Extrajudicial Settlement (Practical Info on when heirs disagree, property documents are missing, and other common issues)

An Extrajudicial Settlement of Estate is a notarized document that transfers a deceased’s person’s property to new heirs when there is no will and is signed by all the heirs or their representatives.

• Notarization is required
• Property information and details such as the title number, tax declaration and technical descriptions should be in the EJS
• All properties should be listed in the EJS and property documents should be complete.
• All heirs must sign and agree
• If settled more than a year after the death, late fees are added every year it is unsettled aside from BIR Estate taxes.

The above requirements are very difficult for families to accomplish.

Some properties are never titled in the heirs’ names and some heirs even go to court (especially when there is disagreement).

But an Extrajudicial Settlement of Estate is very important to do.

It is a requirement to transfer a title to the new heirs. It also may be required for an Agricultural Free Patent, a Residential Free Patent or to access a deceased’s bank account. Without an EJS, the land can eventually be lost.

Note that there are different Extrajudicial Settlements that are possible:

• An Extrajudicial Settlement of Estate with Deed of Sale when you are settling the estate and have a buyer who is willing to do this process with you
• An Extrajudicial Settlement of Estate with Waiver of Rights when you are settling the estate and have heirs who wish to waive their rights or donate to others.

What are the requirements for Extrajudicial Settlement in the Philippines?

The requirements for Extrajudicial Settlement in the Philippines are all the property documents, all family Registrar documents, IDs and the EJS itself.

Let’s go through the exact documents needed:

• Original Land Title and Certified True Copies of Land Title from the Registry of Deeds
• Certified True Copies of Tax Declarations from the City Assessor’s Office
• Certificate of Land Holdings from City Assessor’s Office
• Certificate of No Improvement
• Certified True Copy of Mortgage and Statement of Account documents from the bank, if applicable
• Original Certificates of shares of stock
• Audited Financial Statements for unlisted shares of stock
• PSA Death Certificate of the deceased and PSA Marriage Certificate, as applicable
• PSA Birth Certificate, PSA Marriage Certificate, and PSA death Certificate of all his heirs, as applicable
• Payment of all outstanding realty taxes
• Certification of a registered accountant for the tax computation, if applicable
• Notarized Extrajudicial Settlement of Estate with the signature of all the heirs.
• IDs and TINs of all the heirs

If you are reading this and don’t have some of the requirements or the requirements are imperfect, then you can check out the FAQ section below, where we talk about common situations such as:

• What if you do not have the original land title?
• Do all heirs have to sign the EJS?
• What if there are errors in the PSA documents or what if you have a PSA document of No Result?
• What if names are misspelled on the property documents?
• What if tax declarations are in someone else’s name?
• And other common questions

All of the above can cause problems.

If there are several issues with your documents or the family situation is complicated, a consultation with an Inheritance Lawyer is important.

Getting the documents is about 60% of the work and you might need advice on what to do if you have trouble.

Note also – you must gather all of this within a year for deaths covered by TRAIN since after that late fees are added every year that the estate is unsettled in addition to BIR Estate Taxes.

What is the process of Extrajudicial Settlement in the Philippines?

The process of Extrajudicial Settlement in the Philippines is the documents are gathered, the BIR estate taxes are paid, the BIR e-CAR is registered in each Registry of Deeds.

The process of Extrajudicial Settlement of Estate is as follows:

• Gather ALL the documents
• Send documents to an Inheritance Lawyer to draft the EJS as the lawyer will need all the above requirements for an Extrajudicial Settlement of Estate. The main reason an Inheritance Lawyer might not be able to finish drafting the EJS is the lack of documents.
• Have ALL the heirs sign the EJS and notarize it
• Pay the BIR Estate Taxes
• Register the e-CAR at the Registry of Deeds for each location

It sounds so simple, does it?

And yet, settling an estate can take several months mainly because there can be a lot of back and forth at each step.

For example, if I was to ask you to get all the above property and PSA documents, you would probably take some time to do it.

Likewise, it also takes some time at the BIR or Registry of Deeds as they may ask for additional documents or compliances.

So much depends on the situation.

How much does it cost to transfer land title to heirs in the Philippines?

The cost to transfer land title to heirs in the Philippines is made up of the BIR estate taxes, Registry of Deeds transfer fees, payment of unpaid realty taxes, payment to gather documents, payment to the certified accountant, publication costs and fees paid to an Inheritance Lawyer.

The amount you can expect to pay depends on the date of death.

For deaths after Dec 31, 2017 (other tax regimes apply before that date), you can expect the following:

· BIR estate taxes are 6% of the value of the net estate

· Registry of Deeds transfer fees

· Payment of unpaid realty taxes

· Payment to a certified accountant, costs depend on location

· Payment to an Inheritance lawyer for drafting and advice

· Cost of gathering documents

The biggest cost is the BIR estate tax.

I explain this in my article on BIR Estate Taxes since taxes will differ depending on the situation (For instance, an EJS with Waiver of Rights will have a different calculation depending on the situation) and the applicable law.

The applicable law depends on the date of death of the deceased – for example deaths from Jan 1 1986 to July 27, 1992 are covered by PD 1994.

Currently, the law in force is the TRAIN law. I’ll talk briefly here about some major things that can affect BIR Estate Taxes for Philippine citizens and resident aliens:

· Php 5,000,000 standard deduction

· Php 10,000,000 for the family home

· Surviving spouse’s share of the estate

· Mortgages or claims against the estate

· Properties previously taxed and transferred within 5 years of the death may have available deductions depending on the date of transfer

Please note that the deductions are affected by the date of the deceased death and whether or not the deceased was a citizen of the Philippines or non-resident alien. Non-Resident Aliens Estate Taxes have different deductions.

The deductions above are the major and most common ones that affect the estate.

There are others but they are rarely used – the majority are going to be using the above.

For an assessment of your situation talk to an Inheritance Lawyer to understand factors that can reduce costs.

A detailed Estate Tax cost at the BIR is possible only after the Inheritance Lawyer actually accepts your case however because he has to go through all the documents and sit down and do a deep analysis.