Solution manual transfer and business taxes by valencia CHAPTER 2 TRANSFER TAXES AND BASIC SUCCESSION

BUSINESS AND TRANSFER TAXATION 5th Edition Chapter 2: TRANSFER TAXES AND BASIC SUCCESSION CHAPTER TRANSFER TAXES AND BASIC SUCCESSION Problem 2-1 True False – first P100,000 of net gift is exempt False – subject to business tax False – gratuitous False – an income earned False – upon right to transfer True False – upon death True 10 False – the legitime is based on value of the estate, not on the form of the estate 11 False – they are voluntary heirs 12 True 13 False – fixed by law 14 False – executor Problem 2-2 False – relatives up to the 5th degree True False – the relative is the legitimate heir False – if part of inheritance is through the written will False – if the transfer is testamentary False – one for the legitimate child and half for the illegitimate child True True False – equal rights 10 True 11 False 12 True Problem 2-3 A C A A C C C D A 10 D Problem 2-6 Problem 2-4 C A A C D B B B D 10 B Problem 2-5 B C D A B A C A C 10 A BUSINESS AND TRANSFER TAXATION 5th Edition Chapter 2: TRANSFER TAXES AND BASIC SUCCESSION C Car – first prize Amount of mortgage assumed Salary Amount of onerous transfer C House and lot as donation, net of mortgage Farm as inheritance Amount of gratuitous transfer P1,000,000 1,900,000 240,000 P3,140,000 (P2,000,000 – 1,900,000) Problem 2-7 A Car C House and lot – mortis causa Problem 2-8 C Net value of property left by the decedent (P5,000,000 – P1,000,000) Transfers in contemplation of death Hereditary estate Problem 2-9 C Net hereditary estate Legitime of children (P5,000,000 x ½) Portion for the surviving spouse (P5,000,000 x ¼) Free portion – may be distributed to strangers P 100,000 500,000 P 600,000 P 800,000 P1,000,000 P 4,000,000 2,000,000 P 6,000,000 P5,000,000 ( 2,500,000) ( 1,250,000) P1,250,000 Note: The distribution is testamentary because there is a devise or legacy Problem 2-10 B Inheritance of the spouse (P5,000,000/5) P1,000,000 Problem 2-11 A Hereditary estate Legitime of children (P3,000,000 x ½) Portion for the spouse (P1,500,000/4) Free portion Multiplied by Legacy to the sister-in-law P3,000,000 ( 1,500,000) ( 375,000) P1,125,000 20% P 225,000 Problem 2-12 C Hereditary estate Portion for the illegitimate child (P3,000,000 x 1/3) P3,000,000 (1,000,000) BUSINESS AND TRANSFER TAXATION 5th Edition Chapter 2: TRANSFER TAXES AND BASIC SUCCESSION Amount inherited by the wife P2,000,000 Problem 2-13 Hereditary estate, net of charges (P7,000,000 – P1,000,000) Legitime of legitimate children (P6,000,000 x ½) Portion for the acknowledge natural child (P3,000,000/3) x 50% Portion for the surviving spouse (P3,000,000/3) Free portion – could be disposed of as legacy to the nanny P 6,000,000 ( 3,000,000) ( 500,000) ( 1,000,000) P 1,500,000 Problem 2-14 Inheritance of each child (P5,000,000/5) P 1,000,000 Problem 2-15 Cash in bank House and lot Investments in securities Total gross estate Less: Unpaid mortgage Existing loan Funeral expense Estate tax Hereditary estate P 100,000 5,000,000 400,000 P5,500,000 P 200,000 100,000 100,000 100,000 Problem 2-16 Legitimate child – Mario (P1,200,000 x ½) Illegitimate child – Maria (P600,000 x ½) Surviving spouse (P600,000 x ½) Problem 2-17 With respect to legitime: Legitimate child (P4,200,000 – P200,000) x 50% Surviving spouse (P2,000,000 x ½) Remaining balance (divide based on the intention of the will) Legitimate child (P1,000,000 x ½) Surviving spouse (P1,000,000 x ½) 500,000 P5,000,000 P 600,000 300,000 300,000 P1,200,000 Son P2,000,000 Wife P1,000,000 500,000 P2,500,000 500,000 P1,500,000 BUSINESS AND TRANSFER TAXATION 5th Edition Chapter 2: TRANSFER TAXES AND BASIC SUCCESSION Problem 2-18 Gross estate Less: Deduction Net estate before share of the surviving spouse Less: Share of the surviving spouse (P1,000,000 x 50%) Net estate before estate tax Less: Estate tax Net distributable estate Dorado Maya (child) (child) Fraction of share - intestate Distribution of inheritance 1/3 P161,667 1/3 P161,667 P2,000,000 1,000,000 P1,000,000 500,000 P 500,000 15,000 P 485,000 