Some Insights

Here's a nice discussion from our professor in Tax II:

For purposes of making a transfer it would be better to make a donation than to wait until death (in the case of estate tax). For purposes of estate planning on how you can make a gradual transfer there must be a relationship between the transferor and the transferee because absent such relationship there is such a thing as donation to a stranger in which 30% is to be taxed. If that is the case, better make a deed of sale.

In the estate planning, you have 3 forms of taxable transmissions. One, you may go through a deed of sale. Two, you may wait upon death. Or three, you make a donation.

The donation is good if there is that relationship between the donor and the donee. Because if there is no such relationship, you will be hit with a 30% tax rate. The rate is higher when there is a donation to a stranger.

NIRC, Section 99 (B) Tax Payable by Donor if Donee is a Stranger. When the donee or beneficiary is a stranger, the tax payable by the donor shall be thirty percent (30%) of the net gifts. For the purpose of this tax, a 'stranger,' is a person who is not a:
(1) Brother, sister (whether by whole or half-blood), spouse, ancestor and lineal descendant; or
(2) Relative by consanguinity in the collateral line within the fourth degree of relationship.

If the parents would make gradual transfers to the children then they ought to make a donation. But do not donate the properties at one time because you will be charged with a higher tax rate when you will hit a maximum or a certain amount because 15% of the excess of P10M. The deed of sale 7.5% because you have 6% capital gains and 1.5% documentary stamp tax so a total of 7.5%. So you should make the transfer gradually so that you will not be hit with a higher donor’s tax rate.