BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS)
5SUGGESTED ANSWERS
Chapter 2: TRANSFER TAXES AND BASIC SUCCESSION
CHAPTER 2
TRANSFER TAXES AND BASIC SUCCESSION
Problem 2-11. False - gratuitous
2. False – donation mortis-causa is subject to estate tax.
3. False – Not all gratuitous transfer is subject to transfer tax. Example, the first P100,000 of net gift is exempt. Also, gratuitous transfer to the government is not subject to business tax. 4. True
5. False – subject to business tax 6. True
7. False – the legitime is based on value of the estate, not on the form of the estate. 8. False – they are voluntary heirs.
9. True
10. False – fixed by law 11. False – executor 12. True
13. False – an income earned; therefore, onerous transfer (consideration for service rendered). 14. False – upon right to transfer
15. True
16. False – upon death of the decedent. Problem 2-2
1. True
2. False – no oral will is valid. Will must be in writing to be valid.
3. False – legitimate parents succeed the rank, in the absence of the legitimate child. 4. False – relatives up to the 5th degree
5. True 6. True 7. True
8. False – equal rights 9. True
10. True 11. True
12. False – the 5th degree collateral line relative is the legitimate heir
13. False – If the surviving spouse is alone, his/her share is 100%. If no children, but with parents of the decedents, he/she will receive ¼ only if there is will.
14. False – if the transfer is testamentary, the free portion can be given to legitimate parent as provided in the will.
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS)
6SUGGESTED ANSWERS
Chapter 2: TRANSFER TAXES AND BASIC SUCCESSION
Problem 2-3 Problem 2-4 Problem 2-5
1. A 1. A 1. D 2. B 2. D 2. C 3. B 3. C 3. B 4. C 4. D 4. D 5. D 5. C 5. D 6. C 6. C 6. C 7. D 7. D 7. A 8. A 8. B 8. B 9. C 9. C 9. A 10. B 10. B 10. A 11. A 11. A 11. B & D 12. B 12. D 12. A 13. D 13. B 13. D 14. C 14. A Problem 2-6 A
Zero. Except for the prize for winning the tournament which is subject to final income tax of 20%, all properties received are subject to transfer tax which will be paid by the donor or the estate of the decedent.
Problem 2-7 1. Letter D
Business liabilities P 500,000
Car – first prize 1,000,000
Amount of mortgage assumed 1,500,000
Salary 300,000
Amount of onerous transfer P3,300,000
2. Letter B
Business, net of liabilities (P2,000,000 – P500,000) P1,500,000 House and lot as donation, net of mortgage (P2,000,000 – P1,500,000) 500,000
Farm as inheritance 500,000
Amount of gratuitous transfer P2,500,000
Problem 2-8 1. Letter A
Car (P800,000 – P300,000) P 500,000
2. Letter D
House and lot – mortis causa P1,000,000
Every donation between the spouses during the marriage shall be void. This prohibition does not apply when the donation takes effect after the death of the donor. Neither does this prohibition apply to moderate gifts which the spouses may give each other on the occasion of any family rejoicing. (Art. 133, Civil Code)
Gifts in favor of an educational and/or charitable, religious, cultural or social welfare corporation, institution, accredited nongovernment organization, trust or philanthrophic organization or research institution or organization are tax-exempt. (Sec. 101, NIRC)
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS)
7SUGGESTED ANSWERS
Chapter 2: TRANSFER TAXES AND BASIC SUCCESSION
Problem 2-9 A
Property left by the decedent P 5,000,000
Less: Charges against the estate 1,000,000
Hereditary estate P 4,000,000
Problem 2-10 D
Distributable estate P12,000,000
Less: Share of 3 children (P12,000,000 x 50%) P6,000,000
Share of surviving spouse (P6,000,000/3) 2,000,000 8,000,000
Free portion P4,000,000
Less: Share of illegitimate child per Will 3,000,000
Free portion for the church P1,000,000
The share of the illegitimate child must be taken from the free portion. The Will is valid because the 50% of the hereditary estate intended to legitimate children is not impaired.
