When a person passes away, those left behind often have to cope not only with emotional loss but also with the responsibility of settling that person's affairs. The estate settlement process affects families from all walks of life, regardless of the size or value of the assets involved. It is therefore not surprising that estate dispositions are receiving increased public attention, including congressional proposals related to estate taxes, such as bills to expand estate tax amnesty programs or rethink the existing estate tax system. While these proposals are under discussion, they reflect a shared recognition that property disposal is a common and often challenging experience for many Filipinos and foreigners who own properties in the Philippines.
Estate settlement is the process by which the assets, rights and obligations of the deceased are identified, disposed of and transferred to his or her heirs. There are different ways to accomplish this depending on the circumstances in the Philippines. One of the most commonly used methods is Extrajudicial Settlement (EJS) which allows heirs to settle property among themselves without going to court. This is allowed when the deceased left no will, there are no unpaid debts (or the heirs agree to take responsibility for them), and all heirs sign and publish an agreement dividing the estate.
For many families, EJS provides a way to move forward without the additional cost, time and formality associated with judicial processes. However, while the EJS simplifies the process, it does not remove the legal and tax requirements that come with the transfer of assets from one party to another.
The EJS process actually begins by determining who the heirs are and what assets the deceased left behind. The heirs must then decide how the assets will be divided among themselves. This agreement must be formalized in a notarized deed of extrajudicial settlement, which must be published once a week for three consecutive weeks in a newspaper of general circulation. These procedural steps, while straightforward in principle, also form the basis of subsequent steps involving taxes and wealth transfer.
The tax law imposes a 6% estate tax on the transfer of the deceased's net worth to his heirs after his death, regardless of whether the estate is settled through court proceedings or through EJS. The law allows certain deductions to be taken on the net estate subject to tax, such as the value of the family home or certain assets acquired before death, subject to limitations.
In addition to estate taxes, the way heirs distribute property can also have different tax consequences. If an heir leaves part of his legal share so that another heir receives more than his legal share, a donor's tax of 6% may apply. Donor tax may also be imposed when a specific sacrifice is made in favor of a particular co-heiress, as opposed to a general sacrifice. In a recent Court of Tax Appeals (CTA) case, the Court held that although certain paragraphs of the EJS indicated a general relinquishment (i.e., without designating a specific recipient), these were effectively negated by subsequent provisions that clearly directed the disclaimed shares in favor of a specific heir. As a result, the CTA considered the relinquishment in the EJS to be a gratuitous transfer or donation. Careful drafting and aligning allocations with legal shares helps the donor avoid unintended tax risks.
Where land or other real property forms part of the estate, local taxes also apply. Under the Local Government Code, local government units are authorized to levy taxes on the transfer of ownership of real property, including transfers by donation and inheritance. Specific rates and procedures may vary depending on the city or municipality, adding another step to the settlement process.
Specifically, the settlement of an estate also includes filing the required documents (e.g., death certificate of the decedent, deed of extrajudicial settlement, proof of publication of EJS, tax declarations, certificates of title), filing estate tax returns, and paying taxes due to the Bureau of Internal Revenue (BIR). The heirs or their representatives must also secure a Certificate of Authorized Registration (CAR) from the BIR for each property before any transfer can be recorded by other institutions such as the Register of Deeds (RD) and the Land Transportation Office (LTO).
Finally, beyond these required documents and processes, it is important to recognize the human context in which property dispositions occur. Families often begin the settlement process while still grieving the loss of a loved one. During this period, it is natural to focus on personal and family matters, and meeting legal and tax requirements may not be an immediate priority. In fact, this may lead to delay in filing the property tax return or settling the tax obligations within the period prescribed by law, resulting in imposition of penalty and interest. This experience is not unusual and reflects the practical challenges faced by families engaged in asset disposal during difficult times.
From the families' perspective, these layered requirements combined with emotional and personal circumstances can make EJS feel more exhausting than initially expected. Although the absence of court proceedings remains a clear advantage, the overall time frame for settlement may still be affected by the need to gather necessary documents, file taxes and secure clearances. Delays at any stage can affect the next steps, making timing and coordination a critical part of the process.
The government passed several property tax amnesty measures, the most recent of which ended on June 14, 2025. This helped reduce the burden of long-standing unpaid estate taxes for the families of the deceased, especially those from earlier years. Today, legislators are once again discussing potential amnesty and other reforms, reflecting their continued recognition of the practical realities faced by families in settling estates. Although these are still under consideration, families will have to manage property disposals based on existing rules and procedures.
In short, extrajudicial settlement remains a valuable and legally recognized option for property settlement in the Philippines. Also, its effectiveness in practice depends largely on how well the heirs or their representatives understand and manage the surrounding tax and legal requirements when dealing with personal losses. A clear understanding of these realities can help set more realistic expectations and encourage informed decision making during this often sensitive and challenging period.
The views or opinions expressed in this article are solely those of the author and do not necessarily represent the views of Isla Lipana & Company. The content is for general information purposes only, and should not be used as a substitute for specific advice.
Julre Florence Garcia is a Senior Legal Counsel at Cabrera & Co., the Philippine member firm of the PwC Network.
+63(2)8845-2728
julray.florence.garcia@pwc.com