Estate Tax

[danilo666]

A few questions for anyone with relevant experience or knowledge.
1 If I die before my wife, are all our accounts likely to be frozen pending the payment off the estate tax, or just the accounts in my name or in joint names?
2 The land is in my wife's name off course, but the house we built together, so will the BIR include this in the estate tax?
3 Are offshore accounts liable to be included in the estate tax?
On reading the BIR website it slightly concerns me that they want the estate tax to be paid within 6 months, but will freeze all assets until it it has been. Maybe I should keep a lump sum in a safe hidden in my house? I'm not trying to avoid legitimate taxes, but I don't want my wife unable to pay them and then finding herself financially strapped. Thanks in advance guys.

[Lee2]

I cannot answer all your questions, hope someone else can, but I can say that Philippine banks joint accounts will be locked if they find out about our deaths, it says something about joint accounts on each ATM withdrawal slip. I suspect accounts in the wife's name alone would be considered to be hers as would accounts in our name alone, well according to our bank in the Philippines, anyway, how would the BIR know, and as far as the house, if it is in your name, then I believe that could get messy, best to talk to a Philippine lawyer and have them draw up a will for you and discuss it with them.

As for accounts outside the Philippines, I had been told by a lawyer in Florida that they would be subject to a U.S. will and or POD on the accounts in the state of residence, that would be for the U.S., I do not have any idea about for other countries.

I hope someone with experience can give you more direct answers, I just wanted to chime in with what I know and think I know.

[danilo666]

Thanks Lee, the house isn't in my name, I just assume the BIR will consider it to be joint owned. A trip to our local attorney will be made on our next visit to check this out.

[Lee2]

Thanks Lee, the house isn't in my name, I just assume the BIR will consider it to be joint owned. A trip to our local attorney will be made on our next visit to check this out.

If the land and house is in your wife's name without your name listed on it at all, then I believe she should not have to pay any taxes, heck you apparently bought it for her as a gift, but if your name is also listed on it, as our condos and many people I know have it, then there would be tax due, check your deed wording.

[suzukig1]

1. Alien PHL residents are liable for estate taxes on assets wherever they are located. (We are not supposed to discuss how the BIR would ever find out about your overseas assets.)  If your widow makes a large transfer of cash to the PHL after your death that will be flagged by the receiving bank in the PHL.  That may or may not be reported to the BIR (but I would guess it will be if its a very large amount).

1a. For estate tax purposes PHL residency is determined by the number of days per year (I believe 180 days per year) you spend in the PHL and not by your visa status.  So you could be considered a PHL resident for estate tax purposes even though you are here on a tourist "visa".  (I cannot find a reference for this.  If I find one I will post it later.)

2. The estate tax was recently lowered to 6% from 20% under TRAIN (but it doesn't show up that way on the BIR website).

2a. P5M is deductible now instead of P1M + P1M for a house.

2b. You can withdraw money from the deceased's account as long as you pay 6% of the amount withdrawn to the BIR.  (I don't know if or how you would get that money back if in the end you don't owe that much in estate taxes.)

 https://businessmirror.com.ph/estate-tax-changes-under-train-law/

3. Upon the death of one spouse conjugal (community) property ceases to exist.  The dead spouse's assets are supposed to go through probate.  (In the U.S. when one spouse dies the assets of the dead spouse usually just pass to the surviving spouse.  It's not that way in the PHL.  In the Phl the dead spouse's assets are supposed to go through probate and estate taxes may be owed.)


https://www.bir.gov.ph/index.php/tax-information/estate-tax.html

2. What are included in gross estate?

For resident alien decedents/citizens:

a) Real or immovable property, wherever located

b) Tangible personal property, wherever located

c) Intangible personal property, wherever located

For non-resident decedent/non-citizens:

a) Real or immovable property located in the Philippines

b) Tangible personal property located in the Philippines

c) Intangible personal property - with a situs in the Philippines

[suzukig1]

For the U.S. only: There are several "unusual" issues with estate taxes and retirement accounts.

1. The surviving spouse can keep the retirement account (IRA, 401k) as a retirement account and transfer it to their name.  But there is a time limit to do this; I believe 60 days.  If the retirement account doesn't get transferred as a retirement account income taxes (not estate taxes) will be owed on non-Roth retirement accounts just as if the whole retirement account was distributed.

2. If the retirement accounts are transferred as retirement accounts the surviving spouse can take distributions at any age.  The surviving spouse does not need to over 59 1/2.  There may be some rules on the distribution amounts but I'm not sure.  Income taxes are owed on the distributions and a U.S. income tax return will have to be filed.

3. If the "surviving" spouse is not a U.S. citizen and not a U.S. resident and dies with assets in the U.S. huge estate taxes may be owed.  There is only a $60,000 deductible for non U.S. citizen, non U.S. residents on estate taxes.  The U.S. estate tax rate is high; something like 40% - 50%.  (U.S. citizens and U.S. residents get a $5M+ deductible on estate taxes.)

[danilo666]

Thank you suzokig, that's very helpful especially with the new lower tax and higher allowances. I'm named on the deed as having right to survivorship.

[iamjames]

A peculiarity of Philippine tax is that there is no such thing as a tax refund. If you pay too much then tough luck. It is one reason for the huge level of tax evasion here.

[bigrod]

A peculiarity of Philippine tax is that there is no such thing as a tax refund. If you pay too much then tough luck. It is one reason for the huge level of tax evasion here.

