Losing a parent is bad enough in itself. However, dealing with the aftermath can be stressful as well. For example, your departed may have failed to leave a will detailing who gets to inherit their property. Going through your parents’ possessions immediately after their burial is a very difficult task to accomplish. You might feel like you’re invading their privacy, even though they’re no longer there to protect it. Every item holds a memory, making it emotionally exhausting to decide which goes to whom. The same goes for sorting out properties among surviving family members. Inheriting property, while welcome, can be emotionally taxing especially if you’re still grieving. But like burying the dead, it’s a responsibility that someone in the family has to take on. 

This handy guide answers three of the most-asked questions regarding property inheritance:  

1. If a property owner dies, who gets to own the property? 
2. What happens to the deceased’s property if it still has outstanding obligations?
3. What are the taxes and fees that come with inheriting property? 

1. If A Property Owner Dies, Who Gets to Own the Property? 

If we’re dealing with a fully-paid property, the first and most important step is to determine the legal heirs. Under Philippine law, property inheritance follows the rules of succession outlined in the Civil Code of the Philippines. The process depends on whether the deceased left behind a will (testate succession) or not (intestate succession).

Testate Succession

When a will exists, the heirs can distribute the property according to the departed’s documented wishes. However, the will must still respect the legal shares of the compulsory heirs, which include the spouse, legitimate and illegitimate children, and sometimes even parents. The will cannot deprive these compulsory heirs of their rightful inheritance.

Intestate Succession

If no will is available, the law determines the division of property among the heirs. In a typical scenario, the surviving spouse and legitimate children inherit the estate. If there are no children, the inheritance may go to the parents, siblings, or other relatives, depending on the family structure.

In both cases, the first step is to have the heirs legally recognized. You can apply for a judicial process called extrajudicial settlement if all heirs agree. In case of disagreement or dispute, the courts can settle the matter for the family. Once the heirs are determined, the property title can be transferred to them.

2. What Happens to the Deceased’s Property If It Still Has Outstanding Obligations? 

In some cases, the property may still have an outstanding mortgage or loan when the owner dies. What happens then? Who inherits the property, and what happens to the debt balance?

When a property owner passes away with an unpaid mortgage, the entire estate (including the property and any debts) goes to the heirs. The heirs can inherit the property, but they also inherit the responsibility of settling any remaining debts, including the mortgage.

Heirs typically have three choices:

1. Pay the outstanding mortgage balance: If the heirs want to keep the property, they must continue making mortgage payments until the debt is fully paid off. In some cases, mortgage redemption insurance (MRI) may have been taken out by the original owner. MRI is a type of insurance that covers the outstanding balance in case of the owner’s death, which can ease the financial burden on the heirs.
2. Sell the property: If the heirs can’t afford to continue the payments, selling the property might be an option. The proceeds from the sale can be used to pay off the mortgage, with any remaining amount distributed among the heirs.
3. Allow foreclosure: In the worst-case scenario, if no action is taken, the bank or lender can foreclose on the property to recover the outstanding balance. This results in the heirs losing ownership of the property.

It’s important to note that heirs need to settle any debts attached to the property before they can fully inherit it. The responsibility for paying off debts, such as the mortgage, is outlined in the abovementioned Civil Code. It states that the deceased’s estate must settle all obligations of the deceased.

3. What Are the Taxes and Fees Related to Transferring Ownership?

Transferring property ownership after the death of the owner isn’t as simple as signing over the title. Several taxes and fees must be paid to complete the process legally. These include:

• Estate Tax: Under the TRAIN Law (Republic Act No. 10963), the estate tax is a flat rate of 6% of the net value of the estate. The net estate value is calculated by subtracting any allowable deductions (such as unpaid debts) from the gross estate value. The heirs must pay this tax before the property can be transferred to them. Failing to pay the estate tax can lead to penalties, so it’s important to settle this early.
• Documentary Stamp Tax (DST): When transferring the title to the heirs, a documentary stamp tax of 1.5% of the property’s value must be paid.
• Transfer Tax: Local governments impose transfer taxes ranging from 0.5% to 0.75% of the property’s fair market value or selling price.
• Notarial Fees and Registration Fees: These additional fees are required for processing and registering the new property title under the names of the heirs. Notarial fees usually amount to around 1% of the property’s value, while registration fees vary depending on the value of the estate.

It’s essential to account for these costs when planning to inherit property, as they can be significant.

Preemptive Actions to Make Inheritance Easier for Your Heirs

Sure, it’s easy to assume that the only child of deceased parents will get to inherit their property, but it doesn’t always work that way. What about if the spouse is still alive? Or, what about families with multiple children? Then again, what about the departed’s own siblings wanting to reclaim their ancestral property that ended up with them?  

To avoid confusion and potential disputes among heirs, it’s a good idea for property owners to take preemptive actions to simplify the inheritance process:

Draft a Will

Having a legal will clearly stating how the property should be distributed among heirs can prevent disputes and streamline the process. Make sure the will complies with the provisions of the Civil Code of the Philippines regarding the shares of compulsory heirs.

Set Up a Trust

A living trust allows a transfer of property from the deceased to their beneficiaries without going through probate.  This can make the process faster and less complicated. Of course, this won’t stop determined claimants to still seek 

Apply for Mortgage Redemption Insurance (MRI)

Property owners with outstanding mortgages should consider signing up for an MRI. This insurance covers the remaining loan balance in case of the owner’s death, lifting the burden from the heirs. However, expect to pay a premium when availing of these programs. 

Discuss Property Division with Heirs

This option involves sharing your plans with the family as early as possible. Having open discussions with family members about how to divide the property in the event of death can avoid misunderstandings later on.

Make Inheriting and Buying Property Easier with Ohmyhome

Losing a loved one is hard enough, but dealing with the complex process of inheriting property doesn’t have to make things harder. By taking the right steps, the transition can be smoother for your family. It doesn’t matter if the property in question needs additional payments, an understanding of your legal rights and obligations can help you make informed decisions.

Inheriting property in the Philippines involves multiple steps, from recognizing heirs to paying taxes and transferring the title. If you find yourself in a situation like the above examples, Ohmyhome can help out so that you and your loved ones can focus on what truly matters.

Even outside of morbid discussions such as inheriting property, Ohmyhome can be of greater service for your real estate needs. Our partnership with over 200 of the country’s top real estate developers means having access to thousands of local properties both pre-selling and ready-for-occupancy. We also have a considerable listing of properties for rent whether for long or short-term deals. Our team of licensed real estate professionals has the expertise and properties to help you get what you’re looking for. They’ll also be happy to lend their expertise on local property laws, including the dreaded fees and taxes. Start building up your legal for your future heirs by signing up for a free Ohmyhome account today!