Pursuant to the law of Succession under the Civil Code of the Philippines, the rights of the heirs to properties, rights and obligations (the estate) of a deceased person (decedent) automatically transfers to them from the moment of death. This may sound simple and straightforward but the process of actually transferring legal title to such properties to the heirs, as well settling the estate, can be a long, costly, and difficult process, especially when the decedent owned real properties such as lands, buildings, houses and condominium units.
Before we get into the steps, note that this article focuses on transferring the title of real properties from the deceased person to his or her heirs. Other properties such as shares of stock, bank deposits, vehicles, etc. also have their own set of requirements, particularly as regards the settlement of estate taxes with the Bureau of Internal Revenue (“BIR”).
Before the titles to properties may be transferred to the heir/s, some steps must be accomplished even before you can head over to the Registry of Deeds to process the transfer of the titles in the name of the heir/s.
Step 1: Determine whether a Judicial or Extrajudicial Settlement of Estate is Proper
There are two ways to settle the estate of the decedent. It can be done extrajudicially, or out of court, or through judicial action.
Extrajudicial Settlement of the estate can be done if: i) the decedent did not leave a will; (ii) there are no debts (or the debts have been fully paid); and (iii) all of the heirs agree on the manner of the division and distribution of the estate. In this case, the heirs may sign a notarized extrajudicial settlement of estate to divide the estate between themselves. If there is only one heir and there are no debts, the sole heir can execute an affidavit of self-adjudication.
On the other hand, a Judicial Settlement of estate applies when the decedent left a will or when the decedent did not leave a will but the heirs are unable to agree on how to distribute the properties between themselves.
If the decedent left a will, the law requires that the will be presented/probated with the proper court. The purpose is to determine whether the will has complied with the legal requirements under the law. Once the court determines that the last will is valid and legal, it will appoint an executor to implement or execute the wishes of the decedent as contained in the last will, to administer the estate, pay the debts of the estate and pay the appropriate taxes, fees and charges. After all the obligations of the estate have been settled, the court may then order the distribution of the remaining properties to the heir/s.
Step 2: Determine the appropriate BIR Revenue District Office where the Estate Tax should be settled, pay the estate tax and secure the e-Certificate Authorization Registration (“e-CAR”)
The estate taxes isrequired to be paid at the time of filing the return, which is within one (1) year from the date of death.1 The period of payment of estate taxes may be extended up to two (2) years if the estate is settled extrajudicially. Payment by installment without civil penalty and interest may also be allowed up to two (2) years from the date of death of the decedent in case the available cash of the estate is insufficient to pay the total estate tax due. The request for extension of time to file the return, extension of time to pay estate tax or payment by installment shall be filed with the appropriate BIR Revenue District Office. These requests shall be approved by the Commissioner or his duly authorized representative.
Estate tax is governed by the law/statute in force at the time of death of the decedent. As of January 1, 2018, the Tax Code imposes a tax rate of six percent (6%) based on the net value of the estate whether the decedent is resident or non-resident of the Philippines. If the decedent died before January 1, 2018, the applicable estate tax rules would be that prior to the amendments introduced under the TRAIN Law. Regardless of when the estate taxes are actually settled, all the properties comprising the estate shall be valued according to their fair market value as of the time of the decedent’s death.
In order to secure an assessment of the estate tax payable from the BIR and to process the e-CAR, the BIR will require the submission of several documents relating to the real properties, which generally include:
- Certified true copy(ies) of the Certificate of Title(s) of real property(ies);
- Certified true copy of the latest Tax Declaration of real properties at the time of death;
- "Certificate of No Improvement" issued by the Assessor's Office declared properties do not have any declared improvement;
- Certification of Barangay Captain is the real property is claimed as a “Family Home”;
- Statement/Certificate of Aggregate Property Land Holdings issued by City/Municipal/Provincial Assessor’s Office.
- Location Plan/Vicinity map issued by the Local Assessor’s Office if zonal value cannot be readily determined from the other documents;
These documents may be secured in the relevant government offices having jurisdiction over the real properties. A crucial point to remember is to always coordinate with the relevant BIR RDO where the estate tax will be settled in case additional documents are required.
Step 3: Settle Local Transfer Tax (“LTT”)
While this step is labeled as step 3, the settlement of the LTT usually coincides with step 2 since local transfer tax is generally paid within sixty (60) days from the date of the decedent’s death. LTT is imposed by the province or city where such properties are located at the rates prescribed by their respective local revenue ordinance and will not be more 0.50% for properties located in provinces, and not more 0.75% for properties located in cities and municipalities in Metro Manila.
Step 4: Proceed to the Registry of Deeds where the Property/ies are located to Process the Transfer of Title
Once you’ve settled the estate tax, LTT and secured the eCAR, you may now proceed to the Registry of Deeds to process the title transfer in the name of the heir/s. Subject to the payment of registration fees and the submission of the required documents, the Register of Deeds will proceed with the cancellation of the previous title in the decedent’s name and issue a new title in the name of the heir/s.