There’s so much talk about TRAIN and how it affects the living. Here’s how it affects the dead.

On January 1, 2018, the Tax Reform for Acceleration and Inclusion (TRAIN) Law took effect. There has been so much buzz on how it affects income taxation and commodities, but not much discussion on how this affects estates.

For anyone who has lost someone, there is always that challenge of settling estates left by the departed. It feels like a break in the grieving process, which sometimes leads to a lot of personal drama and further litigation. While it is best taken care of by a trusted legal counsel, it is also good to know and anticipate how TRAIN will affect your estate and plan more efficiently with the firm or lawyer you are working with. Here are the highlights you should know about:

As to income of estates

Some people are lucky enough that even when they die, they still make some money. Before, Section 62 of the National Internal Revenue Code (NIRC) provided for a Php 20,000 exemption from income of estates and trusts; this has been repealed.

 

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As to graduation of estate tax 

Section 84 of the NIRC was modified by the TRAIN Law. Before, there was a graduation of rates depending on the value of the estate left by the deceased. Starting 2018, this has been fixed at 6% regardless of the value of the estate.

As to deductions

Before, Section 86 of the NIRC provided for deductions for funeral expenses with a  threshold of PhP 200,000, deductions for judicial expenses of the testamentary or intestate proceedings, a standard deduction of PhP 1 Million, and deductions on medical expenses supported by receipts with a threshold of PhP 500,000. Now, the TRAIN law modified the provision to remove the enumerated deductions above to a higher standard deduction with a threshold of PhP 5 Million.

Under the same section, the transfer of the family home of the decedent to his/her heirs was previously given a PhP 1 Million threshold deductible from the estate tax. The new TRAIN law increased the threshold to PhP 10 Million.

 

Sources:

  • Lecture on TRAIN and National Internal Revenue Code by Atty. Eufrocina Sacdalan-Casasola
  • Republic Act 10963, Tax Reform for Acceleration and Inclusion Act
  • Republic Act 8424, National Internal Revenue Code