How to transfer land title to heirs in the Philippines (Extrajudicial Settlement)

by | Oct 20, 2018 | Estate Law, Wills & Inheritance

This article outlines the step-by-step process to sell a Philippine inheritance or to transfer it to your name.

This process is called “settling the estate”.

In this article you’ll find:

  • Practical advice on how you can access a deceased’s bank account shortly after death.
  • Common issues you face in gathering documents and even in filling up BIR forms.
  • A pretty good understanding of the overall process from death to receiving the Certificate Authorizing Registration, which is when property transfer becomes possible.

This article specifically considers an agreeable settlement of the estate which avoids a contentious court case. It gives you a good grasp of the main issues you and your co-heirs will need.

However, you may still have to consult with an accountant or a lawyer at some point. Settling an estate can be complicated and you might need professional advice.

Settling an EstatePart 1: Introduction

f you have inherited real estate, stocks or vehicles you are going to have to settle the estate if you intend to sell the assets to another or transfer them to your name.

Settling an Estate

If you have inherited real estate, stocks or vehicles you are going to have to settle the estate if you intend to sell the assets to another or transfer them to your name.

Why?

The new owner will want the title in his name.

However, you will need the Bureau of Internal Revenue clearance called the Certificate Authorizing Registration (CAR) to formally transfer anything. You will have to settle the estate to get the CAR.

Settling the estate involves 7 main steps which involve paying off the debts of the deceased, settling unpaid taxes, and reaching an agreement with your co-heirs.

You should try to settle the estate within the BIR deadline of a year from the death. The reason is that the penalties beyond this period can be enormous:

  • 25% annual tax on the amount due
  • 20% surcharge on the amount due

With charges like these, it is possible that the tax required might eventually equal the estate.

You can see why it is best to file with the BIR as soon as possible or to even just file a partial return in order to forestall the penalties.

Get the Death CertificatePart 2: Death Certificate

The death certificate is the first document you’ll need to obtain.

Get the Death Certificate

The death certificate is the first document you’ll need to obtain.

You will need to present this to the funeral home, insurance office, banks, BIR, etc. – in short, everyone with whom you will need to transact with regarding the recent death.

Death Certificate

If the death took place in a hospital, the hospital will release the death certificate. If the death took place in a home, the attending doctor or the barangay health officer will help you accomplish the death certificate.

You’ll need 10 certified true copies of the death certificate (at least!).

It is a civil registry document which may be obtained at the local or national level.

While the local civil city registrar might have recorded the death, the national civil registrar may take between a few weeks to a few months.

This is because the process takes time.

First, the local civil registrar will record the death. Then, it will send this to the Philippine Statistics Authority (Office of the Civil Registrar General). Then the PSA records, processes and encodes the document into the national database of the main civil registrar.

This means that the PSA certified death certificate will not be immediately available after the death. Your recourse will be to call on the local civil registry where the death was registered and get the local copy. (Note that you should remember to eventually get the PSA certified death certificate.)

In any case, with the death certificate in hand — whether local or PSA certified — you can begin to address the tax issues as well as other immediate concerns.

Get BIR form 1904Part 3: BIR 1904

Expenses can be one of the most pressing concerns of a family after a death.

Get BIR form 1904

Expenses can be one of the most pressing concerns of a family after a death.

A family may find that it does not have cash immediately on hand with which to meet the expenses death brings about. The family may find that the cash is locked in the bank account of the deceased.

The new Tax Reform for Acceleration and Inclusion Act (TRAIN) law has partially addressed this problem. Subject to certain conditions and requirements, the law now allows you to access the deceased’s bank accounts even before the settlement of the estate is concluded for up to 1 year after the death.

Access the bank account

You would need to present to the bank the following:

  • The Death Certificate
  • The Estate’s TIN which will be received after filing BIR Form 1904
  • Other documents required by the bank

You’ve already got the death certificate.

Now, we’ll go through what needs to be done to get the Estate’s TIN.

The Estate’s TIN registers the estate as a taxable entity. This will be needed for all financial transactions regarding the estate. It is different from the TIN the deceased used while he was alive.

Getting the Estate’s TIN is a fast and simple process.

Below, we will go through the form and how to fill it up.

