How Does Extrajudicial Settlement of Estate Work?
When a family member dies, one of the complications is dividing the deceased person’s assets and personal property, especially if there is no Last Will and Testament left behind to name the heirs. One way to deal with this situation is through an extrajudicial settlement of estate. Understanding how it works is important to avoid complications when a property is divided between legal heirs.
Read: What is an Extrajudicial Settlement of Estate?
“Extrajudicial” means “outside of court.” With extrajudicial settlement of estate, heirs do not need to go to court to partition the properties left by the deceased decedent. It is settling an estate by drafting a contract where the properties are divided among the heirs as they see fit.
How does it work?
An extrajudicial settlement of estate is done by executing an “Extrajudicial Settlement Among Heirs”. This is a legal document specifying:
- Compliance with the legal conditions for an extrajudicial settlement
- Description of the properties to be extrajudicially settled (title number, value, location, lot size, technical description, etc.)
- Nature of the property (if conjugal property)
- Name of the heirs
- How the properties shall be divided among the heirs.
- Posting of a bond if there is personal property involved.
- Undertaking that the Deed will be published in a newspaper of general circulation once a week for 3 consecutive weeks. Consult with the Register of Deeds where the property is located for the listing of these newspapers.
Understanding Estate Taxes
Estate taxes must be paid first prior to filing the Deed of Extrajudicial Settlement with the Register of Deeds. Under Philippine laws, an estate tax is 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. The estate tax is not a tax on property but rather imposed on the privilege of transmitting property upon the death of the owner.
The estate tax is based on the value of the net estate as follows:
- If not over P200,000, it is exempt
- If over P200,000 but not over P500,000, then tax is 5% of the excess over P200,000
- If over P500,000 but not over P2,000,000, then tax is P15,000 PLUS 8% of the excess over P500,000
- 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
- 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
- If over P10,000,000, then tax is P1,215,000 PLUS 20% of the excess over P10,000,000
Note that the basis shall be the net estate, which means that there are allowable deductions on the estate, including funeral expenses, share of the surviving spouse, medical expenses incurred by the decedent within 1 year prior to his death, family home deduction of not more than P1,000,000.00, standard deduction of P1,000,000.00.
After the estate taxes are settled, the heirs may proceed to the Register of Deeds where the land is situated to submit the following:
- The proof of payment of the estate tax
- Affidavit of Publication of the Deed
- Deed of Extrajudicial Settlement of Estate
When all documents are submitted, the Register of Deeds will issue the Transfer of Certificates of Title to the proper heirs. The legal owners can then put their real estate properties up for sale.
