New Estate Tax Rules Under TRAIN Law

Posted by under General Information, Personal Finance . Published: April 26, 2018

Republic Act (RA) 10963 was signed into law last December 2017. This is more commonly known as TRAIN or the Tax Reform for Acceleration and Inclusion.

Under the TRAIN Law, changes were introduced to the National Internal Revenue Code of 1997 (Tax Code). This had amendments on personal-income taxation, donor’s tax, value-added tax, and many others — including estate tax as we’ll enumerate below.

Estate Tax Rate

Under the TRAIN Law, the estate tax rate is now just a flat six percent (6%) from the previous and more complex tiered rate between 5% to 20%. This makes estate tax computation less complicated and more straightforward.

Estate Tax Deductions

Funeral expenses, judicial expenses, and medical expenses are no longer allowable deductions. However, the TRAIN Law has increased the standard deduction to P5 million from the previous P1 million.

Moreover, nonresident aliens are now able to avail of a standard deduction up to P500,000.

Lastly, family homes worth up to P10 million are now exempted from estate tax. A significant increase from the previous P1 million value that’s being exempted.

Estate Tax Settlement

Section 89 of the Tax Code is now repealed under the TRAIN Law. This is the provision for when a notice of death should be filed and the period to file the same.

Estate tax returns that is required to be certified by a CPA (Certified Public Accountant) has also changed. From P2 million, returns must now show a gross value greater from P5 million before it requires CPA certification.

Moreover, the period for filing of estate tax returns is now one year from date of death. Previously, it was just six (6) months.


Estate Tax Payment by Installment

Payment by installment has been simplified under the TRAIN Law. However, there is now an implied limitation of two (2) years for the payment of the full estate tax liability.

Withdrawal from Deceased’s Bank Account

Money under the deceased bank accounts will no longer be frozen. Every centavo can now be withdrawn by their heirs, but it will be subject to six (6) percent final withholding tax.

How does these affect you?

The amendments under the TRAIN Law makes the process of filing tax requirements simpler and easier. There’s also a significant decrease in the amount of estate taxes that the heirs will have to pay.

Because of these, your minimum life insurance coverage should now be much less than before the TRAIN Law was signed.

A friend needed to have a coverage of at least P4.5 million before. But when we calculated his number again with the TRAIN Law amendments in mind, his minimum life insurance coverage is now just P2.3 million.

It is recommended that you recalculate your minimum required coverage and check how much it has changed as well. And then, do a review of your life insurance policies.

Lastly, the information in this article is just a brief, simplified summary. It is recommended that you consult a lawyer to learn more and in better detail, the amendments introduced with the TRAIN Law and how it affects you.

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8 Responses to “New Estate Tax Rules Under TRAIN Law”

  1. Antonio Balgos says:

    Is the BIR actually ready now to receive estate tax amnesty applications under the Train Law? If not, when?

  2. Emma c Rojas says:

    Regarding the money in the bank, how much is the minimum amount will be subject for that 6% deduction. Thank you

  3. Fitz says:

    @Antonio, I’m not sure. You’d have to ask your BIR RDO for that.

    @Emma, heirs can withdraw all the money in the bank account, regardless of the amount, and the whole amount will be subject to the 6% final withholding tax

  4. Most countries don’t have an estate tax. It’s even more amazing how some countries (like those in the Middle East) don’t even have an income tax. Makes you wonder how they support themselves.

  5. Angie Vilvar says:

    Good article Very easy to understand.
    You recommended, however, that a lawyer be consulted to learn more and in better detail… Shouldn’t an accountant be consulted instead?

  6. Paolo says:

    Hi Fritz,

    Do you have a easy sample computation of the life insurance coverage / policy that I will need?

  7. Armi senir says:

    If the Bank deposit Is unwithdrawn SSS pension benefits, is IT still subject to. 6pct Estate Tax.

  8. […] to the TRAIN Law, family members can now withdraw the money of their deceased loved ones from their bank without […]

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