You can get Form 1904 from the BIR’s website.

I’ve split the form into 2 parts so that we can go through it easily.

BIR 1904 - Part 1

BIR 1904 Form – Part 1

Let’s go through some of the fields for the first part:

  • Taxpayer Type should be One-Time Taxpayer.
  • Classification should be Non-Individual here.
  • Write “Estate of [Name of the Deceased]” for the taxpayer’s name
  • Date of Birth should be the Date of the Death as it appears on the death certificate
  • I think that sex, civil status, spousal information and telephone number are pretty clear.
BIR 1904 - Part 2

BIR 1904 Form – Part 2

Almost there!

We’ll go through some of the other fields for the rest.

  • Local Address and its corresponding telephone number should be the address as it appears on the death certificate
  • One Time Transactions should be Transfer of Properties by Succession
  • Tax Type should be Estate Tax

You’ll also need to submit the Death Certificate with this form.

You then submit the form at the BIR Regional District Office (RDO) where the deceased lived. You shouldn’t submit at any other location.

You can then withdraw from banks with the estate TIN up to 1 year after the death, although this is subject to 6% withholding.

Call the Bank

This change due to the TRAIN law is new. As a result, some banks are not yet entirely updated regarding this. You’ll have to coordinate with them and explain.

This is a good time to talk about taxable and non-taxable estates.

Estates whose valuation exceeds certain thresholds are taxable. On the other hand, estates fall below these thresholds will not be subject to estate tax.

This is important because the non-taxable estate would not be subject to the 6% withholding tax.

You would have to calculate the total estate to find out. Then you will have to pay the estate tax. At this point, you can withdraw without the 6%.

Calculating and paying the estate tax would take time however so this might not be a route for you if the family needs the locked cash immediately

Determine Estate DocumentsPart 4: Estate Documents

You and your co-heirs will need to determine the scope of the estate.

As an heir to the estate, you might want to transfer or sell your inherited assets. But what are the assets? What else is the estate composed of?

You and your co-heirs will need to determine the scope of the estate.

Estate Graph

What are the estate’s assets?

They can be:

  • Real estate such as the family home, condominiums or land titles
  • Shares of stock or shares of memberships such as a country club
  • Motor vehicles

What are the estate’s liabilities?

  • Are there any loans that the deceased took out?
  • Are there are unpaid taxes?

You will need all the documents proving ownership as well. For real properties, you will need the titles and the tax declarations and improvements from the city assessor, if ever. You will need stock certificates for stocks and you will need the registration for all vehicles.

It is the same for loans and obligations. You will need to gather promissory notes and other obligations.

Ask an Accountant

This can be a painstaking task.

It can be tough to figure out where documents are. Very often, only the deceased knew where the papers were kept.

Conferring with family can be an important early step for this.

It is also possible to track down the land titles by painstakingly working with the pertinent government agency. It is a detailed process and requires a lot of patience. It may require visiting the Register of Deeds where the land is located as well.

Another option is to hire private investigators to determine the actual extent of the property and then to work towards reconstructing a complete picture.

What you end up doing to reconstruct the estate will depend on the information you have.

At this point, you might also want to hire an accountant to help you understand the estate and the taxes involved. He can help you understand what you’ll have to pay to the BIR and what you might be able to save.

Co-heirs Estate AgreementPart 5: Estate Agreement

After you’ve figured out what the estate is composed of, you and your co-heirs will need to agree among yourself how the properties will be partitioned.

After you’ve figured out what the estate is composed of, you and your co-heirs will need to agree among yourself how the properties will be partitioned.

Why?

Well, Philippine law only determines the proportions that go to specified heirs. However, the extrajudicial settlement actually determines who will receive what property.

This is often contentious.

Think about your family.

Then think about all the cares that each heir might have with regard to providing for his family. Add to that all the history of small hurts and disagreements and it’s easy to see how quickly things can go wrong.

Your sister might want the family home, but your brother might actually be living in it. Or there might be 2 properties but one sibling wants to keep them while the others want to liquidate. You will all have to reach an agreement about what will be done.

In addition, you will have to determine how you will pay all outstanding debts. You may draw on the deceased’s bank account, but often you and your co-heirs may have to shoulder the burden. The estate must have no debts for it to be given to the heirs or even sold.

