“Death is inevitable. Yet, oftentimes difficult to accept.”
– Ernesto C. Perez II, Real Estate Broker, Attorney and Blogger
By Realttorney®
Death. It is inevitable. It cannot be postponed or forestalled. It is a part of the “circle of life” and the ones left behind are tasked to continue on. The matter of organizing the affairs of the dead is a tedious and, oftentimes, emotional task for the loved ones left behind.
Some decide to tackle it head-on and as quickly as possible. Others sweep it under the rug for a myriad of reasons. Most of the time, for lack of financial resources to pay whatever is due to the government, or no one has an idea of where to start and how to go about the entire process.
I have previously written 4 articles on the topic of settlement of estate or estate settlement. It is the most widely read topic (apart from the topic of homeowner’s association) on the old website. It is the topic where I have engaged the most number of readers.
In the article What does it mean to settle the estate of a deceased person in the Philippines? my main message here is that the settlement of the estate of a deceased person is an intricate process. It cannot be easily done by anyone without the assistance or guidance of an experienced professional. Articles that have been published in various blogs and websites cannot replicate a face-to-face meeting with the professional of your choice. Oftentimes, the process is really very complicated due to the presence of children with special needs, children from a previous marriage, illegitimate children, spendthrifts in the family, and in-fighting among the heirs, to name a few.
As with the prior articles, this step-by-step guide will cover only the method of settling the estate of a dead person extra-judicially. If the deceased left a will before his death then that subject matter will be discussed in a future article to assist those who need it.
Once the registered owner of real and personal properties passed away – just recently or a long time ago – such properties cannot be sold, transferred, or conveyed by the heir or heirs without undergoing a specific process known as the settlement of the estate of a dead or deceased person.
The process of extrajudicial settlement of an estate is the same if the deceased died with just one property registered in his name or more than one. The only difference is in the amount of documentation that is prepared and submitted to the appropriate government agencies.
An important reason why we need to settle the estate of a dead relative is because we need to pay the correct amount of taxes – in particular, the estate tax. I highlighted 3 reasons why paying proper estate tax is necessary in 3 Reasons Why You Should Pay the Correct Amount of Estate Tax. Making it appear that the registered owner of the properties – real or personal – is alive and signed the transferring document is a dangerous scheme in this day and age of a highly computerized Bureau of Internal Revenue (BIR).
I have always dissuaded people who ask me if they could just sign a Deed of Absolute Sale or any conveyance document that would make it appear that the registered owner is still alive at the time of sale even though he or she has been dead for quite some time.
This article is best read in conjunction with 6 Steps in Settling the Estate of a Dead Person in the Philippines. I have outlined my best tips for selling real properties registered in the name of a dead relative or parent.
So, what is the first step to take when faced with a situation where a relative has passed away without a will, and several heirs want to sell the properties in the name of the deceased relative?
- Make sure that you know all the surviving heirs. You must know all the surviving heirs of the registered owner. If one of the heirs is not included in the extrajudicial settlement of the estate then the said document is subject to legal challenge once the excluded heir learns about the disposition of the property of his/her dead relative.
- Make sure that you negotiate with the surviving heir or the attorney-in-fact of the surviving heirs. This is important especially if the surviving heirs number more than four individuals. It is very hard to negotiate the purchase of a property if the person who is negotiating opposite you cannot bring all his/her relatives to an agreement on important provisions of the sale, like price and terms of payment. It is very frustrating when one or a few heirs change their minds as often as the sun rises and sets. The person negotiating for and on behalf of the heirs must be fully trusted by the surviving heirs themselves. Otherwise, the transaction may go to waste in the end when a dispute arises among and between the surviving heirs.
