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

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

When a person passes away without leaving a will and has no outstanding debts, the heirs are not required to go to court. Instead, they can elect for an extrajudicial settlement. By signing a notarized deed, the heirs concur on how to divide the properties among themselves.

However, when the heirs already have a interested party waiting, they often perform an extrajudicial settlement with deed of sale. This streamlines the process by combining the adjudication of the property and the subsequent transfer into one legal instrument.
Why Use a Combined Deed of Sale?

Trading inherited assets through this method offers multiple advantages:

Saved Time: It eliminates the need for two separate transactions and two sets of documentation.

Lower Expenses: While taxes must still be paid, handling the documentation simultaneously can reduce administrative burdens.

Clear extrajudicial settlement with deed of sale Title Transfer: The Register of Deeds can update the transfer from the deceased directly to the new buyer, assuming all requirements are met.

How to Proceed

To successfully execute an extrajudicial settlement with deed of sale, certain requirements 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.

Agreement Among Heirs: All legal heirs must be in agreement regarding the sale and the distribution of proceeds.

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

Payment of Taxes: The inheritance tax must be paid to the Bureau of Internal Revenue (BIR) before the property can be sold.

Understanding the Tax Implications

One of the essential aspects of transferring inherited land is the settlement of taxes. Aside from the Estate Tax, a transfer tax and Documentary Stamp Tax will be required 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.
Protecting the Buyer

For buyers, purchasing through an extra judicial settlement with deed of sale carries a unique risk under Rule 74, Section 4 of the Rules of Court. This law provides that the property is subject to the rights of any excluded heir or creditor for a duration of two years. To mitigate this risk, many buyers demand an heir's bond or delay until the two-year period has expired.
Summary

Handling an extrajudicial settlement with deed of sale is a strategic move for families looking to liquidate inherited assets quickly. By learning the legal requirements, heirs can ensure a seamless transition of ownership while maximizing the value of their inheritance