When a person passes away without a will, their estate typically undergoes an Extrajudicial Settlement (EJS). This is a legal process where heirs agree among themselves How is the estate tax calculated when a waiver is involved? to divide the properties of the deceased without going to court. Often, this process includes a Waiver of Rights, where one or more heirs choose to give up their share of the inheritance.
General vs. Specific Waivers
The legal and tax consequences of a waiver depend heavily on its nature:
General Waiver: An heir renounces their share in favor of no one in particular. The waived portion is simply redistributed among the remaining heirs according to the laws of succession.
Specific Waiver: An heir renounces their share in favor What happens if an heir waives their rights in favour of only one sibling? of a specific person (e.g., "I waive my share in favor of my youngest sister"). Legally, this is treated as a donation.
Taxation: Donor’s Tax and Estate Tax
A common question is whether a waiver triggers Donor’s Tax.
General waivers are generally not subject to donor's tax because the heir is simply "refusing" the gift of inheritance.
Specific waivers are subject to donor's tax. Since the heir first "receives" the share and then "gives" it to a specific person, the Bureau of Internal Revenue (BIR) views this as two transfers: one from the deceased to the heir (Estate Tax) and one from the heir to the recipient (Donor’s Tax).
The Estate Tax itself is calculated based on the fair market value of the entire estate at the time of death. The presence of a waiver does not reduce the total estate tax due to the government; it only changes who is responsible for paying the shares or how the assets are distributed.
Documentary Stamp Tax (DST) and Publication
Yes, an EJS with a waiver is subject to Documentary Stamp Tax (DST), specifically when real property is involved. Because the waiver acts as a conveyance of land or rights, the BIR requires the payment of DST based on the value of the property being transferred.
Furthermore, the law requires that the Extrajudicial Settlement (with or without a waiver) be published in a newspaper of general circulation once a week for three consecutive weeks. This serves as notice to any creditors or unknown heirs that the estate is being settled.
Can a Waiver be Revoked?
Once an Extrajudicial Settlement with a Waiver of Rights is signed, notarized, and filed, it is considered a binding legal contract. It cannot be easily revoked unless there is clear proof of "vitiated consent"—meaning the heir was forced, intimidated, or defrauded into signing it. If all parties agree to cancel the document before it is filed or acted upon, a new agreement may be drafted, but once properties are transferred, a court order is usually required to undo it.
Impact of Waiving for One Sibling
If an heir waives their rights in favor of only one sibling, it effectively increases that sibling's portion while leaving the other siblings' shares unchanged. As noted, this is a specific waiver, meaning the sibling receiving the extra share may be liable for Donor's Tax on the value of the "donated" portion.
Conclusion
An Extrajudicial Settlement with a Waiver of Rights is a powerful tool for streamlining the distribution of an estate, especially when some heirs wish to consolidate property under one person’s name. However, it is not a simple "free" transfer. The distinction between general and specific waivers is the most critical factor, as it determines whether the family will face additional Donor’s Tax and What is the difference between a general waiver and a specific waiver? complex filing requirements. Before signing, heirs should consult with a professional to ensure they understand the financial and legal finality of their decision.
General vs. Specific Waivers
The legal and tax consequences of a waiver depend heavily on its nature:
General Waiver: An heir renounces their share in favor of no one in particular. The waived portion is simply redistributed among the remaining heirs according to the laws of succession.
Specific Waiver: An heir renounces their share in favor What happens if an heir waives their rights in favour of only one sibling? of a specific person (e.g., "I waive my share in favor of my youngest sister"). Legally, this is treated as a donation.
Taxation: Donor’s Tax and Estate Tax
A common question is whether a waiver triggers Donor’s Tax.
General waivers are generally not subject to donor's tax because the heir is simply "refusing" the gift of inheritance.
Specific waivers are subject to donor's tax. Since the heir first "receives" the share and then "gives" it to a specific person, the Bureau of Internal Revenue (BIR) views this as two transfers: one from the deceased to the heir (Estate Tax) and one from the heir to the recipient (Donor’s Tax).
The Estate Tax itself is calculated based on the fair market value of the entire estate at the time of death. The presence of a waiver does not reduce the total estate tax due to the government; it only changes who is responsible for paying the shares or how the assets are distributed.
Documentary Stamp Tax (DST) and Publication
Yes, an EJS with a waiver is subject to Documentary Stamp Tax (DST), specifically when real property is involved. Because the waiver acts as a conveyance of land or rights, the BIR requires the payment of DST based on the value of the property being transferred.
Furthermore, the law requires that the Extrajudicial Settlement (with or without a waiver) be published in a newspaper of general circulation once a week for three consecutive weeks. This serves as notice to any creditors or unknown heirs that the estate is being settled.
Can a Waiver be Revoked?
Once an Extrajudicial Settlement with a Waiver of Rights is signed, notarized, and filed, it is considered a binding legal contract. It cannot be easily revoked unless there is clear proof of "vitiated consent"—meaning the heir was forced, intimidated, or defrauded into signing it. If all parties agree to cancel the document before it is filed or acted upon, a new agreement may be drafted, but once properties are transferred, a court order is usually required to undo it.
Impact of Waiving for One Sibling
If an heir waives their rights in favor of only one sibling, it effectively increases that sibling's portion while leaving the other siblings' shares unchanged. As noted, this is a specific waiver, meaning the sibling receiving the extra share may be liable for Donor's Tax on the value of the "donated" portion.
Conclusion
An Extrajudicial Settlement with a Waiver of Rights is a powerful tool for streamlining the distribution of an estate, especially when some heirs wish to consolidate property under one person’s name. However, it is not a simple "free" transfer. The distinction between general and specific waivers is the most critical factor, as it determines whether the family will face additional Donor’s Tax and What is the difference between a general waiver and a specific waiver? complex filing requirements. Before signing, heirs should consult with a professional to ensure they understand the financial and legal finality of their decision.