The following seems so refute your claim of no tax refund...actually the employer refunds the over payment in your Jan pay check.

http://primer.com.ph/tips-guides/2016/12/29/expats-guide-to-tax-refund-in-the-philippines/

Chuck

[BudM]

A peculiarity of Philippine tax is that there is no such thing as a tax refund. If you pay too much then tough luck. It is one reason for the huge level of tax evasion here.

That is wrong James.  My wife has a business and she has the quarterly reporting and then at the end of the year, her exemption has caused her to be overpaid.  Rather than apply for a refund though, she just keeps it there as overpaid to subtract on the next go round in the first quarter of the following year or more if necessary.

Whoever told you that is full, I mean is misinformed and needs to brush up on their Philippine tax laws.  And don't let them kid you, the Philippines is in hot pursuit of tax evaders along with DOLE on the ones trying to avoid paying benefits to their employees.  In recent years, it has become a whole new country with all that stuff.

[mikbal]

     Although the exemption for US persons increased to 10 million dollars under the new US tax bill, the exemption for non-US remained at $60,000.

http://www.jonesday.com/new-us-tax-law-leaves-non-us-person-estate-tax-intact-01-19-2018/

[danilo666]

Suzokig, the link you left for TRAIN was very useful indeed. They allow 10 million pesos on a house now and as you said a 5 million allowance on everything else. So I'm very happy with that, or as happy as anyone can be paying taxes haha.

[JoeLP]

When Tina and I were setting up our property/house ownership and how we wanted it organized we met with her good friend and local lawyer.  Him and I talked a lot also and have done a few things together.

The way he sorta simplified it is every law that can be used by any government department to help them, and hurt you, is what you should expect.  It doesn't always happen, but we should plan for it.  He then said that pretty much every property can be seen as 2 things. The land(property) as one unit and the building(house) as another unit and the local law can see it that way anytime they want pretty much.  He said it is not like the USA where squatting is something that is done, but the people who own the land have to go through a lot of legal proceedings to get it set up.  I actually know of people who did this in Arkansas so I understood what he was talking about. 

So he told me that no matter what, the land will always be in Tina's name.  That I can set things up that if she dies before me I have some form of ownership, but that is limited both in the amount of time I can can have it and what I can do with it.  Then he brought up the tax issues she would go through if I died and my name was on the building. 

Tina and I are the same age, and I have diabetes while she is much healthier.  So I went through making sure everything was in her name and my name at no time is mixed up with it in anyway.  So when my time comes, everything is made easier for Tina.  He also talked about me setting up some form of trust for my financial accounts to go into that upon my death she would inherit it in payments over time evenly distributed.  That would save her trouble.  I am not sure how that works as I have not done it yet and will talk to my cousin who's a lawyer in the US some about it first as it would all happen on that side and what the good and bad of it is.  That seems to be something that might work on this side of the pacific....but I see some issues in the USA with setting that up. 

[Hestecrefter]

For the U.S. only: There are several "unusual" issues with estate taxes and retirement accounts.

3. If the "surviving" spouse is not a U.S. citizen and not a U.S. resident and dies with assets in the U.S. huge estate taxes may be owed.  There is only a $60,000 deductible for non U.S. citizen, non U.S. residents on estate taxes.  The U.S. estate tax rate is high; something like 40% - 50%.  (U.S. citizens and U.S. residents get a $5M+ deductible on estate taxes.)

The operative word in the above quote is may.  In many cases the threat of crushing U.S. estate taxes is more illusory than real.  In many cases, there is a treaty that mitigates.  For example, for Canadians, the situation (as described in a January 2018 tax bulletin) works thus:

If your US assets are $60,000 or less
If the value of your US assets are $60,000 or less, you are not subject to US estate tax and your estate does not need to file a US estate tax return.

If your US assets exceed $60,000 and your worldwide estate exceeds $11.2 million

If the value of your worldwide assets exceeds $11.2 million, you may be required to pay US estate tax based on the value of your US assets. The tax rate starts at 18% and increases to 40% for US assets exceeding $1 million.

Fortunately, Canada’s tax treaty with the United States provides some relief for Canadians. It allows you to reduce your estate tax liability by claiming a tax credit equal to the greater of:
•   $13,000
•   $4,425,8002 x the value of your US assets ÷ value of your worldwide assets

For example, if your US stock portfolio accounts for 10% of the value of your worldwide assets, you will be entitled to a credit of $442,580 ($4,425,800 x 10%).


US estate tax rates and credits
The credits

For example, David, a Canadian resident (who is not a US citizen), owns a US stock portfolio worth $1.5 million. His entire estate is valued at $15 million.

As shown below, if David dies in 2018, his estate can claim a unified credit equal to $442,580 (10% of $4,425,800), reducing his estate tax liability to $103,220.


What if David dies in 2018?

US estate tax before credits

$545,800

Less: Unified credit

$442,580

US estate tax liability before marital credit

$103,220

Less: Marital credit

$103,220

US estate tax liability after unified and marital credits

Nil

In addition to the unified credit, the tax treaty provides a marital credit if the US assets pass to a spouse on death. The marital credit equals the lesser of the unified credit and the amount of the estate tax.

If David were to leave the US stock portfolio to his wife Kylie, also a Canadian resident (who is not a US citizen), his US estate tax liability would be completely eliminated.

As a Canadian, owning U.S. real estate I intend to leave to my wife (also a Canadian citizen, who came here from the Phils with me in 2002), I pay considerable attention to and keep up to date on this stuff.  I am working diligently to keep my worldwide assets under the $11.2 million threshold.  It's a struggle, but I think I can do it.