Extrajudicial Settlement of Estate: Requirements and Risks

Section 1 of Rule 74 sets the conditions and the form. In plain words:

1. No will. If there is a will, it must go through probate in court (Civil Code Article 838).
2. No debts. The law presumes there were none "if no creditor files a petition for letters of administration within two (2) years after the death of the decedent."
3. All heirs of age, or minors "represented by their judicial or legal representatives duly authorized for the purpose."
4. A public instrument dividing the estate, filed in the office of the Register of Deeds.
5. A bond filed with the Register of Deeds at the same time, in an amount equal to the value of the personal property involved (for example, bank deposits, cars or jewelry), as certified under oath by the heirs.
6. Publication of the settlement in a newspaper of general circulation, "once a week for three (3) consecutive weeks" (Section 2, as applied by Section 1).

If the heirs disagree, they cannot use this route; they file an ordinary action for partition in court. If there is only one heir, he or she may take the whole estate by an affidavit of self-adjudication, also filed with the Register of Deeds. You can read the short meaning in Extrajudicial settlement.

Every heir. Who the heirs are, and how much each gets, follows the Civil Code: see Who inherits if there is no will? If the deceased was married, the marital property is liquidated first: Family Code Article 103 (absolute community) and Article 130 (conjugal partnership) give the surviving spouse one year or six months from the death to liquidate it when no court case is filed. If that is not done, any disposition or encumbrance of that property (for example a sale or a mortgage) is void.

An heir who wants to give up his or her share must do it in a public document. Civil Code Article 1358(2) requires a public document for "the cession, repudiation or renunciation of hereditary rights".

The settlement does not bind that heir. Rule 74 Section 1 says no extrajudicial settlement binds a person who did not take part in it or had no notice of it.

In Cua v. Vargas (2006), only five of the nine heirs named in an extrajudicial settlement of a small lot in Catanduanes signed it, and the settlement was published for three consecutive weeks. The same five later signed a second settlement selling their shares to a buyer. The other heirs never signed either document. The Supreme Court ruled that publication is notice "after the fact" and does not bind heirs who had no knowledge of the settlement or did not take part. It said the requirement of publication "is geared for the protection of creditors". The partition was invalid as to the heirs who did not sign, and they could buy back the shares sold to the stranger because they had never received written notice of the sale (Civil Code Article 1088). See Can a co-owner sell his share?

The Civil Code adds two rules. If a compulsory heir was left out of a partition, the partition is not rescinded unless there was bad faith or fraud, but the others must pay the omitted heir his or her share (Article 1104). If someone who is not an heir was included, the partition is void only as to that person (Article 1105).

Only a sole heir. In Rebusquillo v. Spouses Gualvez (2014), Avelina, one of several children of a man who had died without a will, signed an affidavit of self-adjudication over the land he left in Legazpi City and a deed of sale in favor of her daughter and son-in-law. The papers were meant only to help title the lot. The Supreme Court said an affidavit of self-adjudication "is only proper when the affiant is the sole heir of the decedent." Because Avelina was not the sole heir, her affidavit was void and the land remained subject to partition. She owned only an undivided share, so that share was all she could have transferred. The Court reinstated the trial court's decision annulling both documents.

Rule 74 Section 4 keeps the bond and the real estate "charged with a liability to creditors, heirs, or other persons for the full period of two (2) years after such distribution", even if the land was transferred. Within those two years, an heir "unduly deprived of his lawful participation" may compel a settlement in court, and unpaid debts can be collected from the bond or the land.

Section 5 gives more time to some people: if, when the two years end, the claimant is a minor, mentally incapacitated, in prison or outside the Philippines, he or she may present the claim within one year after that disability is removed. This matters for families with heirs working abroad.

The National Internal Revenue Code, as amended by the TRAIN Law (Republic Act No. 10963), says:

• the estate tax is six percent (6%) of the net estate (Section 84);
• there is a standard deduction of PHP 5,000,000 (Section 86(A)(1));
• the family home is deducted up to its fair market value, but any value above PHP 10,000,000 is taxed (Section 86(A)(7));
• the estate tax return is filed within one year from the death (Section 90(B)), and a return with a gross value above PHP 5,000,000 needs a statement certified by a Certified Public Accountant (Section 90);
• a bank may allow a withdrawal from a deceased person's deposit, subject to a 6% final withholding tax (Section 97).

These are the TRAIN Law texts. We did not read later laws or BIR rules that may have changed the filing place, the period or the documents, nor any estate tax amnesty. Check the current rules with the BIR before you file. For BIR registration, our BIR TIN guide notes that Form 1904 covers one-time transactions such as an estate.

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

Lito dies with no will and no debts, leaving a house and lot and a bank account. His wife and two adult children sign a public deed of extrajudicial settlement, publish it once a week for three weeks, post a bond for the bank money and file the deed with the Register of Deeds. For two years after the distribution, a creditor or a left-out heir can still go after the property (Rule 74 Section 4).

Four siblings inherit a lot. Three sign a settlement and sell their shares to a buyer. The fourth, working in Dubai, never signed. As in Cua v. Vargas, the settlement does not bind her, and since no one notified her in writing of the sale, she can still take over the purchase by paying the buyer the price (Art. 1088).

Nena signs an affidavit saying she is her father's only heir, although she has two brothers, and sells the lot. As in Rebusquillo, the affidavit is void and the buyer gets at most Nena's own share.

The deed usually rests on civil registry records that prove the death and the family relationships, such as the death certificate and the heirs' birth and marriage certificates. You can order them online: see how to request a PSA certificate. We did not read the current document lists of the BIR or the Register of Deeds, so ask those offices what they require.

Ask a lawyer before signing if there are debts, a will, minor heirs, heirs abroad, a child born outside marriage, or any heir who does not agree. A lawyer can draft the deed, check that every heir is included and advise on the bond, publication and taxes. If you were left out of a settlement, a lawyer can explain what you can do and the time limits that apply.

If you cannot afford a lawyer, see Free legal help in the Philippines for the Public Attorney's Office (PAO) and other options. For the whole topic, see Inheritance in the Philippines.