A Guide to Extrajudicial Settlement of Estate with Deed of Sale in the Philippines

Handling inherited real estate in the Philippines can be a daunting process, especially when the heirs decide to sell the asset immediately. The most common way to achieve this is through an extrajudicial settlement of estate with deed of sale. This legal procedure allows heirs to distribute the estate of a deceased person and sell it to a buyer in a single, consolidated document.
Understanding the Legal Framework

When a person is deceased without leaving a will and has no outstanding debts, the heirs are not forced to go to court. Instead, they can elect for an extrajudicial settlement. By signing a legal document, the heirs concur on how to divide the properties among themselves.

However, when the heirs already have a purchaser waiting, they often perform an extrajudicial settlement with deed of sale. This simplifies the process by combining the adjudication of the property and the subsequent transfer into one legal instrument.
Advantages for Heirs and Buyers

Liquidating inherited land through this method offers various advantages:

Time Efficiency: It removes the need for two separate transactions and two sets of notarization.

Reduced Costs: While taxes must still be paid, handling the documentation simultaneously can minimize administrative burdens.

Easier Consolidation: The Register of Deeds can handle the transfer from the deceased directly to the new buyer, assuming all requirements are met.

The Step-by-Step Process

To effectively execute an extrajudicial settlement with deed of sale, certain criteria must be met under Philippine law:

No Will and No Debts: The deceased must have left no testament and the estate must be cleared of liabilities.

Unanimous Consent: All legal heirs must be extrajudicial settlement with deed of sale unanimous regarding the sale and the division of proceeds.

Publication: The settlement must be advertised in a newspaper of general circulation for three successive weeks.

Payment of Taxes: The Estate Tax must be paid to the Bureau of Internal Revenue (BIR) before the property can be transferred.

The Role of Taxes

One of the essential aspects of transferring inherited land is the settlement of taxes. Aside from the Estate Tax, a Capital Gains Tax and Documentary Stamp Tax will be due because of the sale component. Forgetting to settle these taxes will block the issuance of a new Certificate of Title in the buyer's name.
Ensuring a Valid Transaction

For buyers, purchasing through an extrajudicial settlement of estate with deed of sale carries a particular risk under Rule 74, Section 4 of the Rules of Court. This law states that the property is subject to the rights of any excluded heir or creditor for a period of two years. To mitigate this risk, many buyers require an heir's bond or wait until the two-year period has expired.
Conclusion

Navigating an extrajudicial settlement with deed of sale is a practical move for families looking to sell inherited assets quickly. By learning the legal requirements, heirs can ensure a smooth transition of ownership while securing the value of their estate