (P35,000,000 x 50%) x ½ 8,750,000
Surviving spouse (P8,750,000 x ½) 4,375,000
Illegitimate son – Rocky 4,375,000
Free portion – that may be given to other relatives 8,375,000 P35,000,000
2. Intestate Succession
Legitimate son – Peter (P35,000,000/3.5) 1 P10,000,000
Legally adopted son – Petros (P35,000,000 x 3.5) 1 10,000,000
Surviving spouse (P35,000,000 x 3.5) 1 10,000,000
Illegitimate son – Rocky (P35,000,000 x 3.5) x ½ 1/2 5,000,000 P35,000,000 Problem 2-23
Legitimate child 1 Legitimate child 2 Surviving spouse Illegitimate child Total
Fraction of share 1 1 1 ½ 3.5 Amount of inheritance P2,857,143 P2,857,143 P2,857,143 P1,428,571 P10,000,000
Note: The last will and testament is void because the presence of legitimate child eliminates the parents from the inheritance. In all cases, the legitime must not be impaired by the disposition through will.
Problem 2-24
1. Computation of net distributable share
Total gross estate (P10,000,000 + P20,000,000 + P30,000,000) Less: Ordinary deductions
Net estate before share of surviving spouse
Less: Share of surviving spouse (P57,500,000 x 50%) Net estate before estate tax
Less: Estate tax (P28,750,000 x 15%) Net distributable estate
P60,000,000 2,500,000 P57,500,000 28,750,000 P28,750,000 4,312,500 P24,437,500
2. Computation of the shares of the heirs Share of legitimate son (P24,437,500 x ½) Share of surviving spouse (P24,437,500 x ½)
P12,218,750 P12,218,750
BASIC SUCCESSION Note: His mother and brother, as secondary heirs, are disqualified to share from the portion of the legitime due to the presence of a legitimate child. Hence, the will becomes void.
Problem 2-25
1. Computation of net distributable estate:
Gross estate (P4,000,000 + P1,000,000 + P200,000 + P5,000,000 + P3,000,000) P13,200,000 Less: Ordinary deductions:
Funeral expense Unpaid mortgage
Allowable deduction - Standard deduction Net taxable estate
Less: Estate tax (P11,900,000 x 15%) Net estate after tax
Add: Standard deduction Net distributable estate
P 100,000 200,000 P 300,000 1,000,000 1,300,000 P11,900,000 1,785,000 P10,115,000 1,000,000 P11,115,000 2. Distribution of net distributable estate:
Christopher (son) Cristeta (daughter) Crisistomo (driver) Total Testate succession Intestate succession Mixed succession P4,000,000 2,957,500 P6,957,500 P1,000,000 2,957,500 P3,957,500 P 200,000 . P 200,000 P 5,200,000 5,915,000 P 11,115,000