Understanding Extrajudicial Settlement with Deed of Sale in the Philippines

Handling inherited property in the Philippines can be a complex process, especially when the heirs intend to sell the asset immediately. The most efficient 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 sell it to a buyer in a single, combined document.
What is an Extrajudicial Settlement?

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

However, when the heirs already have a purchaser waiting, they often execute an extrajudicial settlement of estate with deed of sale. This streamlines the process by combining the adjudication of the property and the subsequent transfer into one legal instrument.
The Benefits of Combining the Settlement and Sale

Trading inherited assets through this method offers multiple advantages:

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

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

Clear Title Transfer: The Register of Deeds can handle the transfer from the deceased directly to the new buyer, granted all requirements are met.

How to Proceed

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

Absence of a Will: The deceased must have left no testament and the estate extrajudicial settlement with deed of sale must be free of debt.

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

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

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

Understanding the Tax Implications

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 prevent the issuance of a new Certificate of Title in the buyer's name.
Risks and Safeguards

For buyers, purchasing through an extrajudicial settlement of estate with deed of sale carries a specific 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 lessen this risk, many buyers request an heir's bond or wait until the two-year period has expired.
Final Thoughts

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