ESTATE TAX PENALTIES FOR DEAD HEIRS

Hello:\nPresuming this concern is within Philippine jurisdiction, let me give you a clear and practical answer.\nFirst, let us understand what is happening legally. When a registered landowner dies, the heirs must settle the estate and pay estate tax to the Bureau of Internal Revenue before the property can be transferred. This is governed by the National Internal Revenue Code.\nIn your case, there are three deceased heirs, one in 1995, one in 2000, and one in 2016. That means three separate estate settlements may be involved, unless they were previously settled. The extrajudicial settlement they are processing is only valid if all heirs sign and it is properly notarized.\nNow to your specific questions.\na.) Is the penalty paid yearly?\nNo. The estate tax itself is not paid yearly. It is a one time tax that must be paid within one year from death. However, if not paid on time, penalties accrue in the form of:\n1.) Surcharge, usually 25 percent of the tax due.\n2.) Interest, historically 20 percent per annum, later reduced to 12 percent per annum.\n3.) Compromise penalty, depending on the amount involved.\nSo the longer it remains unpaid, the higher the accumulated interest. It is not a fixed yearly penalty, it is accumulated interest on the unpaid estate tax.\nHowever, under recent Estate Tax Amnesty laws, especially Republic Act 11213 and its extensions, estates of persons who died on or before May 31, 2022 may avail of amnesty. This is very important in your case. Under amnesty, the estate pays only 6 percent of the net estate value, with minimal compromise penalties, and most surcharges and interests are waived.\nb.) How much is the estimated penalty?\nThis depends entirely on the fair market value of the property at the time of death of each heir, and the share inherited by each. There is no fixed amount.\nExample, if one heir inherited property worth 1,000,000 pesos at the time of death, estate tax under current law is 6 percent of the net estate. That is 60,000 pesos, plus documentary stamp tax, transfer fees, and possible compromise penalty. If amnesty applies, surcharge and long term interest may be waived.\nSo realistically, you are not looking at “penalty per year” but rather estate tax plus accumulated charges, unless covered by amnesty.\nc.) Can the seller pressure you to pay this penalty?\nShort answer, no.\nLegally speaking, settlement of estate and payment of estate tax is the obligation of the heirs, not the buyer. The seller must have legal capacity to sell. If the estate is not yet settled and no Certificate Authorizing Registration, or CAR, has been issued by the BIR, then the title cannot legally be transferred to you.\nYou are absolutely within your rights to insist that:\n1.) The extrajudicial settlement be completed and notarized.\n2.) Estate taxes be paid.\n3.) A CAR be issued by the BIR.\n4.) The title be transferred to the heirs first, or directly to you if structured properly.\n5.) Only then should full payment be made.\nWithout a CAR, the Register of Deeds will not transfer the title. So if you pay now without that, you are taking legal risk.\nI strongly advise you not to shoulder estate tax penalties unless this is negotiated as part of the purchase price and clearly documented in a written agreement, preferably deducted from the selling price.\nBefore paying anything substantial, you and the five others should conduct proper due diligence:\na.) Get a certified true copy of the title from the Register of Deeds.\nb.) Check for annotations, liens, adverse claims.\nc.) Confirm tax declarations and real property tax status.\nd.) Confirm that all heirs truly signed the extrajudicial settlement.\nIf you want to be safe, structure the deal this way, downpayment upon signing, balance payable only upon issuance of CAR and clean title ready for transfer.\nWe are Recososa Law Firm, and we have offices in Luzon, Visayas and Mindanao. Since this is in Dumaguete, we can definitely assist you in reviewing the documents and protecting your interests before you sign anything.\nSincerely,\nATTY. JOFRE B. RECOSOSA\nOwner/Managing Partner\nRecososa Law Firm