Total Jess (hu sba nd) 1/3 P161,667 P485,000 Death of Jess Exclusive share when Sabel died Add: Share from distributable share Distributable estate Fraction of share - testate Distribution of inheritance Dorado (child) Maya (child) ¼ P165,417 ¼ P165,417 Free Po rtio n ½ P333,883 P 500,000 161,667 P 661,667 Total P 661,667 Problem 2-19 Gross taxable value for: Capital gain tax P 300,000 Donor’s tax P 500,000 Business tax P - - Estate tax P1,800,000 Problem 2-20 Gross estate Less: Deductions Net estate before estate tax Less: Estate tax Net distributable estate P3,000,000 1,000,000 P2,000,000 135,000 P1,865,000 BUSINESS AND TRANSFER TAXATION 5th Edition Chapter 2: TRANSFER TAXES AND BASIC SUCCESSION Tito (legitimate son) P1,243,333 Fraction of share - intestate Distribution of inheritance Vic (illegi’te son) ½ P621,667 Problem 2-21 Gross estate (P500,000 + P250,000 + P1,000,000 + 100,000) Inheritance of Tim (P500,000 x ½) Total 1.5 P1,865,000 P1,850,000 P 250,000 Problem 2-22 Testamentary Legitime: Legitimate son – Peter (P35,000,000 x 50%) x ½ Legally adopted son – Petros (P35,000,000 x 50%) x ½ Surviving spouse (P8,750,000 x ½) Illegitimate son – Rocky Free portion – that may be given to other relatives Intestate Succession Legitimate son – Peter (P35,000,000/3.5) Legally adopted son – Petros (P35,000,000 x 3.5) Surviving spouse (P35,000,000 x 3.5) Illegitimate son – Rocky (P35,000,000 x 3.5) x ½ 1 1/2 P8,750,000 8,750,000 4,375,000 4,375,000 8,375,000 P35,000,000 P10,000,000 10,000,000 10,000,000 5,000,000 P35,000,000 Problem 2-23 Fraction of share Amount of inheritance Legitimate child 1 P2,857,143 Legitimate child P2,857,143 Surviving spouse P2,857,143 Illegitimate Total child ½ 3.5 P1,428,571 P10,000,000 Note: The last will and testament is void because the presence of legitimate child eliminates the parents from the inheritance In all cases, the legitime must not be impaired by the disposition through will 8 BUSINESS AND TRANSFER TAXATION 5th Edition Chapter 2: TRANSFER TAXES AND BASIC SUCCESSION Problem 2-24 Computation of net distributable share Total gross estate (P10,000,000 + P20,000,000 + P30,000,000) Less: Ordinary deductions Net estate before share of surviving spouse Less: Share of surviving spouse (P57,500,000 x 50%) Net estate before estate tax Less: Estate tax (P28,750,000 x 15%) Net distributable estate P60,000,000 2,500,000 P57,500,000 28,750,000 P28,750,000 4,312,500 P24,437,500 Computation of the shares of the heirs Share of legitimate son (P24,437,500 x ½) Share of surviving spouse (P24,437,500 x ½) P12,218,750 P12,218,750 Note: His mother and brother, as secondary heirs, are disqualified to share from the portion of the legitime due to the presence of a legitimate child Hence, the will becomes void Problem 2-25 Computation of net distributable estate: Gross estate (P4,000,000 + P1,000,000 + P200,000 + P5,000,000 + P3,000,000) Less: Ordinary deductions: Funeral expense Unpaid mortgage Allowable deduction – Stan’d deduction Net taxable estate Less: Estate tax (P11,900,000 x 15%) Net estate after tax Add: Standard deduction Net distributable estate P 100,000 200,000 Distribution of net distributable estate: Christopher Cristeta (son) (daughter) Testate succession Intestate succession Mixed succession P4,000,000 2,957,500 P6,957,500 P1,000,000 2,957,500 P3,957,500 P13,200,000 P 300,000 1,000,000 Crisistomo (driver) P 200,000 P 200,000 1,300,000 P11,900,000 1,785,000 P10,115,000 1,000,000 P11,115,000 Total P 5,200,000 5,915,000 P 11,115,000 ... 300,000 P1 ,20 0,000 Son P2,000,000 Wife P1,000,000 500,000 P2,500,000 500,000 P1,500,000 BUSINESS AND TRANSFER TAXATION 5th Edition Chapter 2: TRANSFER TAXES AND BASIC SUCCESSION Problem 2- 18 Gross... legitime must not be impaired by the disposition through will 8 BUSINESS AND TRANSFER TAXATION 5th Edition Chapter 2: TRANSFER TAXES AND BASIC SUCCESSION Problem 2- 24 Computation of net distributable...4 BUSINESS AND TRANSFER TAXATION 5th Edition Chapter 2: TRANSFER TAXES AND BASIC SUCCESSION C Car – first prize Amount of mortgage assumed Salary Amount of onerous transfer C House and lot