- Make sure that the surviving heirs can sign the necessary documents pertinent to the settlement of the estate and the eventual sale. Once you have accounted for all of the surviving heirs, it is important to know whether they can sign the necessary documents that are needed to make the estate settlement and eventual sale legal and above board. What documents are we talking about here? First, if the heirs are living in different localities and far away from each other, ask if they are willing to sign a Special Power of Attorney to appoint a person (preferably another surviving heir) who will sign any and all documents pertinent to the settlement of the estate and the sale of the property.
Secondly, the surviving heirs and/or the attorney-in-fact need to sign and execute a Deed of Extrajudicial Settlement of the estate of a dead person. This is the document that will be submitted to the BIR for processing of the settlement of the estate, along with the payment of the appropriate estate tax. A few weeks later, a Certificate Authorizing Registration (CAR) will be issued by the BIR so that the properties can be transferred in the names of the surviving heirs.
Thirdly, the surviving heirs and/or the attorneys-in-fact shall sign and execute a Deed of Absolute Sale of the property that is picked to be sold to the prospective buyer (assuming there are several real properties). This Deed of Absolute Sale is the transferring document that will be submitted to the BIR for processing of the sale transaction, along with the payment of the capital gains tax and documentary stamp tax and a copy of the CAR for the settlement of the estate. Thereafter, another CAR will be issued by BIR so that the property sold can be legally transferred in the name of the prospective buyer.
The guideline discussed above is best used when the deceased registered owner has more than one real property and the prospective buyer is merely interested in the purchase of only one property. But, what happens when there is only one real property that is registered in the name of the deceased relative?
In such a case, the surviving heirs and/or the attorneys-in-fact shall a Deed of Extrajudicial Settlement of Estate with Sale. This simplifies the documentation process. And, this document is allowed to be processed by the BIR after the payment of the estate tax, capital gains tax, and documentary stamp tax. The resulting CAR to be issued by BIR will be two – one for the settlement of the estate and the other for the sale of the property.
Our office has done more than seventy-five (75) transactions, similar to this, since 2013 to the satisfaction of our clients (the surviving heirs) and the prospective buyer and eventual owner of the real property.
A final important note should be made before we conclude from the prospective buyer’s viewpoint. Please make sure that the surviving heirs – whether they sign a Special Power of Attorney, a Deed of Extrajudicial Settlement of Estate, or a Deed of Extrajudicial Settlement of Estate with Sale – personally appear before the notary public for the notarization of these vital documents.
Never proceed with the transaction where a surviving heir hands over a notarized SPECIAL POWER OF ATTORNEY purportedly signed or executed by all of the surviving heirs. As a prospective buyer, you have to be better than that. Part of legal due diligence is finding out if all the surviving heirs are still alive during the negotiation phase and the close phase of the deal. Take everything that is said by the representative of the heirs with a grain of salt.
We expect transactions similar to the one we outline above to rise in the coming months due to the passage of Republic Act No. 11956 which extended the period to avail the Estate Tax Amnesty until June 14, 2025. We have numerous clients that have taken advantage of this law already.
Briefly, the Rep. Act No. 11956 shall cover the estate of decedents who died on or before May 31, 2022, with or without assessments duly issued therefor, whose estate taxes have remained unpaid or have accrued.
The estate tax amnesty rate is 6% based on the decedent’s total net estate at the time of death. This rate is similar to the new estate tax rate imposed by Republic Act No. 10963, otherwise known as the Tax Reform for Acceleration and Inclusion [TRAIN] Act, on January 1, 2018.
For now, our call to action for everyone is to tell your friends, relatives, and loved ones to avail of the Estate Tax Amnesty. It is a law that has effectivity saved our clients a great amount of money instead of giving it to the government in the form of penalties, interest, and surcharges.
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Atty. Jojo is a real estate attorney, an estate planning attorney, a licensed real estate broker, and a PRC-accredited Lecturer/ Speaker for Training Programs in Real Estate. He is a Chartered Trust and Estate Planning (CTEP®) professional who is committed to educating Filipinos about the value and importance of having an estate plan in their lives.
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