Intermediaries can often help in reaching this all-important agreement as it is this concert that is the basis of the extrajudicial settlement. A failure of the heirs to agree will make extrajudicial settlement impossible.

Execute an Extrajudicial SettlementPart 6: Extrajudicial Settlement

If an agreement is made or brokered between the heirs, they will then create the extrajudicial settlement (or the Deed of Adjudication, if you are the sole heir).

Execute an Extrajudicial Settlement

If an agreement is made or brokered between the heirs, they will then create the extrajudicial settlement (or the Deed of Adjudication, if you are the sole heir).

It should have the following information:

  • That the deceased left no will and no debt or that his debts have been paid
  • You and your co-heirs relationship to the deceased and that there are no other heirs
  • Description and details of the properties and how they are to be divided

Afterwards, everyone should sign and notarize the document.

A notice will then be published in a newspaper of general circulation for 3 weeks.

You will present the need the proof of publication along with the extra-judicial settlement to the BIR.

File BIR 1801Part 7: BIR 1801

If you’ve accomplished all the items up top, you are in a really good position to start filing your BIR 1801.

File BIR 1801

If you’ve accomplished all the items up top, you are in a really good position to start filing your BIR 1801. You need to do this within a year after the death to avoid those heavy penalties we talked about earlier.

BIR 1801 is filed to pay the taxes to finally settle the estate.

It is deceptively simple and is currently supported by 5 schedules.

Estate Tax Return 1801

Estate Tax Return – 1801 Form

With all the work you’ve already put in, you are in a really good position to fill this up. (Note that the BIR is currently using the pre-TRAIN law form so there will be some non-applicable fields.)

Work with your accountant to fill up the information and verify your estate taxes.

Only an accountant can help you minimize your possible taxes.

There are some pretty clear deductions straight off the bat:

  • Php 5,000,000 for Philippine citizens and resident aliens
  • Php 10,000,000 for the family home

However, there may be tax treaties and there are other possible tax exemptions applicable to your situation that only an accountant or lawyer would know.

Ask an Accountant

Then, armed with your calculation and all your documents, you should head off to the appropriate BIR RDO (where the permanent home of the deceased was located).

You’ll need to talk to the One Time Transaction Officer (ONETT) and go through the calculation with him.

ONETT officers are rotated, but if you like the ONETT officer you are working with, try to figure out his schedule and his personal contact information. ONETT officers vary slightly how they deal with estate issues so it’s best to stick to one throughout the process.

If all your documents are in order, you should be able to do this relatively quickly.

Pay the Estate TaxPart 8: Pay for CAR

One of the last big hurdles is paying the estate tax.

Pay the Estate Tax

So, you’ve made it this far!

One of the last big hurdles is paying the estate tax.

After you’ve calculated the Estate Tax to be paid, you will need to actually pay it at the Authorized Agent Bank (AAB).

An Authorized Agent Bank is a bank that accepts payments on the BIR’s behalf.

You may choose to pay the bank in cash or through a manager’s check.

If you do choose a manager’s check, call the bank so that you know exactly how they want the payee to be written on the check.

Make sure you get the banks machine validation on the proof of payment.

Now make a trip to the BIR to present this and receive your Certificate Authorizing Registration.

If you’ve got everything ready and there are no pending issues, your CAR shouldn’t take too long to process.

With the CAR, you can now easily sell your inherited property or transfer it to your name.

SummaryPart 9: Notes & Summary

If you’ve got a pretty simple estate to settle with just a few properties and some stocks, this guide is a good starting point to understand the work you need to put in.

If you’ve got a pretty simple estate to settle with just a few properties and some stocks, this guide is a good starting point to understand the work you need to put in.

This post focuses on providing practical advice from the point of view of the layperson.

This doesn’t cover all the intricacies of settling an estate.

Many times, you’ll get held up looking for documents which can require a ton of work just to replace. You might have problems with land titles. You might also have problems with unpaid real estate taxes.

Each of those issues can be detailed, expensive, and painstaking to solve (depending on the exact situation).
Still, I hope that this practical guide helps you and your family understand the process better.

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