When a person passes away, the transfer of their estate to heirs or beneficiaries can be done either judicially or extrajudicially. In the Philippines, an extrajudicial settlement of estate allows legal heirs to distribute the assets of a deceased person without going through court proceedings, provided there is no will and no conflict among heirs. However, even without court intervention, there are strict Bureau of Internal Revenue (BIR) requirements that must be followed before the property can be legally transferred. Understanding these BIR requirements for extrajudicial settlement of estate is crucial to ensure the smooth transfer of ownership and compliance with tax laws.
Understanding Extrajudicial Settlement of Estate
An extrajudicial settlement of estate is a method used by the heirs of a deceased individual to divide and distribute the estate without court intervention. It is generally allowed under Rule 74 of the Rules of Court, provided the decedent left no will, has no debts, and all heirs are of legal age or are properly represented. This settlement must be formalized through a notarized document, which must then be filed with the appropriate government agencies, particularly the BIR and the Registry of Deeds.
Core BIR Requirements for Extrajudicial Settlement
1. Estate Tax Return (BIR Form 1801)
This is the main document that must be filed with the BIR to declare the estate of the deceased. The estate tax return should contain a detailed listing of the assets, their corresponding values, deductions, and the computation of estate taxes due. The return must be filed within one year from the date of death, although an extension may be granted upon request under certain conditions.
2. Certified True Copy of the Death Certificate
The death certificate, issued by the Philippine Statistics Authority (PSA), is a mandatory requirement. It serves as proof of the decedent’s passing and marks the beginning of the one-year period for estate tax filing.
3. Taxpayer Identification Numbers (TINs)
- Deceased’s TIN: A TIN must be secured for the deceased if he or she did not have one.
- Heirs’ TINs: All heirs must also have valid TINs. This is needed to identify them in the estate tax return and other related documents.
4. Notarized Extrajudicial Settlement of Estate
This document must be signed by all legal heirs and notarized. It outlines how the estate will be divided. If real property is involved, the document must be published once a week for three consecutive weeks in a newspaper of general circulation.
5. Official Receipts or Proof of Payment of Estate Tax
Once the estate tax has been computed, payment must be made at the authorized agent bank of the BIR where the decedent was registered. Proof of payment must be attached when applying for a Certificate Authorizing Registration (CAR).
6. Sworn Declaration of No Outstanding Liabilities
This declaration is necessary if the decedent had no debts at the time of death. If debts existed, supporting documents and creditor consent must be submitted to ensure transparency in asset distribution.
7. Affidavit of Self-Adjudication or Deed of Extrajudicial Settlement
- Self-Adjudication: Used when there is only one heir.
- Extrajudicial Settlement: Required when there are multiple heirs who mutually agree on how to divide the estate.
8. Certificate of No Improvement (if applicable)
This is needed for land properties declared as having no improvements. It must be secured from the Assessor’s Office and submitted with the estate tax documents.
Supporting Documents for Real Property
If the estate includes real property, additional documents are required by the BIR to process the Certificate Authorizing Registration (CAR), which allows transfer of title:
- Certified true copy of the Transfer Certificate of Title (TCT) or Condominium Certificate of Title (CCT)
- Latest Tax Declaration of real properties
- Real property tax clearance
- Location plan or vicinity map if necessary
Issuance of Certificate Authorizing Registration (CAR)
The CAR is an essential document issued by the BIR that authorizes the transfer of property titles to the heirs. Without this, the Registry of Deeds will not allow the change of ownership. Once the estate tax is paid and all required documents are submitted, the BIR will evaluate the application and, if everything is in order, release the CAR to the heirs or their representative.
Common Mistakes to Avoid
Many families face delays or penalties when processing extrajudicial settlements because of avoidable mistakes. Here are some to watch out for:
- Late filing of the estate tax return beyond the one-year period
- Incomplete or missing supporting documents
- Failure to secure TINs for all involved parties
- Unnotarized or unsigned extrajudicial settlement documents
- Incorrect computation of estate tax due
Why Compliance with BIR is Crucial
Failure to comply with BIR requirements may result in penalties, interest on unpaid taxes, or delays in property transfers. Additionally, legal ownership remains with the deceased if the CAR is not issued, meaning the heirs cannot legally sell, lease, or mortgage the property. Strict compliance with BIR guidelines ensures legal clarity and protects the rights of the heirs.
How to Start the Process
To begin the process of extrajudicial settlement and comply with BIR requirements, the heirs should:
- Gather all required documents, including the death certificate, TINs, and proof of ownership.
- Prepare and notarize the extrajudicial settlement document.
- Compute the estate tax due and file BIR Form 1801.
- Pay the estate tax and apply for the Certificate Authorizing Registration.
- Once the CAR is released, proceed with the transfer of title at the Registry of Deeds.
Handling the estate of a deceased loved one can be an emotional and legally complex process. Fortunately, the extrajudicial settlement of estate in the Philippines offers a more efficient path when all heirs are in agreement. However, understanding and meeting the BIR requirements is vital to complete the process smoothly. By carefully preparing and submitting all necessary documentation, heirs can avoid legal complications and ensure a rightful and timely transfer of assets.