Understanding Extrajudicial Settlement with Deed of Sale in the Philippines

Handling inherited real estate in the Philippines can be a challenging process, especially when the heirs decide to sell the asset immediately. The most practical way to achieve this is through an extra judicial settlement with deed of sale. This legal procedure allows heirs to distribute the estate of a deceased person and convey it to a buyer in a single, combined document.
The Basics of Estate Settlement

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

However, when the heirs already have a buyer 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 sale into one legal instrument.
The Benefits of Combining the Settlement and Sale

Trading inherited assets through this method offers several advantages:

Speedier Process: It eliminates the need for two separate transactions and two sets of documentation.

Cost-Effectiveness: While taxes must still be paid, handling the legalities simultaneously can reduce administrative burdens.

Simpler Registration: The Register of Deeds can process the transfer from the deceased directly to the new buyer, assuming all requirements are met.

Key Requirements and Steps

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

Absence of a Will: The deceased must have left no will and the estate must be cleared of liabilities.

Unanimous Consent: All legal heirs must be in agreement regarding the sale and the distribution of proceeds.

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

Settling Tax Obligations: The Estate Tax must be paid to the Bureau of Internal Revenue (BIR) before the property can be extrajudicial settlement with deed of sale registered.

The Role of Taxes

One of the vital 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. Failure to settle these taxes will prevent the issuance of a new Certificate of Title in the buyer's name.
Ensuring a Valid Transaction

For buyers, purchasing via an extra judicial settlement with deed of sale carries a particular risk under Rule 74, Section 4 of the Rules of Court. This law stipulates that the property is subject to the claims of any excluded heir or creditor for a period of two years. To reduce this risk, many buyers require an heir's bond or delay until the two-year period has lapsed.
Final Thoughts

Executing an extrajudicial settlement with deed of sale is a smart move for families looking to sell inherited assets quickly. By learning the necessary documentation, heirs can ensure a smooth transition of ownership while optimizing the value of their estate