In Philippine law, when a person passes away leaving real estate but no will and no debts, the heirs usually undergo a process called Extrajudicial Settlement. When the heirs decide to sell that inherited property to a third party simultaneously, the process is streamlined into a single document: the Extrajudicial Settlement of Estate with Deed of Sale.

When to Use This Document

This legal instrument is used when the deceased left no last will and testament and no outstanding debts. Instead of the heirs first transferring the title to their names and then executing a separate deed of sale to a buyer, this document combines both actions. This saves time and reduces administrative hurdles by transferring the property directly from the "Estate" to the new buyer.

The Role of Estate Tax and Heir Consent

A common question is whether heirs can sell a property if the estate tax remains unpaid. Legally, the sale can be negotiated, but the Certificate Authorizing Registration (CAR) from the Bureau of Internal Revenue (BIR) will not be issued until the estate tax is settled. Since the CAR is required to transfer the title to the buyer, Can heirs sell a property if the estate tax has not been paid? the tax must be paid as part of the settlement process.

Furthermore, unanimity is vital. All legal heirs must sign the document. If one heir is left out, the settlement is technically "voidable" or contestable in court. If an heir is currently abroad, they do not need to fly back; they can execute a Special Power of Attorney (SPA), authenticated or "apostilled" by the Philippine Consulate in their country of residence, authorizing someone to sign on their behalf.

Publication and Tax Implications

Under Rule 74, Section 1 of the Rules of Court, an Extrajudicial Settlement must be published in a newspaper of general circulation once a week for three consecutive weeks. This serves as a notice to any creditors or unknown heirs.

Combining the settlement with a sale carries specific tax responsibilities:

Estate Tax: Based on the value of the property at the time of the owner's death.

Capital Gains Tax (CGT): Usually 6% of the selling price or zonal value, whichever is higher, triggered by the sale to the buyer.

Documentary Stamp Tax, Transfer Tax, and Registration Fees: Necessary for the issuance of a new title.

Required Documents for Title Transfer

To successfully transfer the title to the buyer, the following What are the tax implications of combining a settlement with a sale? generally required:

The notarized Extrajudicial Settlement with Deed of Sale.

The Owner’s Duplicate Copy of the Title (TCT/CCT).

Certified True Copies of the Death Certificate and Birth Certificates of heirs.

BIR Tax Clearance (CAR).

Proof of Newspaper Publication (Affidavit of Publication).

Real Property Tax Clearance and updated Tax Declarations.

Conclusion

An Extrajudicial Settlement with Deed of Sale is an efficient "shortcut" for heirs to liquidate inherited property. However, it requires total cooperation among heirs, strict adherence to publication requirements, and the settlement of all tax liabilities. By understanding these requirements, families can ensure a smooth transition of ownership while protecting the legal interests of both the heirs and the buyer.