True love never fails… so are you ready to share your real estate properties with your would-be spouse, family members and relatives? How do they become entitled to your properties? Will the transfer of such properties entail payment of taxes?
There are several ways by which real estate properties can be transferred, by pre-nuptial agreement (settlement prior to marriage), upon marriage, sale, donation, and succession or inheritance.
Pre-nuptial agreement
Would-be spouses can agree on what to do with their properties before they marry like selecting relative community or conjugal partnership of gains, absolute community, separating their properties or adopting any other regime. The effectivity in such transfer, however, shall be upon celebration of marriage.
Separation of property. Would-be spouses may agree before marriage to transfer selected or none of their exclusive properties. Such properties may include those acquired before marriage, during marriage, or both. Those excluded in the partial separation list shall be governed by absolute community of property, if the marriage happens upon and after the effectivity of the Family Code.
Relative community or conjugal partnership of gain. Unfortunately, exclusive properties will not form part of the common properties, such as those brought into the marriage as his/her own; acquired during marriage thru donation, a Will or no Will; acquired by right of redemption or exchange with other property belonging to only one spouse; or purchased by either spouse with his/her exclusive money.
Upon marriage
Spouses will jointly own properties acquired during their marriage using their common funds; obtained from either or both spouses’ work or salaries; and the fruits, rents or interest received or due during their marriage.
In addition, all properties that each spouse own before marriage will belong to both in the absence of any marriage settlement, if the marriage happened on or after August 3, 1988, based on the absolute community of property per the Family Code.
There are a few exceptions though, like those acquired during the marriage by gratuitous title by either spouse, including the fruits and income thereof, unless the donor, testator or grantor expressly provided it to form part of the common property; those for the exclusive use of either spouse, except jewelry; or properties acquired prior to the marriage by either spouse who has legitimate descendants by a previous marriage, and the fruits and income from those properties.
Sale/Purchase
Real estate property may be transferred to children and relatives through sale, with corresponding payment and receipt of the agreed price, and the execution of notarized Deed of Absolute Sale (DoAS).
Donation
Spouses may opt to donate real properties to their child/children or relatives. Such donations, however, are governed by existing laws, rules and regulations, such as: (I) donee must accept the donation personally or through an authorized person with general and sufficient power; (II) notarized deed should specify the property and value of the charges that the donee must satisfy; and (III) acceptance must be done during the parties’ lifetime, with acceptance made in the same deed or separate public document provided that the donor shall be notified, and noted in the instruments.
The donations, however, are considered void if made: (I) between persons who were guilty of adultery/concubinage at the time of the donation; (II) between persons found guilty of criminal offense, in considerations thereof; (III) to a public officer or his wife, descendants and ascendants, by reason of his office; (iv) to incapacitated persons, though simulated, under the guise of another contract, or through a person who is interposed; (v) by guardians and trustees entrusted with the property; and (vi) by a spouse to another during their marriage, except moderate ones.
Succession or inheritance
Heirs may inherit properties from their deceased parent or relative through succession, whether the decedent left a Will or not, or mixed.
Deceased person who prior to his/her death (testator) prepares his/her Will, may designate heir/s who are family member/s and relative/s thru testamentary succession. In the absence of a Will, properties may be acquired by legitimate and illegitimate children/relatives, spouse through legal or intestate succession. Mixed succession may occur when the testator fails to dispose all his property in his/her Will.
The two common settlements of estate are: (i) Extrajudicial settlement of estate, wherein the estate is divided among heirs through the execution of a notarized deed that indicate how the properties are to be divided among them, or (ii) Judicial settlement of estate, when there is no Will and the heirs cannot agree on how to divide the properties, thus needing a court-adjudicated settlement.
Taxation
Unlike the transfer of properties through the pre-nuptial settlement by marriage, or upon marriage, the conveyance of properties through sale requires the payment of Capital Gains Tax at the rate of six percent. The value of the real estate property shall be based on the gross selling price, current fair market value or zonal value, whichever is higher.
Similarly, the transfer of properties through donation and settlement of estate also requires the payment of six percent donor’s tax and estate tax respectively since January 1, 2018 as per the TRAIN Law. The Donor’s Tax is computed based on the total net gift value in excess of P250,000 given during the same calendar year while an estate tax is based on the net taxable estate value of all properties, less allowable deductions like funeral and judicial expenses.
All conveyance deeds require the payment of 1.5 percent Documentary Stamp Tax.
References used include the Executive Order No. 209, as amended (The Family Code of the Philippines); and Civil Code of the Philippines Annotated. Volumes II and III. 2021 Edition, by Justice Edgardo L. Paras.
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Henry L. Yap is an Architect, Environmental Planner, former Real Estate Practitioner and Senior Lecturer, and one of the Undersecretaries of the Department of Human Settlements and Urban Development.
