Donation vs Sale of Property to Children in the Philippines

Because of the legitime, the part of a parent's estate the law reserves for the compulsory heirs. Under Article 888, legitimate children share one-half of the estate of each parent. A parent cannot avoid this by giving everything away during his or her lifetime.

That is why the Civil Code makes donations to children count at death:

When the parent dies, the value of donations to the children is added to the net estate, at the time they were made, to compute each heir's legitime (Article 908). This adding back is called collation (Article 1061). If a donation is more than the parent could have given by will, it is "inofficious" and is reduced; when there are several donations, the most recent ones are reduced first (Articles 752, 771 and 773). Only those who have a right to the legitime when the parent dies, and their heirs and successors, can ask for the reduction, and they cannot give up that right while the parent is alive (Article 772).

For the size of each heir's share, see legitime shares in the Philippines and the legitime shares table.

None of the Civil Code articles on donation and sale used on this page bars a parent from selling to a child. The risk is a sale that is not real. Families sometimes sign a deed of sale to "avoid trouble" or to get a title in a child's name, with no price paid and no intent to sell. The law treats that kind of deed harshly:

• An absolutely simulated contract, one the parties never meant to be bound by, is void (Articles 1346 and 1409(2)).
• The action to declare it void does not prescribe (Article 1410).
• If only the price is simulated, the sale is void, but it may be shown that the transfer was really a donation (Article 1471). The donation rules, including collation, then apply.

In Rebusquillo v. Spouses Gualvez (2014), a mother signed a deed of absolute sale of inherited land in favor of her daughter and son-in-law. The couple admitted the deed was only meant to make it easier to title the land. The Supreme Court held that the deed was absolutely simulated and void, even though it was notarized, and reinstated the trial court's decision. In the Court's words: "The form of a contract does not make an otherwise simulated and invalid act valid."

If the land is still owned in common by heirs, a co-owner can sell only his or her own undivided share; see Can a co-owner sell his share?

Article 749 of the Civil Code sets the rules:

The child must accept, either in the same deed or in a separate public document, and the acceptance takes effect only if made while the parent is alive. A separate acceptance must be formally notified to the parent and noted in both documents. A donation also cannot cover "future property", meaning anything the parent cannot dispose of at the time of the donation (Article 751).

For a sale of land, Article 1358 refers to the Statute of Frauds: an agreement to sell land cannot be enforced in court unless it, or a note of it, is in writing and signed by the party being sued, or it is ratified (Article 1403 and Article 1405).

Under Section 99(A) of the National Internal Revenue Code, as amended by the TRAIN law (Republic Act No. 10963), the donor's tax is 6% of the total gifts made during the calendar year in excess of P250,000. The tax is on the giver (the donor), counted per calendar year.

This page does not compare the total tax cost of a donation and a sale. The capital gains tax and documentary stamp tax rules for a sale of land were not covered here. For those, and for how to file and pay donor's tax, ask the Bureau of Internal Revenue or a lawyer.

These are made-up examples to show how the rules work. They are not advice for any real case.

Mang Ramon donates a lot to Joy. Mang Ramon gives a lot to his eldest child, Joy, by a notarized deed that Joy accepts in the same document. When Ramon dies, the lot's value at the time of the donation is added to his estate to compute each child's legitime, and it is charged to Joy's share (Articles 908 and 909). If it is more than Ramon could have given by will, her brothers and sisters can ask for a reduction (Articles 752 and 771).

Aling Celia "sells" her house to her son. Aling Celia signs a deed of sale of her house to her son for a price he never pays, "para walang away". If the deed is challenged in court, it can be declared simulated: void if there was no real intent to transfer at all (Articles 1346 and 1409), or shown to be really a donation if only the price was fake (Article 1471). In that case the donation rules and collation apply.

Tuition is not added back. A father paid for one child's support and schooling. Support and education expenses are not collated (Article 1067). Career expenses are collated only if the parent so provides or if they impair the legitime (Article 1068).

Talk to a lawyer before signing a deed of donation or a deed of sale of land within the family, especially if there are other children or a spouse, and if you want to challenge a deed signed by a parent. A lawyer can also check the tax and registration steps, which this page does not cover. If you cannot afford one, see free legal help.