Problem 2-11 B
Increase in the share of C (P1,500,000 x 3/5) P900,000
Problem 2-12 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
Problem 2-13 B
Inheritance of the spouse (P5,000,000/5) P1,000,000
Problem 2-14 A
Share of Abu = share of Surot (P12,000,000/3) P4,000,000
Add: Share inheritance repudiated by Cuto (P4,000,000/2) 2,000,000
Share of Surot P6,000,000
Problem 2-15 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 2-16 NOT IN THE CHOICES
Hereditary estate P3,000,000
Less: Share of parents (P3,000,000 x1/2) P1,500,000
Share of illegitimate child (P3,000,000 x 1/4) 750,000
Share of surviving spouse (P3,000,000 x 1/8) 375,000 2,625,000
Free portion P 375,000
Share of the surviving spouse P375,000
Add: Share from free portion (P375,000/3) 125,000
Total share of the surviving spouse P500,000
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS)
8SUGGESTED ANSWERS
Chapter 2: TRANSFER TAXES AND BASIC SUCCESSION Problem 2-17 D
Share of Anac (P12,000,000/3) P4,000,000
Divided by number of children of Anac 2
Share of Cute P2,000,000
Problem 2-18 A
Zero, because Lolo and Lola are excluded by Tatay and Nanay who are nearer to the testator. The nearer excludes the farther.
Problem 2-19 D
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 Note: The testator is still intending to give 1/4 of the free portion to the nanny, but he can give the entire amount of free portion to the nanny.
Problem 2-20 C
Inheritance of each child (P5,000,000/6) P 833,333
Problem 2-21
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 (P1,500,000 + P300,000) P1,800,000
Problem 2-22
Cash in bank P 100,000
House and lot 5,000,000
Investments in securities 400,000
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 2-23
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
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS)
9SUGGESTED ANSWERS
Chapter 2: TRANSFER TAXES AND
BASIC SUCCESSION
Problem 2-24
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 2-25 Gross estate P2,000,000 Less: Deduction 1,000,000
Net estate before share of the surviving spouse P1,000,000
Less: Share of the surviving spouse (P1,000,000 x 50%) 500,000
Net estate before estate tax P 500,000
Less: Estate tax 15,000
Net distributable estate P 485,000
Estate Distribution – death of Sabel
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 P 500,000
Add: Share from distributable share 161,667
Distributable estate 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 2-26
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 2-27
1. Computation of net distributable share
Total gross estate (P10,000,000 + P20,000,000 + P30,000,000) P60,000,000
Less: Ordinary deductions 2,500,000
Net estate before share of surviving spouse P57,500,000
Less: Share of surviving spouse (P57,500,000 x 50%) 28,750,000
Net estate before standard deduction P28,750,000
Less: Standard deduction 1,000,000
Net taxable estate P27,750,000
Multiplied by assumed estate tax rate 15%
Estate tax P 4,162,500
Net estate before standard deduction P28,750,000
Less: Estate tax 4,162,500
Net distributable estate P24,587,500
BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS)
10SUGGESTED ANSWERS
Chapter 2: TRANSFER TAXES AND BASIC SUCCESSION
2. Computation of the shares of the heirs
Share of legitimate son (P24,587,500 x ½) P12,293,750
Share of surviving spouse (P24,587,500 x ½) P12,293,750
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 2-28
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 P 100,000
Unpaid mortgage 200,000 P 300,000
Allowable deduction - Standard deduction 1,000,000 1,300,000
Net taxable estate P11,900,000
Less: Estate tax (P11,900,000 x 15%) 1,785,000
Net estate after tax P10,115,000
Add: Standard deduction 1,000,000
Net distributable estate P11,115,000
2. Distribution of net distributable estate:
Christopher Cristeta Crisistomo
(son) (daughter) (driver) Total
Testate succession P4,000,000 P1,000,000 P 200,000 P 5,200,000
Intestate succession 2,957,500 2,957,500 . 5,915,000
Mixed succession P6,957,500 P3,957,500 P 200,000 P 11,115,000
