When a person passes on, those left behind are often faced not only with emotional loss but also with the task of settling the person’s affairs. The process of estate settlement affects families from all walks of life, regardless of the size or value of the estate involved. It is therefore not surprising that estate settlement continues to receive public attention, including through proposals in Congress relating to estate tax, such as bills seeking to extend estate tax amnesty programs or to revisit the existing estate tax system itself. While these proposals remain under discussion, they reflect a shared recognition that estate settlement is a common and often challenging experience for many Filipinos and foreigners who have properties in the Philippines.
Estate settlement is the process by which a decedent’s properties, rights, and obligations are identified, settled, and transferred to his or her heirs. There are different ways to complete this in the Philippines, depending on the circumstances. One of the most commonly used methods is extrajudicial settlement (EJS) which allows heirs to settle the estate among themselves without going to court. This is allowed if the decedent did not leave any will, there are no unpaid debts (or the heirs agree to take responsibility for them), and all heirs sign and publish the agreement to divide the estate.
For many families, EJS offers a way to move forward without the added cost, time, and formality associated with judicial processes. However, while EJS simplifies the procedure, it does not remove the legal and tax requirements that accompany the transfer of property from one party to another.
The EJS process actually starts with the determination of who are the heirs and what are the properties left by the deceased. The heirs will then have to decide how the properties 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 for subsequent steps involving taxes and property transfers.
Tax law imposes a 6% estate tax on the transfer of a decedent’s net estate upon death to the heirs, regardless of whether the estate is settled through court proceedings or through EJS. The law allows certain deductions to arrive at the net estate subject to tax, such as the value of the family home or certain properties received prior to death, subject to limitations.
Beyond estate tax, the way the heirs apportion the estate can also have separate tax consequences. A 6% donor’s tax may apply if an heir gives up part of his or her rightful share so that another heir receives more than his or her legal share. Donor’s tax can likewise be imposed when there is a specific renunciation in favor of a particular co‑heir, as opposed to a general renunciation. In a recent Court of Tax Appeals (CTA) case, the court held that although certain paragraphs of the EJS appeared to indicate a general renunciation (i.e., without designating a specific recipient), these were effectively negated by later provisions that clearly directed the repudiated shares in favor of a specific heir. Consequently, the CTA considered renunciation in the EJS as a gratuitous transfer or donation. Careful drafting and aligning allocations with legal shares help avoid unintended donor’s tax exposure.
Where land or other real property forms part of the estate, local taxes likewise come into play. Under the Local Government Code, local government units are authorized to impose a tax on the transfer of ownership of real property, including transfers by donation and inheritance. The specific rates and procedures may vary depending on the city or municipality, adding another step to the settlement process.
Notably, settling an estate also involves the submission of required documents (e.g., death certificate of the decedent, the deed of extrajudicial settlement, proof of publication of EJS, tax declarations, certificates of title), filing the estate tax return, and paying the tax due to the Bureau of Internal Revenue (BIR). Heirs or their representative must also secure a Certificate Authorizing 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).
Ultimately, beyond these required documents and processes, it’s important to recognize the human context in which estate settlement takes place. Families often begin the settlement process while still grieving the loss of a loved one. During this period, attention is understandably focused on personal and family matters, and the completion of legal and tax requirements may not be an immediate priority. In reality, this may contribute to delays in filing estate tax returns or settling tax obligations within the periods prescribed by law, resulting in the imposition of penalties and interest. This experience is not uncommon and reflects the practical challenges faced by families navigating estate settlement during a difficult time.
From the perspective of families, these layered requirements combined with emotional and personal circumstances can make EJS feel more tedious than initially expected. While the absence of court proceedings remains a clear advantage, the overall timeline of the settlement may still be affected by the need to gather the required documents, complete tax filings, and secure clearances. The delays at any stage may affect the next steps, making timing and coordination an important part of the process.
The government passed several estate tax amnesty measures, with the most recent ending on June 14, 2025. These helped to ease the burden of long-standing unpaid estate taxes for families of decedents, 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. While these are still under deliberation, families must manage estate settlement based on existing rules and procedures.
In sum, extrajudicial settlement remains a valuable and legally recognized option for settling estates in the Philippines. At the same time, its effectiveness in practice largely depends on how well heirs or their representatives understand and manage the surrounding tax and legal requirements while coping with personal loss. A clearer appreciation of these realities may help set more realistic expectations and encourage informed decision-making during what is frequently a sensitive and challenging period.
The views or opinions expressed in this article are solely those of the author and do not necessarily represent those of Isla Lipana & Co. The content is for general information purposes only, and should not be used as a substitute for specific advice.
Julrey Florence Garcia is a senior legal advisor at Cabrera & Co., a Philippine member firm of the PwC network.
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