Villaraza Cruz Marcelo & Angangco

September 2, 2009 BIR RULING [DA-(ET-016) 485-09] DA-396-98; 081-83 Villaraza Cruz Marcelo & Angangco 118 Perea Street, Legaspi Village 1229 Makati City Attention: Attys. Aida Araceli G. Roxas-Rivera and Charmian Wyanet S. Zaragoza Gentlemen : This refers to your letter dated June 17, 2009 stating that your clients, Ms. Perla I. de Guzman, Rudolfo and Carolina de Guzman, are the heirs of the late Benjamin U. de Guzman (decedent) who died intestate on September 7, 2008 leaving behind Perla de Guzman, as the surviving spouse, and two (2) children namely: Rudolfo and Carolina; that at the time of his death, the Decedent was the registered owner of several real and personal properties more particularly described as follows: Real Properties 1. One-half (1/2) share in the parcel of land together with the improvements thereon covered by TCT No. 73449 located at No. 6 Florence Street, Merville Park Subdivision, Paraaque City and consisting of 374 square meters; 2. One-half (1/2) share in a condominium unit covered by CCT No. 7493-R located at Unit 906, Le Gran Condominium and consisting of 30.61 square meters; 3. One-half (1/2) share in a condominium unit covered by CCT No. 7496-R located at Unit 907 Le Gran Condominium consisting of 29.7 square meters; 4. One-half share in a condominium unit covered by CCT No. 7494-R located at Unit 908 Le Gran Condominium consisting of 29.7 square meters; 5. One-half (1/2) share in a parking slot covered by CCT No. 7495-R located at Le Gran Condominium consisting of 12.5 square meters. SEDaAH Personal Properties 1. One-half (1/2) share in 35,476 common shares of stock in D.G. Holdings, Inc. with a par value of P100.00 per share or a fair market value of P101.74 per share; 2. One-half (1/2) share in the shares of stock of the following corporations: Name of Type of Stock Date of Stock No. of Corporation Shares Certificate No. Certificate Shares Swift Foods, Inc. Common 35429 Dec. 18, 1995 250 Common 13841 Nov. 15, 1994 500 Empire East Common 7796 June 28, 1996 2,000 Land Holdings, Inc. Common 86723 Jan. 17, 1998 1,760 Common 115936 Aug. 8, 2006 564 Fil Estate Land, Common 83608 Oct. 6, 2000 680 Inc. Common 52910 Sept. 3, 1996 2,000 Common 73453 May 5, 1997 2,000 Manila Bulletin Common SD-2007-0844 Dec. 21, 2007 1,311 Publishing Corp. Common SD-2006-0859 Sept. 5, 2006 1,618 Common SD-2005-0858 Sept. 7, 2005 981 Common SD-2004-0859 Aug. 27, 2004 1,052 Common SD-2003-0853 Aug. 29, 2003 496 Common SD-2001-0840 Aug. 22, 2001 918 Common SD-2000-1211 Sept. 21, 2000 2,147 Common SD-98-2186 Oct. 8, 1998 1,196 Common SD-100-96-0907 Jan. 25, 1996 2,000 Common 1-4150 Jul. 2, 1993 1,000 Common 1-4148 Jul. 1, 1993 1,000 Steniel Common 18494 Mar. 10, 1994 1,200 Manufacturing Corp. Common 23644 Jul. 25, 1994 5,700 Common 23663 Jul. 25, 1994 1,800 Common 18933 Mar. 14, 1994 3,800 Common 36464 Feb. 22, 1995 1,929 Common 36463 Feb. 22, 1995 600 Common 46971 May 26, 1995 2,857 Common 46970 May 26, 1995 900 Trans-Asia Oil Common 140787 Feb. 14, 1997 279,746 and Mineral Devt. Corp. PLDT Series P 10% SIP-37643 Aug. 3, 1989 170 Cumulative Convertible Preferred Share Series N 10% SIN-12763 May 5, 1987 90 Cumulative Convertible Preferred Share that on November 6, 2008, a Joint Affidavit was executed by the heirs appointing Ms. Perla de Guzman as the administrator of the estate of the Decedent, charged with the collation of all the properties of the estate, including the proceeds of all insurance policies on the life of the Decedent, and the settlement of all the debts and obligations of the estate; that on December 22, 2008, an Extrajudicial Settlement of Estate of the late Benjamin U. de Guzman was executed by the above-mentioned heirs; that on January 16, 2009, Ms. Perla de Guzman filed a claim with the Insurance Section of the United Nations (the U.N.) in New York, USA, in connection with the Group Life Insurance taken out by the U.N. for its employees, covering the life of the Decedent, among others; that on January 30, 2009, the estate tax due in the amount of P238,440.79 was paid to the BIR through an Authorized Agent Bank (AAB); that thereafter, on February 5, 2009, an amended estate tax return was filed, and an additional P35,467.31 was paid to the BIR, representing the underpayment of estate tax arising from the miscomputation of the fair market value of the Decedent's family home; that subsequently, in a letter dated February 24, 2009, Atena * Life Insurance Company (Atena), underwriter of the U.N. Group Life Insurance Plan, wrote Ms. de Guzman/Estate of Benjamin de Guzman informing the latter of the release of the proceeds of the Group Life Insurance Plan in which the Decedent participated, thus: "In connection with the United Nations Group Life Insurance Plan in which Mr. Benjamin de Guzman participated, herewith is transmitted AETNA Cheque No. 50953223. This represents the principal benefit of $7,000.00, and interest of $28.79 payable to you as the Estate of Benjamin de Guzman, and is full settlement from AETNA Life Insurance Group." that thereafter, on March 2, 2009, Ms. Perla de Guzman acknowledged receipt of Aetna Cheque No. 50953223 representing the principal benefit of $7,000 and interest of $28.79 issued in favour of the Estate of Benjamin U. de Guzman; that on March 12, 2009, the Certificate Authorizing Registration (CAR) was issued by the BIR-Revenue District Office No. 052, Paraaque City, in connection with the settlement of the estate of the Decedent; and that notably, the proceeds of the U.N. Group Life Insurance Plan in the amount of $7,028.79 was not included in the computation of the gross estate of the Decedent. DcCASI Based on the foregoing representations, you now request for confirmation of your opinion that the group life insurance proceeds on the life of the Decedent taken out by the Decedent's employer, the U.N., is excluded from the gross estate of the Decedent and therefore not subject to estate tax. In reply thereto, please be informed that Section 85 of the Tax Code of 1997 provides that the value of the gross estate of the decedent shall be determined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated: Provided, however, That in the case of a non-resident decedent who at the time of his death was not a citizen of the Philippines, only that part of the entire gross estate which is situated in the Philippines shall be included in his taxable estate. xxx xxx xxx (E) Proceeds of Life Insurance. To the extent of the amount receivable by the estate of the deceased, his executor, or administrator, as insurance under policies taken out by the decedent upon his own life, irrespective of whether or not the insured retained the power of revocation, or to the extent of the amount receivable by any beneficiary designated in the policy of insurance, except when it is expressly stipulated that the designation of the beneficiary is irrevocable. xxx xxx xxx Prescinding from the above provisions, it is undisputed that the taxability of insurance proceeds will depend on whether or not the designation of the beneficiary thereof is revocable or irrevocable. Where the designation of the beneficiary is revocable, the proceeds of a life insurance policy form part of the gross estate of the insured upon his death, even if he failed to exercise his right or option to revoke that designation. As part of the estate, said proceeds are subject to the estate tax. On the other hand, if the beneficiary is irrevocably designated, the right to the proceeds of the life insurance policy, upon the death of the insured immediately vests on the beneficiary in which case, said proceeds no longer form part of the gross estate of the deceased. Such being the case, they are not subject to estate tax. However, in the instant case, since the insurance policies upon the life of the Decedent were taken by the latter's employer during his life time, the designation of the beneficiary whether revocable or irrevocable is immaterial. Thus, the proceeds thereof should not form part of the estate of the late Benjamin U. de Guzman. Accordingly, it is NOT subject to estate tax as prescribed in Section 84, supra. EAIcCS The above principle is not without authority. This Office has already elucidated the matter in BIR Ruling No. DA-396-98 dated September 1, 1998, which held as follows: "Such being the case, and considering that the insurance policies upon the life of the decedent, the late Andres I. Atienza, was taken by his employer, Singer, for its employees, the proceeds thereof shall not form part of the gross estate of the decedent for the purpose of determining the estate tax due, hence, your opinion is hereby confirmed." (BIR Ruling No. 081-83 dated May 10, 1983) This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service